PIMI AGRO CLEANTECH, INC. - FORM 10-K

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - PIMI AGRO CLEANTECH, INC.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - PIMI AGRO CLEANTECH, INC.	v308972_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - PIMI AGRO CLEANTECH, INC.	v308972_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - PIMI AGRO CLEANTECH, INC.	v308972_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - PIMI AGRO CLEANTECH, INC.	v308972_ex31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35138

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 is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨ No x

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 x

As of March 31, 2012, the aggregate market value of the issued and outstanding common stock held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold of $0.80 was approximately $2,640,917. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

Number of shares of common stock outstanding as of March 31, 2012 was 8,553,987.

DOCUMENTS INCORPORATED BY REFERENCE – None

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011

INDEX

		Page
PART I
Item 1	Business	3
Item 1A	Risk Factors	16
Item 1B	Unresolved Staff Comments	22
Item 2	Properties	22
Item 3	Legal Proceedings	22
Item 4	Reserved	22
PART II
Item 5	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	22
Item 6	Selected Financial Data	23
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	27
Item 8	Financial Statements and Supplementary Data	28
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	29
Item 9A	Controls and Procedures	29
Item 9B	Other Information	29
PART III
Item 10	Directors, Executive Officers, and Corporate Governance	30
Item 11	Executive Compensation	31
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13	Certain Relationships and Related Transactions	34
Item 14	Principal Accountant Fees and Services	36
PART IV
Item 15	Exhibits and Financial Statement Schedules	36
	Signatures	40
SIGNATURES

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this annual report, references to "Pimi Agro Cleantech, Inc.," "Pimi," "the Company," "we," "us," and "our" refer to Pimi Agro Cleantech, Inc. and its 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 or our industry's 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.

PART I

ITEM 1. BUSINESS

Organization

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.

Established in 2004, Pimi Israel's technology platform is based on a unique formulation of environmentally friendly Stabilized Hydrogen Peroxide (STHP) which decomposes into oxygen and water. As part of a sustainable agriculture platform, STHP products have world wide patent protection and provide a cost-effective solution for consumers who want to reduce residue chemicals in their fruits and vegetables.

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 company and have had limited revenues since our formation. There is currently limited public market for our common stock. The purchase of our shares is highly speculative and involves a high degree of risk, including, but not necessarily limited to, the “Risk Factors” described else where in this report. Any person who cannot afford the loss of their entire investment should not purchase our shares.

The Company’s principal executive offices are located at 269 South Beverly Drive suite 1091, Beverly Hills California 90212, and its telephone number is (310) 203-8278.

Overview

The Company focuses on developing environmentally friendly solutions for extending storability and shelf life of vegetables and fruits. As of the date of this report, the Company is developing six (6) products (CitrusGuard™, FreshProtect™, SpuDefender™, SweetGuard™, StorGuard™ and OnionGuard™) and has started the commercialization of five (5) of these products (CitrusGuard™, FreshProtect™, SpuDefender™, SweetGuard™ and OnionGuard™).

Currently, the Company is focused on solutions related to fresh Citrus Fruits, table potatoes and Sweet Potatoes. Citruses are the most consumed fresh fruits world wide. World fresh Citrus market is estimated at above 50 million tons per annum. Potatoes are the second largest crop (after grain) worldwide. According to the food and Agriculture Organization of the United Nations, the total crop of the 20 major producers of Potatoes in 2010 was approximately 211 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"), which has the ability to increase shelf life while reducing residue pesticides in consumed fruits and vegetables.

Industry Overview

The fresh fruits and vegetables industry is constantly seeking technologies and methods to prolong shelf life, reduce product deterioration losses and keep freshness of crops. In most cases the only way to prolong shelf life and reduce quality losses is by using chemicals which leave residues. The processed food industry is also using chemicals which leave residues and contaminate water and livestock. Heavy chemicals which leave residue are used also by the seed industry.

Leading retailers and agricultural regulatory bodies such as European Commission of Health and Consumer Protection the “European Commission" or the " EC") and the US Environment Protection Agency (the "EPA"), are increasingly focusing to reducing the use of residue chemicals in treating fruits, vegetables, seeds and soil in favor of environment-friendly alternatives.

In addition, organic food and organic agriculture is rapidly gaining momentum and is advocating chemical and residue-free use from growth, harvest to storage and maintenance. This is strengthened by the relatively new trend to consume low or non-residue produce, which have risen to 20%-25% of consumed produce in developed countries like Netherlands (see "Reducing Residue Rising up Priority List" 78 FGJ 1 February 2008. at: http://www.bcpcertis.com/Certis.bcp/English/Home/News/page.aspx/565?xf_itemId=522&xf_selectionDatapartId=512).

The Company’s management believes that the trend in the market [as may be exhibited by market leaders such as Wal-Mart (see at: http://www.nytimes.com/2011/01/20/business/20walmart.html), Marks & Spencer, Tesco and Sainsbury in the UK and EDEKA chain in Germany] is to replace, as much as possible, fruits and vegetables treated with chemicals which leave residues with fruits and vegetables with no residue or low residue.

Losses of agricultural produce, as high as 40% in countries such as India (see: http://www.postharvestindia.com ) and China (see Post harvest Handling of Fresh Vegetables edited by Tina O'Hare, published 2001 at ACIAR, and see Kader at Acta Horticular. 682, ISHS2005), due to diseases and lack of correct supply chain, from the field to the stores, are exacerbated by the increasing demand for food produce, especially in developing countries.

Accordingly, there is a significant need to find alternative solutions to current chemical treatments for pre- and post- harvest treatments of fruits and vegetables that will provide the following benefits:

Reduce spoilage and losses of produce;

Extend shelf-life and improve quality of fruits, vegetables and grains;

Are non-residue and leave no harmful chemical by-products;

Are cost effective; and

Are approved for organically produced crops.

With roughly 800 million tons of stored fruits and vegetables annually (see USDA VGS-328/August 27, 2008) world-wide, management believes there is an immediate, addressable market for Pimi’s products. We have learned from retailers that they forecast a shortage of fresh goods – thus the ability to improve storability becomes more critical and valuable.

The Citrus Industry- The Need to Replace Imazalil and TBZ

To date, green mold on Citrus is controlled in the USA and other places, including Israel, by application of the fungicides Ortho-phenyl Phenate (OPP or SOPP), Imazalil, and Thiabendazole (TBZ). However retailers demand to reduce the Maximum Residue Levels (MRL) of pesticides in their fresh fruits has led producers to seek solutions, such as our solutions, aimed to reduce pesticide levels of residues while extending shelf life.

More over, there are pathogens which have developed resistance to the current pesticides. This prevented the packers from effectively manage decay control pathogen's. The combination of these two factors has posed an urgent need to identify an alternative to current packing methods. Pimi’s solution may reduce the Imazalil level from today’s MRL of 5 ppm to 1 ppm, while not adding any Fungicide material and improving yield losses.

The Potato Industry - the Need to Replace CIPC and prolong shelf life

Potatoes are the fourth largest crop in the world. According to the food and Agriculture Organization of the United Nations, the total crop of the 20 major producers of Potatoes in the year 2010 was approximately 211 million metric tons (see: http://faostat.fao.org/site/339/default.aspx). We estimate that Table Potatoes are 30%-40% of the total world produced potatoes (see also "The Market" elsewhere in this report). In developed countries roughly one third of the crop is used for direct use by households (table potatoes) and the rest for processing, such as chips/crisps and French fries (processed potatoes). In non-developed countries, 80% of the crop is used as table potatoes and the rest as processed potatoes. Therefore we estimate that the annual crop of potatoes is divided between 35% table potatoes and 65% processed potatoes.

Stored potatoes begin sprouting, in most circumstances, after two to three months in storage. Effective sprout control is a major component of managing stored potato quality. If proper sprout control is not maintained, significant reduction to tuber quality will occur, and the ability to store for extended periods of time is diminished. Sprouting causes high yield loss and low quality produce for consumers and for processing. Sprouting is also associated with the conversion of starch to sugars, which is undesirable in the processing industry, due to the darkening effect of fried products. In the table potatoes industry, visible sprouts on potatoes are unacceptable to consumers.

The primary method to control sprouting in storage is with post harvest application of isopropyl N-(3-chlorphenyl) carbamate ("Chlorpropham" or "CICP") a synthetic hormone that is used worldwide. For the toxic effects of CIPC see: http://pmep.cce.cornell.edu/profiles/extoxnet/carbaryl-dicrotophos/chlorpropham-ext.html.

CICP is a high stable chemical compound, therefore it has high residue where ever it is applied. Today CIPC is applied in storage rooms as well as in packing houses before distribution to retailers. Therefore its residues can be found on the walls and floors of storage houses, on the processing lines, in water used for washing the potatoes and also in livestock which are fed with the potatoes peel.

Regulators such as the European Commission ("The EC") and United States EPA are pushing for substantial reduction of permitted maximum residues level of CIPC in crops, livestock and water. The EU has issued in 2008, a Directive (196/2008 of January 29, 2008) which sets the MRL of CIPC to 10mg per ton. The UK has recently regulated that potatoes treated with more than 36g of CIPC per ton should only be used for commercial processing. The British Potato Council together with the industry in the UK, have set a maximum of 63.75mg per ton for commercial processing.

In the US, in August 1996, a federal Registration Eligibility Decision (RED) for CIPC was issued by the EPA for the continued use of this chemical as sprout inhibitor of harvested potatoes in storage. A mandate regulated in 2002 by the Environmental Protection Agency, resulted in a reduction in allowable CIPC tolerance of residue, on fresh potatoes from 50ppm to 30ppm per kg. Residues as high as 40 ppm are permitted by EPA on wet peel potatoes, which goes to life feed stock. Similar consequences of CIPC reassessment are common in potato-growing region in the world such as Canada and Australia. In Sweden CIPC has been banned for use since 2005.

Pimi has developed patented formula, application methods and storage protocols which are environmental friendly and which leave no residue after washing. Pimi’s product (“SpuDefender™”) is aimed at substituting CIPC as a sprout inhibitor, increasing shelf life, and preventing quality reduction. The Product and its applications prevent dehydration and quantity losses.

Our Products and Technology

As of the date of this report, Pimi develops, tests and markets three lines of products: the first, includes cleansers for treatment of fruits and vegetables on packing lines, prior to distribution. This line of products includes: CitrusGuard™ and FreshProtect™ for treatment of mandarins, oranges, grapefruits and lemons, and SweetGuard™ for treatment of sweet potatoes; the second is a sprout control line of products which include SpuDefender™, for the treatment of stored table potatoes, the third, a storage control line of products which includes StorGuard™ for the treatment of vegetables such as broccoli and cabbage and OnionGuard™ for the treatment of storage of onions.

Citrus Treatment Products

CitrusGuard™ and FreshProtect™

In March and April of 2010, we successfully completed small scale trials, as well as commercial trials, applying CitrusGuard™, for the treatment of mandarins, which is one of the most sensitive and problematic Citrus, as well as treatment of grapefruits. CitrusGuard™ is designed for cleaning citrus fruits surface prior to waxing. Cleaning of surface reduces decay of Citrus fruits which may occur during storage, shipment and shelf life.

The trials were carried out with Mehadrin Pri-Or (“Mehadrin”), the largest packing house in Israel, which exports citrus fruits to the United States and Europe. In these trials, CitrusGuard™ demonstrated superiority in extending shelf life, compared with the current treatment that is being used, which requires almost double the amount of pesticides to reach the required shelf life.

As a result of these commercial trials, Mehadrin has decided to implement CitrusGuard™, in the cleaning process of its packing lines for commercial usage. Those lines pack mainly mandarins and grapefruits and small volumes of oranges and lemons as well. The total quantity of citrus fruits which was treated by our product in the season of 2010-2011 is over 50,000 tons.

In January 2011, we successfully concluded a trial on easy peel Citrus in commercial scales with Sun Pacific Inc, one of the leading packing houses in California, U.S.A. The trial was successful and showed significant advantages of FreshProtect™ in comparison to current treatments and materials, while reducing dramatically the residue level of pesticide on citrus fruits. As a result of the trial Sun Pacific has decided to implement FreshProtect™ on one commercial line subject to obtaining EPA registered label for FreshProtect™, which allows the packaging house to export and distribute the Citruses abroad.

In October 2011, we successfully concluded a trial on naval oranges in commercial scales with Paramount Inc., another leading packing house in California, U.S.A. The trial was successful and showed significant advantages of FreshProtect™ in comparison to current treatments and materials, while reducing dramatically the residue level of pesticide on citrus fruits. As a result of the trials Paramount has decided to implement FreshProtect™ on one commercial line subject to obtaining EPA registered label for FreshProtect™, which allows the packaging house to export and distribute the Citruses abroad.

Sweet Potatoes Treatment Products

SweetGuard™

According to the United States Sweet Potato Council Inc., the United States produces approximately 1.8 billion pounds of sweet potatoes a year, with an average crop value of $400 million.

In January, 2010, we completed our first commercial trial utilizing SweetGuard™ for treatment of sweet potatoes. Similar to Pimi’s CitrusGuard™, SweetGuard™ is designed for improving sweet potatoes cleaning properties. SweetGuard™ causes sweet potatoes bright appearance due to its cleaning effects.

The trials were carried out in two cooperative farms in Israel, with two separate packing houses that export sweet potatoes from Israel to Europe. In these trials, SweetGuard™ demonstrated efficacy in various areas of post-harvest treatment of crop, which came from different growing soils.

As a result of these trials, the two cooperative farms have decided to include SweetGuard™ in their regular working program for the packing line. Consumers presented with treated and untreated sweet potatoes, on the same shelf, preferred those which were cleaned with SweetGuard™.

As of the date of this report, we have finalized successful on line treatment with one of the biggest Sweet potatoes packers, located in the U.S., and we have started to supply the product for on going commercial test that is conducted at the date of this report.

Potato Treatment Products

SpuDefender ™

Pimi develops and markets the SpuDefender™. SpuDefender™ is a formulated STHP designed for use in potato storage treatment to inhibit sprouting. SpuDefender™ is patent protected. SpuDefender™ is applied in stored potatoes inside storehouses, or on packing lines, by using Pimi’s proprietary storage application protocol which is based on an especially designed system and ultrasonic atomizers to provide optimum results (the "Technology"). SpuDefender™ is able to extend storability and shelf life of crops, to reduce quantity and quality losses thus, and to increase yield and revenues for growers and producers.

SpuDefender™ is an external treatment, and therefore, after washing it leaves no residue. At the end of the application process the active ingredient of SpuDefender™ decomposes into water and oxygen, unlike existing chemical alternatives, such as Isopropyl N-(3-chlorophenyl) Carbamate ("Chlorpropham" or "CIPC").

