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, 2004
[_] 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 [_] No [X]
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, 2004, this issuer had 19,017,819 shares of its common stock
outstanding, including 550,000 shares of common stock that are being held in
escrow pending the completion of a private placement transaction.
Transitional Small Business Disclosure Format (Check one):
Yes [_] No [X]
During the first Quarter of 2004, the Company had changed its auditing firm. The
annual fiscal reports for year 2003 were filed as unaudited reports following
instructions from the SEC to do so, until the SEC will complete the necessary
procedure regarding the compliance of the audit firms that were engaged with the
Company to SEC regulations. The Company foresees that this procedure will be
completed in a matter of a few weeks, and in any case, the company hereby files
its unaudited quarterly report.
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(UNAUDITED)
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
(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 8-21
2
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2004 2003 2003
------- ------- -------
UNAUDITED UNAUDITED UNAUDITED
------- ------- -------
U.S. $ U.S. $ U.S. $
------- ------- -------
ASSETS
CURRENT ASSETS :
Cash and cash equivalents - 13,485 46,747
Investments - 12,452 16,842
Other accounts receivable 33,569 149,824 102,195
Related parties and shareholders 12,698 - 13,672
Prepaid expenses 4,040 3,877 3,013
Inventories 417,229 87,389 139,441
------- ------- -------
467,536 267,027 321,910
------- ------- -------
OTHER ASSETS 34,979 45,383 35,802
FIXED ASSETS, NET 153,027 162,919 164,955
------- ------- -------
655,542 475,329 522,667
======= ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
Date of approval of the financial statements: 15 November, 2004
- ----------------------------------- -------------------------------------- ------------------------------------
Samuel Hessel Lior Hessel Omri Rothman
Chairman of the Board of Directors President and Chief Executive Officer Chief Financial Officer
3
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
LIABILITES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2004 2003 2003
---------- ---------- ----------
UNAUDITED UNAUDITED UNAUDITED
---------- ---------- ----------
U.S. $ U.S. $ U.S. $
---------- ---------- ----------
CURRENT LIABILITIES :
Banks credit and Current maturity of long-term loan 45,867 61,203 64,365
Trade accounts payable 251,964 209,565 196,530
Other accounts payable and accrued liabilities 370,249 225,912 210,371
Related parties and shareholders 71,193 52,000 8,000
Deferred revenue 499,231 135,000 177,977
Loan from Netafim 24,653 - 22,666
Loan from related party - Sh.A.Gali 101,330 - -
---------- ---------- ----------
1,364,487 683,680 679,909
---------- ---------- ----------
Long-term loan - 19,561 13,149
Other liabilities 111,903 93,162 97,697
---------- ---------- ----------
111,903 112,723 110,846
---------- ---------- ----------
CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS
SHAREHOLDERS' EQUITY (DEFICIENCY)
Preferred shares U.S.$ 0.10 par value, authorized -10,000,000
shares, outstanding - 0 as of December 31, 2003 and 2002 - - -
Common shares of U.S.$ 0.001 par value, authorized - 80,000,000
shares, issued and outstanding - 18,267,819, 14,398,000 and
16,748,236 as of September 30, 2004, 2003 and December 31, 2003,
respectively 18,268 14,498 16,748
Additional paid in capital 5,764,074 5,121,621 5,616,310
Deferred compensation (55,000) - (125,075)
Accumulated deficit during the development stage (6,548,190) (5,457,193) (5,776,071)
---------- ---------- ----------
TOTAL SHAREHOLDERS' DEFICIENCY (820,848) (321,074) (268,088)
---------- ---------- ----------
655,542 475,329 522,667
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
4
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
PERIOD FROM
INCEPTION
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED (JULY 1, 1999)
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, THROUGH
---------------------------- ---------------------------- ---------- SEPTEMBER 30,
2004 2003 2004 2003 2003 2004
----------- ----------- ----------- ----------- ----------- -----------
UNAUDITED UNAUDITED UNAUDITED 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 172,646 271,948 73,558 89,622 346,067 3,010,392
Selling and marketing expenses 209,685 624,843 81,353 10,446 777,515 1,235,404
General and administrative
expenses 376,133 387,550 119,415 113,347 443,046 2,229,177
----------- ----------- ----------- ----------- ----------- -----------
OPERATING LOSS (758,464) (1,284,341) (274,326) (213,415) (1,566,628) (6,462,920)
Financing expenses, net 9,684 9,297 3,434 2,345 30,888 27,203
Other expenses, net 3,971 - - - 15,000 58,067
----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAX (772,119) (1,293,638) (277,760) (215,760) (1,612,516) (6,548,190)
Income tax - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
NET LOSS (772,119) (1,293,638) (277,760) (215,760) (1,612,516) (6,548,190)
=========== =========== =========== =========== =========== ===========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE (0.043) (0.105) (0.015) (0.016) (0.12)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
USED IN BASIC AND DILUTED
LOSS PER SHARE CALCULATION 18,141,810 12,320,730 18,267,819 13,567,146 13,159,673
=========== =========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
5
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
PERIOD FROM
INCEPTION
NINE MONTHS YEAR ENDED (JULY 1, 1999)
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
-------------------------- ---------- SEPTEMBER 30,
2004 2003 2003 2004
---------- ---------- ---------- ----------
UNAUDITED UNAUDITED UNAUDITED
-------------------------- ---------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
---------- ---------- ---------- ----------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss for the period (772,119) (1,293,638) (1,612,516) (6,548,190)
---------- ---------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES :
Amortization of deferred stock-based compensation - 7,208 7,208 481,485
Depreciation 18,876 23,721 34,204 111,785
Loss from disposal of fixed assets 3,971 - - 3,971
Liability in respect of employee rights upon retirement 14,206 (1,101) 3,434 111,903
Amounts assigned to issuance of warrants to service providers - 82,554 - 2,116
Issuance of shares in non-cash transactions - Annex A 239,700 652,000 736,925 976,625
Short- term loan received from Netafim in non - cash
transactions - Annex A - - 22,666 22,666
CHANGES IN ASSETS AND LIABILITIES :
Decrease (increase) in other accounts receivable and related
