UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

þ

QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

 

or

 

¨

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

For the transition period from to

 

Commission file number 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.)

POBox 360
3601201 Kiryat Tivon, Israel 

(Address of principal executive offices)

 

+972 72 2116144

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months). Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ¨ No þ

 

The number of shares of common stock outstanding as of March 31, 2014 was 9,336,487.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

Condensed Consolidated Interim Financial Statements

as of March 31, 2014 (Unaudited)

 

  

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

 

Condensed Consolidated Financial Statements

as of March 31, 2014 (Unaudited)

 

Table of Contents

 

	Page
Condensed Consolidated Financial Statements
Balance Sheets	2
Statements of Operations and Comprehensive Loss	3
Statements of Changes in Stockholders’ Deficit	4 – 11
Statements of Cash Flows	12
Notes to Condensed Consolidated Financial Statements	13 – 16

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

   

CONSOLIDATED BALANCE SHEETS

  

		US dollars (except share data)
		March 31,				December 31,
		2014				2013
		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents			10,508				13,082
Accounts receivable			90,936				190,199
Other current assets			14,823				18,128
Total current assets			116,267				221,409
Property and Equipment, Net			42,830				34,553
Funds in Respect of Employee Rights Upon Retirement			105,119				104,695
Total assets			264,216				360,657
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Short-term loan from banking institution			46,374				43,312
Accounts payable:
Trade			78,235				120,145
Other			600,587				534,933
Convertible Bonds			308,838				303,266
Total current liabilities			1,034,034				1,001,656
Liability for employee rights upon retirement			108,264				105,709
Total liabilities			1,142,298				1,107,365
Stockholders’ Deficit
Common stocks of US$ 0.01 par value ("Common stocks"):
30,000,000 shares authorized as of March 31, 2014 and December 31, 2013; issued and outstanding 9,336,087 shares as of March 31, 2014 and December 31, 2013			93,360				93,360
Preferred stocks of US$ 0.01 par value ("Preferred stocks"):
600,000 shares authorized as of March 31, 2014 and December 31, 2013; issued and outstanding 0 shares as of March 31, 2014 and December 31, 2013			-				-
Additional paid in capital			4,816,915				4,809,501
Accumulated other comprehensive loss			(85,767	)			(87,522	)
Deficit accumulated during the development stage			(5,702,590	)			(5,562,047	)
Total stockholders' deficit			(878,082	)			(746,708	)
Total liabilities and stockholders’ deficit			264,216				360,657

 

 

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

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

   

		US dollars (except share data)
		Three month period ended March 31,								Cumulative period from January 14, 2004 (date of inception) through March 31,
		2014				2013				2014(*)
		(unaudited)								(unaudited)
Revenues from sales of products			122,082				148,516				1,999,467
Research and development expenses			(178,784	)			(183,060	)			(5,132,910	)
General and administrative expenses			(73,765	)			(16,226	)			(2,118,154	)
Operating loss			(130,467	)			(50,770	)			(5,251,597	)
Financing expenses, net			(10,076	)			(17,185	)			(284,841	)
Loss from continuing operation			(140,543	)			(67,955	)			(5,536,438	)
Loss from discontinued operation, net			-				-				(80,334	)
Loss for the period			(140,543	)			(67,955	)			(5,616,772	)
Other comprehensive income (loss):
Foreign currency translation adjustments			1,755				(2,030	)			(85,767	)
Comprehensive loss for the period			(138,788	)			(69,985	)			(5,702,539	)
Loss per share (basic and diluted) (Note 3)			(0.02	)			(0.01	)

 

 

(*)

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 unaudited condensed consolidated financial statements.

 

 

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	)
Other comprehensive (loss) income			-				-				-				5,989				-				-				5,989
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	)
Other comprehensive (loss) income			-				-				-				(12,748	)			-				-				(12,748	)
Issuance of 25,200 common stock for cash of  US$ 7.50 per share on January 2, 2006			25,200				252				188,748				-				(100,000	)			-				89,000
Issuance of 24,000 common stock for cash of US$ 7.56 per share on July 19, 2006			24,000				240				181,293				-				-				-				181,533
Issuance of 72,000 common stock for cash of US$ 7.53 per share on December 28, 2006			72,000				720				541,600				-				-				-				542,320
Issuance of 1,688 common stock for cash of US$ 8.33 per share on December 28, 2006			1,688				17				14,043				-				-				-				14,060
Receipts on account of shares			-				-				-				-				33,644				-				33,644
Balance as of December 31, 2006			242,888				2,429				924,752				(6,759	)			33,644				(1,054,700	)			(100,634	)

 

 

(*)

As described in Note 1A, the financial statements were retroactively restated to reflect the historical financial statements of the subsidiary Pimi Agro Cleantech Ltd., which was acquired by the Company from its stockholders on April 27, 2009.