The market for SpuDefender™ is mainly for stored table potatoes.

Starting 2009 and following consummation of our joint venture with VegiSafe LLC (see “Customers and Partners” elsewhere in this Report), Pimi presented in the United States (under the label VegiSafe) the new concept of CIPC-free table potatoes. As a result, at the date of this report we conduct trials with one of the biggest fresh potatoes suppliers in U.S. utilizing SpuDefender™ to inhibit sprouting in storage and implementing it on a packing line. We expect to receive the results of these trials towards September 2012.

Storage Control Line of Products

StorGuard™

StorGuard™ was developed for extending the shelf life of fruits and vegetables in storage, by reducing air pathogens in storage rooms, a treatment which improves storage conditions. StorGuard™ enriches storage room with Oxygen and humidity, which are key factors for good storability process. The active ingredient of StorGuard™ is STHP, which has abilities to oxidize air spores [see EPA Hydrogen Peroxide (000595) Federal Register Notices at: http://www.epa.gov/pesticides/biopesticides/ingredients/fr notices/frnotices 000595.htm].

OnionGuard™

At the date of this report there is no known effective treatment to reduce Botrytis Neck Rot and Aspergillus Black Mold, which are the two main onion diseases. The two diseases can damage up to 40 percent of an onion harvest. On October 2009, we started a trial with Idaho State University and McCain Foods Limited (“McCain”) to extend storability of onions by using OnionGuard™, which is a formula of our StorGuard™. We have run a trial comparing OnionGuard™ to current storage without any treatment. The test was performed in cooperation with McCain, which stores onions for its onion rings production line and encountered storability problems. The results received in June 2010 have shown improvement of storability in room temperature, as well as in cold storage temperature, of up to 40%. After six months of storage, defects were reduced from 35 percent to 15 percent. The trial’s results were presented to one of the leading retailers in the US who have ordered commercial test of 20,000 pounds of onions, which started on October 2010, under the supervision of the Washington State University. Initial results from January 2011 presented high performance of OnionGuard™. The trial was not completed due to release of the onions to the market prior to the receipt of final results.

Pimi anticipates starting EPA registration of OnionGuard™ as a pesticide once it completes the financing for development plans.

Products planned for Research and Development

Pimi plans to extend its line of products in the coming years by devoting substantial R&D for other areas, where we have identified a market need for environmental friendly solutions. As of the date of this report, the progress of product development is delayed until sufficient funds are raised.

SeedGuard ™

Potatoes are susceptible to a variety of diseases that lower yields and tuber quality which might cause significant losses in the quantities and quality of crops. What's more, pathogens accumulate in successive cloning of tubers and in the soil used to grow them. That is why sustainable potato production depends on a constantly renewed supply of disease-free planting material. According to numerous international regulations, seeds, of all types, must be disinfected to prevent the transfer of diseases between countries, between seeds, from seeds to soil, and from seeds to crop.

Seed tuber disinfection treatments are used to reduce seed borne diseases. However organic mercury which has been used for this purpose has been banned and the alternative agents available are effective against only some of the pathogens. Moreover an increasing number of pathogens are found to be unaffected by any of these treatments (see Lea Tsror and al. "Survey of Bacterial and Fungal Seed borne diseases in Imported and Domestic Seed Tubers" (1999) at http://www.pimiagro.com/upload_pdf/1241461817_4.pdf).

Pimi has embarked on a R&D plan for potato-seed applications, aimed for the development of an innovative, holistic and ecological solution to treat potato seeds throughout their lifecycle, which was approved for receiving grants from the Israeli Chief Scientist Office (see "Governmental Support" elsewhere in this report). SeedGuard ™ is designed to provide added-value to the seed producer and potato growers owing to its long lasting disinfectant effect, versus existing aggressive chemical treatments which are not environmental friendly solutions.

Management estimates that additional substantial R&D is required to tailor SeedGuard™ to specific seeds, which will take several years of work. Therefore management has decided to postpone the development of this product until full commercialization of its other products.

Our Technology

Pimi’s technology for increasing the storability and shelf life of fruits and vegetables is based on a unique proprietary solution using only edible product and proprietary designed delivery system.

Active Ingredient - Stabilized Hydrogen Peroxide solution (STHP)

Pimi has developed a patented Stabilized Hydrogen Peroxide (H2O2) formula which includes other edible ingredients. Hydrogen Peroxide is widely used in various industrial applications, such as: rocket fuel, wound disinfection, hair coloring and teeth whitening. The formulations were developed by Nimrod Ben Yehuda, Pimi’s co-founder, with the assistance of leading research institutes, which include the Hebrew University of Jerusalem, the Volcani Institute of Agricultural Research and the Technion – Israel Institute of Technology.

Fogging delivery system

By harnessing the advanced fogging technology of ultrasonic micro Droplets (which was developed by third parties and was upgraded by Pimi's management) and the special distribution method developed by the Company, Pimi's Technology is capable of distributing a lower than 10 micron droplet cloud in the storage room. This ultrasonic droplet diameter and the application method generate “Dry Fog”, forms a highly effective vehicle for distributing Pimi’s products. An added benefit comes with the ability to raise relative humidity to a very high level of 99% without causing the devastating effects of a condensation event. The system is fully automated, thus enabling a cost-effective implementation for customers, reducing many hours of labor and minimizing user intervention.

Manufacturing Process Supply of Raw Material

Pimi’s products are currently produced by Solvay Chemical International S.A in their plant located in Houston, TX ("Solvay") and also by Zohar Dalia Ltd in Israel. Solvay is one of the leading world-wide producers of Hydrogen Peroxide. Solvay manufactures STHP for us and we anticipate that Solvay will produce our products for North America.

Transportation and Storage of our Products

Hydrogen Peroxide is a common chemical sold and transported worldwide in 50% concentrations. Transported Hydrogen Peroxide in such concentrations is defined as dangerous goods by the industry.

We have decided to supply our products with stable Hydrogen Peroxide and at low concentration of only 20%, which is graded as low product risk. At this grade of risk the product should be transported by certified truck drivers, and the truck should be marked with special signs. The product should be transported together with Material Safety Data Sheets (MSDS) which show the dangers related to the product and the safety procedures, including how the product should be handled.

Hydrogen Peroxide is an aggressive oxidizer and will corrode many materials. Hydrogen Peroxide should be stored in a cool, dry, well-ventilated area and away from any flammable or combustible substances. It should be transported in special tanks and vehicles and should be stored in a container composed of non-reactive materials.

Pimi is carefully and diligently following the above rules and regulations in handling its products in transportation and storage.

Governmental Support

Pimi Israel has received grants from the Israeli Chief Scientist under a program of investment in research and development for a solution for disinfection of potato seeds (SeedGuard™) under a 6-stage method. The approval of the Chief Scientist was extended and changed in order to enable certain expenses to be recognized for the grant. Pimi has received from the Chief Scientist the sum of $121,753 (484,429 NIS) as grant under this program.

Pimi is obligated to pay the grant back to the Chief Scientist in the form of royalties. In the first 3 years of sales we shall pay 3% out of the sales of the product which was developed under the R&D program. In the fourth, fifth and sixth years of sales we shall pay 4% of such sales, and from the seventh year and on we shall pay 5% up to the amount of the grant. If there will be no sales of the product which was developed under the program, Pimi will not be required to pay back the grant.

Under the law and regulations relating to the grant, sale of the IP developed under the program to a foreign entity will require the approval of the Israeli Chief Scientist.

Intellectual Property

We have developed a significant intellectual property portfolio of patents. We believe that our intellectual property portfolio, coupled with our strategic relationships (see "Customers and Partners") and accumulated experience in the field, gives us an advantage over potential competitors. In 2010 we have filled two new provisional patents that cover new developed products and technologies we started to implement at the end of this year. In 2011 we have filed a PCT on one of them and we anticipate to 2^nd provisional as PCT this year. We currently maintain the following patents (for the agreement of the transfer of the rights in the patents and patents applications to us, see "Certain Relations and Related Parties transaction"):

Country	Patent Register No.	Application No.	Status	Validity Date
U.S.A	6,797,302		Granted	July 2019
U.S.A	6,946,155		Granted	July 2019
U.S.A	7,147,872		Granted	July 2019
U.S.A		12/691,316 1	Pending
Europe		99933105.1	Pending
China	99810112.5		Granted	July 2019
Russia	2262230		Granted	July 2019
Russia		2005115093	Pending
Australia	757,181		Granted	July 2019
South Africa	2001/1528		Granted	July 2019
Israel		125520	Pending
Chile		1675-99	Pending
Mexico	230589		Granted	July 2019
Canada		2,338,718	Pending
Argentina	AR 019937- B1		Granted	July 2019
Bulgaria		105167	Pending
Bolivia		P990103701	Pending
Brazil		PI9912697-4	Pending
Colombia		99047340	Pending
Cuba		22/2001	Pending
Czech Republic		PV 2001-254	Pending
Georgia		AP1999004257	Pending
Guatemala		PI99-01099	Pending
Honduras		PCT/IL99/120	Pending
Hungary		P0201109	Pending
Korean		2001-7001082	Pending
Latvia	12750		Granted	July 2019
Nicaragua	1441		Granted	July 2019
New Zealand	509566		Granted	July 2019
Peru	3093		Granted	July 2019
Poland	P-348722		Granted	July 2019
Paraguay	4217		Granted	July 2019
Slovenia	9920057-20615		Granted	July 2019
Slovakia		PV97-2001	Pending
Turkey	TR2001-231		Granted	July 2019
Uruguay		025.625	Pending
Serbia		P-51/01	Pending
Norway		20010447	Pending
Romania		A 2001-00090	Pending

1 The application was filed on January 21, 2010 for a continuation patent of patent No. 7,147,872.

Regulatory Approval of Pimi's Products

Products such as StorGuard™ and SpuDefender™ have to be approved by regulators before usage as post-harvest chemicals. CitrusGuard™, FreshProtect™, as well as SweetGuard™, which are cleansers, are treated differently by regulators in each country it will be sold in. The following description will relate to the countries in which the Company intends to sell its products in the following year.

Regulatory Process in the United States

The U.S. regulatory authority in charge of the approval of our product is the Environmental Protection Agency (EPA) as well as the FDA. The FDA regulates cleansers and EPA regulates pesticide chemicals used in foods through a regulatory tolerance publication process. Under EPA regulations, specific pesticide chemicals may be used in specific foods for particular reasons. The amount and kinds of pesticide chemical residues permitted to remain on food vary according to FDA regulation. Although the EPA establishes pesticide use tolerances and exemptions from tolerances for pesticide residues by its regulations, FDA enforces the EPA regulations through several provisions in the Food, Drug and Cosmetic Act.

In order to issue its approval for the use of such products, the EPA requires that we will show, through a series of physical and chemical tests done by approved laboratories, that the registered product conforms to regulatory requirements and meets minimum standards of safety to humans and the environment. While the EPA does not require submission of efficacy data, EPA does hold companies responsible for insuring that the performance of a product conforms to label claims.

At the date of this report, we have received the EPA approval for our SpuDefender™ and also approval of the State of Wisconsin. This will enable us to sell SpuDefender™ for commercial use in this state.

On August 2011 we filed applications to the EPA and the EPA of the State of California (“EPA CAL”) for their approvals for CitrusGuard™ and FreshProtect™. Our management, together with our consultant, has met with the EPA and the EPA CAL and has received positive reactions for our applications. Currently we are in the process of discussions with the EPA and the EPA CAL on the compatibility of CitrusGuard™ and FreshProtect™ for citrus which are exported from the US to Japan. We forecast to finalize the process prior to June 2012, and conduct commercial use performance prior to coming Citrus season in the US, meaning October 2012

Regulatory Process in Israel

SpuDefender™ has been approved by the Israeli Plant Protection Authority for use on potatoes and sweet potatoes in Israel. CitrusGuard™, which is a cleanser, does not require approval by the Israeli Plant Protection Authority.

Regulatory Process in Europe

In Europe the authority in charge of the approval of our product is the European Commission. Under the Plant Protection Products Directive 91/414 (the "EU Directive 91/414"), the European Commission requires that we will show that the product is not toxic, has physical and chemical safety properties and is effective (i.e. it achieves the statement under its label). In order to submit the application ("Dossier") we have engaged Redebel S.A from Brussels, Belgium ("Redebel"), who is a specialist in such process.

We have been advised by our advisors that in order to register our product in the European Community the complete Dossier for inclusion of Hydrogen Peroxide on "Annex I" of EU Directive 91/414 must be approved by the European Commission ("Annex I Listing"). Such file has to include documentation and information concerning the active ingredient (in our case Hydrogen Peroxide). Important elements of such documentation are toxicological and eco-toxicological profile of the molecule and eventual dangers and hazards coming from human exposition. An example of use of this substance in “formulated “product has to be also presented, and the most important element of this part is demonstration of the efficacy – prove of the activity of the product declared on the label.

Normal procedure for efficacy testing is two years of trials. After having the efficacy results we will have to file the product for examination which can last for another 2 years.

Due to this long regulatory process, we have decided that we will concentrate on sales in the US, and other territories outside the EU, prior to finalizing the European file for pesticide. Therefore as of the date of this report we have halted the regulatory process of our products in the EU.

Customers and Partners

As a small company with roots in Israel, one method by which Pimi is able to contract with potential partners, in particular those having a favorable foot-print in their respective markets and having the ability to educate end-users (i.e. their customers), is by gaining recognition and acceptance of market leaders having the best leverage point to our prospective customers. These companies, being opinion leaders with high sensitivity to environmental-friendly growing demands, are in the best position to influence their suppliers, who are Pimi's potential customers, in testing and ultimately adopting Pimi's technology, as their next generation solution for post-harvest treatment.

We have entered into agreements with several companies specialized in the supply of agriculture products, primarily in the US, , as further detailed below.

VegiSafe LLC (Earthbound LLC Group)

On January 2009 Pimi Israel entered into a Joint Venture Agreement ("The Joint Venture") with VegiSafe LLC ("VegiSafe"), an affiliate of Earthbound LLC ("EB"), a group of companies engaged in consulting to mass-market retailers and major supermarket chains in North America (see: http://www.earthboundllc.com/). EB has a proven track record in developing private label campaigns (apparel) for Wal-Mart and Target brands.