parties 69,600 63,745 97,702 (46,267)
(Increase) Decrease in prepaid expenses (1,027) 4,778 5,642 (4,040)
Increase in inventories (277,788) (64,055) (108,180) (417,229)
Increase in trade accounts payable 55,434 148,496 83,461 251,964
Increase in other accounts payable and related parties 149,321 84,224 43,785 334,674
Increase in deferred income 321,254 - 42,977 499,231
---------- ---------- ---------- ----------
TOTAL ADJUSTMENTS 593,547 1,001,570 969,824 2,328,884
---------- ---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (178,572) (292,068) (642,692) (4,219,306)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Decrease (Increase) in Other assets , net - 6,131 7,785 (35,802)
Decrease (Increase) in short-term investments 16,842 (12,452) (16,842) -
Investment in fixed assets (10,919) (44,419) (56,938) (268,783)
---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,923 (50,740) (65,995) (304,585)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Banks credit (12,391) 39,231 41,619 29,228
Repayment long-term loan from Financial institution (19,256) (14,940) (20,578) 16,639
Short-term loan received from a related party - Sh.A.Gali 100,000 - - 100,000
Proceeds for future share issuance, net (162,591) 50,700 187,528 159,821
Proceeds from issuance of shares, net of issuance expenses 216,000 223,263 487,928 4,213,045
---------- ---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 121,762 298,254 696,497 4,518,733
---------- ---------- ---------- ----------
6
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS - CONTINUED
PERIOD FROM
INCEPTION
NINE MONTHS YEAR ENDED (JULY 1, 1999)
ENDED SEPTEMBER 30, DECEMBER 31, THROUGH
-------------------------- ---------- SEPTEMBER 30,
2004 2003 2003 2004
---------- ---------- ---------- ----------
UNAUDITED UNAUDITED UNAUDITED
-------------------------- ---------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
---------- ---------- ---------- ----------
Net cash used in operating activities (178,572) (292,068) (642,692) (4,219,306)
Net cash provided by (used in) investing activities 5,923 (50,740) (65,995) (304,585)
Net cash provided by financing activities 121,762 298,254 696,497 4,518,733
Effect of exchange rate changes on cash 4,140 (383) 515 5,158
---------- ---------- ---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (46,747) (44,937) (11,675) -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 46,747 58,422 58,422 -
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD - 13,485 46,747 -
========== ========== ========== ==========
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 Notes 4(G) and 5(10) 73,750 52,000 92,000 165,750
Marketing and distribution expenses - see Note 5(13)(2) 41,250 - 13,750 55,000
Marketing and distribution expenses - see Note 5(13)(3) 124,700 - 31,175 155,875
Marketing and distribution expenses - see Note 5(13)(4) - 600,000 600,000 600,000
---------- ---------- ---------- ----------
239,700 652,000 736,925 976,625
Marketing and distribution expenses - - 22,666 22,666
---------- ---------- ---------- ----------
239,700 652,000 759,591 999,291
========== ========== ========== ==========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION :
Interest (paid) received, net (2,829) 720 1,706
========== ========== ==========
Income tax paid, net - - (2,519)
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED 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 the GrowTECH 2500, which is a commercial new highly portable,
hydroponics green house agricultural platform.
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 acquire.
C. As of the balance sheet date, the Company has not generated any
revenues from sales of the GrowTECH 2000 and GrowTECH 2500 platform,
and has incurred losses from operations at the amount of: U.S.$
772,119, U.S.$ 1,293,635, U.S$ 1,612,516 and U.S.$ 6,548,181, for the
nine - month periods ended September 30, 2004 and 2003, for the year
ended December 31, 2003 and for the period from July 1, 1999
(inception) to September 30, 2004, respectively. The Company's losses
could continue for the next several years as it continues to expand
research and development activities, increase its manufacturing, sales
and marketing capabilities.
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 and GrowTHCH
2500 platform and the continued financial support of its shareholders
or on obtaining additional external sources of financing, in order to
secure the continuity of its operations.
D. Until June 30, 2004 the Company maintained worldwide directors
insurance policy that cover, subject to the Israeli law and
Jurisdiction, in management's opinion, all reasonable risks up to U.S.
$ 1 million. Effective June 30, 2004 the Company decided on
termination of this insurance policy. The Company is committed to
indemnify its directors and executive officers to the extent permitted
by law, in respect of any monetary obligation imposed in favor of
third party and reasonable legal expenses expended or charge to any of
them.
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, 2004 and for the three and nine 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 accepted in the United States of America and, are presented
in U.S dollars.
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, 2003.
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, 2004, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2004. The Interim Financial Statements should be read in
conjunction with the Company's annual financial statements as of
December 31, 2003 and for the year then ended and the accompanying
notes thereto.
NOTE 3 - LOSS PER SHARE
Basic and diluted loss per ordinary share is presented in conformity with
SFAS No.128, "Earnings Per Share" for all periods presented. Basic loss per
share is computed by dividing net loss available to common shareholders by
the weighted average number of common shares outstanding for the period.
Diluted loss per share reflects the effect of common shares issued upon
exercise of stock options. However, all outstanding stock options have been
excluded from the calculation of the diluted loss per ordinary share
because all such securities are anti-dilutive or each of the periods
presented.
9
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - 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 and is not a liability until a related
sale is made.
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 September 30, 2004, the balance of royalty bearing grants
due by the Company to the Office of the Chief Scientist is U.S. $
381,665.
(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 September 30, 2004, Organitech Ltd. received from the OCS a
payment of U.S.$ 79,160. 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.
