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EX-32.1 - EXHIBIT 32.1 - PIMI AGRO CLEANTECH, INC.v240900_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - PIMI AGRO CLEANTECH, INC.v240900_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - PIMI AGRO CLEANTECH, INC.v240900_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - PIMI AGRO CLEANTECH, INC.v240900_ex31-1.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

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, 2011
or

¨
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)

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 ¨

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 þ  No ¨

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 ¨ Accelerated filer ¨ Non-accelerated filer ¨ 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 ¨  No þ

The number of shares of common stock outstanding as of September 30, 2011 was 8,541,487.
 
 
 

 

ITEM 1. Condensed Consolidated Financial Statements
 
PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
Condensed Consolidated Financial Statements
as of September 30, 2011 (Unaudited)
 
 
 

 
 
PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
Condensed Consolidated Financial Statements
as of September 30, 2011 (Unaudited)
 
Table of Contents
 
 
Page
   
Condensed Consolidated Financial Statements
 
   
Consolidated Balance Sheets
2
   
Consolidated Statements of Operations
3
   
Consolidated Statements of Changes in Stockholders’ Deficit
4 – 9
   
Consolidated Statements of Cash Flows
10
   
Notes to Condensed Consolidated Financial Statements
11 – 15
 
 
 

 
 
PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED BALANCE SHEETS

   
US dollars
(except share data)
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(unaudited)
   
(audited)
 
ASSETS
           
Current Assets
           
Cash and cash equivalents
    99,518       -  
Accounts receivable
    113,325       128,695  
Other current assets
    31,592       54,194  
Total current assets
    244,435       182,889  
                 
Property and Equipment, Net
    30,067       36,720  
Funds in Respect of Employee Rights Upon Retirement
    67,934       61,967  
Total assets
    342,436       281,576  
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
Current Liabilities
               
Credit from banking institution
    -       63,216  
Accounts payable:
               
Trade
    113,338       164,729  
Other
    197,300       285,609  
Convertible Bonds
    169,047       126,275  
Total current liabilities
    479,685       639,829  
                 
Liability for employee rights upon retirement
    72,716       60,106  
Total liabilities
    552,401       699,935  
                 
Stockholders’ Deficit
               
Common stocks of US$ 0.01 par value ("Common stocks"):
               
30,000,000 shares authorized as of September 30, 2011 and December 31, 2010; issued and outstanding 8,541,087 shares and 7,160,564 shares as of September 30, 2011 and December 31, 2010, respectively
    85,410       71,604  
Additional paid in capital
    4,049,443       3,284,728  
Accumulated other comprehensive loss
    (61,532 )     (69,882 )
Accumulated deficit
    (4,283,286 )     (3,704,809 )
Total stockholders' deficit
    (209,965 )     (418,359 )
Total liabilities and stockholders’ deficit
    342,436       281,576  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 2 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   
US dollars (except share data)
 
   
Nine month period 
ended September 30,
   
Three month period
ended September 30,
   
Cumulative 
period from
January 14,2004
(date of inception)
through
September 30,
 
   
2011
   
2010
   
2011
   
2010
      2011(*)  
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Revenues from sales of products
    252,905       110,999       92,405       57,288       796,698  
Research and development expenses
    (508,052 )     (373,629 )     (155,264 )     (86,763 )     (3,360,568 )
General and administrative expenses
    (268,913 )     (266,041 )     (97,066 )     (104,928 )     (1,500,735 )
Operating loss
    (524,060 )     (528,671 )     (159,925 )     (134,403 )     (4,064,605 )
Financing expenses, net
    (54,417 )     (37,003 )     (5,045 )     (21,738 )     (138,347 )
Loss from continuing operation
    (578,477 )     (565,674 )     (164,970 )     (156,141 )     (4,202,952 )
Loss from discontinued operation, net
    -       -       -       -       (80,334 )
Loss for the period
    (578,477 )     (565,674 )     (164,970 )     (156,141 )     (4,283,286 )
                                         
Loss per share (basic and diluted)
    (0.07 )     (0.08 )     (0.02 )     (0.02 )        
                                         
Weighted average number of shares outstanding (basic and diluted)
    8,072,741       6,662,643       8,072,741       6,662,643          

(*)
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 3 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*)
 
   
US Dollars (except 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
stockholders
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 4 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

    
US Dollars (except 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
stockholders
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.