The Joint Venture will market, sell and distribute Pimi's technology throughout the United States, on an exclusive basis, and throughout Canada and Mexico, on a non-exclusive basis. VegiSafe will market and handle the sales activities of the Joint Venture. VegieSafe intends to seek retailers and major distributors in the U.S., which will recommend its producers and suppliers to manufacture and supply CIPC-free potatoes, or CIPC-free potato products. The exclusivity of the Joint Venture is subject to fulfillment of certain milestones of annual sales as herein described. We will have 70% of the rights in the Joint Venture and will nominate two of its directors; VegiSafe will have 30% of the rights, and will nominate one director. We will grant a sub-license to the Joint Venture for the use of our patents and technology, relating to the products and to any new product developed by us, for the term of the Joint Venture.

We were obligated to continue to operate the Joint Venture so long as certain trigger events occur prior to December 31, 2009. The Trigger event is defined as: an event, where any retailer and any fast food chain, or any major packaged, frozen or snack food marketer, or any major or national vegetable (or fruit) growers and major or national distributors in the U.S expresses an interest in launching CIPC free potatoes or CIPC free potato products at any Retailer or by any distributor, by requesting its supplier/s to use our technology for potatoes or potato products, in order to produce or to supply CIPC free potatoes or CIPC free potato products for its consumption.

In May 2009, Pimi and VegiSafe mutually agreed that the trigger event occurred, thereby obligating, the continuation of the Joint Venture. Accordingly, VegiSafe’s exclusivity is subject to the following milestones: Entering a CIPC free branding program with two retailers or distributors prior to September 2010; the treatment of 150,000 tons of potatoes in the season of 2011 (September 2011); the treatment of 350,000 tons of potatoes in the season of 2012 (September 2012).

As of the date of this report VegiSafe has not complied with the above milestones and we have not taken any actions against VegiSafe with this regard.

VegiSafe will invest in the Joint Venture an aggregate amount of $250,000 which will be used to cover expenses reflected in a budget prepared for the Joint Venture, and approved by VegiSafe and Pimi. The Joint Venture will use the VegiSafe Trade Mark as the trademark for fruits and vegetables, which will be treated by our products and are CIPC free. Any additional investment in the Joint Venture in excess of the $250,000 shall be contributed by the parties according to their share in the Joint Venture upon mutual consent, taking into account the Joint Venture's business and its needs.

The Joint Venture focused on SpuDefender^TM and therefore on August 9, 2010 we have signed an Addendum to the Agreement dated January 20, 2009 with VegiSafe, under which we agreed to expand the activities of the Joint Venture in the US to Sweet Potatoes, Yams, Onions, Cabbages and Mushrooms. In addition we have agreed to expand the activity of Joint Venture in the US to Citrus fruits, provided VegiSafe will bear all the costs and expenses, which in our opinion are reasonable for the progress of the distribution and the implementation of our CitrusGuard™ in the US.

As of the date of this report, VegiSafe introduced our products and technology to one of the major retail chain in the US who has, in turn, introduced us to their suppliers of table potatoes, citrus, onions and sweet potatoes, in order that we shall present to these suppliers the efficacy of our products.

US toll manufacturer

Leading toll manufacturer of food grade formulations supplies our products in the US under our name, in accordance with a non exclusive oral agreement. This toll manufacturer follows ISO, GMP and Food grade quality programs at its sites and is responsible for keeping standards of the products and for supply of the products within specifications and within required shelf life.

Zohar Dalia

Zoahar Dalia is the manufacturer of our Products in Israel. It manufactures our products under our name in accordance with an oral agreement. Zohar Dalia follows ISO and GMP quality programs at its site, and is responsible for keeping the standards of the products and to supply our products with in specifications and with in required shelf life.

Mehadrin Pri-Or

Mehadrin Pri-Or (“Mehadrin”) is the biggest distributor and exporter of Citrus fruits in Israel. Mehadrin is exporting approximately two thirds of the Israeli Citrus crop to Europe, US, Canada and the Far East. Mehadrin has its own orchards and packing houses and they also purchase packed fruits from other farmer and packing houses. We have started to work commercially with Mehadrin on October 2010, implementing our CitrusGuard™ on one packing line of Grapefruits. On January 2011 we have started treating with CitrusGuard™ additional 2 packing lines of Clementine. During the citrus season of 2011 we have entered into 5 additional packing lines and we anticipate treating with our CitrusGuard ™ up to 80,000 tons of Citrus fruits until the end of the current season (April 2012).

Sun Pacific Inc.

Sun Pacific is one of the biggest suppliers of fruits and vegetables in the United States, leading in citrus, tomatoes, and grapes.

Sun Pacific is one of the leading packing houses in the U.S. for clementines and oranges. Pimi was introduced to Sun Pacific by a major retail chain in the U.S., to whom Sun Pacific supplies its produce. During the months of December 2010 until February 2011 we have conducted a trial in Sun Pacific’s Mandarins packing house, at Maricopa CA, which is, to management best knowledge, the biggest Clementine’s packing house in the U.S.

The trial was conducted on one of the commercial lines using FreshProtect™treatment, which was compared to current cleaning and waxing treatment. The trial results have shown that applying FreshProtect™ on Clementine improves the shelf life of the fruits versus the current treatment.

In February 2011, Sun Pacific notified us that they have decided to implement FreshProtect™ on one of their packing lines at Maricopa CA, subject to obtaining by us an EPA approval for export needs. We anticipate commencing commercial treatment with our FreshProtect™ at Sun Pacific's site at season starting on December 2012.

Paramount Inc.

Paramount is one of the biggest suppliers of oranges and lemons for local supply in, as well as for export from, California.

During the months of September 2011 until December 2011 we conducted a trial in Paramount Oranges packing line, at Delano CA, which is, to management’s knowledge, one of the biggest citrus sites for oranges and Lemons under one packing house in the U.S.

The trial was conducted on one of the commercial lines using FreshProtect™. We await approval of our FreshProtect label by the EPA in order to commence treatment with FreshProtect™ by Paramount on commercial level.

Addressable Market of our Products

Fresh Citrus Fruits

Total World Production of Fresh Citrus Fruits (1000 metric tons)^*

	Oranges		Tangerines and Mandarins		Grapefruits		Lemons and limes		Total⁽¹⁾
2008-2009		51,751		19,864		5,228		6,372	83,215

2009-2010		49,360		21,810		5,458		5,911	82,539

2010-2011		51,379		20,280		5,163		6,314	83,136

2011-2012		51,352		21,550		5,390		6,272	84,564

* The data refer to total production of selected major countries.

Source: Foreign Agriculture Service/USDA Office of global Analysis - see: http://www.fas.usda.gov/psdonline/circulars/citrus.pdf

(1) Management estimates that 70% of these quantities are consumed citrus and the balance is used by the industry for juices.

Potatoes

Top Ten Potatoes Producers 2010 (1000 metric tons)

Country	Production
China		74,799
India		36,577
Russian Federation		21,140
Ukraine		18,705
United States of America		18,016
Germany		10,201
Poland		8,765
Bangladesh		7,930
Belarus		7,831
Netherlands		6,843

Source: Food and Agricultural commodities production/ FAOSTAT – Food and Agriculture Organization of The United Nation – see: http://faostat.fao.org/site/339/default.aspx.

According to the Food and Agriculture Organization of the United Nation, the total crop of the 20 major producers of Potatoes in the year 2010 was approximately 211 million metric tons (see: http://faostat.fao.org/site/339/default.aspx). We estimate that Table Potatoes are 30%-40% of the total produced potatoes.

Competition

Competition with our CitrusGuard ™ and FreshProtect™

CitrusGuard™ and FreshProtect™ are formulated to clean Citrus Fruits on packing lines. Good cleaning practice reduces the surface dirt and soil and by that reduces microflora load prior to waxing the fruits with pesticides that prevents mold contamination, during its storage, transportation and shelf life. CitrusGuard™ was developed in order to reduce residue treatments of pesticides such as Imazalil and TBZ, which are the current treatment.

As of the date of this report, we are not aware of any other product, which has the same characteristics of non residue chemicals while processing the same pre-cleaning process. However, our management forecasts that service providers for packing houses, who supply all the materials, required for packing lines, such as Decco Ltd, and Pace International, LLC will try to develop other products or working methods which have the same abilities, in order to compete with our CitrusGuard™ or FreshProtect™.

Competition with our SpuDefender™

The manufacturers and distributors of CIPC are large chemical companies such as Cerits Europe B.V, Loxan B.V, Aceto Agriculture Chemical Corporation, United Phosphorous limited, Mirfield Sales Services Limited, Standon Chemicals limited, Atlas Crop Protection Limited and Whyte Agrochemical LTD. These manufacturers have promoted the "CIPC Stewardship Action Plan 2008" for the UK, which was introduced in order to monitor and control the application of the CIPC, in order not to exceed the current EU MRL of 10mg/kg, and at the same time to enable the continued use of CIPC in the UK. We expect significant competition from these manufacturers and distributors of CIPC.

At the same time, there are several products which aim to substitute the CIPC which are in potential competition with our SpuDefender^TM:

Greenvale, UK, launched the Ethylene gas solution that may control sprouts at low dosage. It has been used in some storage rooms in Europe. In management’s opinion the Ethylene has some disadvantages: it requires relatively expensive equipment for its distribution and after potatoes are released from storage accelerated sprouting occurs.

Certis, Belgium, launched the Caraway oil extract, however, in Management’s opinion, this substitute is not demonstrating an ability to replace CIPC due to fact that it is not palatable and it affects the fry colors.

Certis also manufactures Clove oil which, in Management’s opinion, has several disadvantages: the oils affect taste and aroma, as well as cooking and fried taste. To the best of management’s knowledge the Industry banned it due to bad fry colors.

Other products are: 1.4-Dimethylnaphthalene (1.4-DMN) and 2,6-Disopropylnaphthalene: this two synthetic hormones are the replication of natural hormones within the potato that induce and prolong its dormancy. This chemicals application in combination with CIPC can control effectively sprouting but has no disinfection capability, to the best of management’s knowledge. The compounds are several years in the US market with no significant presence.

There are several other hydrogen peroxide products that claim, as Pimi claims, substantial bacteriologic control abilities. To the best of Management’s knowledge, all of these products are based on HP and Acetic & Peracetic acide. These compounds are used in the food industry for more the 60 years and are very effective as disinfectant but limited in scope; in the niche of fruits and vegetables the application suffers several disadvantages, and in particular they have no long-term effect as disinfectant.

Competition with our StorGuard™

StorGuard™ is used mainly to increase shelf life and storability of crops, such as Cabbage, Broccoli and Onions. As of the date of this report and to Pimi’s best knowledge there are other methods to increase storability as described herein:

· Ozone – Ozone started to be popular solution to prevent air pathogens in storage rooms. Management believes this solution has health risks, since people may be exposed to carcinogenic residues.

· Chlorine-Dioxide – a strong chlorination detergent which aerosols the room with Chlorine. Chlorine is not welcomed by the industry due to the fact that it may create connections with the surface of the produce, and, to management's knowledge, it may create a carcinogenic compound. This product is aggressive for the workers its and residues stay in the air. This product has significant smell and odor that may remain on the product during its shelf life.

Competition with our OnionGuard™

OnionGuard™ is intended to increase storability of the produce. As of the date of this report, we are not aware of any competing products to OnionGuard™.

Competition with our SweetGuard™

SweetGuard™ is intended to increase cleaning ability of sweet potatoes and to improve its appearance. As of the date of this report, we are not aware of any competing products with SweetGuard™.

Price Competition

Management believes that the trend in the markets to use environmentally friendly products, which are residue free, or low residue, and to replace the subsisting chemicals, which are high residue, together with the trend of the regulators, to reduce the usage of high residue chemicals (such as CIPC), will cause farmers and packing houses to prefer Pimi’s solutions. However, this trend will not create a huge price difference from current procedures. Therefore, Pimi products prices are aimed at the same level as current solutions prices.

Strategy

Since the trend in the market which is lead by big retail companies, is to increase freshness while reducing residue pesticides in consumed goods, we have adopted a strategy, under which we shall create awareness of the retail companies, as well as their suppliers, to our solutions which meet the market trend.

After presenting our solutions to market leaders, they usually connect us to their suppliers, in order that we shall present the suppliers with our solutions. Then usually we will run Beta site trials, and there after commercial trials, with these suppliers. Once we present success in these trials, we approve the product by the regulator, and then start selling our product to these suppliers.

Under this strategy we have established our Joint Venture with VegiSafe LLC, whose parent company - Earthbound LLC - is engaged in consulting to mass market retail companies and major supermarket chains in North America, in brand development. Our Joint Venture has contacted already with major retail chain stores in the U.S. See “Customers and Partners”, elsewhere in this report.

We plan to sell Pimi’s solutions to farmers and growers with large storage houses, to storage providers, and to packing companies. Initially, we will sell our products through local distributors who serve this target market. Once we establish a foothold in the market, we will attempt to establish strategic relations with several large distributors and licensed firms who already have a regional distribution network. This will enable us to rapidly increase our global market share and coverage without investing in building a global distribution network from scratch. At this stage, based on this model, we will furnish the know-how of our technology to these strategic partners, which will be responsible for ordering the product from our OEM manufacturers and marketing and sales activities, enabling us to focus on developing additional products. The distributors will also be in charge of marketing of our products, and we intend that each distributor will be obligated to minimum sales. We intend to support our distributors with technical support, research and tests results, and professional's publication relating to our products. We will also support our distributors in the education of the market, in regulating of our products and with professional advice.

Pimi’s distributors will purchase our solution from us, and we will deliver it to the customers through our OEM producers. The distributors will be trained by our technical team and will be responsible for recommending, training, and optionally also designing and installing the required systems that distribute the products in the storehouses and packing lines. For customers who do not have the required systems, we and our distributors will either provide one at a cost to be determined or alternatively, bundled with a minimum order of goods.

Employees

As of the date of this report, we employ 4 full-time and 2 part time employees.

Corporate Development

Subject to additional fund raising and regulatory approvals, management plans to expand the Company’s activity to the U.S., Mexico, Chile, Turkey and Morocco as the markets for our CitrusGuard™ and FreshProtect™, and mainly to the U.S as our major market for all our other Products.

Dividends

We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as our Board of Directors deems relevant.

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors and the other information included herein as well as the information included in other reports and filings made with the SEC before investing in our common stock. The following factors, as well as other factors affecting our operating results and financial condition, could cause our actual future results and financial condition to differ materially from those projected. The trading price of our common stock could decline due to any of these risks, and you may lose part or all 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 in 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, 2011, and 2010 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 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 $500,000 starting April 1, 2012 through the end of 2012. As of March 31, 2012 we have unused credit lines in the sum of $16,000 and $550,000 in cash. Currently our net burn rate is approximately $50,000 per month. Thus, we anticipate we will not need additional investments through December 31, 2012.