On May 11, 2004, Weitzman Institute filed a lawsuit against
Organitech Ltd. at the amount of U.S.$ 62,612 for the payment of
services rendered by Weitzman Institute under the Magnaton
Research and Development program. The financial statements
include adequate provision to cover all of the Company's
exposure, if any, from this lawsuit.
(3) In November 2001, Organitech Ltd. and third party Singaporean
company -"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 September 30, 2004, Organitech Ltd. has received U.S.$
250,215 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 4 - 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. On October 2002, Net Alim returned the
two GrowTECH to the Company.
Management is of the opinion, based upon its legal advisor, 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 for 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 the 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.-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
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 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.
11
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
B. DISTRIBUTION AGREEMENT (CONTINUED)
(2) IN ASIA PACIFIC (CONTINUED)
(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 (the option expired on
September 10, 2002), 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.
(3) IN THE UNITED KINGDOM AND REPUBLIC IRELAND ( " BRITISH ISLES ")
On January 15 ,2004, Organitech Ltd. signed an agreement with Van
dijk limited cooperative society ("Van Dijk") incorporated under
the laws of Ireland , whereby:
(a) Organitech Ltd. will sell to Van dijk two systems for a
consideration of 258,000 Eueros. Subject to the provisions
set forth in the agreement.
(b) (1) For the purchase of the Initial Systems by Van Dijk,
Organitech Ltd. granted Van Dijk exclusivity
distribution rights ("the - exclusivity rights") for
the British Isles for a period of 2 years through
January 14, 2006.
(2) In the event that Van Dijk places orders for a further
8 systems by or before January 14, 2006 Organitech Ltd.
will extend the exclusivity rights for the British
Isles for additional 2 years through January14, 2008.
(3) In the event that Van Dijk places orders for a further
10 Systems by or before January 14, 2007, Organitech
Ltd. will extend the exclusivity rights for the British
Isles through January 14, 2009.
(4) In any event, as long as Van Dijk purchases sufficient
systems to supply 35% of the market for higher
value/similarly grown leafy vegetables in:
a. The British Isles, Organitech Ltd. will continue to
extend the exclusivity rights to Van Dijk for the
British Isles; or
b. Ireland, Organitech Ltd. will continue to extend the
exclusivity rights to Van Dijk for Ireland.
12
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
B. DISTRIBUTION AGREEMENT (CONTINUED)
(3) IN THE UNITED KINGDOM AND REPUBLIC IRELAND ("BRITISH
ISLES")(CONTINUED)
(5) In the event that Van Dijk makes the purchases of systems
described in 3 above only, then, even if no further
purchases are made and the period of exclusivity rights
expires, Organitech Ltd. will offer Van Dijk a first right
of refusal to any bona fide, verifiable offer from a third
party to purchase a system in the British Isles.
(6) If Van Dijk purchases 10 systems from Organitech Ltd., then
Organitech Ltd. agrees to grant Van Dijk exclusivity rights
for Ireland for a period of 25 years commencing the date of
installation of the tenth system.
(7) If Van Dijk purchases 50 systems from Organitech Ltd, then
Organitech Ltd. agrees to grant Van Dijk exclusivity rights
for the British Isles for a period of 25 years commencing
the date of installation of the fiftieth system.
As of September 30 ,2004 Organitech Ltd. accumulated costs at the
amount of U.S.$ 251,750 for GrowTech 2500 system installed at Van Dijk
site.
As of September 30 ,2004 Organitech Ltd. did not recognized revenue in
the amount of U.S.$ 319,721 from this sale transaction as formal and
technical acceptance from the customer received on November 14, 2004,
subsequent balance sheet date.
C. In July 2000, the Company signed a memorandum of understanding ("MOU")
with Agronaut, whereby the Company committed to sell two beta systems
of 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 refund U.S.$ 75,000 to Agronaut upon receiving of
the two GrowTECH platforms. As of September 30, 2004.
As of the balance sheet date the Company has not received formal and
technical acceptance from Agronaut in respect of such two GrowTECH
platforms, and the U.S.$ 75,000 has been included in deferred revenue
on the balance sheet.
13
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
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".
As of the balance sheet date Organitech Asia has not been
incorporated.
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, 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. reflected as deferred revenue on
the balance sheet.
F. On June 1, 2003, Organitech Ltd. relocated its operations site to
Yokneam, Israel and signed a 3 years rental agreement for its
premises.
Minimum future payments due under the Company's current rental
agreements (excluding the extension option) are as follows:
U.S.$
---------------
2004 4,350
2005 17,400
2006 10,150
---------------
31,900
===============
G. On July 1, 2003 the Company and Mr. Simon Zenaty ("Simon") signed a
management agreement, whereby Simon will invest up to 100 hours per
month in working with the Company, in consideration for management fee
at the amount of U.S.$ 4,000 per a month.
(1) Pursuant to the management agreement, under certain cash flow
conditions, the payment of the monthly management fee will be
deferred and bear interest to be computed at a rate of 5% per
annum payable by the Company during the deferral period on a
quarterly basis.
(2) Pursuant to the management agreement, Simon has the right to
request the Company to exchange the deferred management fee,
including accumulated interest thereon, 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.
(3) The management agreement can be terminated with a 60 days written
notice.
As of September 30, 2004 the Company has accrued for management fee
U.S.$ 61,750 including interest, which is convertible into 427,186 of
the Company's shares of common stock.
14
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
H. On June 14, 2004 the Company singed a loan agreement with Sh.A.Gali
Ltd. ("Gali"), a company under the control of Simon Zenaty, see Note 4
G, whereby Gali granted to the Company a convertible loan of U.S.$
100,000 to be repaid in one installment following of 12 months from
the granting date. The loan bear an annual interest of U.S.$ Libor +3
% to be repaid with the principle. Under the loan agreement the
Company committed issue to Gali following 12 month from the date of
granting the loan, 200,000 shares of common stock of the Company for
the par value of the shares.
