Registration
Number 333-139508
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Post-Effective
Amendment No. 2
to
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
INROB
TECH LTD.
(Name
of
Small Business Issuer in its Charter)
Nevada
|
3559
|
88-0219239
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
1515
Tropicana Ave, Suite 140
Las
Vegas
NV 89119
702-795-3601
(Address
and telephone number of principal executive offices)
Ben-Tsur
Joseph
President
1515
Tropicana Ave, Suite 140
Las
Vegas
NV 89119
702-795-3601
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
Ross, Esq.
Louis
A.
Brilleman, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st Floor
New
York,
New York 10018
Tel:
(212) 930-9700
Fax:
(212) 930-9725
Approximate
date of commencement of proposed sale to the public: From time to time after
the
effective date of this Registration Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.
x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
______
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same
offering.
o
________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box.
o
EXPLANATORY
NOTE
On
January 11, 2007, the Securities and Exchange declared effective the
registration statement on SB-2 (the “Registration Statement”) filed by Inrob
Tech Ltd. (the “Company”). On October 16, 2007, the Company filed a post
effective amendment to the Registration Statement for the purpose of updating
its financial and other disclosures. The 9,822,822 shares included in that
post
effective amendment was lower than the number of shares included in the
Registration Statement (18,405,000) as a result of sales of shares by the
selling securityholders following the effective date of the Registration
Statement.
This
second post-effective amendment to the Registration Statement is being filed
to
further update certain developments relating to the Company. Specifically,
on
October 23, 2007, the Company entered into an amendment to its March 2007
financing arrangement. The terms of that amendment are set forth in the
prospectus included in this post-effective amendment to the Registration
Statement under “Management's Discussion and Analysis or Plan of
Operation.”
The
information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
Subject
to Completion, Dated October 30, 2007
INROB
TECH LTD.
9,822,822
Shares
of Common Stock
This
prospectus relates to the resale by the selling stockholders of up to
9,822,822
shares
of
our common stock. The selling stockholders may sell common stock from time
to
time in the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions.
The
total
number of shares sold herewith consists of shares to be issued to the selling
shareholders upon conversion of convertible notes. We are not selling any shares
of common stock in this offering and therefore will not receive any proceeds
from this offering. All costs associated with this registration will be borne
by
us.
Our
common stock currently trades on the Over the Counter Bulletin Board ("OTC
Bulletin Board") under the symbol "IRBL.OB."
On
October 15, 2007, the last reported sale price for our common stock on the
OTC
Bulletin Board was $0.185 per share.
Investing
in these securities involves significant risks.
See
"Risk
Factors" beginning on page 3.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this Prospectus is ________, 2007
TABLE
OF CONTENTS
|
Page
|
Prospectus
Summary
|
1
|
Risk
Factors
|
3
|
Forward
Looking Statements
|
8
|
Use
of Proceeds
|
8
|
Management's
Discussion and Analysis or Plan of Operation
|
9
|
Business
|
16
|
Legal
Proceedings
|
21
|
Description
of Property
|
20
|
Directors
and Executive Officers
|
22
|
Executive
Compensation
|
23
|
Security
Ownership of Certain Beneficial Owners and Management
|
24
|
Market
for Common Equity and Related Stockholder Matters
|
25
|
Selling
Stockholders
|
26
|
Certain
Relationships and Related Transactions
|
27
|
Description
of Securities
|
28
|
Plan
of Distribution
|
29
|
Legal
Matters
|
30
|
Experts
|
30
|
Where
You Can Find More Information
|
31
|
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
|
31
|
Index
to Consolidated Financial Statements
|
F-1
|
You
may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to
sell
or a solicitation of an offer to buy any common stock in any circumstances
in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under
any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained
by
reference to this prospectus is correct as of any time after its
date.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. Inrob Tech Ltd.
is
referred to throughout this prospectus as "Inrob," "we" or "us."
General
Through
our wholly owned subsidiary, Inrob Ltd., we develop and produce advanced
wireless control system and integrated solutions for mobile robots. Bringing
emerging robotics technology out of the lab and into the open market, InRob
focuses on civil, security and consumer related applications in the mobile
robotics business. Our objective is to be a world leader in the development
and
production of advanced wireless control systems and integrated solutions for
robots. We aim to provide integrated solutions to meet the needs of a wide
range
of mission-critical military, law enforcement and civilian
applications.