 

 

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

 

 

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)
Balance as of January 1, 2007			242,888				2,429				924,752				(6,759	)			33,644				(1,054,700	)			(100,634	)
Loss for the year			-				-				-				-				-				(341,453	)			(341,453	)
Other comprehensive (loss) income			-				-				-				(23,206	)			-				-				(23,206	)
Issuance of 8,708 common stock for cash of US$ 2.37 per share, 30,006 common stock for cash of US$ 3.28 per share, 7,754 common stock for cash of US$ 0.0025 per share and 591 common stock for cash of US$ 3.45 per share in April 2007			47,059				471				119,375				-				(33,644	)			-				86,202
Issuance of  6,937 common stock for cash of US$ 4.10 per share in June 2007			6,937				69				28,339				-				-				-				28,408
Issuance of 747,390 common stock for cash of US$ 0.078 per share in July 2007			747,390				7,474				51,061				-				-				-				58,535
Issuance of 996,520 common stock for cash of US$ 0.024 per share in August 2007			996,520				9,965				14,007				-				-				-				23,972
Issuance of 996,520 common stock for cash of US$ 0.024 per share in November 2007			996,520				9,965				15,212				-				-				-				25,177
Issuance of 996,520 common stock for cash of US$ 0.0026 per share in December 2007			996,520				9,965				(7,405	)			-				-				-				2,560
Receipts on account of shares			-				-				-				-				100,000				-				100,000
Balance as of December 31, 2007			4,033,834				40,338				1,145,341				(29,965	)			100,000				(1,396,153	)			(140,439	)

 

 

(*)

As described in Note 1A, the financial statements were retroactively restated to reflect the historical financial statements of the subsidiary Pimi Agro Cleantech Ltd., which was acquired by the Company from its stockholders on April 27, 2009.

 

 

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

 

 

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)
Balance as of January 1, 2008			4,033,834				40,338				1,145,341				(29,965	)			100,000				(1,396,153	)			(140,439	)
Loss for the year			-				-				-				-				-				(602,994	)			(602,994	)
Other comprehensive (loss) income			-				-				-				109				-				-				109
Issuance of 716,589 common stock for cash of US$ 0.041 per share in February 2008			716,589				7,166				22,370				-				-				-				29,536
Issuance of 235,334 common stock for cash of US$ 0.72 per share in February 2008			235,334				2,353				166,600				-				(100,000	)			-				68,953
Issuance of 291,515 common stock for cash of US$ 0.69 per share in June 2008			291,515				2,915				197,085				-				-				-				200,000
Issuance of 310,382 common stock for cash of US$ 0.71 per share in September 2008			310,382				3,104				216,161				-				-				-				219,265
Issuance of 444,004 common stock for cash of US$ 0.74 per share in November 2008			444,004				4,440				323,548				-				-				-				327,988
Stock based compensation			-				-				43,767				-				-				-				43,767
Balance as of December 31, 2008			6,031,658				60,316				2,114,872				(29,856	)			-				(1,999,147	)			146,185

 

(*)

As described in Note 1A, the financial statements were retroactively restated to reflect the historical financial statements of the subsidiary Pimi Agro Cleantech Ltd., which was acquired by the Company from its stockholders on April 27, 2009.

 

 

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

 

 

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)
Balance as of January 1, 2009			6,031,658				60,316				2,114,872				(29,856	)			-				(1,999,147	)			146,185
Loss for the year			-				-				-				-				-				(1,076,624	)			(1,076,624	)
Other comprehensive (loss) income			-				-				-				(11,810	)			-				-				(11,810	)
Issuance of 26,399 common stock for cash of US$ 1.33 per share in January 2009			26,399				264				34,721				-				-				-				34,985
Issuance of 3,373 common stock for cash of US$ 1.33 per share in March 2009			3,373				34				24,966				-				-				-				25,000
Issuance of 201,972 common stock for cash of US$ 0.73 per share in March 2009			201,972				2,020				122,980				-				-				-				125,000
Issuance of 45,328 common stock for cash of US$ 1.32 per share in March 2009			45,328				453				59,547				-				-				-				60,000
Issuance of 4,459 common stock for cash of US$ 1.32 per share in April 2009			4,459				45				5,516				-				-				-				5,561
Issuance of 45,328 common stock for cash of US$ 1.32 per share in June 2009			45,328				453				59,547				-				-				-				60,000
Issuance of 40,000 common stock for cash of US$ 1.35 per share in June 2009			40,000				400				53,600				-				-				-				54,000
Issuance of 20,000 common stock for cash of US$ 1.35 per share in August 2009			20,000				200				26,800				-				-				-				27,000
Issuance of 20,000 common stock for cash of US$ 1.35 per share in September 2009			20,000				200				26,800				-				-				-				27,000
Issuance of 35,000 common stock for cash of US$ 1.35 per share in October 2009			35,000				350				46,900				-				-				-				47,250
Issuance of 45,330 common stock for cash of US$ 1.32 per share in October 2009			45,330				453				59,547				-				-				-				60,000
Issuance of 54,263 common stock for cash of US$ 1.35 per share in November 2009			54,263				542				68,193				-				-				-				68,735
Stock based compensation			-				-				91,077				-				-				-				91,077
Balance as of December 31, 2009			6,573,110				65,730				2,795,066				(41,666	)			-				(3,075,771	)			(256,641	)