In The event that Gali choose to convert the loan into an equity
investment, the Company will issue Gali 454,545 shares of common stock
equivalent to U.S.$ 100,000 computed based upon the fair market value
of the Company shares of common stock determine as U.S.$ 0.22 per
share of common stock.
If the Company fails to repay the loan, Gali will be entitled to the
issuance of 909,090 shares of common stock equivalent to U.S.$.
200,000 computed based upon the fair market value of the Company's
shares of common stock, determine as U.S.$ 0.22 per share of common
stock.
As of the balance sheet date the Company has not yet issue shares of
common stock to Gali under this agreement.
I. On November 4, 2002, Organitech Ltd. and other third party have
completed the foundation of a 50% - 50% Israeli joint venture
corporation 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.
As of the Balance sheet date Hydrophonic greens Ltd. is an inactive.
J. 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 in setting up a farm in Finland,
for the growing and marketing 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.
15
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
K. SALES COMMITMENTS
1. On December 2002, Organitech Ltd. and 2 other third parties have
completed the foundation of 33.1/3% each Israeli joint venture
corporation in the name A.T.A Jordan Valley Ltd. ("ATA"). Organitech
Ltd. granted ATA, under certain conditions, exclusive agency rights
within Israel for Company's systems.
As of September 30, 2004, 2003 and December 31 2003, Organitech Ltd.
has accumulated cost at the amount of U.S.$ 48,417, U.S.$ 7,927 and
U.S.$ 50,240, respectively for ATA's GrowTECH 2500 system installed at
ATA site.
On December 2003, the joint venture partners singed a memorandum
whereby:
(1) ATA's GrowTECH 2500 will remain Organitech Ltd. property.
(2) Organitech Ltd. will purchase all of ATA outstanding share
capital at approximately U.S.$ 40, such that following the
transaction Organitech Ltd. will holed 100% of ATA outstanding
share capital.
(3) Organitech Ltd. will support ATA financially, to ensure the
repayments of U.S.$ 13,912 ATA owed to the other partners out of
which, On March 2004 Organitech Ltd. refunded U.S.$ 7,802 to one
of the partners.
(4) The third partner will be entitled to use the GrowTECH system
until December 31, 2004, for a monthly payment of U.S. $ 23 to
Organitech Ltd..
(5) No later then September 30, 2004 the third partner is obligated
to notify Organitech Ltd. about his intention to purchase the
GrowTECH system.
The Company's management is of the opinion that the net realize value
of this systems is higher then its book value.
2. On March 2003 ATA established a joint company to be held at 25% by ATA
and 75% by third party in the name of A.A.G Eilat Ltd.
On March 2003, Organitech Ltd. supplied a GrowTECH 2500 system to ATA
to be installed at A.A.G Eilat Ltd. site, for purchase price of U.S.$
100,000, Organitech Ltd. did not recognized revenue from this sale
transaction as collectability is not reasonably assured and formal and
technical acceptance from the customer was not obtained.
As of September 30, 2004 and December 31, 2003, Organitech Ltd.
accumulated costs at the amount of U.S.$ 68,939 and U.S.$ 62,285,
respectively which relate to this system installed at A.A.G Eilat Ltd.
Site.
The Company's management is of the opinion that the net realize value
of this system is higher then its book value.
3. On October 29, 2004, Organitech Ltd. signed an agreement with G. Eilat
2004 Ltd. ("Eilat"), a company controlled by the two partners of A.A.G
Eilat, for the sale of 10 GrowTech 2500 systems for the selling price
of U.S. $ 1,240,000.
The first phase of the transaction will include delivery and
installation of 3 GrowTech systems at Eilat site for a purchase price
of U.S. $ 400,000. The second phase of transaction will be the
delivery and installation of additional 7 GrowTech systems for a
purchase price of U.S. $ 840,000.
The commitment of Eilat to order the additional 7 GrowTech 2500
systems is subjet to their satisfactory with the completion of the
first phase.
16
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 4 - CONTINGENCIES, COMMITMENTS AND LIENS ON ASSETS (CONTINUED)
L. LIABILITIES SECURED BY LIEN ON ASSETS
To secure the Company's liability to third party financial
institution, at the amount of U.S.$ 16,639, as of September 30, 2004,
the Company pledged on behalf of the third party financial
institution, with a first and fixed lien on 6 of the Company's
vehicles, with depreciated cost of U.S.$ 42,449 at September 30, 2004.
NOTE 5 - SHARE CAPITAL
(1) In July 1999, Organitech Ltd. sold 4,790,000 of its common shares at a
price of approximately U.S.$ 0.00004 per share, for a consideration of
U.S.$ 169.
(2) In October 1999, Organitech Ltd. sold 684,000 of its common shares at
a price of approximately U.S.$ 0.03 per share, for a consideration of
U.S.$ 21,000.
(3) In October 1999, Organitech Ltd. sold 489,000 of its common shares at
a price of approximately U.S.$ 0.19 per share, for a consideration of
U.S.$ 93,440.
(4) In April 2000, Organitech Ltd. sold 684,000 of its common shares at a
price of approximately U.S.$ 0.08 per share, for a consideration of
U.S.$ 55,544.
(5) In June 2000, Organitech Ltd. sold 853,000 of its preferred shares at
a price of approximately U.S.$ 1.14 per preferred share, for a
consideration of U.S.$ 973,000.
After giving effect to the reverse acquisition, discussed in Note 1B,
these preferred shares were cancelled ("the cancelled shares").
(6) In January 2001, the Company issued 7.5 million common shares in
exchange for all of the outstanding ordinary shares of Organitech Ltd.
not already owned by the Company. These 7.5 million shares are
reflected in the share issuance mentioned in paragraph A-E above.
(7) On January 2001, The Company issued 4,453,000 shares of common stock
at the price of approximately U.S.$ 0.51 per share, for a
consideration of U.S.$ 2,266,000.