If we are unable to obtain such additional capital as discussed above, we will be required to limit our operations to the US and Israel only, and will extend our activities to other countries, only after such capital is raised.

We may 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 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, 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, 2011, we incurred net losses in the sum of $606,866. Since we have started our operation in 2004 and until December 31, 2011 we incurred accumulated losses in the sum of $4,311,675. We expect to continue to incur losses for the fiscal year ended December 31, 2012. 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 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 United States and in other countries for the use of our products. The regulatory approvals of some of our products are dependent, on trials to show the efficacy or the non toxicity of our products, and are time and cost consuming. Such registration filling might take longer period than expected, and it might delay obtaining such regulatory approvals, or might cause delay in starting operations on a large scale in these countries and other jurisdictions. We currently have EPA registration for our SpuDefender™ product. We are awaiting approval for our filing for registration of FreshProtect™.

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 products must not only be approved by the regulators, but also endorsed by the major packers and storage providers, retailer of fruits and vegetables as well as environment organizations. Pimi is aware of this key factor and is focusing on conducting large scale trials with major fruits and vegetables packers and retail suppliers of fresh consumed goods in several countries, in order to show the efficacy of the products and our technology and to receive these recognition of the packers and retailers, 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, in the U.S and in Israel on vegetables and fruits varieties which are grown in hot climate, as well as storage rooms with refrigeration, and also on certain type of processes which are used in these countries. We still need to present efficacy in other climates and other countries with different types of processes than those we have presented performance with our products.

We rely on our Technologies to successfully develop and market new and existing products.

Our product has been tested in multiple commercial and small scale tests. Some of our products are still under evaluation in Beta sites trails in the US with leading vegetables and fruits packers and suppliers. 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 usage protocol. These factors may significantly delay our products' 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.

We rely on rapidly establishing global distributorship network in order to effectively market our products.

The company, through its wholly owned subsidiary, Pimi Israel, has developed initial partnerships with local partners. In order to expand sales and marketing globally, and capture a leading market share before any potential reaction from the competition, the Company 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 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 products and the development of our business.

Our inability to attain and protect our 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 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.

Our success is dependent upon the acceptance of environment-friendly solutions for fruits and vegetables.

The future of the company is dependent upon the acceptance of environment-friendly, non-residue treatment solutions for 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 convince retailers, 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 business and operations may be affected by climate change conditions, which could materially harm our financial results

Our business may be affected from changes in climate conditions as such events would affect the storability of crops (such as potatoes) in those cases where there is unusually warm, dry, humid or cold weather before cropping.

For example, in the 2009-2010 potato seasons, parts of Europe experienced a very dry period prior to the picking of potatoes. This condition affected the storability of the potatoes and, as a result, we were required to release one store room earlier than anticipated.

In such instances, we may suffer a decrease in revenues as a result of a smaller storage volume of rooms or shorter storage period. While as of December 31, 2011 climate change events did not influence us materially, we anticipate that once we will increase our operations, and certain territories will experience significant climate change, such as above-common rains, heat waves, dry air conditions, and unusually cold or prolonged cold weather conditions, such events may materially impact our financial results.

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. 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, and operations.

•

Our focus on long-term goals over short-term results.

•

Global economic situation.

•

Fluctuations in weather conditions.

•

The seasonal nature of our business.

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, 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.

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. We are working with limited low concentration of the product, however in high concentrations of H2O2 it 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 transported 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.

As of the date of this report, all of our sales are made in Israel,.

Political, economic and military conditions in Israel have a direct influence on us because our operations are located there. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could materially and adversely affect our operations. Several Arab countries still restrict business with Israeli companies and these restrictions may have an adverse impact on our operating results, financial condition or the expansion of our business. We could be adversely affected by restrictive laws or policies directed towards Israel and Israeli businesses. The establishment in 2006 of a government in the Palestinian Authority by representatives of the Hamas militant group has created additional unrest and uncertainty in the area. In December 2008, Israel was engaged in an armed conflict with Hamas in the Gaza Strip, in the southern region of Israel. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamic Shiite militia group, which disrupted most daily civilian activity in northern Israel. These events have at times caused considerable damage to the Israeli economy. As a result of the political and military situation, Israel’s economy has at times suffered considerably. Ongoing or revived hostilities related to Israel may have a material adverse effect on our business and on our share price.

Additionally, boycotts of products, prompted by political, religious or other factors, may affect our financial condition and results of operations. For example, the recent war on Gaza and the United Nations fact-finding mission on the Gaza conflict at the start of 2009, commonly known as the “Goldstone Report,” have found evidence that both Israeli forces and Palestinian militants committed serious war crimes and breaches of humanitarian law, which may amount to crimes against humanity. The Goldstone Report and the Gaza conflict has resulted in grass root boycott movements all over the world on Israeli products or boycotts on products that are distributed by Jews. If such boycott movements were to become widespread, it could have a significant impact on our revenues.

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 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.

Risks Related to Share Prices

The Shares are an illiquid investment as there is presently limited market for our Shares, and transferability of the Shares is subject to significant restriction.

There is presently a limited market for our 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 our 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 a limited public market for the resale of our 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 market activity 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. For more information about penny stocks, please visit http://www.sec.gov/answers/penny.htm.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The Company and its subsidiary currently lease office space at Kibutz Alonim. The Company currently pays monthly rent of $1,000 (3,700 NIS) plus VAT per month pursuant to a 12 month lease started Jan 1, 2012 until December 31 2012.

ITEM 3. 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 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 4. RESERVED

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

In February 2010, our common stock began quotation on the OTC Bulletin Board under the symbol "PIMZ.OB".

Holders

As of December 31, 2011, the approximate number of stockholders of record of the Common Stock of the Company was 67.

Dividends

We have never declared or paid cash dividends on our common stock. We currently anticipate that we will retain all future earnings to fund the operation of our business and do not anticipate paying dividends on our common stock in the foreseeable future.

Recent Issuances of Stock

On March 9, 2012 Pimi closed a private placement in the aggregate amount of $626,000 (the “Private Offering”). The Company issued 62,600 shares of Series A Preferred Stock, par value $0.01 at a purchase price of $10.00 per share to 19 accredited investors and 19 non-accredited investors. Financial West Group, a FINRA registered broker dealer, served as placement agent in connection with the Private Offering. The holders of shares of Series A Preferred Stock shall be entitled to receive dividend cash payments of 9% per annum, payable in quarterly installments, and subject to conversion. Upon the closing of the Company's next round of financing, provided such closing occurs within twelve (12) months following the execution of the Closing in which Subscribers receive the Series A Preferred Stock, and further subject to minimum proceeds of $2,000,000 being raised in such investment (the "Next Round of Financing"), the Series A Preferred Stock shall automatically be converted into fully paid, nonasseable shares of Common Stock, $0.01 par value per share, of the Company (“Common Stock”). In the event that the closing of the Next Round of Financing has not occurred by November 30, 2012, each share of Series A Preferred Stock shall automatically be converted into fully paid, nonassesable shares of Common Stock. Notwithstanding, the holders of Series A Preferred Stock shall be entitled to convert each share of the Series A Preferred Stock into fully paid, nonassesable share of Common Stock, at a price of $0.80 per share. All and any shares of Series A Preferred Stock shall be automatically converted to the Common Stock and canceled on November 30, 2012, and, if converted to the Common Stock on an earlier date, the shares so converted shall be canceled on the date of their respective conversion.

On March 8, 2012 the company entered into a subscription agreement with one individual residing in Israel for the total sum of $ 10,000 at a purchase price of $0.80 per share, and issued to this investor 12,500 shares of its Common Stock. For each share of Common Stock purchased, the investor or a third party on his behalf received a warrant with an exercise price of $0.80, exercisable until March 2, 2014.

On March 2, 2011 the Company entered into subscription agreements with 4 individuals residing in Israel for the total sum of $100,000 at a purchase price of $0.80 per share, and issued to the investors 125,000 shares of its Common Stock. For each share of Common Stock purchased, the investors received a warrant with an exercise price of $0.80, exercisable until March 2, 2013.

On January 24, 2011, the Company entered into an agreement with an individual residing in Israel and Israeli private investment company. Pursuant to this agreement, the investor invested a total aggregate sum of US $500,000, at a purchase price of $0.80 per share, and the Company issued to the investor 625,000 shares of its Common Stock. For each share of Common Stock purchased, the investor received a warrant with an exercise price of $0.80, exercisable until December 31, 2012.

On June 29, 2011, the holder of our convertible bonds notified us of his decision not to exercise the conversion rights and elected for repayment of the bonds. The Company is negotiating the terms of bonds' repayment with the holder, and the bonds are represented in the Company's financial statements as of December 31, 2011.

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, the majority of which 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 regarding the 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 6. SELECTED FINANCIAL DATA

Not Applicable

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

Please see page i of this Annual Report for “Information Regarding Forward Looking Statements” appearing throughout this Annual Report.

Introduction

The following discussion should be read in conjunction with the Financial Statements and Notes thereto. Our fiscal year ends December 31. This document contains certain forward-looking statements including, among others, anticipated trends in our financial condition and results of operations and our business strategy. (See Part I, Item 1A, "Risk Factors"). These forward-looking statements are based largely on our current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Important factors to consider in evaluating such forward-looking statements include (i) changes in external factors or in our internal budgeting process which might impact trends in our results of operations; (ii) unanticipated working capital or other cash requirements; (iii) changes in our business strategy or an inability to execute our strategy due to unanticipated changes in the industries in which we operate; and (iv) various competitive market factors that may prevent us from competing successfully in the marketplace.

Company History

Pimi Israel was established in 2004 with a vision towards developing environmentally friendly alternative solutions to current chemical treatments of agricultural harvest, such as 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 unique, patented formulations 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 6,313,589 shares of our Common Stock. As a result, Pimi Israel became a wholly-owned subsidiary of the Company.

Overview

The Company focuses on developing environmentally friendly solutions for extending storability and shelf life of vegetables and fruits. As of the date of this report, the Company has developed six products (CitrusGuard™, FreshProtect™, SpuDefender™, SweetGuard™, OnionGuard™ and StoreGuard™) and has started the commercialization of five products: CitrusGuard™, FreshProtect™, SpuDefender™, SweetGuard™ and OnionGuard™.

Currently, the Company is focused on solutions related to fresh Citrus Fruits, table potatoes and Sweet Potatoes. Citruses are the most consumed fresh fruits world wide. World fresh Citrus market is estimated at above 50 million tons per annum. Potatoes are the second largest crop (after grain) worldwide. According to the food and Agriculture Organization of the United Nation, the total crop of the 20 major producers of Potatoes in 2010 was approximately 211 million metric tons (see: http://faostat.fao.org/site/339/default.aspx). We estimate that Table Potatoes, which our solution is currently aimed for, is 30%-40% of the total world produced potatoes.

Our products are based on Stabilized Hydrogen Peroxide ("STHP"), which has the ability to increase shelf life while reducing residue pesticides in consumed fruits and vegetables.

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 this report. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. Our management believes that, as for the financial statements for the periods included in this report, the going concern assessment and the stock base compensation are viewed as critical accounting policy. However, due to the early stage of operations of the Company, there are no other accounting policies that are considered to be critical accounting policies by our management.

Going concern uncertainty

The development and commercialization of our product will require substantial expenditures. We have not yet generated sufficient revenues from operations to fund our activities, and therefore dependent upon external sources for financing our operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. Since inception, we have incurred accumulated losses and cumulative negative operating cash flow. The continuation of our current operations after utilizing the current reserves is dependent upon the generation of additional financial resources either through fund raising or by generating revenues from our products. These factors raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty.

Recently issued accounting pronouncements

ASC Topic 220, "Comprehensive Income"

In June 2011, the FASB issued Accounting Standard Update No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.

ASU 2011-05 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (fiscal year 2012 for the Company) and should be applied retrospectively.

In December 2011, the FASB issued Accounting Standard Update (ASU) 2011-12, which defers certain provisions contained in ASU 2011-05 requiring the requirement to present components of reclassifications of other comprehensive income on the face of the income statement or in the notes to the financial statements. However, this deferral does not impact the other requirements contained in the new standard on comprehensive income as described above. ASU 2011-12 is effective during interim and annual periods beginning after December 15, 2011 (the first interim period of fiscal year 2012 for the Company). The adoption of ASU 2011-05 and ASU 2011-12 is not expected to have a material impact on our financial condition, results of operations or cash flows.

ASC Topic 210, “Balance Sheet”

In December 2011, the FASB issued Accounting Standard Update (ASU) 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities” (ASU 2011-11). ASU 2011-11, enhance disclosures about financial instruments and derivative instruments that are either offset in accordance with the Accounting Standards Codification or are subject to an enforceable master netting arrangement or similar agreement.

The amended guidance will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods (fiscal year 2013 for the Company) and should be applied retrospectively to all comparative periods presented.

The Company is currently evaluating the impact that the adoption of ASU 2011-11 would have on its consolidated financial statements, if any.

Results of Operations for the Year Ended December 31, 2011 compared to Year Ended December 31, 2010

Total Net Sales: Total Net Sales increased $186,088 or 68% to $460,089 in 2011, from $274,001 for 2010. The increase is due to the commencement of sales of our products on a small commercial scale in Israel.

R&D Expenses: R&D Expenses for 2011 of $698,300 increased $131,185 or 23% from the $567,115 in 2010, due to (i) increase in cost of salaries and professional services ($35,895), as a result of recruiting balanced partially by reducing professional consultants' services; (ii) increase in cost of materials ($48,377); and (iii) increase in car expenses and others ($46,913) due to increase in small commercial scale activities of post-harvest in Israel, which also caused an increase in the Company’s 2011 revenues in comparison to 2010.

General and Administrative Expenses: General and administrative expenses increased by $18,481, or 7% in 2011, to $298,980 from $280,499 in 2010, mostly due to increase in professional fee expenses paid to accounting and legal professionals after reduction plan applied in 2010.

Loss from Operations: Loss of costs from operations for 2011 of $537,191 was down $36,422 or 6% from the loss from operations in 2010 of $573,613, mainly as a result of the increase in sales ($186,088), partially balanced by increase in R&D expenses ($131,185) and in G&A expenses ($18,481).

Financing Expenses: Our total financing expenses in 2011 amounted to $69,675 and were $14,250 higher than our financing expenses of $55,425 in 2010. These changes were a result of convertible bonds interest and beneficial conversion feature with respect to convertible bonds ($18,548), balanced by decrease in credit lines usage as well as higher bank expenses and changes in the exchange rates ($4,298).