 

(*)

As described in Note 1A, the financial statements were retroactively restated to reflect the historical financial statements of the subsidiary Pimi Agro Cleantech Ltd., which was acquired by the Company from its stockholders on April 27, 2009.

 

 

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

 

 

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)
Balance as of January 1, 2010			6,573,110				65,730				2,795,066				(41,666	)			-				(3,075,771	)			(256,641	)
Loss for the year			-				-				-				-				-				(629,038	)			(629,038	)
Other comprehensive (loss) income			-				-				-				(28,216	)			-				-				(28,216	)
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.

 

 

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

 

 

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)
Balance as of January 1, 2011			7,160,564				71,604				3,284,728				(69,882	)			-				(3,704,809	)			(418,359	)
Loss for the year			-				-				-				-				-				(606,866	)			(606,866	)
Other comprehensive (loss) income			-				-				-				8,114				-				-				8,114
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 10O)			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	)

 

(*)

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 unaudited condensed consolidated financial statements.

 

 

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)
Balance as of January 1, 2012			8,541,087				85,410				4,055,026				(61,768	)			-				(4,311,675	)			(233,007	)
Loss for the year			-				-				-				-				-				(695,742	)			(695,742	)
Other comprehensive loss			-				-				-				(3,247	)			-				-				(3,247	)
Issuance of 12,500 common stock and warrants for cash of US$ 0.8 per share in March 2012			12,500				125				9,875				-				-				-				10,000
Stock based compensation			-				-				35,794				-				-				-				35,794
Balance as of December 31, 2012			8,553,587				85,535				4,100,695				(65,015	)			-				(5,007,417	)			(886,202	)
Loss for the year			-				-				-				-				-				(468,812	)			(468,812	)
Other comprehensive loss			-				-				-				(22,507	)			-				-				(22,507	)
Conversion of Series A convertible preferred stock into common shares during March 9, 2013			782,500				7,825				563,400				-				-				-				571,225
Modification of the conversion terms of warrants			-				-				85,818				-				-				(85,818	)			-
Amounts attributed to detachable warrants issued in connection with convertible bonds			-				-				15,518				-				-				-				15,518
Stock based compensation			-				-				44,070				-				-				-				44,070
Balance as of December 31, 2013			9,336,087				93,360				4,809,501				(87,522	)			-				(5,562,047	)			(746,708	)

 

 

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

 

 

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)
Balance as of January 1, 2014			9,336,087				93,360				4,809,501				(87,522	)			-				(5,562,047	)			(746,708	)
Loss for the period			-				-				-				-				-				(140,543	)			(140,543	)
Other comprehensive income			-				-				-				1,755				-				-				1,755
Stock based compensation			-				-				7,414				-				-				-				7,414
Balance as of March 31, 2014 (unaudited)			9,336,087				93,360				4,816,915				(85,767	)			-				(5,702,590	)			(878,082	)

 

 

(*)

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 unaudited condensed consolidated financial statements.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		US dollars
		Three month period ended March 31,								Cumulative period from January 14, 2004 (date of inception) through March 31,
		2014				2013				2014(*)
		(unaudited)								(unaudited)
Cash flows from operating activities:
Loss for the period			(140,543	)			(67,955	)			(5,616,772	)
Adjustments to reconcile net loss for the period to net cash used in operating activities:
Depreciation			2,581				1,890				58,076
Increase in liability for employee rights upon retirement			3,035				2,909				99,209
Stock based compensation			7,414				15,907				330,454
Interest on convertible bonds			5,547				3,200				146,501
Interest on stockholders loans			-				-				(2,409	)
Issuance costs of convertible preferred stock			-				-				62,600
Change in fair value of convertible preferred stock			-				-				(54,775	)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable			98,193				(107	)			(82,759	)
Increase in other current assets			3,215				10,800				(107,509	)
Decrease (increase) in accounts payable – trade			(41,340	)			(68,043	)			64,440
Decrease (increase) in accounts payable – other			67,972				36,544				608,232
Net cash provided by (used in) operating activities from continuing operations			6,074				(64,855	)			(4,494,712	)
Net cash provided from operating activities from discontinued operations			-				-				80,334
Net cash provided by (used in) operating activities			6,074				(64,855	)			(4,414,378	)
Cash flows from investment activities:
Increase in funds in respect of employee rights upon retirement			(902	)			(5,087	)			(95,165	)
Purchase of property and equipment			(10,999	)			(14,812	)			(95,387	)
Net cash used in investment activities			(11,901	)			(19,899	)			(190,552	)
Cash flows from financing activities:
Credit from banking institution			3,255				54,359				640
Short-term loan from banking institute			-				-				41,639
Issuance of convertible preferred stock, net			-				-				563,400
Proceeds from issuance of common stock and warrants			-				-				3,319,267
Payment on account of shares			-				-				233,644
Proceeds from issuance of convertible bonds and warrants, net			-				-				253,708
Proceeds from loans from stockholders			-				-				194,083
Net cash provided by financing activities			3,255				54,359				4,606,381
Effect of exchange rate changes on cash and cash equivalents			(2	)			(2	)			9,057
Increase in cash and cash equivalents			(2,574	)			(30,397	)			10,508
Cash and cash equivalents at beginning of the period			13,082				33,484				-
Cash and cash equivalents at end of the period			10,508				3,087				10,508

