Attached files
Washington,
D.C. 20549
Form
10-Q
(Mark One) | |
þ
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended September 30, 2009 | |
or | |
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the transition period from to |
Commission
file number 333-158986
PIMI
AGRO CLEANTECH, INC.
(Exact
name of registrant as specified in its charter )
Delaware
|
26-4684680
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
269
South Beverly Drive suite 1091
Beverly
Hills California 90212 USA
(Address
of principal executive offices)
(310)
203-8278
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value
Per Share
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 þ
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months
). Yes o
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filer o
Smaller reporting company
þ
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act) Yes o
No þ
The
number of shares of common stock outstanding as of November 11, 2009 was
6,555,747.
PIMI
AGRO CLEANTECH, INC. AND ITS SUBSIDIARY
(A
Development Stage Company)
Condensed
Consolidated Financial Statements
as
of September 30, 2009 (Unaudited)
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
Condensed
Consolidated Financial Statements
as
of September 30, 2009 (Unaudited)
Table
of Contents
Page
|
|
Condensed
Consolidated Financial Statements
|
|
Balance
Sheets
|
2
|
Statements
of Operations
|
3
|
Statements
of Changes in Shareholders’ Equity (Deficit)
|
4 –
7
|
Statements
of Cash Flows
|
8
|
Notes
to the Consolidated Financial Statements
|
9 –
17
|
|
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
US
dollars
|
||||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008(*) | |||||||
(unaudited)
|
||||||||
A
S S E T S
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
15,364 | 277,410 | ||||||
Accounts
receivable
|
30,450 | 13,240 | ||||||
Other
current assets
|
35,584 | 46,602 | ||||||
Total
current assets
|
81,398 | 337,252 | ||||||
Property
and Equipment, Net
|
26,353 | 18,280 | ||||||
Funds
in Respect of Employee Rights Upon Retirement
|
37,158 | 28,837 | ||||||
Total
assets
|
144,909 | 384,369 | ||||||
|
|
|||||||
|
|
|||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable:
|
||||||||
Trade
|
62,210 | 30,906 | ||||||
Other
|
273,613 | 170,017 | ||||||
|
|
|||||||
Total
current liabilities
|
335,823 | 200,923 | ||||||
Liability
for employee rights upon retirement
|
45,680 | 37,261 | ||||||
Shareholders’
Equity (Deficit)
|
||||||||
Common
stocks of US$ 0.01 par value ("Common stocks"):
|
||||||||
30,000,000
shares authorized as of September 30, 2009 and December 31,
2008; issued and outstanding 6,438,517 shares and 6,031,658 shares as of
September 30, 2009 and December 31, 2008,
respectively
|
64,385 | 60,316 | ||||||
Additional
paid in capital
|
2,599,168 | 2,114,872 | ||||||
Accumulated
other comprehensive loss
|
(41,941 | ) | (29,856 | ) | ||||
Deficit
accumulated during the development stage
|
(2,858,206 | ) | (1,999,147 | ) | ||||
|
|
|||||||
Total
shareholders' equity (deficit)
|
(236,594 | ) | 146,185 | |||||
|
|
|||||||
Total
liabilities and shareholders’ equity (deficit)
|
144,909 | 384,369 | ||||||
|
|
|||||||
|
|
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
|
The
accompanying notes are an integral part of the financial
statements.
2
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
US
dollars
|
||||||||||||||||||||
Nine
month period
ended
September 30,
|
Three
month period
ended
September 30,
|
Cumulative
period from January 14, 2004 (date of inception) until September
30,
|
||||||||||||||||||
2009(*) | 2008(*) | 2009 | 2008(*) | 2009(*) | ||||||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||||||||||||||||
Revenues
from sales of products
|
73,925 | 71,357 | 39,699 | 68,070 | 247,211 | |||||||||||||||
Research
and development expenses
|
(589,279 | ) | (297,679 | ) | (217,565 | ) | (150,593 | ) | (2,110,851 | ) | ||||||||||
General
and administrative expenses
|
(333,075 | ) | (105,336 | ) | (254,359 | ) | (42,574 | ) | (876,596 | ) | ||||||||||
Operating
loss
|
(848,429 | ) | (331,658 | ) | (432,225 | ) | (125,097 | ) | (2,740,236 | ) | ||||||||||
Financing
expenses, net
|
(10,630 | ) | (8,655 | ) | (4,004 | ) | (4,589 | ) | (37,636 | ) | ||||||||||
Loss
from continuing operation
|
(859,059 | ) | (340,313 | ) | (436,229 | ) | (129,686 | ) | (2,777,872 | ) | ||||||||||
Loss
from discontinued operation
|
- | - | - | - | (80,334 | ) | ||||||||||||||
Net
loss for the period
|
(859,059 | ) | (340,313 | ) | (436,229 | ) | (129,686 | ) | (2,858,206 | ) | ||||||||||
Net
loss per share (Basic and diluted)
|
(0.14 | ) | (0.07 | ) | (0.07 | ) | (0.03 | ) | ||||||||||||
Number
of shares
|
6,245,055 | 4,835,777 | 6,245,055 | 4,835,777 | ||||||||||||||||
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
3
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (*)
US
Dollars (except for share data)
|
||||||||||||||||||||||||||||
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||
Number
of
shares
|
Amount
|
Additional
paid
in capital
|
other
comprehensive income (loss)
|
Receipts
on account of shares
|
Accumulated
deficit
|
Total
shareholders equity (deficit)
|
||||||||||||||||||||||
January
14, 2004 (date of inception)
|
- | - | - | - | - | - | - | |||||||||||||||||||||
120,000
common stock issued for cash of US$ 0.002 per share
|
120,000 | 1,200 | (932 | ) | - | - | - | 268 | ||||||||||||||||||||
Balance
as of December 31, 2004
|
120,000 | 1,200 | (932 | ) | - | - | - | 268 | ||||||||||||||||||||
Loss
for the year
|
- | - | - | - | - | (223,285 | ) | (223,285 | ) | |||||||||||||||||||
Gain
on translation of subsidiary functional currency to the reporting
currency
|
- | - | - | 5,989 | - | - | 5,989 | |||||||||||||||||||||
Total
comprehensive loss
|
(217,296 | ) | ||||||||||||||||||||||||||
Receipts
on account of shares
|
- | - | - | - | 100,000 | - | 100,000 | |||||||||||||||||||||
Balance
as of December 31, 2005
|
120,000 | 1,200 | (932 | ) | 5,989 | 100,000 | (223,285 | ) | (117,028 | ) | ||||||||||||||||||
Loss
for the year
|
- | - | - | - | - | (831,415 | ) | (831,415 | ) | |||||||||||||||||||
Loss
on translation of subsidiary functional currency to the reporting
currency
|
- | - | - | (12,748 | ) | - | - | (12,748 | ) | |||||||||||||||||||
Total
comprehensive loss
|
(844,163 | ) | ||||||||||||||||||||||||||
Issuance
of 25,200 common stock for cash of US$ 7.50 per share on
January 2, 2006
|
25,200 | 252 | 188,748 | - | (100,000 | ) | - | 89,000 | ||||||||||||||||||||
Issuance
of 24,000 common stock for cash of US$ 7.56 per share on
July 19, 2006
|
24,000 | 240 | 181,293 | - | - | - | 181,533 | |||||||||||||||||||||
Issuance
of 72,000 common stock for cash of US$ 7.53 per share on
December 28, 2006
|
72,000 | 720 | 541,600 | - | - | - | 542,320 | |||||||||||||||||||||
Issuance
of 1,688 common stock for cash of US$ 8.33 per share on
December 28, 2006
|
1,688 | 17 | 14,043 | - | - | - | 14,060 | |||||||||||||||||||||
Receipts
on account of shares
|
- | - | - | - | 33,644 | - | 33,644 | |||||||||||||||||||||
Balance
as of December 31, 2006
|
242,888 | 2,429 | 924,752 | (6,759 | ) | 33,644 | (1,054,700 | ) | (100,634 | ) | ||||||||||||||||||
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
4
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (*) (cont.)
US
Dollars (except for share data)
|
||||||||||||||||||||||||||||
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||
Number
of
shares
|
Amount
|
Additional
paid in capital
|
other
comprehensive income (loss)
|
Receipts
on account of shares
|
Accumulated
deficit
|
Total
shareholders equity (deficit)
|
||||||||||||||||||||||
Loss
for the year
|
- | - | - | - | - | (341,453 | ) | (341,453 | ) | |||||||||||||||||||
Loss
on translation of subsidiary functional currency to the reporting
currency
|
- | - | - | (23,206 | ) | - | - | (23,206 | ) | |||||||||||||||||||
Total
comprehensive loss
|
(364,659 | ) | ||||||||||||||||||||||||||
Issuance
of 8,708 common stock for cash of US$ 2.37 per share, 30,006 common
stock for cash of US$ 3.28 per share, 7,754 common stock for cash of
US$ 0.0025 per share and 591 common stock for cash of US$ 3.45
per share in April 2007
|
47,059 | 471 | 119,375 | - | (33,644 | ) | - | 86,202 | ||||||||||||||||||||
Issuance
of 6,937 common stock for cash of US$ 4.10 per share in
June 2007
|
6,937 | 69 | 28,339 | - | - | - | 28,408 | |||||||||||||||||||||
Issuance
of 747,390 common stock for cash of US$ 0.078 per share in July
2007
|
747,390 | 7,474 | 51,061 | - | - | - | 58,535 | |||||||||||||||||||||
Issuance
of 996,520 common stock for cash of US$ 0.024 per share in August
2007
|
996,520 | 9,965 | 14,007 | - | - | - | 23,972 | |||||||||||||||||||||
Issuance
of 996,520 common stock for cash of US$ 0.024 per share in November
2007
|
996,520 | 9,965 | 15,212 | - | - | - | 25,177 | |||||||||||||||||||||
Issuance
of 996,520 common stock for cash of US$ 0.0026 per share in December
2007
|
996,520 | 9,965 | (7,405 | ) | - | - | - | 2,560 | ||||||||||||||||||||
Receipts
on account of shares
|
- | - | - | - | 100,000 | - | 100,000 | |||||||||||||||||||||
Balance
as of December 31, 2007
|
4,033,834 | 40,338 | 1,145,341 | (29,965 | ) | 100,000 | (1,396,153 | ) | (140,439 | ) | ||||||||||||||||||
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
5
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (*) (cont.)