Net Loss: Net loss of $606,866 in 2011 was $22,172, or 4% less than the net loss in 2010 of $629,038, mainly as a result of increase in sales ($186,088), partially balanced by increase in R&D expenses ($131,185), in G&A expenses ($18,481), and increase in Financing expenses ($14,250)

Results of Operations for the Year Ended December 31, 2010 compared to Year Ended December 31, 2009

Total Net Sales: Total Net Sales increased $177,495 or 184% to $274,001 in 2010, from $96,506 for 2009. The increase is attributed mainly to the commencing of sales of our new product CitrusGuard on a small commercial scale on the last quarter of 2010 in Israel. These sales were due to successful results of trials which were done with CitrusGuard in May 2010.

R&D Expenses: R&D Expenses for 2010 of $567,115 decreased $196,714 or 26% from the $763,289 in 2009, due to decrease in cost of salaries and professional services ($297,233). Specifically, the reduction in R&D Expenses was caused by salary cuts, reduced professional consultants' services, reduced travel by our management, as well as reduced expenses in connection with regulatory and patent registration. In addition, the reduction of R&D Expenses for the period covered by this report was further impacted by a reduction of R&D activity in our pre-harvest solution, while in 2009 the Company’s R&D efforts was in both pre and post-harvest solutions. This reduction was partially balanced by increase in materials and costs related ($100,519), due to increase in activities of post-harvest pilot lines in Israel, which also caused an increase in the Company’s 2010 revenues in comparison to 2009.

General and Administrative Expenses: General and administrative expenses decreased by $127,304, or 31% in 2010, to $280,499 from $407,803 in 2009, mostly due to decrease in professional fee expenses paid to accounting and legal professionals in 2009 in connection with regulatory filings with the Securities and Exchange Commission.

Loss from Operations: Loss from operations for 2010 of $573,613 was down $501,513 or 47% from the loss from operations in 2009 of $1,075,126, mainly as a result of the increase in sales ($177,495), decrease in R&D expenses ($196,714) and in G&A expenses ($127,304).

Financing Expenses: Total financing expenses in 2010 amounted to $55,425, which were $53,927 higher than our financing expenses of $1,498 in 2009. These changes were a result of convertible bonds interest ($8,000) and beneficial conversion feature with respect to convertible bonds ($34,340), credit lines usage as well as higher bank expenses and changes in the exchange rates.

Net Loss: Net loss of $629,038 in 2010 was $447,586, or 42% less than the net loss in 2009 of $1,076,624, mainly as a result of increase in sales ($177,495), decrease in R&D expenses ($196,714) and in G&A expenses ($127,304), balanced by increase in financing expenses ($53,927)

Liquidity and Capital Resources

As of December 31, 2011, we had liabilities of $560,356 ($699,935 as of December 31, 2010), including $174,356 ($126,275 as of December 31, 2010) of Convertible Bonds, $280,291 ($360,530 as of December 31, 2010) of third party liabilities, and $105,709 ($213,130 as of December 31, 2010) was due to related parties. The amounts due to related parties are for consulting, services and salaries.

As of December 31, 2011 we did not use credit lines and had cash in the sum of $22,446. As of March 31, 2012 we have unused credit lines in the sum of $16,000, and have $550,000 in cash. Currently our net burn rate is approximately $50,000 per month. Thus, we anticipate will not need additional investments through December 31, 2012.

The Company anticipates that it will begin to realize material revenues in the Citrus and Potato season of 2012 (the fourth quarter of 2012), as customers will begin to buy the Company’s products and technologies. 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, and the U.S for our SpuDefender™.

The Company has sustained operating losses and its cash needs extend beyond its current resources. 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. Moreover, the Company’s auditors report expresses substantial doubt as to the Company’s ability to continue as a going concern.

The Company has not yet generated sufficient revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of March 31, 2012, the Company’s management has secured $626,000 investments ($563,000 net after commission), which will be sufficient for the Company’s cash needs through December 31, 2012.

Net Cash Used in Operating Activities for the years 2011 and 2010

Net cash used in operating activities, generated from continuing operations was $660,175 and $430,887 for the years ended December 31, 2011 and 2010, respectively. Net cash used in operating activities primarily reflects the net loss for those periods, which was reduced in part by depreciation and amortization, stock-based compensation and changes in operating assets and liabilities.

Net Cash Used in Investing Activities for the years 2011 and 2010

Net cash used in investing activities was $12,865 and $33,161, for the years ended December 31, 2011 and 2010, respectively, which was used primarily to purchase equipment (such as computers, and office equipment), and funds deposit in respect of employees rights upon retirement.

Net Cash Provided by Financing Activities for the years 2011 and 2010

Net cash provided by financing activities was $695,486 and $464,084 for the years ended December 31, 2011 and 2010, respectively, primarily attributable to capital raised.

Net Cash Used in Operating Activities for the years 2010 and 2009

Net cash used in operating activities, generated from continuing operations was $430,887 and $847,772 for the years ended December 31, 2010 and 2009, respectively. Net cash used in operating activities primarily reflects the net loss for those periods, which was reduced in part by depreciation and amortization, stock-based compensation and changes in operating assets and liabilities.

Net Cash Used in Investing Activities for the years 2010 and 2009

Net cash used in investing activities was $33,161 and $26,678, for the years ended December 31, 2010 and 2009, respectively, which was used primarily to purchase equipment (such as computers, and office equipment), and funds deposit in respect of employees rights upon retirement.

Net Cash Provided by Financing Activities for the years 2010 and 2009

Net cash provided by financing activities was $464,084 and $603,645 for the years ended December 31, 2010 and 2009, respectively, primarily attributable to capital raised.

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, and results of operations, liquidity or capital expenditures.

Contractual Obligations

The Company has no outstanding contractual obligations as of December 31, 2011.

Effect of Recently Issued Accounting Pronouncements

N/A

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

Consolidated Financial Statements

as of December 31, 2011

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

Consolidated Financial Statements

as of December 31, 2011

Table of Contents

	Page

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Financial Statements

Balance Sheets	F-3

Statements of Operations	F-4

Statements of Changes in Stockholders’ Deficit	F-5 – F-10

Statements of Cash Flows	F-11

Notes to Consolidated Financial Statements	F-12 – F-34

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders of

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

Fahn Kanne & Co.

Head Office

Levinstein Tower

23 Menachem Begin Road

Tel-Aviv 66184, ISRAEL

P.O.B. 36172, 61361

T +972 3 7106666

F +972 3 7106660

www.gtfk.co.il

We have audited the accompanying consolidated balance sheets of Pimi Agro Cleantech, Inc. (a development stage company) and subsidiary (hereinafter: the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2011 and for the cumulative period from January 14, 2004 (date of inception) through December 31, 2011. These consolidated financial statements are the responsibility of the Board of Directors and management of the Company. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pimi Agro Cleantech, Inc. and subsidiary as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 and for the cumulative period from January 14, 2004 (date of inception) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company is in the development stage as defined in FASB Accounting Standards Codification (ASC) Topic 915, "Development Stage Entities". It has not yet generated sufficient revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of December 31, 2011, the Company has incurred accumulated losses of US$ 4,311,675 and cumulative negative operating cash flow of US$ 3,750,128. These factors among others, as discussed in Note 1 to the consolidated financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

FAHN KANNE & CO. GRANT THORNTON ISRAEL

Certified Public Accountants (Isr.)

Tel-Aviv, Israel

April 16, 2012

Certified Public Accountants

Fahn Kanne & Co. is the Israeli member firm of Grant Thornton International Ltd

F-2

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

	US dollars (except share data)
	December 31,
	2011			2010
ASSETS
Current Assets
Cash and cash equivalents		22,446			-
Accounts receivable		186,842			128,695
Other current assets (Note 3)		22,487			54,194
Total current assets		231,775			182,889

Property and Equipment, Net (Note 4)		27,559			36,720

Funds in Respect of Employee Rights Upon Retirement		68,015			61,967
Total assets		327,349			281,576
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Credit from banking institution		-			63,216
Accounts payable:
Trade (Note 5A)		145,189			164,729
Other (Note 5B)		167,357			285,609
Convertible Bonds (Note 7)		174,356			126,275
Total current liabilities		486,902			639,829

Liability for employee rights upon retirement		73,454			60,106
Total liabilities		560,356			699,935

Commitments (Note 8)
Stockholders’ Deficit (Note 9)
Series A Convertible preferred stock of US$0.01 par value ("Series A preferred stock"): 600,000 shares authorized as of December 31, 2011		-			-
Common stocks of US$ 0.01 par value ("Common stocks"): 30,000,000 shares authorized as of December 31, 2011 and 2010; issued and outstanding 8,541,087 shares and 7,160,564 shares as of December 31, 2011 and 2010, respectively		85,410			71,604
Additional paid in capital		4,055,026			3,284,728
Accumulated other comprehensive loss		(61,768	)		(69,882	)
Deficit accumulated during the development stage		(4,311,675	)		(3,704,809	)
Total stockholders' deficit		(233,007	)		(418,359	)
Total liabilities and stockholders’ deficit		327,349			281,576

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

F-3

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

	US dollars (except share data)
	Year ended December 31,									Cumulative period from January 14, 2004 (date of inception) through December 31,
	2011			2010			*2009^()**			*2011^()**

Revenues from sales of products		460,089			274,001			96,506			1,003,882
Research and development expenses (Note 10)		(698,300	)		(567,115	)		(763,829	)		(3,550,816	)
General and administrative expenses (Note 11)		(298,980	)		(280,499	)		(407,803	)		(1,530,802	)
Operating loss		(537,191	)		(573,613	)		(1,075,126	)		(4,077,736	)
Financing expenses, net		(69,675	)		(55,425	)		(1,498	)		(153,605	)
Loss from continuing operation		(606,866	)		(629,038	)		(1,076,624	)		(4,231,341	)
Loss from discontinued operation, net		-			-			-			(80,334	)
Loss for the period		(606,866	)		(629,038	)		(1,076,624	)		(4,311,675	)

Loss per share (basic and diluted) (Note 13)		(0.07	)		(0.09	)		(0.17	)

Weighted average number of shares outstanding (basic and diluted)		8,290,381			6,764,020			6,365,330

(*)

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.

F-4

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*)

	US Dollars (except share data)
	Common stock													Deficit
	Number of shares		Amount		Additional paid in capital			Accumulated other comprehensive income (loss)			Receipts on account of shares			accumulated during the development stage			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	)

(*)

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

F-5

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

	US Dollars (except share data)
	Common stock													Deficit
	Number of shares		Amount		Additional paid in capital			Accumulated other comprehensive income (loss)			Receipts on account of shares			accumulated during the development stage			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	)

(*)

F-6

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

	US Dollars (except share data)
	Common stock												Deficit
	Number of shares		Amount		Additional paid in capital		Accumulated other comprehensive income (loss)			Receipts on account of shares			accumulated during the development stage			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

(*)

F-7

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

	US Dollars (except share data)
	Common stock											Deficit
	Number of shares		Amount		Additional paid in capital		Accumulated other comprehensive income (loss)			Receipts on account of shares		accumulated during the development stage			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	)

(*)

F-8

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

	US Dollars (except share data)
	Common stock											Deficit
	Number of shares		Amount		Additional paid in capital		Accumulated other comprehensive income (loss)			Receipts on account of shares		accumulated during the development stage			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.

(**)	See Note 9G.

(***)	See Note 7.

(****)	Including US$ 24,850 with respect to the issuance of 30,000 common stock to a service provider.

F-9

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (*) (cont.)

	US Dollars (except share data)
	Common stock												Deficit
	Number of shares		Amount		Additional paid in capital			Accumulated other comprehensive income (loss)			Receipts on account of shares		accumulated during the development stage			Total stockholders equity (deficit)
Loss for the year		-		-		-			-			-		(606,866	)		(606,866	)
Loss on translation of subsidiary's financial statements from its functional currency to the reporting currency		-		-		-			8,114			-		-			8,114
Total comprehensive loss																	(598,752	)
Issuance of 125,000 common stock and warrants 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 and warrants 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 and warrants 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 and warrants 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 and warrants 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 and warrants for cash of US$ 0.8 per share in September 2011		12,500		125		9,875			-			-		-			10,000
Issuance of 62,500 common stock and warrants, and payment of US$ 50,000 in cash as equity issuance costs (see Note 9Q)		62,500		625		(50,625	)		-			-		-			(50,000	)
Exercise of options		311,773		3,118		-			-			-		-			3,118
Stock based compensation		-		-		25,986											25,986
Balance as of December 31, 2011		8,541,087		85,410		4,055,026			(61,768	)		-		(4,311,675	)		(233,007	)

(*)

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

F-10

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	US dollars
	Year ended December 31,									Cumulative period from January 14, 2004 (date of inception) through December 31,
	2011			2010			*2009^()**			*2011^()**

Cash flows from operating activities:

Loss for the period		(606,866	)		(629,038	)		(1,076,624	)		(4,311,675	)
Adjustments to reconcile net loss for the period to net cash used in operating activities:
Depreciation		8,693			7,433			7,510			39,685
Increase in liability for employee rights upon retirement		18,802			8,485			10,204			73,026
Stock based compensation		25,986			82,346			91,077			243,176
Interest on convertible bonds		48,086			42,340			-			90,426
Interest on stockholders loans		-			-			-			(2,409	)

Changes in assets and liabilities:

Increase in accounts receivable		(71,796	)		(91,634	)		(16,481	)		(192,413	)
Decrease (increase) in other current assets		29,706			(18,700	)		13,929			(117,507	)
Increase (decrease) in accounts payable – trade		(8,335	)		103,167			20,997			143,447
Increase (decrease) in accounts payable – other		(104,451	)		64,714			101,616			203,782
Net cash used in operating activities generated from continuing operations		(660,175	)		(430,887	)		(847,772	)		(3,830,462	)
Net cash provided in operating activities generated from discontinued operations		-			-			-			80,334
Net cash used in operating activities		(660,175	)		(430,887	)		(847,772	)		(3,750,128	)

Cash flows from investment activities:

Increase in funds in respect of employee rights upon retirement		(11,156	)		(15,899	)		(13,005	)		(66,664	)
Purchase of property and equipment		(1,709	)		(17,262	)		(13,673	)		(64,360	)
Net cash used in investment activities		(12,865	)		(33,161	)		(26,678	)		(131,024	)

Cash flows from financing activities:

Credit from banking institution		(62,632	)		50,924			9,114			(2,615	)
Proceeds from issuance of common stock and warrants		758,118			253,316			594,531			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		695,486			464,048			603,645			3,894,187
Effect of exchange rate changes on cash and cash equivalents		-			-			(6,605	)		9,411
Increase (decrease) in cash and cash equivalents		22,446			-			(277,410	)		22,446
Cash and cash equivalents at beginning of the period		-			-			277,410			-
Cash and cash equivalents at end of the period		22,446			-			-			22,446

Supplementary information on financing activities not involving cash flows:

During December 2010, the Company issued 134,121 shares of common stock to its stockholders in respect of accounts payable in an amount of US$ 77,459.