 

Supplementary information on financing activities not involving cash flows:

 

(*)

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 unaudited condensed consolidated financial statements.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 -

GENERAL

 

A.

Pimi Agro Cleantech, Inc. (the "Company") was incorporated on April 1, 2009, under the laws of the State of Delaware. On April 27, 2009, the Company acquired from its 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 involved companies under common control, and accordingly, the acquisition has been accounted for at historical cost in a manner similar to a pooling of interests. On this basis, the stockholders’ equity has been retroactively restated to reflect the equivalent number of shares of common stock of the Company issued for the acquisition of Pimi Israel as if such shares were issued at the dates they were issued by Pimi Israel to its 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 quotation on the OTC Bulletin Board under the symbol "PIMZ.OB".

 

On January 3, 2014, the Company filed an S-1 Registration Statement with the Securities and Exchange Commission in connection with a best-efforts offering of up to $5,000,000 of Common Stock and Common Stock Class A Warrants, led by Sandlapper Securities as placement agent. Following certain queries raised by the Securities and Exchange Commission, the Company is working on the amendments to be introduced to the Registration Statement and intends to file an S-1/A Registration Statement with the Securities and Exchange Commission in the near future. As of March 31, 2014, there were no issuances based on the said registration statements.

 

B.

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 products will require substantial expenditures. Pimi Israel and the Company have not yet generated sufficient revenues from their operations to fund the Group activities, and are therefore dependent upon external sources for financing their operations. There can be no assurance that Pimi Israel and the Company will succeed in obtaining the necessary financing to continue their operations. Since inception, the Company (and Pimi Israel) has incurred accumulated losses of US$ 5,616,772 and cumulative negative operating cash flow of US$ 4,414,378 and as of March 31, 2014, the stockholders deficit is US$ 878,082.

 

The Company will need to secure additional capital in the future in order to meet its anticipated liquidity needs, primarily through the sale of additional Common Stock or other equity securities and/or debt financing (see also Note 1A, above). Funds from these sources may not be available to the Company on acceptable terms, if at all, and the Company cannot give assurance that it will be successful in securing such additional capital.

 

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. As of balance sheet date, the Company had not signed any significant agreements.

 

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.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

 

NOTE 1 -

GENERAL (cont.)

 

C.

Risk factors

 

The Company and Pimi Israel (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 current stockholders and investors or from third parties.

 

D.

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 the going concern assumption.

 

 

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A.

Basis of presentation

 

The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.

 

In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary (consisting of normal recurring adjustments) for a fair presentation of the Company’s financial position at March 31, 2014 and the results of its operations and cash flow for the three month period then ended.

 

The unaudited condensed interim financial statements were prepared on a basis consistent with the Company’s annual financial statements on Form 10-K for the year ended December 31, 2013. Results of operations for the three month period ended March 31, 2014 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2014.

 

The consolidated balance sheet as of December 31, 2013 was derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, including a discussion of the significant accounting policies and estimates, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

 

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

B.

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 or issued by the Company. The Company considers the carrying amount of cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities balances (including the convertible bonds), to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

C.

Recently issued accounting pronouncements

 

ASC Topic 830, Foreign "Currency Matters"

Effective January 1, 2014, the Group adopted Accounting Standards Update 2013-5, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-5").

 

ASU 2013-5 clarifies among other things that, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in-substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

 

For public companies, the amendments in this Update became effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted.

 

The adoption of the standard did not have a material impact on the Group's consolidated results of operations and financial condition.