 
- 5 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

   
US Dollars (except 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
stockholders
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 6 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

   
US Dollars (except 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
stockholders
equity (deficit)
 
Loss for the year
    -       -       -       -       -       (1,076,624 )     (1,076,624 )
Loss on translation of subsidiary functional currency to the reporting currency
    -       -       -       (11,810 )     -       -       (11,810
Total comprehensive loss
                                                    (1,088,434 )
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 3,373 common stock for cash of US$ 1.33 per share in March 2009
    3,373       34       24,966       -       -       -       25,000  
Issuance of 201,972 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 20,000 common stock for cash of US$ 1.35 per share in August 2009
    20,000       200       26,800       -       -       -       27,000  
Issuance of 20,000 common stock for cash of US$ 1.35 per share in September 2009
    20,000       200       26,800       -       -       -       27,000  
Issuance of 35,000 common stock for cash of US$ 1.35 per share in October 2009
    35,000       350       46,900       -       -       -       47,250  
Issuance of 45,330 common stock for cash of US$ 1.32 per share in October 2009
    45,330       453       59,547       -       -       -       60,000  
Issuance of 54,263 common stock for cash of US$ 1.35 per share in November 2009
    54,263       542       68,193       -       -       -       68,735  
Stock based compensation
    -       -       91,077       -       -       -       91,077  
Balance as of December 31, 2009
    6,573,110       65,730       2,795,066       (41,666 )     -       (3,075,771 )     (256,641 )

(*)
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 7 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

   
US Dollars (except 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
stockholders
equity (deficit)
 
Loss for the year
    -       -       -       -       -       (629,038 )     (629,038 )
Loss on translation of subsidiary functional currency to the reporting currency
    -       -       -       (28,216 )     -       -       (28,216 )
Total comprehensive loss
                                                    (657,254 )
                                                         
Issuance of 3,225 common stock for cash of US$ 1.55 per share in February 2010
    3,225       32       4,968       -       -       -       5,000  
Issuance of 35,000 common stock for cash of US$ 1.35 per share in February 2010
    35,000       350       46,900       -       -       -       47,250  
Issuance of common stock and warrants, net of issuance costs in August 2010
    385,108       3,851       197,215       -       -       -       201,066  
Issuance of 134,121 common stock for cash of US$ 0.6 per share in December 2010
    134,121       1,341       76,118       -       -       -       77,459  
Amounts attributed to detachable warrants issued in connection with convertible bonds
    -       -       41,208       -       -       -       41,208  
Beneficial conversion feature on convertible bonds
    -       -       41,207       -       -       -       41,207  
Stock based compensation (**)
    30,000       300       82,046       -       -       -       82,346  
Balance as of December 31, 2010
    7,160,564       71,604       3,284,728       (69,882 )     -       (3,704,809 )     (418,359 )

(*)
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 stockholders on April 27, 2009.
 
(**)
Including US$ 24,850 with respect to the issuance of 30,000 common stock to a service provider.
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 8 -

 


PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

   
US Dollars (except 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
stockholders
equity (deficit)
 
Loss for the period
    -       -       -       -       -       (578,477 )     (578,477 )
Loss on translation of subsidiary functional currency to the reporting currency
    -       -       -       8,350       -       -       8,350  
Total comprehensive loss
                                                    (570,127 )
                                                         
Issuance of 125,000 common stock for cash of US$ 0.8 per share in January 2011
    125,000       1,250       98,750       -       -       -       100,000  
Issuance of 125,000 common stock for cash of US$ 0.8 per share in February 2011
    125,000       1,250       98,750       -       -       -       100,000  
Issuance of 250,000 common stock for cash of US$ 0.8 per share in March 2011
    250,000       2,500       197,500       -       -       -       200,000  
Issuance of 368,750 common stock for cash of US$ 0.8 per share in April 2011
    368,750       3,688       291,312       -       -       -       295,000  
Issuance of 125,000 common stock for cash of US$ 0.8 per share in May 2011
    125,000       1,250       98,750       -       -       -       100,000  
Issuance of 12,500 common stock for cash of US$ 0.8 per share in September 2011
    12,500       125       9,825       -       -       -       9,950  
Issuance of 62,500 common stock and payment of US$ 50,000 in cash as issuance costs (see Note 4G)
    62,500       625       (50,625 )     -       -       -       (50,000 )
Exercise of options
    311,773       3,118       -       -       -       -       3,118  
Stock based compensation
    -       -       20,453                               20,453  
Balance as of September 30, 2011 (unaudited)
    8,541,087       85,410       4,049,443       (61,532 )     -       (4,283,286 )     (209,965 )

(*)
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 stockholders on April 27, 2009.
 