This share issuance net of the cancelled shares mentioned in E above,
reflects the issuance by the Company to its shareholders prior to the
reveres acquisition, see Note 1B.
(8) On August 1, 2004 the company and Mr. Lavie agreed that Mr. Lavie
invest U.S.$ 25,000 in the Company in respect to the issuance of
100,000 shares of common stock, at a price of U.S.$ 0.25 per share.
(9) TREASURY STOCK
On October 2000, the Company issued 100,000 shares of common stock to
an Organitech Ltd. consultant "(the consultant") according to a
consulting agreement ("consultant agreement").
In September 2001, the Company accepted the 100,000 shares of common
stock of the Company from the consultant and the shares were
cancelled. Shortly thereafter the consulting agreement was terminated
at the parties' mutual agreement.
17
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 5 - SHARE CAPITAL (CONTINUED)
(10) 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.
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 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", whereby:
(1) For the amount of U.S.$ 225,000 that was paid by the investor
during 2002, the Company agreed to instruct the escrow agent to
transfer to the investor a total of 618,812 shares of common
stock (for the amount of U.S.$ 100,000 the Company recorded
issuance of 275,000 shares of common stock on October 2002 and
for the amount of U.S.$ 125,000 the Company recorded issuance of
343,812 shares of common stock on May 2003), 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 (the Company instructed
the escrow agent to transfer to the investor a total of 143,009
shares of common stock on May 20, 2003 and 651,435 shares of
common stock on Jun 20, 2003), 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.
18
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 5 - SHARE CAPITAL (CONTINUED)
(10) PRIVATE PLACEMENT (CONTINUED)
(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
October 10, 2003.
(b) U.S.$ 0.40 for investments that will be made on October 11,
2003 through December 31, 2003.
(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
salary cost of U.S.$. 4,000 per month. The investor will have the
right to request the Company to exchange the management fee to
the Company's' shares of common stock at a price that will be in
affect pursuant to the End of Commitment Agreement.
(8) All previous agreements and understanding between the Company and
investor are terminated.
(9) On June 20, 2003, for the amount of U.S.$ 33,491 that was paid by
the investor pursuant to the End of Commitment Agreement, the
Company instructed the escrow agent to transfer a total of
186,065 shares of common stock to the investor.
(10) On September 9, 2003, for the amount of U.S.$ 173,250 that was
paid by the investor pursuant to the End of Commitment Agreement,
the Company instructed the escrow agent to transfer a total of
962,500 shares of common stock to the investor.
(11) On October 10, 2003, the investor and the Company signed an
amendment to the End of Commitments Agreement that extended the
dates above mentioned.
The investor reserve the right to purchase additional 2,750,000
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 December
31, 2003.
(b) U.S.$ 0.40 per share for purchases that will be made on
January 1, 2004 through September 30, 2004.
(12) On November 4, 2003, for the amount of U.S.$ 197,999 that was
paid by the investor pursuant to the End of Commitment Agreement
as amended, the Company instructed the escrow agent to transfer a
total of 1,100,000 shares of common stock to the investor.
(13) On January 6, 2004, for the amount of U.S.$ 198,000 that was paid
by the investor during 2003 pursuant to the End of Commitment
Agreement, the Company instructed the escrow agent to transfer
1,100,000 shares of common stock to the investor.
As of September 30, 2004 the investor has accrued U.S.$ 44,000 for
management fees, which are convertible into 304,391 of the Company's
common shares.
(11) In November 2003 the Company issued 463,263 shares of common stock to
Mr Ohad Hessel, who exercised options that were granted to him on
December 23, 1999.
19
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 5 - SHARE CAPITAL (CONTINUED)
(12) EQUITY AGREEMENT
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.
20
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 5 - SHARE CAPITAL (CONTINUED)
(13) Service and consulting agreements for share issuance
(1) 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 of common
stock will be issued to a related party.
On May 14, 2003, the Company had issued 48,000 shares of common
stock pursuant to the Board of Directors authorization.
(2) On October 1, 2003, the Company entered into 24 month consulting
agreement with third party (The - "Consultant"). Pursuant to the
consulting agreement the consultant will provide the Company
business consulting services 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.$ 0.2 per share Under Form S-8
registration statement.
(3) On October 13, 2003 the Company and MC Services AG ("MC") entered
into advising and public relation service agreement which was
approved by the Company's Board of Directors on October 27, 2003,
for a period of ten months commencing November 1, 2003 at the
cost of U.S.$. 155,875 (include premium of U.S. $ 8,375).
The Company had the right to pay in cash or provide full tradable
shares of common stock at price computed as the 20 days average
closing share price of the months prior to the period in which
the services rendered, limited to U.S.$ 0.30 per share.
As of the Balance sheet date, the Company issued 519,583 shares
to MC pursuant to this agreement.
(4) On May, 2003 the Company issued 600,000 shares of common stock to
Agronaut in consideration for its investment of U.S.$ 600,000 in
marketing and distribution expenses, see Note 4 B (2)(c).
(5) On April 29, 2004 the Company issued 100,000 shares of common
stock to Phillips Nizer in consideration for its investment of
U.S$ 18,000 in legal expenses.
21
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
The Company's core business is conducted primarily through its 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 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. 3 GT-2500 machines were already installed and are currently
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 marketing and sales activities;
o The number and scope of our and OrganiTech's research programs;
o The ability to penetrate into new markets worldwide while keeping a
profitable price level.
o The establishment of additional beta site farms in key markets, 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.
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 Establish significant commercial relationship in North America and
Europe.
o Finalizing the installation of the 2 systems in Israel and in at least
2 more locations in the world, including new customers and repeat
orders.
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 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.
We intend to hire some new professional personnel in order to perform Research
and Development in several fields. We have been using our new facility in
Yoqneam in order to execute new experiments in both Agronomy and Mechanics. We
believe that such work would enable us to achieve our goals in the Research and
Development field, both in new areas and in already existing fields.