 

 

NOTE 3 -

EVENTS DURING THE REPORTING PERIOD

 

Mehadrin Ltd., one of the Company's major clients, has alleged in February 2014 that it incurred certain damages, amounting to approximately $100,000, as a result of the unsuitability between the wax material implemented by Mehadrin and the Company's products. The Company has referred an appropriate notification to its insurer regarding possible insurance claim under the Company's product liability policy and is currently reviewing this matter further.

 

Due to the early stages of this matter, the Company did not recognize any provision with respect to this claim. However, management believes, considering the effect of the insurance in place, that the effect of this claim, if any, will not be significant.

 

 

PIMI AGRO CLEANTECH, INC.

(A Development Stage Company)

  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 

 

NOTE 4 -

LOSS PER SHARE

 

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

 

The net loss and the weighted average number of shares used in computing basic and diluted loss per share for the three month period ended March 31, 2014 and 2013, respectively, are as follows:

 

		US dollars
		Three month period ended March 31,
		2014				2013
		(unaudited)
Net loss used for the computation of loss per share			140,543				67,955

 

  

		Number of shares
		Three month period ended March 31,
		2014				2013
		(unaudited)
Weighted average number of shares used in the computation of basic and diluted earnings per share			9,336,087				8,744,865
Total weighted average number of ordinary shares to be issued upon the exercise of outstanding options ,warrants and issued upon conversion of the convertible preferred stock were excluded from the calculations of diluted loss per share (*)			1,774,259				2,139,281

 

 

  

(*)

The effect of the inclusion of options, convertible bonds and convertible preferred stock for all reported periods was anti-dilutive.

 

 

NOTE 5 -

SUBSEQUENT EVENTS

 

In connection with Note 7B of the annual financial statements, in May 2014 the Company has agreed with the holders of approximately $30,000 principal of convertible notes on extension of the said loans and the interest accrued thereon until November 2014 and it negotiates such extension with the remaining holders of approximately $64,000 principal of convertible notes.

 

 

=============================

===============

 

  

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Statement of Forward-Looking Information

 

In this quarterly report, references to "Pimi Agro CleanTech, Inc.," "Pimi," "the Company," "we," "us," and "our" refer to Pimi Agro Cleantech, Inc. and its wholly owned subsidiary, Pimi Agro CleanTech, Ltd. (“Pimi Israel”).

 

Except for the historical information contained herein, some of the statements in this Report contain forward-looking statements that involve risks and uncertainties. These statements are found in the sections entitled "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Risk Factors" in our Annual Report on Form 10-K for the period ended December 31, 2013. They include statements concerning: our business strategy; expectations of market and customer response; liquidity and capital expenditures; future sources of revenues; expansion of our proposed product line; and trends in industry activity generally. In some cases, you can identify forward-looking statements by words such as "may," "will," "should," "expect," "plan," "could," "anticipate," "intend," "believe," "estimate," "predict," "potential," "goal," or "continue" or similar terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including, but not limited to, the risks outlined under "Risk Factors" in 2013 10-K, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. For example, assumptions that could cause actual results to vary materially from future results include, but are not limited to: our ability to successfully develop and market our products to customers; our ability to generate customer demand for our products in our target markets; the development of our target markets and market opportunities; our ability to manufacture suitable products at competitive cost; market pricing for our products and for competing products; the extent of increasing competition; technological developments in our target markets and the development of alternate, competing technologies in them; and sales of shares by existing shareholders. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Unless we are required to do so under federal securities laws or other applicable laws, we do not intend to update or revise any forward-looking statements.

 

Overview

 

The Company focuses on developing environmentally friendly solutions for extending storability and shelf life of vegetables and fruits. As of the date of this report, the Company is engaged in developing, testing and marketing of four lines of products: (i) products that treat citrus fruits, such as CitruWash™ or in its other commercial name, Super Clean™, CitrusGuard™ and FreshProtect™; (ii) a product that treats sweet potatoes, SweetGuard™; (iii) a product that treats stored table potatoes SpuDefender™; and (iv) products that provide storage control of fruits and vegetables, including StorGuard™ for treatment of vegetables such as broccoli and cabbage and OnionGuard™ for treatment of onions. We have started the commercialization of five of these products namely: the sanitizer CitrusGuard™, the disinfectant FreshProtect™, the sprout controller SpuDefender™ and the cleansers SweetGuard™ and Super Clean™ (or CitruWash™). 