(*)

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

F-11

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -

GENERAL

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 (collectively, the "Group") are considered to be in the development stage as defined in FASB Accounting Standards Codification (ASC) Topic 915, "Development Stage Entities".

In February 2010, the company's common stock began quoatation on the OTC Bulletin Board under the symbol "PIMZ.OB".

Going concern uncertainty

Since its incorporation (April 1, 2009), the Company has not had 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 and the Company have not yet generated sufficient revenues from its operations to fund the Group activities, and is therefore dependent upon external sources for financing their operations. There can be no assurance that Pimi Israel will succeed in obtaining the necessary financing to continue their operations. Since inception, Pimi Israel has incurred accumulated losses of US$ 4,311,675 and cumulative negative operating cash flow of US$ 3,750,128.

Continuation of the Company's current operations after utilizing its current limit reserves is dependent upon the generation of additional financial resources either mainly 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. (See Note 15.)

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.

F-12

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 1 -

GENERAL (cont.)

Risk factors

The Company and Pimi Israel (collectively, 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 products by competitors. 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 stockholders and investors.

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").

Functional currency and translation to the reporting currency

The functional currency of the Company is the US dollar (“US$”), which is the currency of the primary economic environment in which the operations of the Company are conducted. The functional currency of its foreign subsidiary is the New Israeli Shekel ("NIS").

The financial statements of the subsidiary were translated into US dollars in accordance with the relevant standards of the Financial Accounting Standards Board ("FASB"). Accordingly, assets and liabilities were translated from NIS to US dollars using year-end exchange rates, and income and expense items were translated at average exchange rates during the year.

Gains or losses resulting from translation adjustments are reflected in stockholders' deficit, under “accumulated other comprehensive income (loss)”.

Balances denominated in, or linked to foreign currency are stated on the basis of the exchange rates prevailing at the balance sheet date. For foreign currency transactions included in the statements of operations, the exchange rates applicable on the relevant transaction dates are used. Transaction gains or losses arising from changes in the exchange rates used in the translation of such balances are carried to financing income or expenses.

	Year ended December 31,
	2011		2010		2009

Official exchange rate of NIS 1 to US dollar		0.262		0.282		0.265

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany balances and transactions have been eliminated on consolidation.

As described in Note 1A above, the acquisition of Pimi Israel has been accounted for in a manner similar to a pooling of interests at historical cost.

F-13

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

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 dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

As applicable to these consolidated financial statements, the most significant estimates and assumptions relate to stock based compensation and to the going concern assumption.

Cash and cash equivalents

The Group considers all highly liquid investments, which include short-term bank deposits that are not restricted as to withdrawal or use, and short-term debentures, with original periods to maturity not exceeding three months, to be cash equivalents.

Property and equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When asset are retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the statements of operations.

Rates of depreciation:

	%

Computers	33
Furniture and office equipment	7-15

Impairment of long-lived assets

The Group's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. The Group has not recorded any impairment losses in the reported periods.

Deferred income taxes

Deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the tax rates expected to be in effect at the time when these differences reverse. Valuation allowances in respect of the deferred tax assets are provided for if, based upon the weight of available evidence, it is more likely than not that all or a portion of the deferred income tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes. The Company did not identify any uncertain tax positions and therefore did not recognize any liability with respect to unrecognized tax positions in its balance.

F-14

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Liability for employee rights upon retirement

Pimi Israel's liability for employee rights upon retirement with respect to its Israeli employees is calculated, pursuant to Israeli severance pay law, based on the most recent salary of each employee multiplied by the number of years of employment, as of the balance sheet date. Employees are entitled to one month's salary for each year of employment, or a portion thereof. Pimi Israel makes monthly deposits to insurance policies and severance pay funds. The liability of the Company is fully provided for.

The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial profits/losses.

Severance expenses for the years ended December 31, 2011, 2010 and 2009, amounted to US$ 18,802, US$ 8,485 and US$ 10,204, respectively.

Revenue recognition

Revenues are recognized when delivery has occurred and there is persuasive evidence of an agreement, the fee is fixed or determinable and collection of the related receivables is reasonably assured and no further obligations exist.

Revenues from sales of products are recognized when title and risk and rewards for the products are transferred to the customer.

Research and development costs

Research and development expenses are charged to operations as incurred. Grants received from the Government of Israel for development of approved projects are recognized as a reduction of expenses when the related costs are incurred (see also K. below).

Royalty-bearing grants

Royalty-bearing grants from the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of Israel (the "OCS") for funding approved research and development projects are recognized at the time Pimi Israel is entitled to such grants, on the basis of the costs incurred and included as a reduction of research and development costs. The cumulative research and development grants recognized since inception amount to US$ 121,753.

As of December 31, 2011, the Company has not accrued any royalties, since no revenues were recognized in respect of the funded projects.

Loss per share

Basic loss per share is computed by dividing loss by the weighted average number of shares outstanding during the year.

In computing diluted loss per share, basic losses per share are adjusted to reflect the potential dilution that could occur upon the exercise of options issued or granted using the treasury stock method and upon the conversion of convertible bonds using the if-converted method. The effect of such exercise or conversion is considered dilutive in all the reported periods.

F-15

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Stock-based compensation

Stock based compensation to employees is recognized in the statement of operations as an operating expense, based on the fair value of the award on the date of grant. The fair value of stock-based compensation is estimated using the Black Scholes option-pricing model. The Group has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period.

Stock based payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, "Equity-Based Payments to Non-Employees".

Fair value of financial instruments

ASC Topic 825-10, "Financial Instruments" defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and cash equivalents, other current assets, credit from banking institutions, accounts payable and other current liabilities balances, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

Beneficial conversion feature on convertible bonds

The Company has considered the provisions of ASC Topic 815 - 40, "Derivatives and Hedging - Contracts in Entity's Own Equity", and determined that the embedded conversion feature should not be separated from the host instrument because it qualifies for equity classification. Furthermore, the Company applied ASC Topic 470 - 20, "Debt - Debt with Conversion and Other Options" which clarifies the accounting for instruments with beneficial conversion features or contingency adjustable conversion ratios.

The beneficial conversion feature has been calculated by allocating the proceeds received in financing transactions to the convertible instrument and to any detachable warrants included in the transaction based and by measuring the intrinsic value of the convertible instrument based on the effective conversion price as a result of the allocated proceeds.

The amount of the beneficial conversion feature with respect to convertible bonds was recorded as a discount on the convertible bonds with a corresponding amount credited directly to equity as additional paid-in capital. After the initial recognition, the discount on the convertible bonds is amortized as interest expenses over the term of the bonds.

Other comprehensive income (loss)

Other comprehensive income (loss), presented in stockholders' equity (deficit), includes, in addition to loss, gains and losses from the translation of the results of foreign subsidiary to the reporting currency.

Fair value measurements

The Company applies ASC Topic 820-10 (formerly SFAS 157, “Fair Value Measurements”) which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and requires disclosures for fair value measurements.

Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As of December 31, 2011, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820-10.

F-16

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. Cash and cash equivalents are deposited with major banks in Israel and the United States of America. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments.

The Company has no significant off-balance-sheet concentration of credit risk.

Recently issued accounting pronouncements

ASC Topic 220, "Comprehensive Income"

In June 2011, the FASB issued Accounting Standard Update No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.

ASU 2011-05 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (fiscal year 2012 for the Company) and should be applied retrospectively.

ASC Topic 210, “Balance Sheet”

In December 2011, the FASB issued Accounting Standard Update (ASU) 2011-11, “Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities” (ASU 2011-11). ASU 2011-11, enhance disclosures about financial instruments and derivative instruments that are either offset in accordance with the Accounting Standards Codification or are subject to an enforceable master netting arrangement or similar agreement.

The Company is currently evaluating the impact that the adoption of ASU 2011-11 would have on its consolidated financial statements, if any.

F-17

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 3 -

OTHER CURRENT ASSETS

	US dollars
	December 31,
	2011		2010

Prepaid expenses		11,610		26,755
Government Institutions		2,977		17,335
Others (*)		7,900		10,104
		22,487		54,194

(*) Related parties		3,585		4,236

NOTE 4 -

PROPERTY AND EQUIPMENT, NET

	US dollars
	December 31,
	2011			2010

Computers		24,163			21,924
Furniture and office equipment		43,033			43,900
		67,196			65,824
Less – accumulated depreciation		(39,637	)		(29,104	)
		27,559			36,720

In the years ended December 31, 2011, 2010 and 2009, depreciation was US$ 8,693, US$ 7,433 and US$ 7,510, respectively, and additional equipment was purchased in an amount of US$ 1,709, US$ 17,262 and US$ 13,673, respectively.

NOTE 5 -

ACCOUNTS PAYABLE

Trade

	US dollars
	December 31,
	2011		2010

Open accounts		111,107		123,658
Checks payable		34,082		41,071
		145,189		164,729

Other

	US dollars
	December 31,
	2011			2010

Employees and related institutions		38,842			51,458
Government Institutions		8,524			-
Accrued expenses		119,991			234,151
		167,357	(*)		285,609	(*)

(*) Related parties		65,729			175,566

F-18

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 6 -

LINE OF CREDIT

As of December 31, 2011, the Company has an unutilized credit line of approximately NIS 60.000 (US$ 15,703) with an Israeli Bank.

NOTE 7 -

CONVERTIBLE BONDS

On April 29, 2010, the Company issued convertible bonds in the amount US$60,000 to one of its Stockholders, or its registered assigns, which can be converted until April 30, 2011 for common shares of the Company, at the price of US$1.35 per share. The loan bears interest of 8% per annum and its maturity date was April 30, 2011. In addition, on April 29, 2010, the Company issued a detachable warrant to purchase 44,444 shares of common stock of the corporation to the same Shareholder, at a purchase price of US$1.35 per share to be exercised until October 30, 2011. The said warrant was not exercised by October 30, 2011 and has fully expired.

On May 13, 2010, the Company issued convertible bonds in the amount US$20,000 to one of its Stockholders, or its registered assigns, which can be converted until May 13, 2011 for common shares of the Company, at the price of US$1.35 per share. The loan bears interest of 8% per annum and its maturity date was May 13, 2011. The conversion period and the maturity date of the said loan has been extended until May 13, 2012. In addition, on May 13, 2010, the Company issued a detachable warrant to purchase 14,815 shares of common stock of the corporation to the same Shareholder, at a purchase price of US$1.35 per share to be exercised until November 13, 2011. The said warrant was not exercised by November 13, 2011 and has fully expired.

On May 16, 2010, the Company issued convertible bonds in the amount US$79,808 to one of its Stockholders, or its registered assigns, which can be converted until May 15, 2011 for common shares of the Company, at the price of US$1.35 per share. The loan bears interest of 8% per annum and its maturity date was May 15, 2011. In addition, on May 16, 2010, the Company issued a detachable warrant to purchase 59,117 shares of common stock of the corporation to the same Shareholder, at a purchase price of US$1.35 per share to be exercised until November 15, 2011. The said warrant was not exercised by November 15, 2011 and has fully expired.

As a result of the above issuances, the Company recorded a total amount of US$ 41,208 in respect of the detachable warrants and a total amount of US$ 41,207 as beneficial conversion feature in respect of the convertible bonds, as a credit to stockholders' equity (additional paid in capital).

The fair value of the Warrants was determined using the Black-Scholes pricing model, assuming a risk free rate of 3%, a volatility factor of 50.00%, dividend yields of 0% and an expected life of 1.5 years.

On June 29, 2011, the holder of convertible bonds, specified in sub-sections A, B and C hereinabove, notified the Company that he decided not to exercise the conversion rights and asked for repayment of the bonds in cash. The Company is negotiating with the bonds holder, the terms of repayment of the bonds, which are represented as current liabilities in the balances as of December 31, 2011.

F-19

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 8 -

COMMITMENTS

Pimi Israel is committed to pay royalties to the OCS on the proceeds from sales of products resulting from research and development projects in which the OCS participates by way of grants. In the first 3 years of sales the Company shall pay 3% out of the sales of the product which was developed under the research and development projects. In the fourth, fifth and sixth years of sales, the Company shall pay 4% of such sales and from the seventh year onwards the Company shall pay 5% up to 100% of the amount of grants received plus interest at LIBOR. Pimi Israel was entitled to the grants only upon incurring research and development expenditures. There were no future performance obligations related to the grants received from the OCS. As of December 31, 2011, the contingent liabilities with respect to grants received from the OCS, subject to repayment under these royalty agreements on future sales is NIS 484,429 (US$ 121,753), not including interest.

The Company and its subsidiary currently lease office space at Kibbutz Alonim. The Company paid monthly rent of NIS 2,500 (US$ 654) plus VAT per month during the years 2010 and 2009. The Company currently pays monthly rent of NIS 3,000 (US$ 785) plus VAT per month pursuant to a 12 month operating lease starting on January 1, 2011 and terminating on December 31, 2011. The operating lease has been extended until December 31, 2012 and the Company pay monthly rent of US$ 1,000.

Joint venture Agreement with Vegiesafe LLC

In January 2009, Pimi Israel entered in a Joint Venture Agreement ("JV") with Vegiesafe LLC ("Vegiesafe") a Limited Liability Company registered in the USA, 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. Vegiesafe shall seek retailers and/or major distributors in the USA, 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 trigger event and milestones of annual sales. Pimi Israel shall have 70% of the rights in the JV and will nominate two of its directors, and Vegiesafe will have 30% of the rights and will nominate one director. In May 2009 Pimi Israel and Vegiesafe mutually agreed that a trigger event as defined in the agreement, has occurred, thereby obligating, the continuation of the Joint Venture. Accordingly, Vegiesafe’s exclusivity was subject to the following milestones: Entering a CIPC free branding program with two retailers or distributors prior to September 2010; the treatment of 150,000 tons of potatoes in the season of 2011 (September 2011); the treatment of 350,000 tons of potatoes in the season of 2012 (September 2012). As of the date of these financial statements VegiSafe has not complied with the above milestones and the Company has not taken any actions against VegiSafe with this regard.