The accompanying notes are an integral part of the consolidated financial statements.

 
- 9 -

 
 
PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
US dollars (except share data)
 
   
Nine month period
ended September 30,
   
Three month period
ended September 30,
   
Cumulative
period from
January 14, 2004
(date ofinception)
through
September 30,
 
   
2011
   
2010
   
2011
   
2010
      2011(*)  
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
Cash flows from operating activities:
                               
Loss for the period
    (578,477 )     (565,674 )     (164,970 )     (156,141 )     (4,283,286 )
Adjustments to reconcile net loss for the period to net cash used in operating activities:
                                       
Depreciation
    6,721       5,285       2,270       2,055       37,713  
Increase in liability for employee rights upon retirement
    16,035       6,297       3,020       978       70,259  
Stock based compensation
    20,453       65,899       5,593       19,058       237,643  
Interest on convertible bonds
    50,808       25,404       16,936       16,712       93,148  
Interest on stockholders loans
    -       -       -       -       (2,409 )
Changes in assets and liabilities:
                                       
Decrease (increase) in accounts receivable
    10,217       (16,165 )     (53,030 )     (21,415 )     (110,400 )
Decrease (increase) in other current assets
    21,265       (18,818 )     29,696       15,997       (125,948 )
Increase (decrease) in accounts payable – trade
    (46,435 )     74,849       27,754       (4,133 )     105,347  
Increase (decrease) in accounts payable – other
    (79,675 )     49,203       (47,277 )     2,065       228,558  
Net cash used in operating activities generated from continuing operations
    (579,088 )     (373,720 )     (180,008 )     (124,824 )     (3,749,375 )
Net cash provided in operating activities generated from discontinued operations
    -       -       -       -       80,334  
Net cash used in operating activities
    (579,088 )     (373,720 )     (180,008 )     (124,824 )     (3,669,041 )
Cash flows from investment activities:
                                       
Increase in funds in respect of employee rights upon retirement
    (9,136 )     (9,493 )     88       (2,038 )     (64,644 )
Purchase of property and equipment
    (1,420 )     (15,782 )     (1,420 )     (8,202 )     (64,071 )
Net cash used in investment activities
    (10,556 )     (25,275 )     (1,332 )     (10,240 )     (128,715 )
Cash flows from financing activities:
                                       
Credit from banking institution
    (63,556 )     (9,126 )     126       (40,354 )     (3,539 )
Proceeds from issuance of common stock and warrants
    758,118       253,316       10,000       180,421       3,309,267  
Payment on account of shares
    -       -       -       -       233,644  
Proceeds from issuance of convertible bonds and warrants, net
    -       159,808       -       -       159,808  
Proceeds from loans from stockholders
    -       -       -       -       194,083  
Net cash provided by financing activities
    694,562       403,998       10,126       140,067       3,893,263  
Effect of exchange rate changes on cash and cash equivalents
    (5,400 )     (496 )     (15,265 )     (496 )     4,011  
Increase (decrease) in cash and cash equivalents
    99,518       4,507       (186,479 )     4,507       99,518  
Cash and cash equivalents at beginning of the period
    -       -       285,997       -       -  
Cash and cash equivalents at end of the period
    99,518       4,507       99,518       4,507       99,518  

(*)
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 stockholders on April 27, 2009.

The accompanying notes are an integral part of the consolidated financial statements.
 
 
- 10 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE1
-     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 stockholders 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 stockholders 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 involves 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 stockholders 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 were retroactively restated to 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 FASB Accounting Standards Codification (ASC) Topic 915, "Development Stage Entities".

 
B.
Going concern uncertainty
 
Since its incorporation (April 1, 2009), the Company does not have any operations other than those carried out by Pimi Israel. 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, Pimi Israel has incurred accumulated losses of US$ 4,283,286 and cumulative negative operating cash flow of US$ 3,669,041.
 
Continuation of the Company's current operations after utilizing its current reserves is dependent upon the generation of additional financial resources either through fund raising or by generating revenues from its products. The Company focuses its solutions towards vegetables and fruits which are considered the largest in terms of worldwide consumption. Among other things, the Company tries to cooperate with major fruit packing houses in Israel and abroad.
 