US
Dollars (except for share data)
|
||||||||||||||||||||||||||||
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||
Number
of
shares
|
Amount
|
Additional
paid in capital
|
other
comprehensive income (loss)
|
Receipts
on account of shares
|
Accumulated
deficit
|
Total
shareholders equity (deficit)
|
||||||||||||||||||||||
Loss
for the year
|
- | - | - | - | - | (602,994 | ) | (602,994 | ) | |||||||||||||||||||
Gain
on translation of subsidiary functional currency to the reporting
currency
|
- | - | - | 109 | - | - | 109 | |||||||||||||||||||||
Total
comprehensive loss
|
(602,885 | ) | ||||||||||||||||||||||||||
Issuance
of 716,589 common stock for cash of US$ 0.041 per share in February
2008
|
716,589 | 7,166 | 22,370 | - | - | - | 29,536 | |||||||||||||||||||||
Issuance
of 235,334 common stock for cash of US$ 0.72 per share in February
2008
|
235,334 | 2,353 | 166,600 | - | (100,000 | ) | - | 68,953 | ||||||||||||||||||||
Issuance
of 291,515 common stock for cash of US$ 0.69 per share in June
2008
|
291,515 | 2,915 | 197,085 | - | - | - | 200,000 | |||||||||||||||||||||
Issuance
of 310,382 common stock for cash of US$ 0.71 per share in September
2008
|
310,382 | 3,104 | 216,161 | - | - | - | 219,265 | |||||||||||||||||||||
Issuance
of 444,004 common stock for cash of US$ 0.74 per share in November
2008
|
444,004 | 4,440 | 323,548 | - | - | - | 327,988 | |||||||||||||||||||||
Stock
based compensation
|
- | - | 43,767 | - | - | - | 43,767 | |||||||||||||||||||||
Balance
as of December 31, 2008
|
6,031,658 | 60,316 | 2,114,872 | (29,856 | ) | - | (1,999,147 | ) | 146,185 |
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
6
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) (*) (cont.)
US
Dollars (except for share data)
|
||||||||||||||||||||||||||||
Common
stock
|
Accumulated
|
|||||||||||||||||||||||||||
Number
of
shares
|
Amount
|
Additional
paid in capital
|
other
comprehensive income (loss)
|
Receipts
on account of shares
|
Accumulated
deficit
|
Total
shareholders equity (deficit)
|
||||||||||||||||||||||
Loss
for the period
|
- | - | - | - | - | (859,059 | ) | (859,059 | ) | |||||||||||||||||||
Loss
on translation of subsidiary functional currency to the reporting
currency
|
- | - | - | (12,085 | ) | - | - | (12,085 | ) | |||||||||||||||||||
________
|
||||||||||||||||||||||||||||
Total
comprehensive loss
|
(871,144 | ) | ||||||||||||||||||||||||||
------------ | ||||||||||||||||||||||||||||
Issuance
of 26,399 common stock for cash of US$ 1.33 per share in January
2009
|
26,399 | 264 | 34,721 | - | - | - | 34,985 | |||||||||||||||||||||
Issuance
of 3,773 common stock for cash of US$ 1.33 per share in March
2009
|
3,373 | 34 | 24,966 | - | - | - | 25,000 | |||||||||||||||||||||
Issuance
of 205,345 common stock for cash of US$ 0.73 per share in March
2009
|
201,972 | 2,020 | 122,980 | - | - | - | 125,000 | |||||||||||||||||||||
Issuance
of 45,328 common stock for cash of US$ 1.32 per share in March
2009
|
45,328 | 453 | 59,547 | - | - | - | 60,000 | |||||||||||||||||||||
Issuance
of 4,459 common stock for cash of US$ 1.32 per share in April
2009
|
4,459 | 45 | 5,516 | - | - | - | 5,561 | |||||||||||||||||||||
Issuance
of 45,328 common stock for cash of US$ 1.32 per share in June
2009
|
45,328 | 453 | 59,547 | - | - | - | 60,000 | |||||||||||||||||||||
Issuance
of 40,000 common stock for cash of US$ 1.35 per share in June
2009
|
40,000 | 400 | 53,600 | - | - | - | 54,000 | |||||||||||||||||||||
Issuance
of 27,000 common stock for cash of US$ 1.35 per share in August
2009
|
20,000 | 200 | 26,800 | - | - | - | 27,000 | |||||||||||||||||||||
Issuance
of 27,000 common stock for cash of US$ 1.35 per share in September
2009
|
20,000 | 200 | 26,800 | - | - | - | 27,000 | |||||||||||||||||||||
Stock
based compensation
|
- | - | 69,819 | - | - | - | 69,819 | |||||||||||||||||||||
Balance
as of September 30, 2009 (unaudited)
|
6,438,517 | 64,385 | 2,599,168 | (41,941 | ) | - | (2,858,206 | ) | (236,594 | ) |
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
7
PIMI
AGRO CLEANTECH, INC.
AND ITS SUBSIDIARY
(A
Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
US
dollars
|
||||||||||||
Nine
month period
ended
September 30,
|
Cumulative
period from January 14, 2004 (date of inception)
until
September 30,
|
|||||||||||
2009(*) | 2008(*) | 2009(*) | ||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net loss for
the period
|
(859,059 | ) | (340,313 | ) | (2,858,206 | ) | ||||||
Adjustments
to reconcile net loss for the period to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
6,046 | 5,374 | 22,095 | |||||||||
Increase
in accrued severance pay
|
7,538 | 15,297 | 43,073 | |||||||||
Stock
based compensation
|
69,819 | - | 113,586 | |||||||||
Interest
from shareholders loans
|
- | - | (2,409 | ) | ||||||||
Changes
in assets and liabilities:
|
||||||||||||
Increase
in accounts receivable
|
(16,104 | ) | (11,732 | ) | (28,606 | ) | ||||||
Decrease
(increase) in other current assets
|
10,919 | (9,464 | ) | (131,520 | ) | |||||||
Increase
in accounts payable – trade
|
29,217 | 18,721 | 56,835 | |||||||||
Increase
(decrease) in accounts payable – other
|
95,938 | (74,668 | ) | 237,838 | ||||||||
Net
cash used in operating activities generated from continuing
operations
|
(655,686 | ) | (396,785 | ) | (2,547,314 | ) | ||||||
Net
cash provided by operating activities generated from discontinued
operations
|
- | - | 80,334 | |||||||||
Net
cash used in operating activities
|
(655,686 | ) | (396,785 | ) | (2,466,980 | ) | ||||||
Cash
flows from investment activities:
|
||||||||||||
Increase
in funds in respect of employee rights upon retirement
|
(7,539 | ) | (6,163 | ) | (34,143 | ) | ||||||
Purchase
of property and equipment
|
(13,467 | ) | (8,013 | ) | (45,183 | ) | ||||||
Net
cash used in investment activities
|
(21,006 | ) | (14,176 | ) | (79,326 | ) | ||||||
Cash
flows from financing activities
|
||||||||||||
Credit
from banking institutions
|
- | - | (21 | ) | ||||||||
Issuance
of common stock
|
418,546 | 533,622 | 2,121,848 | |||||||||
Payment
on account of shares
|
- | - | 233,644 | |||||||||
Loans
from shareholders
|
- | - | 194,083 | |||||||||
Net
cash provided by financing activities
|
418,546 | 533,622 | 2,549,554 | |||||||||
Effect
of exchange rate changes on cash and cash equivalents
|
(3,900 | ) | (4,765 | ) | 12,116 | |||||||
Increase
(decrease) in cash and cash equivalents
|
(262,046 | ) | 117,896 | 15,364 | ||||||||
Cash
and cash equivalents at beginning of the period
|
277,410 | 35,055 | - | |||||||||
Cash
and cash equivalents at end of the period
|
15,364 | 152,951 | 15,364 |
(*)
|
As
described in Note 1A, the financial statements were retroactively
restated to reflect the historical financial statements of the subsidiary
Pimi Agro Cleantech Ltd., which was acquired by the Company from its
shareholders on April 27,
2009.
|
The
accompanying capital notes are an integral part of the consolidated financial
statements.
8
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
1- GENERAL
|
A.
|
Pimi
Agro Cleantech, Inc. (the "Company") was incorporated on April 1,
2009, under the laws of the State of Delaware. On
April 27, 2009, the Company acquired from its shareholders all of the
issued and outstanding shares of Pimi Agro Cleantech Ltd. (hereinafter:
"Pimi Israel") including preferred and ordinary shares. As a
consideration for the transaction, the Company issued its shareholders an
equal number of its common stock (6,313,589 shares). As a result of the
acquisition, Pimi Israel became a wholly-owned subsidiary of the
Company. The transaction involved companies under common
control, and accordingly the acquisition has been accounted for at
historical cost in a manner similar to a pooling of
interests. On this basis, the stockholders’ equity has been
retroactively restated to reflect the equivalent number of shares of
common stock of the Company issued for the acquisition of Pimi Israel as
if such shares were issued at the dates they were issued by Pimi Israel to
its shareholders on the basis of 1 Common Stock for each 1 preferred share
or 1 ordinary share of Pimi Israel. The historical financial statements
prior to April 27, 2009 reflect the activities of Pimi
Israel.