Additionally, we plan to increase our involvement with our business activities
in Europe, and especially in Scandinavia through the setting up and the
marketing of a GrowTech(TM) 2000 Farm in Finland, through a joint venture with a
Finish Partner. In order to fund this activity in Finland, we have with our
Finish partner applied for financing from the European Community Organizations.
FIRST EUROPEAN SALE - IRELAND
On February 2004, The Company announced its first commercial sales in Europe.
OrganiTech Ltd. and Van Dijk Nurseries Ltd. signed a purchase agreement for the
highly advanced GrowTech(TM) 2500 automated hydroponics growing system. The
GrowTech(TM) 2500 product line was first presented during the European lead
exhibition for state of the art agriculture and horticulture "Hortifair" in
Amsterdam in November 2003.
OrganiTech and Van Dijk Nurseries Ltd. signed an agreement for the purchase of
initially two units of OrganiTech's new automated floating hydroponics platform
- - the GrowTech(TM) 2500 with the explicit purpose of cultivating large
quantities of pesticide-free hydroponics lettuce and other leafy vegetables. The
agreement foresees that both parties will have the option to extend the duration
of their collaboration beyond 2007 and increase the volume of GrowTech(TM) 2500
installations on the British Isles to up to fifty units.
The GrowTech(TM) 2500 product line was firstly presented during the European
lead exhibition for state of the art agriculture and horticulture "Hortifair" in
Amsterdam in November 2003. GrowTech(TM) 2500 is an automated, rotating and
hydroponic field-system for the culture of green-leave plants and herbs.
Vegetables such as lettuce float in Styrofoam trays in a nutritious solution,
which serves as a means of transport. GrowTech(TM) 2500 enables year round and
high yields production of plants at low costs. The GrowTech(TM) 2500 platform
leads to a reduction of up to 80% of the costs for heating and labor, the most
serious cost-drivers in the greenhouse industry.
Van Dijk Nurseries Ltd., based in Ireland, is a multinational company. Its core
business is the growing, sourcing, shipping, marketing and distribution of fresh
fruits and vegetables to Irish, UK and European consumers.
On November 14, 2004 the company received the signed customer acceptance letter.
The company will record this sale of U.S.$ 319,721 in its forth quarter
reporting. As of September 30, 2004 OrganiTech accumulated costs at the amount
of U.S.$ 251,750 for the GrowTech(TM) 2500 system installed at Van Dijk site.
ORGANITECH FINLAND
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 marketing of
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.
As of September 30, 2004, negotiations are still going on between the sides,
regarding the setting up of the Company, as well as for the possible purchase of
GrowTech-2000 machines to Finland.
FIRST BIO-TECH ORDER
OrganiTech had received on October 7th, 2004, its first purchase order for the
Bio - Tech system based on the GrowTech(TM) 2000 and the PhytoChamber(TM). The
order is from a very respected, government supported, Germen R&D institute and
the company expects delivery of the system within 2004. The order value is about
Euro 120,000.
The company considers this sale to be an important achievement, as a pioneer
sale in one of the most promising markets the company is aiming to, the Bio-Tech
market resembles the future of the Bio and Pharmaceutical industry on numerous
applications world wide, a market in which the company intends to play a major
role in.
ORGANITECH SALES IN ISRAEL
On September 28th, 2004 OrganiTech signed a sale agreement with a new Israeli
customer, for the sale of two GrowTech(TM)2500 systems for $288,000 plus VAT and
minus the cost of the greenhouse facility if it would be provided by the
customer.
OrganiTech had represented to this customer that except of existing customers
there are no other permitted users in Israel of the GrowTech(TM) technology.
As of September 30th, 2004, the greenhouse construction had started and the
first payment (25%) received during October 2004 from the customer.
FIRST REPEAT ORDER
On October 29th, 2004, OrganiTech signed an agreement with another Israeli
customer, (Eilat) for the sale of 10 GrowTech(TM) 2500 systems for the selling
price of $ 1,240,000 plus VAT. This order comes after Eilat is operating one
GrowTech(TM) 2500 system for over a year with great success.
The first part of the order is for three GrowTech(TM) 2500 systems for $
400,000. After satisfactory operation of the 3 systems the additional 7 systems
will be purchased for the sum of $ 840,000.
For additional details of the agreement with this customer please refer to:
DISTRIBUTION AND MARKETING AGREEMENTS - Israel, below.
The company considers this sale as a very important mile-stone demonstrating the
performance of the system and the economic value it generates to its customers.
LIQUIDITY AND CAPITAL RESOURCES
1. B.L.M. N.V.
On June 16th, 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 transferred
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 October 10,
2003.
(b) U.S.$ 0.40 for investments that will be made on October 11, 2003
through December 31, 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.$. 4,000 per month.
(8) All previous agreements and understanding between the Company and investor
are terminated.
(9) On October 10, 2003, the sides signed an amendment to the End of Commitments
that extended the dates abovementioned as follows:
(a) U.S.$ 0.18 for investments that will be made prior to December 31,
2003.
(b) U.S.$ 0.40 for investments that will be made on January 1, 2004
through September 30, 2004.
(10) On November 4, 2003, pursuant to the end of Commitments Agreement and its
amendments the Company instructed the Escrow agent to release 1,100,000 shares
of common stock to B.L.M. N.V.
(11) On January 4, 2004, pursuant to the end of Commitments Agreement and its
amendments the Company instructed the Escrow agent to release 1,100,000 shares
of common stock to B.L.M. N.V.
As of September 30, 2004, pursuant to the End of Commitment Agreement, the
Company instructed the escrow agent to transfer a total of 4,950,000 shares of
common stock to B.L.M. N.V. whereas 550,000 shares are still held by the escrow
agent
2. 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.$5,000,000 of the Company's shares of common stock over the
course of 36 months, after the date either free trading shares are deposited
into an escrow account or a registration statement has been declared effective
by the U.S. Securities and Exchange Commission.