In addition the Company is exploring several options to raise funds. Among other things, in order to improve its liquidity the Company, issued certain service providers (including related parties) common stock as payment for accounts payables for services received, and subsequent to balance sheet date the Company entered into several agreements to issue common stock and warrants.
 
These factors raise substantial doubt about Pimi Israel and the Company's ability to continue as a going concern.
 
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
- 11 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 1
-
GENERAL (cont.)
 
 
C.
Risk factors
 
The Company and Pimi Israel (the "Group") have a limited operating history and face 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 changes, 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. See also the Company’s annual report on Form 10-K for the year ended December 31, 2010 for a more comprehensive description of the risk factors faced by the Company.
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 stockholders and investors.

 
D.
Use of estimates in the preparation of financial statements
 
The preparation of condensed 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
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

 
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 (consisting of normal recurring adjustments) for a fair presentation of the Company’s financial position at September 30, 2011 and the results of its operations and cash flow for each of the nine and three month periods then ended.
 
The unaudited interim financial statements were prepared on a basis consistent with the Company’s annual financial statements on Form 10-K for the year ended December 31, 2010.  Results of operations for the nine and three month periods ended September 30, 2011 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2011.
 
The consolidated balance sheet as of December 31, 2010 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 annual report on Form 10-K for the year ended December 31, 2010.

 
- 12 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2
-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
 
B.
Recently issued accounting pronouncements
 
 
1.
ASC Topic 605 - 25 “Revenue Recognition - Multiple-Element Arrangements
 
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (fiscal year 2011 for the Company), with early adoption permitted, modify the criteria for recognizing revenue in multiple element arrangements and require companies to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, the amendments eliminate the residual method for allocating arrangement considerations. The adoption of the amendments did not have a material impact on the Company's financial position, results of operations or cash flows.

 
2.
ASC Topic 718, “Compensation - Stock Compensation
 
In April 2010, the FASB issued guidance to clarify that an employee share-based payment award that has an exercise price denominated in the currency of the market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity should not classify such an award as a liability if it otherwise qualifies as equity. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  (Fiscal year 2011 for the Company.)
 
The adoption of the new guidance did not have a material impact on the Company's financial position, results of operations or cash flows.

 
3.
ASC Topic 310, “Receivables”
 
In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses ASU 2010-20). ASU 2010-20 provides guidance to enhance disclosures about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Financial instruments that may subject the Company to significant concentrations of credit risk consist principally of trade receivable and account receivables.
 
For public entities, the disclosures as of the end of a reporting period became effective for interim and annual reporting periods ending on or after December 15, 2010 (the 2010 annual financial statements). The disclosures about activity that occurs during a reporting period became effective in the current interim period.
 
 
- 13 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 3
-
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 and diluted loss per share for the nine month periods ended September 30, 2011 and 2010 are as follows:
 
   
US dollars
   
US dollars
 
   
Nine month period 
ended September 30,
   
Three month period 
ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                                 
Net loss used for the computation of loss per share
    578,477       565,674       164,970       156,141  

   
Number of shares
 
   
September 30,
 
   
2011
   
2010
 
                 
Weighted average number of shares used in the computation of basic and diluted earnings per share
    8,072,741       6,662,643  

 
(*)
The effect of the inclusion of options and convertible bonds for the nine and three month periods ended September 30, 2011 and 2010 is anti-dilutive.

NOTE 4
-
EVENTS DURING THE REPORTING PERIOD
 
 
A.
On December 28, 2010, the Company entered into an Agreement with a private individual residing in Israel or a company under his control (the "Investor"). Pursuant to the Agreement, the Investor shall invest a minimum of US$100,000 and up to an aggregate of US$400,000, at a purchase price of US$0.80 per share. The private placement shall take place in four tranches, provided an amount beyond the minimum is financed. The initial tranche of US$50,000 was made by the Investor on January 3, 2011. The second tranche in the sum of US$50,000 was made on February 5, 2011 and the third tranche of the sum of US$50,000 was made on March 10, 2011. In each such tranche, the Company issued the Investor 40,000 shares. Additional tranche may take place on April 30, 2011. In addition, for each share of common stock purchased, the Investor is entitled to receive warrants having an exercise price of US$0.80, exercisable for a period of two years from the date of issuance.
 