Pimi
Israel was incorporated in 2004 and commenced its operations in 2005. Pimi
Israel develops, produces and markets products for improving the quality
and extending the shelf-life of fruits and vegetables. Since its
inception, Pimi Israel has devoted substantially all of its efforts to
business planning, research and development and raising capital, and has
not yet generated significant revenues. Accordingly, Pimi
Israel and the Company are considered to be in the development stage as
defined in Statement of Financial Accounting Standards ("SFAS")
No. 7, "Accounting
and Reporting by Development Stage Enterprises" (ASC Topic 915,
"Development Stage
Entities").
|
B.
|
In
September 2009, the Company completed registration of part of its shares
with the US Securities and Exchange Commission (SEC) on Form S-1 under the
Securities Act of 1933.
|
C.
|
The
development and commercialization of Pimi Israel's product will require
substantial expenditures. Pimi Israel has not yet generated
sufficient revenues from its operations to fund its activities, and is
therefore dependent upon external sources for financing its operations.
There can be no assurance that Pimi Israel will succeed in obtaining the
necessary financing to continue its operations. Since inception until
September 30, 2009, the Company (due to the transaction described in
A. above) has suffered accumulated losses in an amount of
US$ 2,858,206 and has a negative operating cash flow of
US$ 2,466,980. These factors raise substantial doubt about
Pimi Israel's ability to continue as a going concern.
The
financial statements do not include any adjustments that might result from
the outcome of this
uncertainty.
|
D.
|
Risk
factors
The
Company and Pimi Israel (the "Group") have a limited operating history and
faces a number of risks, including uncertainties regarding finalization of
the development process, demand and market acceptance of the Group's
products, the effects of technological change, competition and the
development of other new products. Additionally, other risk
factors also exist, such as the ability to manage growth and the effect of
planned expansion of operations on the Group's future results.
In
addition, the Group expects to continue incurring significant operating
costs and losses in connection with the development of its products and
increased marketing efforts.
As
mentioned above, the Group has not yet generated significant revenues from
its operations to fund its activities, and therefore the continuance of
its activities as a going concern depends on the receipt of additional
funding from its shareholders and
investors.
|
9
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
1- GENERAL (cont.)
E.
|
Use
of estimates in the preparation of financial statements
The
preparation of consolidated financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
|
NOTE
2- SIGNIFICANT
ACCOUNTING POLICIES
A.
|
Basis
of presentation
The
accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted in the United States of
America for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial
statements.
In
the opinion of management, the unaudited interim financial statements
furnished herein include all adjustments necessary for a fair presentation
of the Company’s financial position at September 30, 2009 and the results
of its operations for the nine and three month periods then ended and cash
flows for the nine month period then ended.
Interim
financial statements are prepared on a basis consistent with the Company’s
annual financial statements. Results of operations for the nine and three
month periods ended September 30, 2009 are not necessarily indicative
of the operating results that may be expected for the year ending December
31, 2009.
The
consolidated balance sheet as of December 31, 2008 was derived from the
audited financial statements at that date but does not include all of the
information and notes required by accounting principles generally accepted
in the United States of America for complete financial statements. For
further information, refer to the consolidated financial statements and
notes thereto included in the Company’s registration statement on Form S-1
which included the annual report for the year ended December 31,
2008.
|
B.
|
Recently
issued accounting
pronouncements
|
|
1.
|
In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles” (the “ASC”), a replacement of FASB Statement No. 162.
This Statement replaces FASB Statement No. 162, “The Hierarchy of Generally
Accepted Accounting Principles”. Following SFAS No. 168, the
FASB will not issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue
Accounting Standards Updates (ASU's). SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
Concurrently
with the issuance of SFAS 168, the FASB issued ASU 2009-01, an
amendments based on SFAS No. 168 in order to codify SFAS No. 168
within ASC Topic 105. This ASU includes SFAS No. 168 in its entirety,
including the instructions contained in Appendix B of the
statement. The guidance in ASC Topic 105 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009.
Applying
the guidance in ASC Topic 105 did not impact the Company’s financial
condition and results of operations. The Company has revised its
references to pre-Codification GAAP in its financial statements for the
nine and three month periods ended September 30,
2009.
|
10
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
2- SIGNIFICANT
ACCOUNTING POLICIES (cont.)
B.
|
Recently
issued accounting pronouncements
(cont.)
|
|
2.
|
In
December 2007, the FASB issued SFAS 141(R), “Business Combinations”
(ASC Topic 805, “Business
Combinations”). This Statement will replace SFAS 141,
“Business
Combinations”. ASC Topic 805 retains the fundamental requirements
of SFAS 141 with respect to the implementation of the acquisition method
of accounting (“the purchase method”) for all business combinations and
for the identification of the acquirer for each business
combination. This Statement also establishes principles and
requirements for how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree, how the acquirer recognizes
and measures the goodwill acquired in a business combination and the
disclosure requirements to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. The
guidance in ASC Topic 805 applies prospectively to business combinations
for which the acquisition date is on or after December 15, 2008 (January
1, 2009 for the Group). Early adoption of ASC Topic 805 was
prohibited. The adoption did not have a material impact on the
financial position and results of operations of the
Company.
|
|
3.
|
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements” (ASC Topic 810, “Consolidation”). This
Statement amends ARB 51 and establishes accounting and reporting standards
for the noncontrolling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC Topic 810 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. ASC Topic 810 is effective for fiscal years
beginning on or after December 15, 2008 (January 1, 2009 for the
Group). Early adoption of ASC Topic 810 was
prohibited. The adoption did not have a material impact on the
financial position and results of operations of the
Company.
|
|
4.
|
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic
855, “Subsequent
Events”), which establishes general standards of accounting and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC Topic
855 is effective for interim or annual financial periods ending after
June 15, 2009. The adoption did not have a material impact on the
Company’s financial position, results of operations or cash
flows.
|
|
5.
|
The
Company adopted the disclosure requirements of the Financial Accounting
Standards Board (“FASB”) Staff Position (“FSP”) 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments (ASC Topic
825, “Financial
Instruments”).
ASC
Topic 825 require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in
annual financial statements. ASC Topic 825 is effective for
interim reporting periods ending after June 15, 2009, with early
adoption permitted.
The
adoption did not have a material impact on the Company’s financial
position, results of operations or cash flows.
|
NOTE
3- LINE OF CREDIT
|
As
of September 30, 2009, the Company has an unutilized credit line of
NIS 150,000 (US$ 39,915), with an Israeli Bank
|
11
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
4 - SHARE
CAPITAL
A.
|
Stock-option
plan of Pimi Israel
In
January 2008, Pimi Israel’s Board of Directors ("Pimi Israel's Board")
approved a stock option plan for the grant, without consideration ("Pimi Israel's plan"),
of up to 623,547 options ("Pimi Israel's
Options"), exercisable into 623,548 ordinary shares of
NIS 0.01 par value of Pimi Israel to employees officers and directors
of Pimi Israel. The exercise price and vesting period for each
grantee of Options will be determined by Pimi Israel's Board and specified
in such grantee's option agreement. The options will vest over
a period of 1-16 quarters based on each grantee's option
agreements. Any option not exercised within 10 years after the
date of grant thereof expires.
On
the April 27, 2009, following the acquisition of Pimi Israel, the Company
adopted the 2009 Share Incentive Plan (the "2009 Share Incentive Plan"),
pursuant to which the Company's Board of Directors is authorized to grant
up to 3,000,000 options, exercisable into 3,000,000 shares of the
Company. The purpose of the 2009 Share Incentive Plan is to
offer an incentive to employees, directors, officers, consultants,
advisors, suppliers and any other person or entity whose services are
considered valuable to the Company, as well as to replace the Pimi Israel
Plan.
Upon
the adoption of the 2009 Share Incentive Plan, all options granted under
the Pimi Israel Plan were replaced by options subject to the 2009 Share
Incentive Plan on a 1 for 1 basis (561,191 options were
replaced).
As
of September 30, 2009, 467,658 options out of Pimi Israel's plan have
been granted to employees and 124,709 options to
non-employees. As stated above, all such options were replaced
to options of the Company and are subject to the 2009 Share Incentive
Plan. (See D. and E. below).
The
non-cash compensation relating to options granted to employees and
directors was US$ 42,385 and US$ 19,022 during the nine and
three month periods ended September 30, 2009 of which US$ 31,168
and US$ 12,994 was charged to research and development expenses and
US$ 11,217 and US$ 6,028 was charged to general and
administrative expenses, respectively.
The
remaining amount of approximately US$ 41,879 as of September 30,
2009, will be charged to the statements of operations in future periods
over the vesting period (13 quarters).
The
fair value of options granted under the plan was estimated at the date of
grant using the Black-Scholes option pricing model. The
following are the data and assumptions
used:
|
Dividend
yield (%)
|
0 | |||
Expected
volatility (%) (*)
|
50 | |||
Risk
free interest rate (%) (**)
|
3 | |||
Expected
term of options (years) (***)
|
5-7 | |||
Exercise
price (US dollars)
|
$0.01/0.72/1.37
|
|||
Share
price (US dollars)
|
$0.2/0.72/1.37
|
|||
Fair
value (US dollars)
|
$0.19-0.7 |
(*)
|
Due
to the fact that the Company was a nonpublic entity, the expected
volatility was based on the historic volatility of public companies which
operate in the same industry sector (agricultural chemical
industry).
|
(**)
|
The
risk free interest rate represents the risk free rate of US$ zero – coupon
US Government Bonds.
|
(***)
|
Due
to the fact that the Company does not have historical exercise data, the
expected term was determined based on the "simplified method" in
accordance with Staff Accounting Bulletin No.