 

Treated Produce		Citrus Fruits		Sweet Potatoes		Potatoes		Onions
Sanitizers		CitrusGuard™ (Israel)		—		—		OnionGuard™
Disinfectant		FreshProtect™ (US)		—		—		—
Sprout Controller						SpuDefender™
Cleansers		SuperClean™ (Israel) CitruWash™ (US)		SweetGuard™		—		—

 

 

Currently, the Company is focused on solutions related to fresh citrus fruits, table potatoes and sweet potatoes. The world fresh citrus market is estimated at over 50 million tons per annum. Potatoes are the fourth largest crop worldwide. According to the Food and Agriculture Organization of the United Nations, the total crop of Potatoes in 2012 was approximately 368 million metric tons (see: http://faostat3.fao.org/faostat-gateway/go/to/download/T/TI/E). We estimate that table potatoes, which our solution is currently aimed towards, are 30%-40% of the total world produced potatoes. Sweet potatoes are the seventh largest crop in the world. According to the Food and Agriculture Organization of the United Nations, the total crop of the sweet potatoes during 2012 was approximately 104 million metric tons. According to the National Agricultural Statistics Service, USDA, the United States produced approximately 1.2 million metric tons of sweet potatoes during 2012, with a production value of $500 million.

 

We intend to provide our customers a comprehensive, environmentally-friendly solution for post-harvest treatment of fruits and vegetables, commencing with harvest and utilizing our products in different phases of the treatment process until their delivery to distributors. Accordingly, as of the date of this report we are developing cleansers and sanitizers for treatment of fruits and vegetables on packing line, as well as sprout and disease control products for use when storing fruits and vegetables. We are also currently developing a device for preventing decay during shipment of fruits and vegetables.

 

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 the European Commission of Health and Consumer Protection (the “European Commission" or the " EC") and the United States Environmental 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 the Netherlands.

 

 

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 30% in countries such as India (see: http://agricoop.nic.in/sia111213312.pdf) and China (see http://www.ccsenet.org/journal/index.php/ijbm/article/view/19732), 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 the 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 millions of tons of stored fruits and vegetables annually world-wide, our management believes there is an immediate, addressable market for Pimi’s products. Through our extensive communications with retailers, we understand a shortage of fresh goods is a primary concern for these groups – thus the ability to improve storability is critical and valuable.

 

Company History

 

Pimi Agro CleanTech, Inc. is a Delaware Corporation with one operating subsidiary, Pimi Agro CleanTech, Ltd, which is an Israeli Limited Company (“Pimi Israel”). The Company was formed on April 1, 2009, under the laws of the State of Delaware, and its subsidiary Pimi Israel was formed on January 2004 in the State of Israel under the name "Pimi Marion Holdings Ltd.", and has since changed its name to "Pimi Agro Cleantech Ltd.", in October 2008. The Company, through Pimi Israel, owns a patented technology for the pre and post-harvest treatment 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 worldwide 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.

 

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 our Annual Report on Form 10-K for the period ended December 31, 2013. 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 is 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 830, Foreign "Currency Matters"

 

Effective January 1, 2014, the Group adopted Accounting Standards Update 2013-5, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ("ASU 2013-5").

 

ASU 2013-5 clarifies among other things that, when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in-substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided.

 

For public companies, the amendments in this Update became effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted.

 

The adoption of the standard did not have a material impact on the Company’s consolidated results of operations and financial condition.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED MARCH 31, 2014 COMPARED TO THREE MONTHS ENDED MARCH 31, 2013

 

Total Net Sales: Total Net Sales decreased $26,434 or 18% to $122,082 in the 3 months ended March 31, 2014 from $148,516 for the 3 months ended March 31, 2013. The decrease is due to earlier than usual end of the citrus fruits season, less orders received from Israeli customers and absence of sales outside of Israel.

 

R&D Expenses: Total net R&D Expenses for the 3 month ended March 31, 2014 of $178,784 decreased $4,276 or 2% from $183,060 for the 3 months ended March 31, 2013, due to decrease in cost of materials in the amount of $13,251 driven by decrease in sales (and materials utilized therein), and decrease in travel and other expenses in the amount of $10,358, partially balanced by increase in cost of labor and professional services in the amount of $19,333.

 

General and Administrative Expenses: General and administrative expenses increased by $57,539 or 355% in the 3 months ended March 31, 2014 to $73,765 from $16,226 in the 3 months ended March 31, 2013 due to increase in professional fee expenses due to reduced allowance for professional fees in the first quarter of 2013, and from the other hand efforts to raise funds in the first quarter of 2014.

 

Loss from Operations: Loss from operations for the 3 months ended March 31, 2014 of $130,467 was up $79,697  or 157% from the loss from operations in the 3 months ended March 31, 2013 of $50,770 as a result of decrease in sales ($26,434) and increase in G&A expenses ($57,539), partially balanced by decrease in R&D expenses ($4,276).

 

Financing Expenses: Total financing expenses for the 3 months ended March 31, 2014 amounted to $10,076, which was $7,109 lower than our financing expenses of $17,185 in the 3 months ended March 31, 2013. This was mostly a result of decrease in convertible loans interest.