 
B.
On January 24, 2011, the Company entered into an Agreement with three private individuals residing in Israel (the “Investors”). Pursuant to the Agreement, the Investors shall invest a minimum of US$50,000 and up to an aggregate of US$500,000, at a purchase price of US$0.80 per share. For each share of common stock purchased, the Investors shall receive a warrant with an exercise price of US$0.80, exercisable until December 31, 2012. The private placement shall take place in five tranches, provided an amount beyond the minimum is financed. The first 3 tranches of US$50,000 each were made by the Investors on January 27, 2011, February 16, 2011 and March 16, 2011 respectively. The remaining tranches shall take place on or prior to April 15, 2011, and May 15, 2011. (See also notes E and F)
 
 
C.
On March 2, 2011, the Company entered into subscription agreements with 4 individuals residing in Israel for the total sum of US$100,000 at a purchase price of US$0.80 per share. For each share of common stock purchased, the investor received a warrant with an exercise price of US$0.80, exercisable until March 2, 2013.
 
 
- 14 -

 

PIMI AGRO CLEANTECH, INC.
(A Development Stage Company)
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 4
-
EVENTS DURING THE REPORTING PERIOD (cont.)
 
 
D.
On April 12, 2011 the Company entered into subscription agreements with an individual and two companies all of which are Israeli residents, under which the company issued 56,250 common stock shares for the total sum of $45,000 (a purchase price of $0.80 per share). For each share of Common Stock purchased, the Company issued a warrant with an exercise price of $0.80, exercisable until April 12, 2013.

 
E.
On April 26, 2011, the Company issued to an individual and a joint company both of which are Israeli residents (the “Investors”),under an agreement which the company entered with these Investors on January 24, 2011, 312,500 common stock shares for the total sum of $250,000 (a purchase price of $0.80 per share). For each share of Common Stock purchased, the Investors received a warrant with an exercise price of $0.80, exercisable until December 31, 2012.

 
F.
On May 15, 2011, the Company issued to the Investors mentioned above, under an agreement which the company entered on January 24, 2011, 125,000 common stock shares for the total sum of $100,000 (a purchase price of $0.80 per share). For each share of Common Stock purchased, the Investors received a warrant with an exercise price of $0.80, exercisable until December 31, 2012.

 
G.
On June 6, 2011, the Company paid to a service provider (an Israeli citizen), $50,000 and 62,500 of its common stock shares (representing a fair value of $50,000) as a success fee for services rendered by such service provider in connection with several investments accrued during 2011.

 
H.
On June 6, 2011, the Company issued, under the Company Shares Option Scheme for 2009, to a Trust Company, which holds the shares in trust for the CEO, Mr. Youval Saly, 311,773 common stock shares for the total sum of $3,118 (a purchase price of $0.01 per share).

 
I.
On September 1, 2011, the Company entered into subscription agreements with an individual residing in Israel, under which the Company issued 12,500 common stock shares for the total sum of US$ 10,000 (a purchase price of US$ 0.80 per share).  For each share of Common Stock purchased, the Company issued a warrant with an exercise price of US$ 0.80, exercisable until September 1, 2014.

 
J.
On June 29, 2011, the convertible bonds holder notified the Company that he decided not to exercise the conversion rights and asked for repayment of the bonds.  The Company is negotiating with the bonds holder, the terms of repayment of the bonds, which are represented as current liabilities in the financial statements.
 
 
- 15 -

 

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 Operations," and "Risk Factors" in 2010 10K. 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" in 2010 10K, 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

The Company focuses on developing environmentally friendly cleansers and pesticide solutions for extending storability and shelf life of vegetables and fruits. The Company is currently in the research and development stage. As of the date of this report, the Company is developing five (5) products (CitrusGuard™, SpuDefender™, SweetGuard™, StorGuard™ and OnionGuard) and has started the commercialization of three (3) of these products (CitrusGuard™, SpuDefender™, SweetGuard™).

Currently, the Company is focused on solutions related to fresh Citrus Fruits, table potatoes and Sweet Potatoes. Based on recent statistics, Citrus are the most consumed fruits worldwide. World fresh Citrus market is estimated at above 50 million tons per annum. Potatoes are the second largest crop (after grain) worldwide. Total fresh citrus consumed is over 60 million tons a year, and its consumption increases every year mainly in developing countries. According to the food and Agriculture Organization of the United Nation, the total crop of the 20 major producers of Potatoes in the year 2008 was approximately 259 million metric tons (see: http://faostat.fao.org/site/339/default.aspx). We estimate that Table Potatoes which our solution is currently aimed for are 30%-40% of the total world produced potatoes.