110.
|
12
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
4- SHARE
CAPITAL (cont.)
A.
|
Stock-option
plan of Pimi Israel (cont.)
The
following table presents a summary of the status of the grants to
employees and directors as of September 30,
2009:
|
Number
|
Weighted
average exercise price
|
|||||||
Nine
month period ended September 30, (unaudited)
|
2
0 0 9
|
|||||||
Balance
outstanding at beginning of the period
|
436,482 | 0.33 | ||||||
Granted
|
31,176 | 1.37 | ||||||
Exercised
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Balance
outstanding at end of the period
|
467,658 | 0.40 | ||||||
Balance
exercisable at the end of the period
|
179,267 | 0.19 | ||||||
The
aggregate intrinsic value of the balances outstanding and exercisable as of
September 30, 2009 is US$ 444,276. This amount represents
the total intrinsic value, based on Pimi Israel's stock price of US$ 1.35
as of September 30, 2009, less the weighted exercise price. This
represents the potential amount received by the option holders had all option
holders exercised their options as of that date.
The
following table summarizes information about options outstanding at
September 30, 2009:
Range
of
exercise
prices
|
Outstanding
at September 30,
|
Weighted
average remaining contractual life
|
Weighted
average exercise price
|
Exercisable
at September 30,
|
Weighted
average exercise price
|
|||||||||||||||||
US$
|
2009
|
years
|
2009
|
|||||||||||||||||||
0.01 | 311,773 | 8.16 | 0.01 | 136,400 | 0.01 | |||||||||||||||||
0.72 | 124,709 | 9.17 | 0.72 | 38,970 | 0.72 | |||||||||||||||||
1.37 | 31,176 | 9.75 | 1.37 | 3,897 | 1.37 | |||||||||||||||||
467,658 | 179,267 |
B.
|
Investor's
Options of Pimi
Israel
|
|
1.
|
Exercise
of Existing Option in Pimi Israel
During
2008, Pimi Israel issued 239,193 options with an average exercise price of
US$ 0.695 per option to several investors, exercisable until June
2009 and issued 769,526 options with an average exercise price of
US$ 0.695 per option to several investors, exercisable until the end
of February 2009.
During
the months of January and February 2009, 201,972 options exercisable until
February 2009 were exercised into 201,972 Pimi Israel common shares for a
total amount of US$145,000 at an average price of US$0.721
per share. All such shares were replaced during the acquisition
of Pimi Israel by the Company with shares of the Company and the remaining
567,554 options exercisable until February 2009 expired. The
239,193 options exercisable until June 2009 were replaced with 239,193
options exercisable into shares of the Company at the same exercise price
and contractual life. Until June 30, 2009, the options
were not exercised and therefore expired.
|
13
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
4- SHARE
CAPITAL (cont.)
B.
|
Investor's
Options of Pimi Israel
(cont.)
|
|
2.
|
Investments
in Shares of Pimi Israel
On
January 20, 2009 an investment agreement was entered into between Pimi
Israel and Earthbound LLC a Limited Liability Company registered in
Delaware ("EB").
It was agreed that EB will invest the total sum of
US$300,000. The investment will be paid to Pimi Israel in
tranches as follows: first tranche of US$60,000 was paid on March 15,
2009. The second tranche of US$60,000 was paid on June 15,
2009. The balance of US$180,000 will be paid in two
installments as follows: US$90,000 on September 15, 2009 (on
October 19, 2009, EB paid only US$60,000 and accordingly received the
proportionate amount of allocated shares pro rata. EB are not
expected to transfer the remaining US$30,000 and will not therefore
receive allotted shares accordingly. See also Note 8A) and
US$90,000 on January 15, 2010. EB will receive the allocated shares
pro rata to the investment against each installment of the
investment. As of September 30, 2009, EB has invested the
total sum of US$120,000 and received 90,656 common-stock shares of the
Company.
On
May 3, 2009, the Company issued to EB a warrant for the purchase of
145,985 Common Stock shares at the price of US$1.37 per share to be
exercised until June 15, 2009. On June 7, 2009, this
date was extended to July 31, 2009 and was again extended to
August 30, 2009. The option was not exercised and
therefore became invalid.
|
C.
|
In
December 2008, a member of the Advisory Board received options under the
Plan as part of the compensation for his services. Pimi Israel
has granted the advisor a total amount of 31,177 options to be vested over
a period of 8 quarters, each quarter 3,897 shares, provided the advisor
will provide Pimi Israel consulting services for a period of
2 years. The exercise price shall be $0.72 per
share.
The
non-cash compensation relating to options granted to the consultant was
US$ 11,120, and US$ 3,590 during the nine and three month
periods ended September 30, 2009, respectively.
As
of September 30, 2009, the fair value of the options that are subject
to future consulting services is
US$ 16,380.
|
D.
|
In
December 2008, a member of the Advisory Board received options under the
Plan as part of the compensation for his services. Pimi Israel
has granted the advisor a total amount of 93,532 options to be vested over
a period of 16 quarters, each quarter 5,846 options for shares, provided
the advisor will provide Pimi Israel consulting services for a period of
4 years. The exercise price shall be $0.72 per
share.
The
non-cash compensation relating to options granted to consultants was
US$ 16,314, and US$ 5,108 during the nine and three month
periods ended September 30, 2009, respectively.
As
of September 30, 2009, the fair value of the options that are subject
to future consulting services is
US$ 64,701.
|
E.
|
See
Note 1B.
|
14
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
5 -COMMITMENTS
|
A.
|
Joint
venture Agreement with Vegisafe
In
January 2009, Pimi Israel entered in a Joint Venture Agreement ("JV") with
Vegisafe LLC ("Vegisafe") a Limited Liability Company registered in the
US, and part of a group of companies engaged in consulting to mass-market
retailers and major supermarket chains in North America. The JV will
market, sell and distribute Pimi Israel's Product and Technology
throughout the USA on an exclusive basis, and throughout Canada and Mexico
on a non-exclusive basis. Vegisafe shall seek Retailers and/or major
Distributors in the US, who will recommend to its producer and/or
suppliers to produce and supply the Isopropyl (N-3 – Chlorophenyl)
carbamate (CIPC) free potatoes or CIPC free potato
products. The exclusivity of the JV will be subject to
fulfillment of certain milestones of annual sales. Pimi Israel shall have
70% of the rights in the JV and Vegisafe will have 30% of the
rights.
Vegisafe
will invest in the JV an aggregate amount of US$250,000 which will be used
to cover expenses reflected in a budget prepared for the JV and approved
by Vegisafe and Pimi Israel. Any additional investment in
excess of the US$250,000 shall be contributed by the parties to the JV
upon the mutual consent of the parties taking into account the JV's
business and needs and will be transferred to the Joint Venture as
follows: 70% by Pimi Israel and 30% by
Vegisafe.
|
|
B.
|
Agreement
with Omex
In
January 2009, Pimi Israel and Omex Agriculture Ltd. ("Omex"), a company
which is active in supplying agricultural supplies to farmers in the UK,
entered into an Exclusive Distribution Agreement, until December 31,
2012. Under this agreement, Omex undertook to market, sell,
distribute and install systems and equipment required for the application
of Pimi Israel's Product in the UK. In case Omex does not
achieve minimum sales targets, then it might lose its Exclusive
distribution or even lose the rights for distribution in the
UK.
|
NOTE
6- LOSS
PER SHARE
Basic
loss per share is computed by dividing net loss by the weighted average
number of shares outstanding during the period.
The
net loss and the weighted average number of shares used in computing basic
loss per share for the nine and three month periods ended
September 30, 2009 and 2008 are as
follows:
|
US
dollars
|
||||||||||||||||
Nine
month period ended September 30,
|
Three
month period ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Net
loss used for the computation of basic loss per share generated from
continuing operation
|
(637,288 | ) | (340,313 | ) | (214,399 | ) | (129,686 | ) |
Number
of shares
|
||||||||||||||||
Nine
month period ended September 30,
|
Three
month period ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Weighted
average number of shares used in the computation of basic earnings per
share
|
6,245,055 | 4,835,777 | 6,245,055 | 4,835,777 |
|
(*)
|
The
effect of the inclusion of options for the nine and three month periods
ended September 30, 2009 and 2008 is
anti-dilutive.
|
15
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
7 - FAIR
VALUE OF FINANCIAL INSTRUMENTS
Effective
May 1, 2009, the Company adopted ASC Topic 825, "Financial
Instruments". This requires disclosures about the fair value
of all financial instruments for interim reporting periods.
The
Company's financial instruments consist of cash and cash equivalents, accounts
receivable, other current assets and accounts payable. The estimated
fair value of these financial instruments approximates their carrying
value.
NOTE
8 - SUBSEQUENT
EVENTS
|
A.
|
On
October 15, 2009, the Company issued 45,330 shares of common stock US$0.01
par value to Earthbound LLC under the Term Sheet dated January 20, 2009.