 

Net Loss: Net loss of $138,788 in the 3 months ended March 31, 2014 was $68,803 or 98% higher than the net loss in the 3 months ended March 31, 2013 of $69,985 due to decrease in sales ($26,434), increase in G&A expenses ($57,539), partially balanced by decrease in R&D expenses of $4,276, and decrease in financing and foreign currency translation adjustments expenses of $10,894.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had liabilities of $1,142,298 ($1,107,365 as of December 31, 2013), including usage of short term loans and credit lines of $46,374 ($43,312 as of December 31, 2013), $308,838 ($303,266 as of December 31, 2013) of Convertible Bonds, $348,386 ($387,462 as of December 31, 2013) of third party liabilities, and $485,074 ($416,637 as of December 31, 2013) was due to related parties. The amounts due to related parties are for consulting services and salaries.

 

As of March 31, 2014 we used our credit lines in the sum of $3,357 and have $0 in cash. As of May 1, 2014 we had unused credit lines in the sum of $12,598 and cash on hand in the net amount of $5,517. Our shortage in available cash flow led us to a delay in interest payments on our convertible preferred stock and payments for certain service providers; these payments will be delayed until additional funds are secured. Our executive officers have also agreed to a postponement of salary payments aggregating approximately $22,500 per month. Payments to our executive officers have been postponed since September 2012 in aggregating monthly amount of $12,500, which increased starting April 2013 to $22,500.

 

 

Currently our net burn rate is approximately $30,000 (plus salary payments postponement of additional $25,000) per month. Our management is utilizing best efforts to reduce our burn rate and minimize Company expenses.

 

We will need additional funding of $800,000 through December 31, 2014 (including payments of postponed salaries).

 

On January 3, 2014 we filed an S-1 Registration Statement with the Securities and Exchange Commission in connection with a best-efforts offering of up to $5,000,000 of Common Stock and Common Stock Class A Warrants, led by Sandlapper Securities as placement agent. Following certain queries raised by the Securities and Exchange Commission the Company is working on the amendments to be introduced to the Registration Statement and intends to file S-1/A Registration Statement with the Securities and Exchange Commission in a near future. To the extent we raise capital pursuant to such offering, a portion of such capital would be used towards general working capital as more fully described in the use of proceeds section of the registration statement. This disclosure shall not constitute an offer to sell or a solicitation of an offer to buy the securities, nor shall there by any sale of these securities in any jurisdiction in which an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Any offer of the securities will be solely by means of the prospectus included in the registration statement and one or more prospectus supplements that will be issued at the time of the offering.

 

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 intends to raise additional funds necessary to implement our business plan by means of public offering as specified hereinabove. There are no assurances that such additional funds will be obtained by means of public offering.

 

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.

 

Since an unconditional Notice of Registration for FreshProtect^TM has been obtained from the EPA, the Company anticipates generating revenue from the sale of its products to growers and packaging facilities in the United States in addition to current revenues from the sale of its products in Israel.

 

Since an unconditional Notice of Registration for FreshProtect^TM has been obtained from the EPA, as well as from CDPR, and due to successful commercial implementation in Sun Pacific, the Company anticipates that additional customers will begin to buy the Company’s products and technologies in 2014 and thus the Company’s revenues, mainly generated in Israel as of the date of this report, will increase. 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 FreshProtect™ and SpuDefender™.

 

Net Cash Used in Operating Activities for the three months period ended March 31, 2014 and March 31, 2013

 

Net cash provided (used) in operating activities, generated from continuing operations was $6,074 and ($64,855) for the three months period ended March 31, 2014 and 2013, respectively. Net cash used in operating activities primarily reflects the net loss (not including foreign currency translation adjustments) for those periods of $140,543 and $67,955 respectively, which was reduced in part by non-cash stock-based compensation of ($7,414) and ($15,907), respectively, interest expenses on convertible bonds ($5,547) and ($3,200) respectively, and decreased by cash provided due to the adjustment to the net loss and changes in operating assets and liabilities in the amounts of $133,656 and increased ($16,007), respectively.

 

Net Cash Used in Investing Activities for the three months periods ended March 31, 2014 and March 31, 2013

 

Net cash used in investing activities was $11,901, and $19,899 for the three month period ended March 31, 2014 and 2013, respectively, and was used primarily to purchase equipment (such as computers, R&D and office equipment) ($10,999), and by increase in fund deposits in respect of employees rights upon retirement ($902).

 

Net Cash Used in Financing Activities for the three months periods ended March 31, 2014 and March 31, 2013

 

Net cash provided by financing activities was $3,255, and $54,359 for the three month period ended March 31, 2014 and 2013, respectively, which is primarily attributable to credit line usage in the amount of $3,255 and $54,359 respectively.