All of our products are based on Stabilized Hydrogen Peroxide ("STHP"). These products have the ability to increase shelf life, while reducing residue pesticides in consumed fruits and vegetables.

The Company anticipates generating revenue from the sale of its products to growers and packaging facilities in the United States in addition to current sales from the sale of products in Israel.

Management believes that the current trend in reducing the level of pesticides used on fruits and vegetables will encourage potential customers to test our products for use in commercial production. The Company has already begun testing at several facilities in the United States and anticipates that additional facilities will test the company’s products in the future.

Company History

Pimi Israel was established in 2004 with a vision of developing environmentally friendly and/or organic alternative solutions to current chemical treatments of fruits, vegetables and grains, thereby improving the well-being of consumers, growers and the environment. Pimi Israel has devoted significant research in developing environmentally friendly solutions for pre and post harvest treatments of fruits and vegetables. The company's technology is based on a unique, patented formulation of Stabilized Hydrogen Peroxide, combined with a controlled distribution system used to apply it.

On April 27, 2009 we purchased all the issued and outstanding shares of Pimi Israel from Pimi Israel’s shareholders in consideration for 6,313,189 shares of our Common Stock. As a result, Pimi Israel became a wholly owned subsidiary of the Company.

 
- 16 -

 

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. Our accounting policies are described in Note 2 to the financial statements appearing elsewhere in 2010 10K report. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. 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.

 
- 17 -

 

Recently issued accounting pronouncements

1.
ASC Topic 605 - 25 “ Revenue Recognition - Multiple-Element Arrangements
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (fiscal year 2011 for the Company), with early adoption permitted, modify the criteria for recognizing revenue in multiple element arrangements and require companies to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, the amendments eliminate the residual method for allocating arrangement considerations. The adoption of the amendments did not have a material impact on the Company's financial position, results of operations or cash flows.

2.
ASC Topic 718, “ Compensation - Stock Compensation
In April 2010, the FASB issued guidance to clarify that an employee share-based payment award that has an exercise price denominated in the currency of the market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity should not classify such an award as a liability if it otherwise qualifies as equity. The amended guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.  (fiscal year 2011 for the Company.)

The adoption of the new guidance did not have a material impact on the Company's financial position, results of operations or cash flows.
 
3.
ASC Topic 310, “Receivables”
In July 2010, the FASB issued Accounting Standards Update 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses ASU 2010-20). ASU 2010-20 provides guidance to enhance disclosures about the credit quality of a creditor’s financing receivables and the adequacy of its allowance for credit losses. Financial instruments that may subject the Company to significant concentrations of credit risk consist principally of trade receivable and account receivables.

For public entities, the disclosures as of the end of a reporting period became effective for interim and annual reporting periods ending on or after December 15, 2010 (the 2010 annual financial statements). The disclosures about activity that occurs during a reporting period became effective in the current interim period.

RESULTS OF OPERATIONS
 
NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2010

Total Net Sales: Total Net Sales increased $141,906 or 128% to $252,905 in the nine months ended September 30, 2011 from $110,999 for the nine months ended September 30, 2010. The increase is due to the commencement of sales of our products on a small commercial scale in Israel.

R&D Expenses: Total net R&D Expenses for the nine month ended September 30, 2011 of $508,052 increased $134,423 or 36 % from the $373,629 for the nine months ended September 30, 2010, due to increase in cost of materials in the amount of $86,195 travel and other expenses in the amount of $25,663 and cost of labor and professional services in the amount of $22,595.

General and Administrative Expenses: General and administrative expenses increased by $2,872 or 1%, in the nine months ended September 30, 2011 to $268,913 from $266,041 in the nine months ended September 30, 2010 due to increase in office and other expenses of $8,664 partially balanced by decrease in labor and professional fee expenses in the sum of $5,992.
 
Loss from Operations: Loss from operations for the nine months ended September 30, 2011 of $524,060 was down $4,611, or 1%, from the loss from operations in the nine months ended September 30, 2010 of $528,671 as a result of growth in sales of $141,906, partially balanced by increase in R&D expenses of $134,423, and increase in G&A expenses of $2,872.