Such shares were issued in consideration for payment of US$60,000 (US$1.35
per Common Stock share) which was received by the
Company.
|
|
B.
|
On
October 15, 2009, the Company issued 7,500 shares of Commons stock US$0.01
par value to Mr. Miron Gross, an Israeli citizen, under Regulation S
pursuant to a Stock Purchase Agreement dated October 12,
2009. Such shares were issued in consideration for payment of
US$10,125 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
C.
|
On
October 15, 2009, the Company issued 7,500 shares of Commons stock US$0.01
par value to Mr. Boaz Navott, an Israeli citizen, under Regulation S
pursuant to a Stock Purchase Agreement dated October 12,
2009. Such shares were issued in consideration for payment of
US$10,125 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
D.
|
On
October 19, 2009, the Company issued 10,000 shares of Commons stock
US$0.01 par value to Mr. Ehud Nahum, an Israeli citizen, under
Regulation S pursuant to a Stock Purchase Agreement dated October 19,
2009. Such shares were issued in consideration for payment of
US$13,500 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
E.
|
On
October 19, 2009, the Company issued 10,000 shares of Commons stock
US$0.01 par value to Mr. Yuval Nahum, an Israeli citizen, under
Regulation S pursuant to a Stock Purchase Agreement dated October 19,
2009. Such shares were issued in consideration for payment of
US$13,500 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
F.
|
On
November 10, 2009, the Company issued 3,000 shares of Commons stock
US$0.01 par value to Mr. Gilad Gross an Israeli citizen, under
Regulation S pursuant to a Stock Purchase Agreement dated November 2,
2009. Such shares were issued in consideration for payment of
US$4,050 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
G.
|
On
November 10, 2009, the Company issued 26,000 shares of Commons stock
US$0.01 par value to Mr. Miron Gross, an Israeli citizen, under
Regulation S pursuant to a Stock Purchase Agreement dated November 2,
2009. Such shares were issued in consideration for payment of
US$35,000 (US$1.35 per Common Stock share) which was received by the
Company.
|
|
H.
|
On
November 10, 2009, the Company issued 7,500 shares of Commons stock
US$0.01 par value to Mr. Boaz Navott, an Israeli citizen, under
Regulation S pursuant to a Stock Purchase Agreement dated November 2,
2009. Such shares were issued in consideration for payment of
US$10,125 (US$1.35 per Common Stock share) which was received by the
Company.
|
16
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Information
as at September 30, 2009 and for the nine and
three
months ended September 30, 2009 and 2008 is unaudited)
NOTE
8- SUBSEQUENT EVENTS (cont.)
|
I.
|
On
November 15, 2009, the Company issued 37,037 shares of Commons stock
US$0.01 par value to Solomon Capital 401K Trust, a United Stats Trust
Fund, under Section 4(2) and Rule 506 of Regulation D of the Securities
Act of 1933, pursuant to a Stock Purchase Agreement dated November 12,
2009. Such shares were issued in consideration for payment of
US$50,000 (US$1.35 per Common Stock share) which was received by the
Company.
|
17
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Statement
of Forward-Looking Information
In this
quarterly report, references to "Pimi Agro CleanTech, Inc.," "Pimi," "the
Company," "we," "us," and "our" refer to Pimi Agro Cleantech, Inc. and its
wholly owned subsidiary, Pimi Agro CleanTech, Ltd.
Except
for the historical information contained herein, some of the statements in this
Report contain forward-looking statements that involve risks and uncertainties.
These statements are found in the sections entitled "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operation,"
and "Risk Factors." They include statements concerning: our business strategy;
expectations of market and customer response; liquidity and capital
expenditures; future sources of revenues; expansion of our proposed product
line; and trends in industry activity generally. In some cases, you can identify
forward-looking statements by words such as "may," "will," "should," "expect,"
"plan," "could," "anticipate," "intend," "believe," "estimate," "predict,"
"potential," "goal," or "continue" or similar terminology. These statements are
only predictions and involve known and unknown risks, uncertainties and other
factors, including, but not limited to, the risks outlined under "Risk Factors,"
that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. For example, assumptions that could cause actual
results to vary materially from future results include, but are not limited to:
our ability to successfully develop and market our products to customers; our
ability to generate customer demand for our products in our target markets; the
development of our target markets and market opportunities; our ability to
manufacture suitable products at competitive cost; market pricing for our
products and for competing products; the extent of increasing competition;
technological developments in our target markets and the development of
alternate, competing technologies in them; and sales of shares by existing
shareholders. Although we believe that the expectations reflected in the forward
looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Unless we are required to do so under
federal securities laws or other applicable laws, we do not intend to update or
revise any forward-looking statements.
Overview
Pimi was
established in 2004 to develop and sell environmentally friendly alternative
solutions to current methods for pre and post harvest treatments of fruits and
vegetables. Current methods in practice use residue of harmful chemical
pesticides. Pimi Israel and its Co- founder, Mr. Nimrod Ben Yehuda, have
invested many years of research in developing eco-friendly solutions; the
company’s technology platform is based on a unique and patented formulation of
Stabilized Hydrogen Peroxide (“STHP”) for the treatment of fruits and
vegetables. Pimi has also developed a controlled distribution system to apply
its solution while maintaining humidity at the highest required levels in storage
rooms utilizing advanced technology to create micro droplets, in accordance with
a special working protocol developed by Pimi.
Pimi is
addressing the immediate need for developing treatment and season-long harvest
storage that is chemical-free and environmentally friendly. Pimi is currently
focusing on the treatment of potatoes, which is the second largest stored crop
world-wide (after grains), and is therefore Pimi’s first sales
target.
The
market for Pimi’s products is divided into two sections: (i) stored potatoes
(for both table and processed potatoes), where Pimi’s products prevent quality
losses due to sprouting and diseases, and (ii) the market of potatoes seeds
where our products aim to prevent diseases and pathogens.
Company
History
Pimi Agro
CleanTech, Inc. is a Delaware Corporation with one operating subsidiary, Pimi
Agro CleanTech, Ltd, which is an Israeli Limited Company (“Pimi Israel”). The
Company was formed on April 1, 2009, under the laws of the State of Delaware,
and its subsidiary Pimi Israel was formed on January 2004 in the State of Israel
under the name "Pimi Marion Holdings Ltd.", and has since changed its name to
"Pimi Agro Cleantech Ltd.", on October 2008. The Company, through Pimi Israel,
owns a patented technology for the treatment of pre and post harvest of fruits
and vegetables utilizing environmentally friendly products.
On April
27, 2009 we purchased all the issued shares of Pimi Israel from the Pimi Israel
shareholders in consideration for 6,313,589 shares of Common Stock of the
Company to the Pimi Israel shareholders. As a result, Pimi Israel became a
wholly owned subsidiary of the Company.
We are a
development stage business and have had limited revenues since our
formation. There is currently no public market for our common
stock.
CRITICAL
ACCOUNTING POLICIES
The
Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.. Due to the early stage of operations of the Company there
are no accounting policies that are considered to be critical accounting
policies by the management.
18
Recently
issued accounting pronouncements
SFAS
No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles”
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles” (the “ASC”), a replacement of FASB Statement No. 162. This
Statement replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. Following SFAS No. 168, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(ASU's). SFAS No. 168 is effective for financial statements issued for
interim and annual periods ending after September 15, 2009.
The FASB
issued ASU 2009-01, an amendments based on SFAS No. 168 in order to codify
SFAS No. 168 within ASC Topic 105. This ASU includes SFAS No. 168 in
its entirety, including the instructions contained in Appendix B of the
statement. Similar to SFAS No. 168, the guidance in ASC 105 is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009.
Applying
the guidance in ASC 105 did not impact the Company’s financial condition and
results of operations. The Company has revised its references to
pre-Codification GAAP in its financial statements for the nine and three month
periods ended September 30, 2009.
ASC
Topic 805, "Business
Combinations"
In
December 2007, the FASB issued SFAS 141(R), “Business Combinations”. This
Statement will replace SFAS 141, “Business Combinations” (ASC
Topic 805, “Business
Combinations”). ASC Topic 805 retains the fundamental requirements of
SFAS 141 with respect to the implementation of the acquisition method of
accounting (“the purchase method”) for all business combinations and for the
identification of the acquirer for each business combination. This
Statement also establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree, how the acquirer recognizes and measures the goodwill acquired in a
business combination and the disclosure requirements to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. The guidance in ASC Topic 805 applies prospectively to
business combinations for which the acquisition date is on or after December 15,
2008 (January 1, 2009 for the Group). Early adoption of ASC Topic 805
is prohibited. The adoption did not have a material impact on the financial
position and results of operations on the Company.
ASC
Topic 810, "Consolidation"
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements” (ASC Topic 810, “Consolidation”). This
Statement amends ARB 51 and establishes accounting and reporting standards for
the noncontrolling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. ASC Topic 810 clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. ASC
Topic 810 is effective for fiscal years beginning on or after December 15, 2008
(January 1, 2009 for the Group). Early adoption of ASC Topic 810 is
prohibited. The adoption of did not have a material impact on the financial
position and results of operations on the Company.
ASC
Topic 855, “Subsequent Events”
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855, “Subsequent Events”), which
establishes general standards of accounting and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. ASC Topic 855 is effective for interim or annual
financial periods ending after June 15, 2009. The adoption did not have a
material impact on the Company’s financial position, results of operations or
cash flows.
ASC
Topic 825, “Financial
Instruments”
Effective
May 1, 2009, the Company adopted the disclosure requirements of the Financial
Accounting Standards Board (“FASB”) Staff Position (“FSP”) 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments (ASC Topic 825,
“Financial
Instruments”).
ASC Topic
825 require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements.
The
adoption did not have a material impact on the Company’s financial position,
results of operations or cash flows.
19
RESULTS
OF OPERATIONS
Results
of Operations for the three months Ended September 30, 2009 compared to the
three months Ended September30, 2008
Total Net
Sales: Total Net Sales decreased $28,371 or 42% to $39,699 in
the 3 months ended September 30, 2009 from $68,070 for the 3 months ended
September 30, 2008. Decrease of revenue was because sales of our
products and technology to pilot rooms in UK for 2008 winter, occurred in third
quarter of 2008, while sales for 2009 winter are expected within the fourth
quarter of 2009. The Company’s products and technology are still in
development stage and have not been actively marketed to date.
R&D Expenses: Total net
R&D Expenses for the 3 month ended September 30, 2009 were $217,565 which is
an increase of $66,972 or 44% from $150,593 for the 3 months ended September 30,
2008. The increase of added expenses was mainly due to increase in cost of labor
and professional services in the amount of $83,362. Increase in cost of travels
in an amount of $9,474 was offset by decrease in cost of other expenses of
$25,864.