Vegiesafe was required to invest in the JV an aggregate amount of US$250,000 which was intended to be used to cover expenses reflected in a budget prepared for the JV and approved by Vegiesafe 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 Vegiesafe.

On August 9, 2010 Pimi Israel signed with Vegiesafe an Addendum to the Agreement dated January 20, 2009, under which Pimi Israel agreed to expand the activities of the JV in the USA to Sweet Potatoes, Yams, Onions, Cabbages and Mushrooms. In addition, Pimi Israel has agreed to expand the activities of JV in the USA to citrus fruits, provided Vegiesafe will bear all the costs and expenses related to this activity.

Commencing the inception of the JV and until December 31, 2011, the activities of the JV have not been material.

F-20

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL

Description of the rights attached to the Shares in the Company

Common stock:

Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of stockholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the stockholders of the Company's common stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of the directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law.

Series A Convertible Preferred stock:

Holders of preferred stock are entitled to receive dividend cash of 9% per annum, not compounded and, subject to conversion of such preferred stock, as set forth herein, payable in quarterly installments. Upon the closing (the "Closing") of Company's upcoming round of financing, by private equity investors or venture capitalists or Secondary IPO, provided the Closing occurs within 12 months following the Subscription Agreement execution date and minimum proceeds of $2 million are raised (the "Next Round of Financing"), the Convertible Preferred Shares shall automatically, without any further action, be converted into fully paid Common Stock shares of the Company, par value $0.01 per share (the "Conversion Shares"). The number of such Conversion Shares shall be determined by dividing investment amount (the "Investment") by either (a) 80% of the Closing price per share of the Company's common stock in Next Round of Financing or (b) dividing the investment amount by $0.80, whichever is lower. Subject to automatic conversion provisions, as set forth hereinabove, holders of preferred stock are entitled to convert it into common stock at any time at their option at a price of $0.80 per share. The conversion price shall be adjusted for stock dividends, splits, combinations and similar events. In the event of Company's liquidation, dissolution or winding-up, which will occur until conversion, preferred stock holders shall be entitled to the following rights and proceeds: to be paid the original purchase price on each share of the preferred stock plus any dividend cash accrued and unpaid before any amount shall be paid to the holders of the common stock. Thereafter, the preferred stock holders shall participate in proceeds distribution with the common stock holders on an as-converted basis.

Unless otherwise determined by the preferred stock holders, they shall be entitled to the liquidation preference as set forth hereinabove also in event of (i) sale of all or substantially all of the assets of the Company, (ii) merger, reorganization or other transaction in which 50% of the outstanding voting power of the Company is transferred and (iii) exclusive, irrevocable licensing of all or substantially all of the Company’s intellectual property to a third party. Notwithstanding the foregoing, holders of preferred stock are entitled to receive ratably such dividends, if any, as may be declared by Company's board of directors out of funds legally available. Preferred stock holders have no preemptive rights or other subscription rights, redemption or sinking fund provisions. Upon liquidation, dissolution or winding up of the Company, the holders of the Company's preferred stock will be entitled to share ratably in the net assets legally available for distribution to all shareholders (i.e. all the preferred and common stockholders) after the payment of all of the Company's debts and other liabilities.

F-21

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

Stock-option plans

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" or "Plan"), exercisable into 623,547 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 agreement. Any option not exercised within 10 years after the date of grant thereof expires.

On 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 with similar terms, subject to the 2009 Share Incentive Plan on a 1 for 1 basis (561,191 options were replaced). In addition, during 2009 (following the acquisition of Pimi Israel by the Company), the Company issued 31,176 additional options (with a vesting period of 8 quarters), of which 11,690 options were forfeited during 2010. During 2011, 311,773 options were exercised.

Until the date of Pimi Israel's acquisition by the Company, 436,482 options out of the Pimi Israel 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 also D. and E. below regarding stock-based compensation to non-employees.

The non-cash compensation relating to options granted to employees and directors was US$ 5,554, US$ 24,194 and US$ 53,956 during the years ended December 31, 2011, 2010 and 2009, respectively (of which US$ 2,676, US$ 17,467 and US$ 40,195 was charged to research and development expenses, respectively and US$ 2,878, US$ 6,727 and US$ 13,761 was charged to general and administrative expenses, respectively).

The remaining amount of approximately US$ 560 will be charged to the statements of operations in future periods over the vesting period (3 quarters).

As of December 31, 2011, there are 2,407,633 shares available for future grants under the 2009 Share Incentive Plan.

F-22

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

Stock-option plans

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 until September 2009 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). There were no new grants in 2010-2011.

(**)

The risk free interest rate represents the risk free rate of US$ zero – coupon US Government Bonds.

(***)

Due to the fact that the Company did not have sufficient historical exercise data, the expected term was determined based on the "simplified method" in accordance with Staff Accounting Bulletin No. 110.

The following table presents a summary of the status of the grants to employees and directors as of December 31, 2011, 2010 and 2009:

	Number			Weighted average exercise price
Year ended December 31,	2011

Balance outstanding at beginning of year		455,968			0.26
Granted		-			-
Exercised		(311,773	)		0.01
Forfeited		-			-
Balance outstanding at end of the year		144,195			0.81

Balance exercisable at the end of the year		132,503			0.82

	Number			Weighted average exercise price
Year ended December 31,	2010

Balance outstanding at beginning of year		467,658			0.29
Granted		-			-
Exercised		-			-
Forfeited		(11,690	)		1.37
Balance outstanding at end of the year		455,968			0.26

Balance exercisable at the end of the year		346,846			0.28

F-23

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

Stock-option plans (cont.)

	Number		Weighted average exercise price
Year ended December 31,	2009

Balance outstanding at beginning of year		436,482		0.21
Granted		31,176		1.37
Exercised		-		-
Forfeited		-		-
Balance outstanding at end of the year		467,658		0.29

Balance exercisable at the end of the year		206,547		0.20

The aggregate intrinsic value of the awards exercisable as of December 31, 2011 and 2010 is US$ 0 and US$ 137,959, respectively. The aggregate intrinsic value of the awards outstanding as of December 31, 2011 and 2010 is US$ 0 and US$ 183,946, respectively. These amounts represent the total intrinsic value, based on the Company's stock price of US$ 0.8 and US$ 0.6 as of December 31, 2011 and 2010, respectively, 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.

Range of exercise prices		Outstanding at December 31,		Weighted average remaining contractual life		Weighted average exercise price		Exercisable at December 31,		Weighted average exercise price
US$		2011		years		2011
	0.72		124,709		6.86		0.72		113,017		0.72
	1.37		19,486		7.5		1.37		19,486		1.37
			144,195						132,503

Range of exercise prices		Outstanding at December 31,		Weighted average remaining contractual life		Weighted average exercise price		Exercisable at December 31,		Weighted average exercise price
US$		2010		years		2010
	0.01		311,773		6.92		0.01		233,829		0.01
	0.72		124,709		7.86		0.72		93,531		0.72
	1.37		19,486		8.5		1.37		19,486		1.37
			455,968						346,846

F-24

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

Investor's Options of Pimi Israel

Exercise of Existing Option in Pimi Israel

During 2008, Pimi Israel issued 239,193 options with an 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 other 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 (the original exercise price was denominated in NIS). 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.

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 was 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 was to be paid in two installments as follows: US$90,000 on September 15, 2009 and US$90,000 on January 15, 2010. On October 19, 2009, EB paid only US$60,000 of the first installment and are not expected to transfer the remaining US$120,000 (US$30,000 of the first installment and the entire second installment of US$90,000). Accordingly they received the proportionate amount of allocated shares pro rata from the first installment. EB has received the allocated shares pro rata to the investments based on the amount actually paid. On August 24, 2010, EB invested an additional US$30,000 under the Private Placement mentioned in Note9G and received 50,000 shares of common stock.

As of December 31, 2010, EB has invested a total sum of US$210,000 and received 185,986 shares of common stock of the Company. EB is not expected to pay any amounts under the agreement described above.

In addition, on May 3, 2009, the Company issued to EB a warrant for the purchase of 145,985 shares of common stock 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 warrants were not exercised and therefore expired.

See Note 7 with respect to convertible bonds and warrants issued to stockholders during 2010.

In December 2008, a member of the Advisory Board received options under the Plan as part of the compensation for his consulting services. Pimi Israel has granted the consultant a total sum of 31,176 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 of each option shall be US$0.72 per share.

The non-cash compensation relating to options granted to the consultant was US$ 12,870 during the year ended December 31, 2010.

F-25

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

In December 2008, a member of the Advisory Board received options under the Plan as part of the compensation for his consulting services. Pimi Israel has granted the consultant a total sum 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 of each option shall be US$0.72 per share.

The non-cash compensation relating to options granted to consultants was US$ 20,432 during the years ended December 31, 2011 and 2010, for each year.

On March 31, 2010, the Company issued 30,000 shares of its common stock to Lampost Capital LLC (the "advisor") in consideration for the financial advisory services that will be rendered to the Company commencing March 1, 2010 and until December 31, 2010.

The advisor will be entitled to a transaction finder's fee of certain percentage (up to 5%) of the proceeds of a transaction (as defined in the agreement) with a third party introduced to the Company by the advisor.

In addition, the advisor will be entitled to a financing fee in the event that the advisor will effect, introduce or participate in a financing transaction of a debt or equity. In which case, the fee shall be mutually determined between the Company and the advisor at the time of such financing.

During fiscal year 2011, there were no transactions that entitled the advisor to additional fees.

On August 24, 2010, the Company closed a private placement of 335,108 shares of common stock and warrants to purchase 335,108 shares of common stock to 11 investors, all of whom are existing stockholders of the Company, for aggregate proceeds of US$201,066 pursuant to a Securities Purchase Agreement and Warrant Agreement. Each unit of the Offering was offered at a purchase price of US$0.60 per Unit, and consisted of one share of common stock and one warrant, exercisable at US$0.90 for a period of two years. In addition, the Company issued 50,000 shares to the service providers who dealt with these transactions.

On December 30, 2010, the Company issued 70,000 shares of common stock to Ashdor Assets Managements and Trusts Ltd. (a trust company under the control of Mr. Eitan Shmueli), who holds the shares in trust for four attorneys in Sadot & Co Law offices among them Advocate Eitan Shmueli (who purchased 50,771 shares), as a payment of accounts payable in an amount of US$42,000 (US$0.6 per one share of common stock) for services received by the Company in past periods.

On December 30, 2010, the Company issued 34,013 shares of common stock to Nir Ecology Ltd, one of its major stockholders as a payment of accounts payable in an amount of US$20,408 (US$0.6 per one share of common stock) for services received by the Company during 2010.

On December 30, 2010, the Company issued 25,000 shares of common stock to Mr. Carmel, as a payment of accounts payable in an amount of US$15,000 (US$0.6 per one share of common stock) for services received by the Company in past periods.

F-26

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 9 -

SHARE CAPITAL (cont.)

On December 28, 2010, the Company entered into an Agreement with a California private company (the "Investor"). Pursuant to the Agreement, the Investor invested a total aggregate sum of US$150,000, at a purchase price of US$0.80 per share, and the Company issued 187,500 shares of its common stock to the Investor (62,500 shares were issued in January 2011 for US$50,000, 62,500 shares were issued in February 2011 for US$50,000 and 62,500 were issued in March 2011 for US$50,000) . For each share of Common Stock purchased, the Investor received a warrant, having an exercise price of US$0.80, exercisable for a period of three years from the date of issuance.

On January 24, 2011, the Company entered into an Agreement with an individual residing in Israel and Israeli private investment company (the “Investors”). Pursuant to the Agreement, the Investors invested a total aggregate sum of US$500,000, at a purchase price of US$0.80 per share, and the Company issued 625,000 shares of its common stock to the Investors (62,500 shares were issued in January 2011 for US$50,000, 62,500 shares were issued in February 2011 for US$50,000, 62,500 were issued in March 2011 for US$50,000, 312,500 were issued in April 2011 for US$250,000 and 125,000 were issued in May 2011 for US$100,000 ). 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.

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.

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.

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

On June 6, 2011, the Company issued, under the 2009 Share Incentive Plan, 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 (an exercise price of $0.01 per share).

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.

F-27

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 10 -

RESEARCH AND DEVELOPMENT EXPENSES

	US dollars
	Year ended December 31,						Cumulative period from January 14, 2004 (date of inception) until December 31,
	2011		2010		2009		2011

Salaries and related expenses		347,198		252,170		369,028		1,664,068
Professional fees		10,075		69,208		183,197		520,947
Materials		207,367		158,990		55,499		646,869
Depreciation		6,710		5,646		6,910		33,797
Travel expenses		10,374		7,165		73,551		208,790
Vehicle maintenance		73,476		43,368		39,946		377,796
Office maintenance and other		43,100		30,568		35,698		220,302
		698,300		567,115		763,829		3,672,569

Less: Grants from the OCS (*)		-		-		-		(121,753	)
		698,300		567,115		763,829		3,550,816

(*)

See Note 8A.

NOTE 11 -

GENERAL AND ADMINISTRATIVE EXPENSES

	US dollars
	Year ended December 31,						Cumulative period from January 14, 2004 (date of inception) until December 31,
	2011		2010		2009		2011

Salaries and related expenses		41,263		33,921		53,779		451,131
Professional fees		253,563		236,218		350,216		769,570
Depreciation		1,983		1,787		600		5,888
Office maintenance and other		2,171		8,573		3,208		304,213
		298,980		280,499		407,803		1,530,802

NOTE 12 -

INCOME TAX

Measurement of results for tax purposes under the Israeli Income Tax (Inflationary Adjustments) Law, 1985 (the “Inflationary Adjustment Law”)

Until December 31, 2007, Pimi Israel reported for tax purposes in accordance with the provisions of the Inflationary Adjustments Law, whereby taxable income was measured in NIS, adjusted for changes in the Israeli Consumer Price Index ("ICPI").

Commencing January 1, 2008 this law became void and in its place there are transition provisions, whereby the results of operations for tax purposes are to be measured on a nominal basis.

F-28

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 12 -

INCOME TAX (cont.)

Reduction in Israeli corporate tax rates

On July 25, 2005, the Israeli Parliament passed an amendment to the Income Tax Ordinance (No. 147) – 2005, gradually reducing the tax rate applicable to the Company as follows: in 2009 – 26% and in 2010 and thereafter – 25%.

On July 23, 2009, as part of the Economic Efficiency Law (Legislative Amendments for the Implementation of the Economic Plan for the years 2009 and 2010) – 2009 (the “Arrangements Law”), article 126 of the Income Tax Ordinance (New Version) – 1961 was amended, whereby the corporate tax rate would be gradually reduced commencing in the 2011 tax year and thereafter, as follows: 2011 – 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20% and 2016 and thereafter – 18%.