Financing Expenses: Total financing expenses in the nine months ended September 30, 2011 amounted to $54,417, which was $17,414 higher than our financing expenses of $37,003 in the nine months ended September 30, 2010. This was a mostly a result of convertible loans interest and credit lines usage, higher bank expenses and the change in exchange rates.
 
 
- 18 -

 

Net Loss: Net loss of $578,477 in the nine months ended September 30, 2011 was $12,803 or 2% higher than the net loss in the nine months ended September 30, 2010 of $565,674 due to the increase in R&D expenses of $134,423, increase in G&A expenses of $2,872 and increase in financing expenses of $17,414 almost balanced in full by growth of sales of $141,906.

THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2010

Total Net Sales: Total Net Sales increased $35,117, or 61%, to $92,405 in the three months ended September 30, 2011 from $57,288 for the three months ended September 30, 2010. The increase is due to the commencement of sales of our products on small commercial scale in Israel.

R&D Expenses: Total net R&D Expenses for the three months ended September 30, 2011 of $155,264 increased $68,501 or 79%, from the $86,763 for the three months ended September 30, 2010, due to increase in cost of labor and professional services in the amount of $34,666, increase in cost of materials in the amount of $19,296, and increase travel and other expenses in the amount of $14,539.

General and Administrative Expenses: General and administrative expenses decreased by $7,862, or 7%, in the three months ended September 30, 2011 to $97,066 from $104,928 in the three months ended September 30, 2010 due to decrease in labor and professional fee expenses of $12,501 partially balanced by  increase in other expenses of $4,639.

Loss from Operations: Loss from operations for the three months ended September 30, 2011 of $159,925 was up $25,522 or 19%, from the loss from operations in the three months ended September 30, 2010 of $134,403, due to the increase in R&D expenses of $68,501, partially balanced by growth of sales of $35,117 and .decrease in G&A expenses of $7,862.

Financing Expenses: Total financing expenses in the three months ended September 30, 2011 amounted to $5,045, which was $16,693 lower than our financing expenses of $21,738 in the three months ended September 30, 2010. This was a mostly a result of convertible loans interest and beneficial, for the period ended June 30 2011, and credit lines usage, higher bank expenses and the change in exchange rates.

Net Loss: Net loss of $164,970 in the three months ended September 30, 2011 was $8,829, or 6%, higher than the net loss in the three months ended September 30, 2010 of $156,141 due to the increase in R&D expenses of $68,501 partially balanced by growth of sales of $35,117, decrease in G&A expenses of $7,862, and decrease in Financing expenses of $16,693.
 
Liquidity and Capital Resources

As of September 30, 2011, we had liabilities of $552,401 ($699,935 as of December, 31 2010), including $169,047 ($126,275 as of December 31, 2010) of Convertible Bonds $258,237 ($375,529 as of December 31, 2010) of third party liabilities, and $125,117 ($198,131 as of December 31, 2010) was due to related parties. The amounts due to related parties are for consulting services and salaries.

As of September 30, 2011 we have unused credit lines in the sum of $16,164 and have $99,518 in cash. Currently our net burn rate is approximately $50,000 per month. Thus, we will need additional sums of approximately $100,000 through December 2011, which we expect to secure through revenues in the 2011 citrus season (the fourth quarter of 2011).

The Company has sustained operating losses and its cash needs extend beyond its current resources. Subsequent to May 2012, 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 is however, in discussions with several entities to provide financing to support the Company’s anticipated growth and intends to seek financing in the amount of $600,000.

The Company anticipates that it will begin to realize material revenues in the citrus season of 2011 (the fourth quarters of 2011 and the first quarter of 2012), as clients will begin to utilize and pay for the Company’s products and technology. The Company determined that approximately $0.6 million of additional funding is necessary to bridge the Company to the larger revenue scale that is expected in 2012. Realization of revenues is subject to regulatory approval of the relevant authorities in each country where we intend to deliver, distribute and sell our products. Currently we have regulatory approvals for SpuDefender ™ and CitrusGuard ™ in Israel and for SpuDefender ™ in the U.S. As there is substantial export of citrus fruits form the U.S. to Japan, we are currently examining the regulatory situation in the U.S. with regard to the exportation of citrus fruits from the U.S. to Japan.