General and Administrative
Expenses: General and administrative expenses Increased by
$211,785 or 497% in the 3 months ended September 30, 2009 to $254,359 from
$42,574 in the 3 months ended September 30, 2008. The increase of G&A
expenses was mainly due to SEC registration expenses of $221,830 offset by
decrease in cost of labor and professional fee expenses in the amount of $5,895
and office expenses in the amount of $4,150.
Loss from
Operations: Loss from operations for the 3 months ended
September 30, 2009 was $432,225 which is an increase of $307,128 or 246% from
the loss from operations in the 3 months ended September 30, 2008 of
$125,097.The increase in loss was a result of the increase in R&D expenses
($66,972), increase in G&A expenses ($211,785) offset by decrease in sales
($28,371).
Financing
Expenses: Total financing expenses in the 3 months ended
September 30, 2009 amounted to $4,004, which was $585 lower than our financing
expenses of $4,589 in the 3 months ended September 30, 2008.
Net Loss: Net loss
of $436,229 in the 3 months ended September 30, 2009 was $306,543 or 236% higher
than the net loss in the 3 months ended September 30, 2008 of
$129,686 mainly due to increase in R&D expenses ($66,972), increase in
G&A expenses ($211,785), which were partially offset by decrease in sales
($28,371) and financing expenses ($585).
Results
of Operations for the nine months Ended September 30, 2009 compared to the
nine months Ended September30, 2008
Total Net
Sales: Total Net Sales increased by $2,568 or 4% to $73,925 in
the 9 months ended September 30, 2009 from $71,357 for the 9 months ended
September 30, 2008. Revenues were derived from sales of our products
and technology to pilot rooms in the UK and other territories. The
Company’s products and technology are still in development stage and have not
been actively marketed to date.
R&D Expenses: Total net
R&D Expenses for the 9 month ended September 30, 2009 were $589,279 which is
an increase of $291,600 or 98% from the 9 months ended September 30, 2008. The
increase of R&D expenses was mainly due to increase in cost of labor and
professional services in the amount of $252,051, increase of travels expenses of
$30,482 which were partially offset by decrease of other expenses of $22,101 and
decrease in CSO grants of $31,168.
General and Administrative
Expenses: General and administrative expenses increased by
$227,739 or 216% in the 9 months ended September 30, 2009 to $333,075 from
$105,336 in the 9 months ended September 30, 2008. The increase in G&A
expenses was mainly due to SEC registration expenses of $221,830 and increase in
cost of professional fee expenses of $29,687 which were partially offset by
decrease in the cost of labor of $21,801 and decrease in the cost of other
expenses of $1,977.
Loss from
Operations: Loss from operations for the 9 months ended
September 30, 2009 was $848,429 which is an increase of $516,771 or 156% from
the loss from operations in the 9 months ended September 30, 2008 of $331,658.
The increase in loss was a result of the growth in R&D expenses ($291,600),
G&A expenses ($227,739) which were partially offset by growth of sales
($2,568).
Financing
Expenses: Total financing expenses for the 9 months ended
September 30, 2009 amounted to $10,630, which was $1,975 higher than our
financing expenses of $8,655 in the 9 months ended September 30, 2008. The
increase of financing expenses was mainly a result of increase in bank
expenses due to increase in activities and exchange rate
fluctuations.
Net Loss: Net loss
of $859,059 in the 9 months ended September 30, 2009 was $518,746 or 152%
higher than the net loss in the 9 months ended September 30, 2008 of $340,313,
mainly due to increase of R&D expenses at the amount of $291,600, increase
of G&A expenses of $227,739 and financing expenses of $1,975 which were
partially offset by increase in sales of $2,568.
20
Liquidity
and Capital Resources
As of
September 30, 2009, we had liabilities of $381,503 ($238,184 as of
December, 2008), including $214,845 ($101,511 as of December 31, 2008) of third
party liabilities, and $166,658 ($136,673 as of December 31, 2008) was due
to related parties. The amounts due to related parties are for consulting
services and salaries in the amount of $155,256 ($86,000 as of December 31,
2008) and for services and reimbursement of expenses relating to the company’s
patents and patent applications in the amount of $11,402 ($26,000 as of December
31, 2008).
As of
September 30, 2009 we have cash on hand in the sum of $15,364. As of October 31,
2009 we have cash on hand in the sum of $31,168. Currently our net burn rate is
approximately $75,000 per month. Thus, we will need additional sums of
approximately $100,000 through December 2009. Since the end of October 2009 we
have received investments in the sum of $99,275 and In addition, under our joint
venture agreement with Vegiesafe LLC, Vegiesafe is committed to finance our
activities in the US on an expended basis of up to $250,000 (out of which,
$80,000 were paid until October 2008). Furthermore we have extended our credit
lines up to $40,000.
The
Company has sustained operating losses and its cash needs extend beyond its
current resources. Subsequently, by December 2009, the Company will exhaust most
of its liquidity. In addition, the Company does not have a reliable consistent
source of future funding. These factors create an uncertainty about the
Company’s ability to continue as a going concern.
The
Company anticipates that it will begin to realize material revenues in the
potato season of 2010 (the third and fourth quarters of 2010), as clients will
begin to utilize and pay for the Company’s product and technology, and the
Company estimates that approximately $2.0 million of additional funding is
necessary to bring the Company to the larger revenue sales that were due to
begin in 2010. Realization of revenues is subject to regulatory approval of
the relevant regulator, in each country where we intend to deliver, distribute
and sell our products, which we currently do not have, except for the state of
Israel.
Management
believes that as a result of anticipated financing in 2009, and with certain
revenues to be received from the sale and delivery of its products to clients,
there will be sufficient capital to meet operating needs for the year ended
December 31, 2009. However, there can be no assurance that we will be able to
obtain such financing, on terms acceptable to us and at the times required, or
at all. In addition, there can be no assurance that the contracts that the
Company is relying upon will generate sufficient revenues to meet its operating
needs, and therefore, there is a risk that the Company will not have sufficient
capital or liquidity in the future, if these contracts do not come to fruition,
or do not generate the revenue the Company anticipates. If these contracts do
not generate the anticipated revenue, it is likely the Company will not have
sufficient liquidity or capital resources to sustain itself without additional
financing, and there is no assurance that additional financings will be
available to the Company, or if such financing will be available on acceptable
terms.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures
ITEM
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable.
Not
applicable.
21
PART
II - OTHER INFORMATION
ITEM
1. Legal Proceedings
From time
to time, we may be a defendant and plaintiff in various legal proceedings
arising in the normal course of our business. We are currently not a party to
any material pending legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, management is not
aware of any known litigation or liabilities involving the operators of our
properties that could affect our operations. Should any liabilities be incurred
in the future, they will be accrued based on management’s best estimate of the
potential loss. As such, there is no adverse effect on our consolidated
financial position, results of operations or cash flow at this time.
Furthermore, management does not believe that there are any proceedings to which
any director, officer, or affiliate of the Company, any owner of record of the
beneficially or more than five percent of the common stock of the Company, or
any associate of any such director, officer, affiliate of the Company, or
security holder is a party adverse to the Company or has a material interest
adverse to the Company.
ITEM
1A. Risk Factors
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Statement of Forward-Looking Information.” If any of the
following risks actually occur, the Company’s business, financial condition or
results of operations could be materially adversely affected, the value of the
Company common stock could decline, and you may lose all or part of your
investment.
Risks
Related to Our Business and Industry
Our
independent auditors have expressed doubt about our ability to continue our
activities as a going concern, which may hinder our ability to obtain future
financing.
Since we
have been focused on developing our propriety technology for availability of
commercialization, we have suffered recurring losses from operations. The
continuation of our company as a going concern is dependent upon our company
attaining and maintaining profitable operations and raising additional capital.
The financial statements do not include any adjustment relating to the recovery
and classification of recorded asset amounts or the amount and classification of
liabilities that might be necessary should our company discontinue
operations.
Due to
the uncertainty of our ability to meet our current operating expenses and the
capital expenses noted above, in their report on the annual financial statements
for the years ended December 31, 2008, 2007 and 2006, our independent auditors
included an explanatory paragraph regarding the doubt about our ability to
continue as a going concern. Our financial statements contain additional note
disclosures describing the status of the company.
The
continuation of our business is dependent upon us raising additional financial
support. The issuance of additional equity securities by us could result in a
significant/substantial dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments. If
the Company should fail to continue as a going concern, you may lose the value
of your investment in the Company.
We have a limited
operating history upon which to base an investment decision.
Our
operating subsidiary, Pimi Israel, was formed in January 2004 and we have only
recently begun selling our products. We have a limited operating history as a
company. As a result, there is very limited historical performance
upon which to evaluate our prospects for achieving our business
objectives. Our prospects must be considered in light of the risks,
difficulties and uncertainties frequently encountered by development stage
entities.
We will need
significant additional capital, which we may be unable to
obtain.
Our
capital requirements in connection with our research and development activities
and transition to commercial operations have been and will continue to be
significant. We will require additional funds to continue research, development
and testing of our technologies and products, to obtain intellectual property
protection relating to our technologies when appropriate, and to market our
products. There can be no assurance that financing will be available in amounts
or on terms acceptable to us, if at all. There is no assurance
additional funds will be available from any source; or, if available, such funds
may not be on terms acceptable to the Company. In either of the
aforementioned situations, the Company may not be able to fully implement its
growth plans.