On December 6, 2011, the Law for the Change in the Tax Burden (Legislative Amendments) – 2011 was publicized. As part of the law, among other, the Economic Efficiency Law (Legislative Amendments for the Implementation of the Economic Plan for 2009 and 2010) – 2009 and the Income Tax Ordinance (New Version) – 1961 were amended whereby, commencing in 2012, the blueprint for the reduction in the corporate tax rates will be cancelled and the corporate tax rate will be 25%. Publication of the Law did not have a material impact on the financial statements of the Company.

Tax assessments

The Company and Pimi Israel have not received final tax assessments since their inception.

Carryforward tax losses

As at December 31, 2011, the company and Pimi Israel has loss carry forward balances for income tax purposes of nearly US$ 0.4 million and US$ 4 million, respectively, that are available to offset future taxable income, if any.

The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax rate) and the tax expense reported in the financial statements:

	US dollars
	Year ended December 31,
	2011			2010			2009
Pretax loss		(606,866	)		(629,038	)		(1,076,624	)
Federal tax rate		35	%		35	%		35	%
Income tax computed at the ordinary tax rate		212,403			220,163			376,818
Non-deductible expenses		(1,139	)		(1,139	)		(1,128	)
Stock-based compensation		(7,570	)		(14,374	)		(23,680	)
Tax in respect of differences in corporate tax rates		(55,144	)		(62,904	)		(96,895	)
Losses and timing differences in respect of which no deferred taxes were generated		(148,550	)		(141,746	)		(255,115	)
		-			-			-

F-29

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 12 -

INCOME TAX (cont.)

Deferred taxes result principally from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Group's future tax assets are as follows:

	US dollars
	Year ended December 31,
	2011			2010			2009
Composition of deferred tax assets:
Provision for employee related obligation		20,153			30,022			27,378
Non-capital loss carry forwards		1,030,433			1,005,347			834,514
Valuation allowance		(1,050,586	)		(1,035,369	)		(861,892	)
		-			-			-

NOTE 13 -

LOSS PER SHARE

Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the year.

The net loss and the weighted average number of shares used in computing basic and diluted loss per share for the years ended December 31, 2011, 2010 and 2009, are as follows:

	US dollars
	Year ended December 31,
	2011			2010			2009
Net loss used for the computation of loss per share		(606,866	)		(629,038	)		(1,076,624	)

	Number of shares
	Year ended December 31,
	2011		2010		2009
Weighted average number of shares used in the computation of basic and diluted earnings per share		8,290,381		6,764,020		6,365,330

(*)

The effect of the inclusion of option, warrants and convertible bonds in 2011, 2010 and 2009 is anti-dilutive.

F-30

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

NOTE 14 -

RELATED PARTIES

On July 12, 2004, Nir Ecology Ltd. ("Nir", a shareholder of the Company), and Machteshim Chemical Works Ltd. ("Machteshim") entered into an agreement (the "Assignment Agreement"), under which Machteshim transferred to Pimi Israel, all of its rights in the know-how and/or information relating to the product known as MC-10, which is the previous name of the Pimi Israel's product SpuDefender (the "Product"). In addition, Machteshim transferred to Pimi Israel all the rights in the patents and/or patent requests and/or licenses and/or documents related to the Product. Under the Assignment Agreement, Machteshim undertook to register, at its own expense, all the rights in the patent and/or patent request, relating to the Product, in the countries set out in an appendix to Assignment Agreement. If Machteshim does not register the patents, it was agreed that Machteshim will transfer all the required documents to Nir, or any party on its behalf, and Nir, or any party on its behalf, shall carry out the registration. Under an agreement dated, November 11, 2005 between Nir and Pimi Israel, Nir declared and confirmed that the know-how and patents and patent application and/or licenses relating to the Product which were transferred to Pimi Israel from Machteshim under the Assignment Agreement (the "Intellectual Property") belong exclusively to Pimi Israel except for the right of use of the Intellectual Property for water treatment applications which was granted irrevocably and exclusively on a world-wide basis to Nir or to its controlling stockholders (or any company in which Nir’s controlling stockholders have an interest). Nir undertook to sign all necessary documents for the completion of the assignment of the Intellectual Property to Pimi Israel.

Nir is the agent with respect to the region of the State of Israel for raw materials utilized by Pimi Israel in the formulation of its products. During the development stage of its formulation, Pimi Israel imported to Israel the raw materials in order to formulate its products. During the years 2011, 2010 and 2009 Nir has rendered Pimi Israel for materials and services related to importation of Hazard Materials in a total sum of NIS 150,343 (US$41,971), NIS 73,000 (US$20,408) and 40,000 NIS (US$10,956) respectively.

Name	Age		Position
Alon Carmel		56	Chairman of the Board
Youval Saly		54	Chief Executive Officer
Avi Lifshitz		54	Chief Financial Officer
Nimrod Ben Yehuda*		59	Chief Technology Officer, Director

SUMMARY COMPENSATION TABLE
Name and principal position		Salary		Bonus		Stock Awards			Option awards (4)		Non-equity incentive plan compensation		Change in pension value and non qualified deferred compensation		All Other Compensation		Total
	Year	($)		($)		($)			($), (a)		($)		($)		($)		($)

Youval Saly,	2010		112,121		-		-	(6)		7,062		-		-		-		119,183
Chief Executive Officer (1)	2011		153,541					(6)		2,147								155,688

Avi Lifshitz,	2010		35,464		-		-	(7)		4,961		-		-		-		40,425
Chief Financial Officer (2)(5)	2011		32,478		-		-	(7)		2,341		-		-		-		34,819

Nimrod Ben-Yehuda,	2010		89,913		-		-			-		-		-		13,158		103,071
Chief Technology Officer (3)	2011		112,587		-		-			-		-		-		15,335		127,922

Alon Carmel	2010		13,934															13,934
Chairman of the BOD (8)	2011		27,254															27,254

Name and address of owner	Title of Class	Capacity with Company	Number of Shares Beneficially Owned (1)			Percentage of Class (2)
Alon Carmel (3) c/o Pimi Agro CleanTech, Inc. Kibutz Alonim, PO Box 117, Hutzot Alonim 30049 Israel	Common Stock	Chairman of the Board		2,548,838			23.35	%

Youval Saly c/o Pimi Agro CleanTech, Inc. Kibutz Alonim, PO Box 117, Hutzot Alonim 30049 Israel	Common Stock	Chief Executive Officer		311,773			2.86	%

Avi Lifshitz c/o Pimi Agro CleanTech, Inc. Kibutz Alonim, PO Box 117, Hutzot Alonim 30049 Israel	Common Stock	Chief Financial Officer		54,558	(4)		0.50	%

Nimrod Ben-Yehuda (3)(5) c/o Pimi Agro CleanTech, Inc. Kibutz Alonim, PO Box 117, Hutzot Alonim 30049 Israel	Common Stock	Chief Technology Officer, Director		1,443,075			13.22	%

Omdan Consulting and Instructing Ltd (3) (6) 44 Nachal Amud St. Ramat-Hasharon, Israel, 47204	Common Stock	Shareholder		930,533			8.5	%

All Officers and Directors As a Group (5 persons)	Common Stock			5,252,834			48.11	%

Exhibit Number		Description
3.1		Articles of Incorporation of Pimi Agro Cleantech Ltd. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

3.2		Change of Name Certificate of Pimi Agro Cleantech Ltd. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

3.3		Certificate of Incorporation of Pimi Agro Cleantech, Inc. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

3.4		By-laws of Pimi Agro Cleantech Ltd. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

3.5		Certificate of Designation, filed with the Secretary of State of Delaware on December 15, 2011 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 12, 2012)

3.6		Certificate of Amendment to the Certificate of Designation, filed with the Secretary of State of Delaware on March 7, 2012 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 12, 2012)

10.1		Employment Agreement by and between Mr. Youval Saly and Pimi Agro Cleantech Ltd. dated November 27, 2006. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.2		Addendum to the Employment Agreement with Mr. Youval Saly dated October 29, 2008. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.3		Employment Agreement with Mr. Nimrod Ben Yehuda dated November 13, 2005. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.4		Addendum to the Employment Agreement with Mr. Nimrod Ben Yehuda dated November 15, 2006 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.5		Addendum to the Employment agreement with Mr. Nimrod Ben Yehuda dated April 28, 2009 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.6		Reserved

10.7		Reserved

10.8		Employment Agreement by and between Mr. Avi Lifshitz and Pimi Agro Cleantech Ltd. dated November 19, 2008 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.9		Pimi Agro Cleantech Ltd. 2008 Share Option Plan and option Agreements with: Mr. Youval Saly, Mr. Avi Lifshitz, Mr. Avi Levi, Mr. Doron Shorrer, Prof. Avi Nachmias, Prof. Ilan Chet. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.10		Agreement between Machteshim Chemical Works Ltd. and Nir Ecology Ltd. dated July 12, 2004. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.11		Agreement between Nir Ecology Ltd. and Pimi Agro Cleantech Ltd both dated November 11, 2005 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.12		Agreement between Nir Ecology Ltd. and Pimi Agro Cleantech Ltd both dated November 11, 2005 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.13		Investment Agreement between Mr. Ben Yehuda, Omdan Consulting and Instruction Ltd., Mr. Carmel and JNS Capital LLC dated November 13, 2005. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on August 3, 2009)

10.14		Addendum to the Investment Agreement between Mr. Ben Yehuda, Omdan Consulting and Instruction Ltd., Mr. Carmel and JNS Capital LLC dated November 15, 2006 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.15		Overseas Market Development Consultancy Agreement by and between Pimi Agro Cleantech Ltd. and The Center for Potato Research in a Warm Climate dated January 9, 2008. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

Attached files

PIMI AGRO CLEANTECH, INC. Reports

Also read

Principal Accountant	Year	Amount billed

Fahn Kanne & Co.	2011	$	39,502
	2010	$	25,368

10.16		MOU between Pimi Agro Cleantech LTD. and Omnivent Techniek BV dated May 19, 2008. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.17		Agreement for Services by and between Wagner Regulatory Associates, Inc. Pimi Agro Cleantech Ltd. dated September 21, 2008 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.18		Tenancy Agreement between Kibbuts Alonim and Pimi Agro Cleantech Ltd dated December 30, 2008. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.19		Agreement between Redebel S.A. and Pimi Cleantech Ltd. (Registration Assistance Agreement) dated December 23, 2008. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.20		Agreement by and between Omex Agriculture Ltd. and Pimi Agro Cleantech Ltd. dated January 11, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)*

10.21		Letter of Intent Agreement by and between VegiSafe LLC and Pimi Agro Cleantech Ltd. dated January 20, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on August 3, 2009)

10.22		Term Sheet with Earthbound LLC dated January 20, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.23		Voting Agreement between Alon Carmel, Omdan Consulting, and Instruction Ltd and Nir Ecology dated February 24, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.24		Addendum to the Voting Agreement of February 24, 2009 dated April 23, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.25		Share Exchange Agreement between Pimi Agro Cleantech Inc., Pimi Agro Cleantech Ltd. and the Shareholders of Pimi Agro Cleantech Ltd., dated April 27, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.26		Pimi Agro Cleantech, Inc. 2009 Stock Incentive Plan. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.27		Warrant issued by Pimi Agro Cleantech, Inc. to Earthbound LLC dated May 3, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.28		Amendment to Warrant issued by Pimi Agro Cleantech, Inc. to Earthbound LLC dated June 7, 2009. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.29		Amendment to Warrant issued by Pimi Agro Cleantech, Inc. to Earthbound LLC dated July 29, 2009 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on August 3, 2009).

10.30		Stock Purchase Agreement by and between Pimi Agro Cleantech, Inc. and Ehud Nahum dated June 4, 2009 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.31		Stock Purchase Agreement by and between Pimi Agro Cleantech, Inc. and Yuval Nahum dated June 4, 2009 (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

10.32		Financial Advisory Agreement by and between Pimi Agro Cleantech, Inc. and Lampost Capital L.C., dated March 24, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 29, 2010)

10.33		Subscription Agreement by and between Pimi Agro Cleantech, Inc. and the subscribers thereto, dated April 15, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 21, 2010)

10.34		Stock Purchase Agreement dated August 24, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 30, 2010).

10.35		Warrant dated August 24, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 30, 2010).

10.36		Agreement dated December 28, 2010 by and between Pimi Agro Cleantech, Inc. and Mr. Uri Sheinbaum (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011).

10.37		Subscription Agreement dated December 28, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011).

10.38		Warrant dated December 28, 2010 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 4, 2011).

10.39		Securities Purchase Agreement dated January 25, 2011 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 31, 2011).

10.40		Warrant dated January 25, 2011 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 31, 2011).

10.41		Addendum No 1 to Letter of Intent dated January 20, 2009, between Pimi Agro Cleantech Inc, and Vegisafe LLC. (incorporated by reference to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 12, 2011)

10.42		Subscription Agreement by and between Pimi Agro Cleantech, Inc. and the subscribers thereto, dated March 9, 2012 (incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 12, 2012)

21.1		List of subsidiaries of the Company. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302 (filed herewith).

31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302 (filed herewith).

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).

99.2		Approval of Office of the Chief Scientist, Ministry of Industry, Trade and Labor, State of Israel, dated April 11, 2007. (incorporated by reference to the Company’s registration on Form S-1/A filed with the Securities and Exchange Commission on July 2, 2009)

99.2		Approval of Office of the Chief Scientist, Ministry of Industry, Trade and Labor, State of Israel, dated November 12, 2007. (incorporated by reference to the Company’s registration on Form S-1 filed with the Securities and Exchange Commission on May 5, 2009)

		PIMI AGRO CLEANTECH, INC.

April 16, 2012	By:	/s/ Youval Saly
		Youval Saly
		Chief Executive Officer
		(Principal Executive Officer)

April 16, 2012	By:	/s/ Avi Lifshitz
		Avi Lifshitz
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Signature	Title	Date

/s/ Youval Saly	Chief Executive Officer	April 16, 2012
Youval Saly	(Principal Executive Officer)

/s/ Avi Lifshitz	Chief Financial Officer	April 16, 2012
Avi Lifshitz	(Principal Financial Officer and Principal Accounting Officer)

/s/ Alon Carmel	Chairman of the Board	April 16, 2012
Alon Carmel

/s/ Nimrod Ben-Yehuda	Chief Technology Officer, Director	April 16, 2012
Nimrod Ben-Yehuda