Net Cash Used in Operating Activities for the Nine and Three Months Periods Ended September 30, 2011 and September 30, 2010

Net cash used in operating activities, generated from continuing operations was $579,088 and $373,720 for the nine months period ended September 30, 2011 and 2010, respectively. Net cash used in operating activities primarily reflects the net loss for those periods $578,477 and $565,674 respectively, which was reduced in part by none cash stock-based compensation $20,453 and $65,899, respectively, interest and beneficial expenses on convertible bonds $50,808 and $25,404 respectively, and cash (used) provided due to the adjustment to the net loss and changes in operating assets and liabilities in the amounts of ($71,872) and $100,651 respectively.

 
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Net cash used in operating activities, generated from continuing operations was $180,008 and $124,824 for the three month periods ended September 30, 2011 and 2010, respectively. Net cash used in operating activities primarily reflects the net loss for those periods $164,970 and $156,141 respectively, which was reduced in part by none cash stock-based compensation $5,593 and $19,058, respectively, Interest and beneficial expenses on convertible bonds $16,936 and $16,712 respectively, and cash used, due to the adjustment to the net loss and changes in operating assets and liabilities in the amounts of $37,567 and $4,453, respectively.

Net Cash Used in Investing Activities for the Nine and Three Month Periods Ended September 30, 2011 and September 30, 2010

Net cash used in investing activities was $10,556 and $25,275 for the nine month period ended September 30, 2011, and 2010, respectively, and was used primarily to purchase equipment (such as computers, R&D and office equipment), and fund deposits in respect of employees rights upon retirement.Net cash used in investing activities was $1,332, and $10,240 for the three month period ended September 30, 2011, and 2010, respectively, and was used primarily to purchase equipment (such as computers, R&D and office equipment), and fund deposits in respect of employees rights upon retirement.
 
Net Cash Used in Financing Activities for the Nine and three month’s periods ended September 30, 2011 and September 30, 2010

Net cash provided by financing activities was $694,562 and $403,998 for the nine month periods ended September 30, 2011 and 2010, respectively, which is primarily attributable to capital raised in the amounts of $758,118 and in the amount of $413,124 respectively, and charge of credit lines in the amount of $63,556 and $9,126, respectively.

Net cash provided by financing activities was $10,126 and $140,067 for the three month period ended September 30, 2011 and 2010, respectively, which is primarily attributable to capital raised in the amounts of $10,000 and in the amount of $180,421 respectively and usage (charge) of credit lines in the amount of $126 and ($40,354), respectively.

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.

 
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ITEM 4. Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of September 30, 2011. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and therefore may be considered “material weaknesses.”

Based on the size of the Company and depth of accounting personnel assignment of tasks does not allow for proper maintenance of segregation of duties. Additionally, the Company does not have an audit committee to oversee the financial reporting and disclosure process.
 
Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f). Management conducted an assessment as of September 30, 2011 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that our internal control over financial reporting as of March 31, 2011, was not effective in the specific areas described in the “Disclosure Controls and Procedures” section above and as specifically described in the paragraphs below.

The material weaknesses we have identified include:

As of September 30, 2011, our Chief Executive Officer and Chief Financial Officer identified the following specific material weaknesses in the Company’s internal controls over its financial reporting process:

-
There is a lack of sufficient accounting staff, which results in a lack of segregation of duties necessary for a good system of internal control.

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The Company does not have an audit committee to oversee the financial reporting and disclosure process.

In light of the forgoing, once we have adequate funds, management plans to hire additional personnel and implement an audit committee charter for oversight of the financial reporting and disclosure process. We believe these actions will remediate the material weaknesses. However, the material weaknesses will not be considered remediate until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.

(b) Changes in Internal Control Over Financial Reporting. During the quarter ended September 30, 2011, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
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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

In addition to other information set forth in this Report, you should carefully consider the risk factors previously disclosed in “Item 1A to Part 1” of our Annual Report on Form 10-K for the year ended December 31, 2010. There were no material changes from the risk factors during the nine months ended September 30, 2011.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 None .

ITEM 3. Defaults Upon Senior Securities

 None.

ITEM 4. (Removed and Reserved)

ITEM 5.
 
Other Information
 
None.

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)

(1)  Filed herewith.

 
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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 21st day of November 2011.
 
 
PIMI AGRO CLEANTECH, INC.
 
       
 
By:
/s/ Youval Saly
 
   
Youval Saly
 
   
Chief Executive Officer
 
   
Principal Executive Officer
 
       
 
By:
/s/ Avi Lifshitz
 
   
Avi Lifshitz
 
   
Chief Financial Officer
 
   
Principal Accounting and Financial Officer
 
 
 
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