In order
to continue our operations, without expanding our activities, we estimate that
we will need minimum capital in the sum of $0.7 Million in 2009 (out of which we
have raised $ 0.63 Million) and the sum of $0.8 Million in 2010. Currently our
net burn rate is approximately $75,000 per month. As of October 31, 2009 we have
cash on hand in the sum of $31,000. Thus, we will need additional sums of
approximately $100,000 through December 2009. If we are unable to obtain such
additional capital as discussed above, we will be required to limit our
operations, including cancelling efficacy tests in Europe and the U.S., halting
activities in connection with attaining regulatory permits in Europe, halting
completion of development of our other products (StoreGuard and SeedGuard),
until such capital is raised. This will, among other things, delay our
development and the integration of our products into the market.
22
We expect to face significant
competition from other companies looking to develop or acquire new alternative
environment-friendly solutions for the treatment of fruits and
vegetables.
We expect
to face significant competition in every aspect of our business, and
particularly from other companies that seek to enter our market. As regulators
are pushing to move away from current residue chemical solutions, such as
Chlorophenyl Isopropyl Carbamate also known as Chlorpropham or CIPC (“CIPC”),
existing suppliers of these solutions are anxiously looking to develop or
acquire new alternative environment-friendly solutions that can sustain their
market share and revenue streams, or to enable the continuance of CIPC at
current levels in new ways of treatment. Additionally, as market opportunity
becomes eminent, competitors and new players will most likely attempt to develop
similar or comparable solutions. Although Pimi believes its technology is
unique, is well protected, and will provide it with a significant competitive
barrier, it is nevertheless possible that superior or more cost-effective
alternative technology will emerge that will achieve greater market acceptance
and render Pimi’s products less competitive. Furthermore, existing vendors can
cooperate to combat new players by reducing market prices and margins or other
competitive initiatives. The future success of Pimi will therefore depend, to a
large extent, upon the company’s ability to achieve market acceptance of its
innovative solutions as well as develop and introduce new products and
enhancements to existing products. No assurance can be given that the Company
will be able to compete in such a market place.
We
have incurred significant losses to date and expect to continue to incur
losses.
During
the year ended December 31, 2008, we incurred net losses of in the sum of
$602,994. In the nine and three months periods ended September 30, 2009, we
incurred a net loss in the sum of $859,059 and $436,229, respectively .Since we
have started our operation in 2005 and until September 30, 2009 we incurred
accumulated losses in the sum of 2,858,206. We expect to continue to incur
losses for the fiscal years ended December 31, 2009 and December 31,
2010. Continuing losses will have an adverse impact on our cash flow
and may impair our ability to raise additional capital required to continue and
expand our operations.
We are dependent
upon our Managers for the operating of the Company.
The
Company is dependent upon the services of its management to determine and
implement the overall focus and strategy of the Company. Furthermore,
the Company is dependent upon the Managers to oversee the operations of Pimi and
Pimi Israel. Thus, there can be no assurance that the Managers’
experience will be sufficient to successfully achieve the business objectives of
the Company. All decisions regarding the management of the Company’s
affairs will be made exclusively by the Officers and Directors of the
Company. In the event these persons are ineffective, the Company’s
business and results of operation would likely be adversely
affected.
Our success is
dependent upon our ability to achieve regulatory approvals in the U.S. and
abroad.
A
critical key to our success and ability to expand our business is our ability to obtain
regulatory approvals in the European Union and United States for the use of our
products in these countries and also in other countries. The regulatory
approvals are dependent on trials to show the efficacy or the non toxicity of
our products. Such trial might take longer period than expected and it might
delay obtaining such regulatory approvals or might cause delay in starting
operation on a large scale in these countries and jurisdictions.
Our
success is dependent upon our ability to achieve market acceptance
In order
to achieve high volume sales, and attain a leading market share and become the
new standard of treatment, the Company’s SpuDefender™ and other products must
not only be approved by the regulators but also endorsed by the major potato
food processors, retailer of fruits and vegetables as well as the organic food
and environment organizations. Pimi is aware of this key factor and is focusing
on conducting large scale trials with major food processors and retail supplier
of table potatoes in several countries, in order to show the efficacy of the
SpuDefender™ and our technology and to receive the recognition of the industry,
but no assurances can be made that we will succeed in such endeavor and how long
it will take until we shall receive market recognition.
Our
products and technology are still in development stage and require additional
trials and development
Our
products and technology have been tested in numerous trials, mainly in Israel,
which is a hot climate country and on vegetable varieties which are grown in hot
climate as well as storage rooms with refrigeration. Trials conducted in Europe
during the last potato season in cold weather conditions demonstrated that we
need to make some adjustments to our storage protocol, mainly because of these
weather conditions. These adjustments may require additional trials and may
delay the commercialization of our products and technology.
We
rely on our Technologies to successfully develop and market new and existing
products.
Our
product has been tested in multiple small scale tests. The product is currently
undergoing Three large scale field trials in the United Kingdom and Germany and
3 beta sites trails in the US with leading food processors and retailers in such
countries. It is possible that the results from these large scale tests may show
lower efficacy than tests conducted previously, and may require some product
improvements as well as possible changes in the application and storage
protocol. These factors may significantly delay our product’s introduction to
market. Likewise, we cannot be sure these products will be commercially viable,
and have no assurances that we will be able to expand upon our current product
offerings or that any such expansion will result in revenues to the company.
23
We rely on
rapidly establishing a global distributorship network in order to effectively
market our products.
Pimi,
through its wholly owned subsidiary, has developed initial partnerships with
local distributors in Europe. In order to expand sales and marketing globally,
and capture a leading market share before any potential reaction from the
competition, Pimi will need to rapidly expand geographically and establish a
global distribution network. This is likely to put pressure on management,
financial and operational resources of the Company. In order to mitigate this
factor, once Pimi establishes a significant presence in the market, it will
proceed to establish strategic OEM partnerships with some of the leading players
in the market, however, there are no assurances that we will succeed in
establishing such partnerships, which may harm the marketing of our product and
the development of our business.
Our
inability to attain and protect intellectual property rights could reduce the
value of our products, services and brand.
Patents
and pending patents, trademarks, trade secrets, copyrights and other
intellectual property rights may be important assets for us. Various events
outside of our control pose a threat to our ability to attain or protect
intellectual property rights as well as to our products and services. For
example, effective intellectual property protection may not be available in
every country in which our products and services are distributed. Also, the
efforts we have taken to protect our proprietary rights may not be sufficient or
effective. Any significant impairment of our ability to attain or protect our
intellectual property rights could harm our business or our ability to compete.
Also, protecting intellectual property rights is costly and time consuming. Any
increase in the unauthorized use of our future intellectual property could make
it more expensive to do business and harm our operating results. In addition we do not have patents in
India, Ukraine and Belarus, which are major potato producing countries; this
could negatively affect our ability to protect our intellectual property in
these countries and therefore reduce the value of our products, services and
brand.
The
future of the company is dependent upon the acceptance of environment-friendly,
non-residue storage solutions for as well as the objection to genetically
modified, fruits and vegetables. Although this appears to be the direction the
market is going in the coming years, these trends as well as the future size of
this market, and other potential markets for the Company’s products, depend upon
a number of factors, many of which are beyond the control of the Company. For
example, failure to receive regulatory approvals or failure to convince
retailers or food processors, to bear additional cost for residue free fruit and
vegetables, failure to convince the consumers to purchase residue free fruits
and vegetables for higher prices, could have adverse effects on Pimi’s business,
financial condition, operating results and cash flow going forward.
Our
operating results may fluctuate, which makes our results difficult to predict
and could cause our results to fall short of expectations.
Our
operating results may fluctuate as a result of a number of factors, many outside
of our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not rely on our
past results as an indication of our future performance. Our quarterly,
year-to-date and annual expenses as a percentage of our revenues may differ
significantly from our historical or projected rates. Our operating results in
future quarters may fall below expectations. Any of these events could cause our
stock price to fall, in the event it becomes listed on the OTCBB. Each of the
risk factors listed in the section Risk Factors, and the following factors may
affect our operating results:
•
|
Our
ability to attract users for our products.
|
|
•
|
Our
ability to generate revenue from our products.
|
|
•
|
The
amount and timing of operating costs and capital expenditures related to
the maintenance and expansion of our businesses, operations and
infrastructure.
|
|
•
|
Our
focus on long-term goals over short-term results.
|
|
•
|
Our
ability to keep our testing programs operational at a reasonable cost and
without service interruptions.
|
|
•
|
Global
economic situation.
|
|
•
|
Fluctuations
in weather conditions.
|
|
•
|
The
seasonal nature of our business.
|
24
Our
business depends to some extent on international transactions.
As a
result of the international nature of Pimi’s business, the company is exposed to
risks associated with changes in foreign currency exchange rates. A majority of
the company’s revenues and substantially all of its cost of sales are in USD or
Euros, whilst our management, marketing, sales and R&D costs are in NIS. The
Company is therefore exposed to foreign currency risk due to fluctuations in
exchange rates. This may result in gains or losses with respect to movements in
exchange rates, which may be significant and may also cause fluctuations in
reported financial information that are not necessarily related to the Company’s
operating results.
We
operate in developing countries which are seriously affected by the global
economic crisis.
Among
other countries, we are currently operating in developing countries such as
Ukraine and we intend to operate in other developing countries which are largely
affected by the current global economic crisis. This may affect our ability to
expand our operations and to achieve our sales target in these
countries.
The
inherent dangers in production and transportation of Hydrogen Peroxide could
cause disruptions and could expose us to potentially significant losses, costs
or liabilities.
Pimi's
operations are subject to significant hazards and risks inherent in transporting
of the active ingredient of our Product- Hydrogen Peroxide. In high
concentrations, Hydrogen Peroxide is an aggressive oxidizer and will corrode
many materials. High concentrations of H2O2 will react violently. Hydrogen
Peroxide should be stored in a cool, dry, well-ventilated area and away from any
flammable or combustible substances. It should be transport in special tanks and
vehicles and should be stored in a container composed of non-reactive materials.