 

 

Off-Balance Sheet Arrangement

 

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

ITEM 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. They have concluded that, based on such evaluation, our disclosure controls and procedures were not effective as of March 31, 2014.

 

(b) Management’s Report on Internal Control Over Financial Reporting

 

Overview

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. In order to evaluate the effectiveness of internal control over financial reporting, our management has conducted an assessment using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our company’s internal control over financial reporting, as defined in rule 13a-15(f) under the Securities Exchange Act of 1934 (Exchange Act), is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Based on our assessment, under the criteria established in Internal Control – Integrated Framework, issued by COSO, our management has concluded that our company has a material weakness in internal control over financial reporting as of March 31, 2014. The weakness exists with regard to segregation of duties, i.e. one employee does the accounting, accounts payable and banking transactions. Additionally, the Company does not have an audit committee to oversee the financial reporting and disclosure process. As a result, our internal controls were not effective at March 31, 2014.

 

Evaluation of the Company’s Disclosure Controls and Procedures

 

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2014. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Exchange Act is accumulated and communicated to management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective, as of March 31, 2014, in ensuring that material information relating to us required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission rules and forms.

 

This report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm.

 

(c) Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

In 2012 Pimi Israel opposed an application for a patent, filed by a third party with the Israeli Patent Authority which might interfere with the use of our products when used in certain temperatures. In this opposition Pimi Israel argued that the third party’s patent application lacks novelty and is devoid of inventive step, and also stated the inequitable conduct from the third party’s side while hindering prior art from the IPA examiners. Following certain IPA procedures the third party has filed an amendment for its application, narrowing the requested patent coverage. Pimi Israel has filed its amended pleading prior in April 2014.

 

In addition, Mehadrin, one of our major clients, has recently alleged incurring certain damages, amounting to approximately $100,000, as a result of the unsuitability between the wax material implemented by Mehadrin and our products. However, based on the information and documentation in our possession, we believe that our products were implemented by Mehadrin not in compliance with our application protocol provided to Mehadrin. We have referred an appropriate request to our insurer regarding a possible insurance claim under our product liability policy, and are currently reviewing this matter further. However, our management believes, considering the effect of the insurance in place, that the effect of these claims, if any, will not be significant.

 

ITEM 1A. Risk Factors

 

In addition to other information set forth in this Report, you should carefully consider the risk factors previously disclosed in “Item 1A to Part 1” of our Annual Report on Form 10-K for the year ended December 31, 2013. There were no material changes from the risk factors during the three months ended March 31, 2014.

 

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

 

None.

 

ITEM 3. Defaults Upon Senior Securities

 

None.

 

ITEM 4. Mine Safety Disclosures

 

None.

 

ITEM 5. Other Information

 

In May 2013, the Company issued convertible notes totaling approximately $94,000 to finance its short-term operations. The loans bear interest of 10% and were issued to seven (7) of Pimi's shareholders, including two controlling shareholders (Alon Carmel; and Omdan Consulting and Instructing Ltd., a company owned by Mr. Eitan Shmueli and his wife Mrs. Vivy Shmueli). Each note is secured by Pimi Israel’s guarantee and a pledge on Pimi Israel’s patents in Israel and the U.S. The notes are repayable on the earlier to occur of: (i) a raise of $1 million financing or (ii) 6 months following the effective date. Each lender is entitled to convert the unpaid principal and the interest accrued into shares of the Company's common stock, at a conversion price of $1.00 per share. In addition, for each dollar, each lender received a two years warrant to purchase a share of the Company's common stock, at an exercise price of $1.00 per share. Further on, the Company and the lenders agreed on extension of the said loans and the interest accrued thereon for additional 6 months. As of the date of this report, the Company has agreed with the holders of approximately $30,000 principal of convertible notes on extension of the said loans and the interest accrued thereon until November 2014 and negotiates such extension with other holders.

 

On May 13, 2014, Mr. Ami Sivan resigned as Chief Executive Officer of the Company. Mr. Sivan resigned from his office for personal reasons. On May 13, 2014, following a meeting of the Board of Directors of the Company, Mr. Nimrod Ben Yehuda, who also serves as the Company’s Chief Technology Officer and a member of the Board, was elected to the office of Chief Executive Officer, effective immediately

 

 

ITEM 6. Exhibits

 

EXHIBIT
NUMBER		DESCRIPTION
31.1		Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302 (1)
31.2		Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302 (1)
32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (1)
32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (1)

(1) Filed herewith.

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 20^th day of May 2014.

 

	PIMI AGRO CLEANTECH, INC.
	By:	/s/ Nimrod Ben Yehuda
		Nimrod Ben Yehuda
		Chief Executive Officer
		Principal Executive Officer
	By:	/s/ Avi Lifshitz
		Avi Lifshitz
		Chief Financial Officer
		Principal Accounting and Financial Officer