The amount that the Company shall be entitled to request from each of the
purchase "puts", shall be equal to 200% of the averaged daily volume (computed
using the 10 trading days prior to the put date) multiplied by the average of
the 3 daily closing "best bid" prices immediately preceding the put date.
The purchase price shall be set at 94% of the market price.
The Company shall automatically withdraw that portion of the put notice amount,
if the market price with respect to that put does not meet the minimum
acceptable price, which is equal to 75% of the closing "best bid" price of the
common stock for the 10 trading days prior to the put date.
However, no assurance can be given that the terms and conditions of the term
sheet will not be changed or that such offering will be completed.
3. SH. A. GALI LTD.
On June 14, 2004 the Company singed a loan agreement with Sh.A.Gali Ltd.
("Gali"), a company under the control of Simon Zenaty, see Note 4 H where by
Gali granted to the Company a convertible loan of U.S.$ 100,000 to be repaid in
one installment following of 12 months from the granting date. The Loan bear an
annual interest of U.S.$ Libor +3 % to be repaid with the principle. Under the
Loan agreement the Company committed issue to Gali following 12 month from the
date of granting the loan, 200,000 shares of common stock of the Company for the
par value of the shares.
In The event that Gali choose to convent the loan into an equity investment, the
Company will issue Gali with the number of shares of common stock equivalent to
U.S.$ 100,000 computed based upon the fair market value of the Company shares of
common stock at the date of conversion.
If the Company fails to repay the loan, Gali will be entitled to the issuance of
shares of common stock equivalent to U.S.$. 200,000 computed based upon the fair
market value of the company's shares of common stock.
DISTRIBUTION AND MARKETING AGREEMENTS:
ISRAEL
A.T.A. Nehar Hayarden LTD. - exclusivity in Israel
In December 2002, the Company entered into a cooperation agreement 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(TM) 2500 machine in Eilat, Israel, which has been fully produced and
installed by OrganiTech during the third quarter of 2003.
On December 31, 2003, OrganiTech signed agreements with both its partners in
A.T.A. Nehar Hayarden Ltd - Mr. Tzion Levy and Ziv Electronic systems Ltd, which
determine that: Ziv Electronic systems Ltd. And Tzion Levy will sell all their
shares in A.T.A. Nehar Hayarden Ltd. To the OrganiTech.for the price of 1 NIS.
See section "Related Parties" for the full details of the above mentioned
agreement.
OrganiTech is finalizing these days the share transfer procedures and is about
to become the sole shareholder of A.T.A. Nehar Hayarden Ltd.
GUSH EILAT 2004 Ltd. - No sale commitment
OrganiTech had committed to Gush Eilat 2004 Ltd. (see first repeat order above)
not to sell additional systems in Israel (except to existing customers as of the
date of the agreement that will make repeat orders) provided fulfillment of
conditions as follows:
o First Period - The commitment is valid for 12 months from the date of
operating the systems.
o Second Period - If Gush Eilat will order additional 2 GrowTech(TM)
2500 systems out of the additional 7 systems agreed during 12 months
(the first period), the commitment period will be extended for another
6 months.
o Third Period - If Gush Eilat will order additional 5 GrowTech(TM) 2500
systems out of the additional 7 systems agreed during 18 months period
commencing on the date of operating the first three systems (first and
second periods), the commitment period will be extended for another 12
months from the end of the second period.
o If Gush Eilat will order additional 20 GrowTech(TM) 2500 systems
during 36 months period commencing October 29th, 2004, the commitment
period will be extended for another 24 months from the end of the
third period
If Gush Eilat does not order additional systems from OrganiTech, this no sales
commitment is void with-out penalty to the parties.
SOUTH EAST ASIA
In August, 2002, OrganiTech entered into a further agreement with Agronaut
pursuant to which Agronaut has been granted the exclusive rights to sell
GrowTech systems in Singapore, Korea, Taiwan and certain other countries in
South East Asia, provided that, Agronaut meets certain minimum sales
commitments. The agreement is for an initial term of 6 years, to be renewed
every year if Agronaut meets certain conditions set forth in the agreement.
Agronaut has also committed to invest at least U.S.$800,000 in marketing efforts
in the Far East, in exchange for the issuance to it of 800,000 shares of the
Company's common stock.
In April 2003, the Company issued the 800,000 shares with accordance to the
agreement, of which 600,000 are held by Agronaut, after providing proofs for the
expenses of 600,000 $US on marketing by Agronaut, and 200,000 shares are still
held by the Company until sufficient proof will be supplied by Agronaut as for
the expenses of further $US 200,000 paid by Agraonaut.
THE BRITISH ISLES
On January 15, 2004, OrganiTech had signed an Agreement with Van-Dijk Nurseries
Ltd, part of the Keelings group for the selling and setting up of GT-2500
machines in Ireland, for a total of 258,000 EURO. As a part of this Agreement,
OrganiTech granted the Keelings Group the exclusive rights to market and sell
OrganiTech's products in the British Isles under the following terms:
1. OrganiTech granted Van Dijk Nurseries the exclusive rights to sell
OrganiTech's systems in the British Isles for a period of 2 years from the
signing of the Purchase Agreement (until January 14, 2006)
2. In the case that Van Dijk Nurseries will place orders for further 8
units of GT-2500 systems by or before January 14 2006, OrganiTech will extend
Van Dijk Nurseries exclusive rights for a period of another 24 months (until
January 14 2007)
3. In the event that Van Dijk Nurseries will place orders for an additional
amount of 10 systems by or before January 14 2007, OrganiTech will extend the
exclusive rights given to Van Dijk by another 12 months (until January 14 2009)
4. In the case that Van Dijk purchase 10 GT-2500 systems from OrganiTech,
OrganiTech will grant Van Dijk the exclusive rights to sell OrganiTech's systems
in IRELAND for a period of 25 years from the date of the installation of the
10th system.