These hazards and risks include, but are not limited to, fires,
explosions, third-party interference (including terrorism) and mechanical
failure of equipment at Pimi’s or third-party facilities. The occurrence of any
of these events could result in production and distribution difficulties and
disruptions, personal injury or wrongful death claims and other damage to
properties.
Risks
Related to our Location in Israel
Conditions in
Israel may limit our ability to manage and market our products, which
would lead
to a decrease in revenues.
Because
part of our operations is conducted in Israel and our management is located in
Israel, our operations are directly affected by economic, political and military
conditions affecting Israel. Specifically, we could be adversely affected
by:
▪
|
any major hostilities involving Israel;
|
|
▪
|
risks associated with outages and disruptions of communications
networks due to any hostilities involving
Israel; and
|
▪
|
a significant downturn in the economic or financial conditions in
Israel.
|
Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Despite negotiations to effect peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Since
October 2000, there has been a significant increase in violence, civil
unrest and hostility, including armed clashes between the State of Israel and
the Palestinians, and acts of terror have been committed inside Israel and
against Israeli targets in the West Bank and Gaza Strip. In addition, the recent
armed conflict with Hezbollah on the northern border of Israel and extremists
groups in the southern region may negatively affect business conditions in
Israel. There is no indication as to how long the current hostilities will last
or whether there will be any further escalation. Any further escalation in these
hostilities or any future conflict, political instability or violence in the
region may have a negative effect on our business, harm our results of
operations and adversely affect our share price.
Furthermore,
there are a number of countries that restrict business with Israel or with
Israeli companies, which may limit our ability to promote our products and
services in those countries.
We may not be
able to enforce covenants not-to-compete under current Israeli law that
might
result in added competition for our products.
We have
non-competition agreements with all of our employees, all of which are governed
by Israeli law. These agreements prohibit our employees from competing with or
working for our competitors, generally during their employment in Pimi and for
up to 6 months after termination of their employment. However, Israeli
courts are reluctant to enforce non-compete undertakings of former employees and
tend, if at all, to enforce those provisions for relatively brief periods of
time in restricted geographical areas and only when the employee has obtained
unique value to the employer specific to that employer’s business and not just
regarding the professional development of the employee. If we are not able to
enforce non-compete covenants, we may be faced with added
competition.
It
will be extremely difficult to acquire jurisdiction and enforce liabilities
against our officers and directors who are based in Israel.
The
majority of our officers and present directors reside outside of the United
States and most of our operations at the time of the filing of this quarterly
report are located outside the United States. As a result, it may not be
possible for United States investors to enforce their legal rights, to effect
service of process upon our directors or officers or to enforce judgments of
United States courts predicated upon civil liabilities and criminal penalties of
our directors and officers under Federal securities laws. Moreover, we have been
advised that Israel does not have treaties providing for the reciprocal
recognition and enforcement of judgments of courts with the United States.
Further, it is unclear if extradition treaties now in effect between the United
States and Israel would permit effective enforcement of criminal penalties of
the Federal securities laws.
25
Risks Related to Share
Prices.
The
Company arbitrarily determined the price and terms of its offered
Shares
The price
of the Shares has been arbitrarily determined and bears no relationship to the
assets or book value of the Company, or other customary investment
criteria. No independent counsel or appraiser has been retained to
value the Shares, and no assurance can be made that the share price is in fact
reflective of the underlying value of the company Shares. Each
prospective investor is therefore urged to consult with his or her own legal
counsel and tax advisors as to the price and terms of the Shares of the
company.
The Shares are an
illiquid investment as there is presently no market for our Shares, and
transferability of the Shares is subject to significant
restriction.
There is
presently no market for the shares, and we cannot be certain that a public
market will become available, or that there will be sufficient liquidity to
allow for sale or transferability of the shares within the near future.
Therefore, the purchase of the Shares must be considered a long-term
investment acceptable only for prospective investors who are willing and can
afford to accept and bear the substantial risk of the investment for an
indefinite period of time. There is not a public market for the
resale of the Shares. A prospective investor, therefore, may not be
able to liquidate its investment, even in the event of an emergency, and Shares
may not be acceptable as collateral for a loan.
Because
We May Be Subject To The “Penny Stock” Rules, You May Have Difficulty In Selling
Our Common Stock.
If a
public market develops for our common stock and our stock price is less than
$5.00 per share, our stock may be subject to the SEC’s penny stock
rules. These rules impose additional sales practice requirements and
restrictions on broker-dealers that sell our stock to persons other than
established customers and institutional accredited investors. The application of
these rules may affect the ability of broker-dealers to sell our common stock
and may affect your ability to sell any common stock you may own. According to
the SEC, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse. Such patterns include:
•
|
Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
|
•
|
Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
•
|
“Boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced salespersons;
|
•
|
Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
•
|
The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
|
If we are
subject to penny stock rules, you may have difficulty selling your shares of our
common stock.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
On August
19, 2009 we issued 20,000 shares of Commons stock $0.01 par value to
Mr. Ehud Nahum, an Israeli citizen, under Regulation S pursuant to a Stock
Purchase Agreement dated August 4, 2009. Such shares were issued in
consideration for payment of $27,000 US Dollars ($1.35 per 1 Common Stock
share) which were received by the Company.
On
September 7, 2009 we issued 20,000 shares of Commons stock $0.01 par value to
Mr. Avraham Nehemia, a Canadian citizen, under Regulation S pursuant to a
Stock Purchase Agreement dated September 1, 2009. Such shares were issued in
consideration for payment of $27,000 US Dollars ($1.35 per 1 Common Stock share)
which were received by the Company.
On
October 15, 2009 we have issued 45,330 shares of common stock $0.01 par value to
Earthbound LLC under the Term Sheet dated January 20, 2009. Such
shares were issued in consideration for payment of $60,000 US Dollars
($1.35 per Common Stock share) which were received by the Company.
On
October 15, 2009 we issued 7,500 shares of Commons stock $0.01 par
value to Mr. Miron Gross, an Israeli citizen, under Regulation S pursuant
to a Stock Purchase Agreement dated October 12, 2009. Such shares were
issued in consideration for payment of $10,125 US Dollars ($1.35 per Common
Stock share) which were received by the Company.
On
October 15, 2009 we issued 7,500 shares of Commons stock $0.01 par
value to Mr. Boaz Navott, an Israeli citizen, under Regulation S pursuant
to a Stock Purchase Agreement dated October 12, 2009. Such shares were
issued in consideration for payment of $10,125 US Dollars ($1.35 per Common
Stock share) which were received by the Company.
26
On
October 19, 2009 we issued 10,000 shares of Commons stock $0.01 par
value to Mr. Ehud Nahum, an Israeli citizen, under Regulation S pursuant to
a Stock Purchase Agreement dated October 19, 2009. Such shares were
issued in consideration for payment of $13,500 US Dollars ($1.35 per Common
Stock share) which were received by the Company.
On
October 19, 2009 we issued 10,000 shares of Commons stock $0.01 par
value to Mr. Yuval Nahum, an Israeli citizen, under Regulation S pursuant
to a Stock Purchase Agreement dated October 19, 2009. Such shares were
issued in consideration for payment of $13,500 US Dollars ($1.35 per Common
Stock share) which were received by the Company.
On
November 15, 2009, we closed a private placement of 73,537 shares of common
stock (the “Securities”) to three Israeli investors under Regulation S and one
US investor under Regulation D (the “Investors”) for aggregate gross proceeds of
$ 99,275 pursuant to a Securities Purchase Agreement.
All
proceeds received were utilized for working capital purposes.
No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of
persons, all of whom were
accredited investors, business associates of
Pimi or executive officers of Pimi, and transfer was restricted
by Pimi in accordance with
the requirements of the Securities Act of 1933. In
addition to representations by the above-referenced
persons, we have made independent determinations above-referenced persons
were accredited or sophisticated investors, and that they
were capable of analyzing the merits and risks of
their investment, and that they understood the
speculative nature of
their investment.
ITEM
3. Defaults Upon Senior Securities
ITEM
4. Submission of Matters to a Vote of Security Holders
None.
ITEM
5. Other Information
As noted
above, on November 15, 2009, we closed a private placement of 73,537 shares of
common stock (the “Securities”) to three Israeli investors under Regulation S
and one US investor under Regulation D (the “Investors”) for aggregate gross
proceeds of $ 99,275 pursuant to a Securities Purchase Agreement.
Unless
otherwise noted in this section, with respect to the sale of unregistered
securities referenced above, all transactions were exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"), and Regulation D or Regulation S promulgated under the 1933 Act. In each
instance, the purchaser had access to sufficient information regarding Pimi so
as to make an informed investment decision. More specifically, we had a
reasonable basis to believe that each purchaser was an "accredited investor" as
defined in Regulation D or Regulation S of the 1933 Act and otherwise had the
requisite sophistication to make an investment in Pimi's
securities.
ITEM
6. Exhibits
EXHIBIT
|
||
NUMBER
|
DESCRIPTION
|
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section 302
(1)
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section 302
(1)
|
32.1
|
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
(1)
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
(1)
|
10.1
|
Form
of Regulation S Stock Purchase Agreement dated November 15,
2009
|
|
10.2
|
Form
of Regulation D Stock Purchase Agreement dated November 15,
2009
|
(1) Filed
herewith.
27
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized on this 16 th day of November
2009.
Date:
November 16, 2009
|
By:
|
/s/ Youval Saly | |
Youval Saly | |||
Title: Chief
Executive
Principal
Executive Officer
|
|
||
Date:
November 16, 2009
|
By:
|
/s/ Avi Lifshitz | |
Avi Lifshitz | |||
Principal Accounting and Financial Officer | |||