5. In the case that Van Dijk purchases 50 GT-2500 systems from OrganiTech,
OrganiTech will grant Van Dijk the exclusive rights to sell OrganiTech's systems
in BRITISH ISLES for a period of 25 years from the date of the installation of
the 50th system.
RELATED PARTIES
1. A.T.A. JORDAN VALLEY LTD. (A.T.A. NEHAR HAYARDEN LTD.)
On December 31, 2003, OrganiTech signed agreements with both its partners in
A.T.A. Nehar Hayarden Ltd - Mr. Tzion Levy and Ziv Electronic systems Ltd, that
determine as follows:
1. Ziv Electronic systems Ltd. And Tzion Levy will sell all their shares in
A.T.A. Nehar Hayarden Ltd. to OrganiTech for the price of 1 NIS.
2. A.T.A. Nehar Hayarden will pay Tzion Levy and Ziv Electronic Systems
Ltd. Their Shareholders loan worth of 7,500 US$ Each.
3. The sides will declare that they do not have any claims against each
other in regard to the activities of A.T.A. Nehar Hayarden Ltd or to any other
business relationship thereof.
4. Levi Menahem's Farm, which on his property the GrowTech(TM) 2500 system
was set up, will be entitled to use the system until December 31, 2004, for this
usage he will pay the Company U.S.$ 23 per month.
5. No later then September 30, 2004 Levi Menahem's farm obligated to notify
OrganiTech Ltd. about his intentions regarding the purchase of that system.
6. In the event that Levi Menahem farm will waive the purchase opportunity,
OrganiTech Ltd. will be entitled to use the system on his property for another 5
years.
Following the execution of these agreements, OrganiTech will become the sole
shareholder of A.T.A. Nehar Hayarden Ltd.
2. OCEAN CULTURE LTD.
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. No transaction or activity was made between the sides
during the fiscal year 2003, and the three Quarters of 2004.
OTHER AGREEMENTS
1. MEMORANDUM OF UNDERSTANDING WITH NETAFIM (A.C.S.) LTD.
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
solutions. 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.
ON DECEMBER 31, 2003, THE MOU BETWEEN THE COMPANY AND NETAFIN HAD EXPIRED.
NEGOTIATIONS BETWEEN THE SIDES FOR FURTHER COOPERATION HAD NOT CEASED.
2. MC-SERVICES AG
On October 13, 2003, The Company signed a Service Agreement with MC Services, AG
concerning advising and public relations services. The main terms of the
agreement are as follows:
1. The initial program as detailed in the agreement will start from
November 1 2003 and last for 10 months. The fee budget for these ten months will
be at U.S.$.147,500. Payments are due each two months, upfront. MC Services will
receive payments for work carried on in the last two months of 2003 before or at
the latest on November 15, 2003.
2. The Company may choose to pay in cash or provide shares on the 15th of
each second month. The company should announce the chosen way of payment 10
working days prior to the redefined date of payment.
3. The first upfront payment of November 15, 2003 amounts to U.S. $ 33.500
plus a 25% premium. The number of shares to be paid amounts to 139,583 shares.
4. For the following upfront payments and in case that the 20 days average
closing price of the share prior to any of this payments will be lower than US$
0.30, the number of shares will be calculated by dividing the amount to be paid
by U.S.$0.30 and this will be the "minimum share price" for these payments.
As of September 30, 2004, the Company issued a total of 519,583 shares to be
granted to MC-Services with accordance to the Agreement
3. HAGGAI RAVID
On October 1st, 2003, The Company signed a consulting Agreement with Mr. Haggai
Ravid, based on the following principles:
1. The term of the Agreement will be 24 months.
2. Mr. Ravid will provide the Company with different consulting services in
the regard to business opportunities, potential merges and acquisitions and
business strategy.
3. The Company will issue Mr. Ravid 550,000 shares for his services.
In November 2003, the Company issued 550,000 shares to Mr. Ravid with accordance
to this Agreement.
ISSUANCE OF SHARES TO PHILLIPSNIZER LLP.
On April 29, 2004 the Company issued 100,000 shares of common stock to Phillips
Nizer in consideration for its investment of U.S$ 18,000 in legal expenses.
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,
2004 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 30th, 2004, there were no significant
changes in OrganiTech's internal control over financial reporting or, to the
knowledge of OrganiTech, in other factors that have materially affected, or are
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.
During the first second quarter of 2004 the Company reported the change of
its auditing firm through an 8-K/a filing. Other then this report, no other 8-K
forms were filed.
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 22, 2004 BY: /S/ LIOR HESSEL
-------------------
Lior Hessel
President and Chief Executive Officer
Dated: November 22, 2004 BY: /S/ Omri Rothman
---------------------
Omri Rothman, CPA.
Chief Financial Officer
CERTIFICATIONS
I, Lior Hessel, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of OrganiTech USA, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
A. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
B. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
C. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
B. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 22, 2004
Lior Hessel
President and Chief Executive Officer
CERTIFICATIONS
I, Omri Rothman, Acting Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of OrganiTech USA, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
A. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
B. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
C. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
B. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 22, 2004
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Omri Rothman, CPA.
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-QSB of OrganiTech USA, Inc.
(the "Company") for the fiscal quarter ended September 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "report"), the
undersigned, Omri RothmanCPA., Acting Chief Financial Officer of the Company,
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
November 22, 2004
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Omri Rothman, CPA.
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-QSB of OrganiTech USA,
Inc. (the "Company") for the fiscal quarter ended September 30, 2004 as filed
with the Securities and Exchange Commission on the date hereof (the "report"),
the undersigned, Lior Hessel, Director, President and Chief Executive Officer of
the Company, certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 that:
(1) The report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
November 22, 2004
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Lior Hessel
Director, President and
Chief Executive Officer