Inrob
offers its Explosive Ordinance Disposal technologies for bomb squads, advanced
remote-control technologies as well as mobile surveillance technologies, all
in
support of the increased use of unmanned ground vehicles for "dirty and
dangerous" missions in military, homeland security and law enforcement
missions.
Our
principal executive office is located at 1515 Tropicana Ave, Suite 140, Las
Vegas NV 89119. Our telephone number at that address is
702-795-3601.
This
Offering
|
|
|
|
Shares
offered by Selling Stockholders
|
Up
to 9,822,822
shares,
consisting of shares issuable upon the conversion of secured convertible
notes
|
|
|
Common
Stock to be outstanding after the offering
|
77,572,756*
|
|
|
Use
of Proceeds
|
We
will not receive any proceeds from the sale of the common stock hereunder.
See "Use of Proceeds" for a complete description.
|
|
|
Risk
Factors
|
The
purchase of our common stock involves a high degree of risk. You
should
carefully review and consider "Risk Factors" beginning on page
3
|
|
|
OTC
Bulletin Board Trading Symbol
|
IRBL.OB
|
*
Based
on 67,704,934 shares that were issued and outstanding number as of October
15,
2007, and assuming issuance of all shares registered herewith, the number of
shares offered herewith represents approximately 14.5% of the total issued
and
outstanding shares of common stock.
RISK
FACTORS
An
investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described
in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to
the
following risks and uncertainties. Our actual results could differ materially
from those anticipated by our forward-looking statements as a result of the
risk
factors below. See "Forward-Looking Statements."
Risks
Related to Our Business
We
have incurred significant losses to date and expect to continue to incur
losses.
During
the year ended December 31, 2006, we incurred net losses of approximately
$828,232. For the six months ended June 30, 2007, we incurred net losses of
$838,476. We expect to continue to incur losses for at least the next 12 months.
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.
Our
auditors have issued a going concern opinion, which may make it more difficult
for us to raise capital.
Our
auditors have included a going concern opinion on our financial statements
because of concerns about our ability to continue as a going concern. These
concerns arise from the fact that we have continuing operating losses and
negative working capital. If we are unable to continue as a going concern,
you
could lose your entire investment in us.
If
we
are unable to obtain additional funding, we may have to reduce our business
operations.
We
recently completed two $3,000,000 financings (November 15, 2006, and March
27,
2007) and anticipate, that the funds received will be sufficient to satisfy
our
operations for the next 12 months. Nevertheless, if our marketing campaign
is
not successful in promoting sales of our services, we will be required to seek
additional financing. We may also require additional financing to expand
into other markets and further develop our products and services. We have no
current arrangements with respect to any additional financing. Consequently,
there can be no assurance that any additional financing will be available when
needed, on commercially reasonable terms or at all. The inability to obtain
additional capital may reduce our ability to expand our business operations.
Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
If
we
cannot maintain our current relationship with A.R.T.S. Ltd., our operations
would be materially adversely affected.
One
of
our main sub-contractors, A.R.T.S. Ltd., provides critical research, development
and production operations to us. During the past 10 years, A.R.T.S. Ltd. has
developed for us most of the software required for our robot related activities.
We do not have an agreement with A.R.T.S. Ltd. for the provision of their
services to us, and cannot be assured that we will be able to maintain this
relationship with that entity. In the event that our relationship with A.R.T.S.
Ltd. ceases, the interruption to our research and development activities and
production operations would be harmful to our business, and may require a long
period of time to establish relationships with new partners with the required
level of know-how and expertise. We currently know of several wireless
communications software companies, both in Israel and worldwide, capable of
providing us with the same services we currently outsource to A.R.T.S.
Ltd.
As
we are
a technology-based company, we are required to update our technology and
knowledge base on a regular basis. We are a relatively small company, and we
have never made the quantitative distinction between our research and
development expenses and any other expenses. Thus, we are not able to assess
the
amount of funds we have paid for research and development over the years, nor
are we able to assess the financial effects a break up with A.R.T.S. Ltd. may
have on our business.
If
we
do not maintain our acknowledged supplier status with the Israeli Ministry
of
Defense our business could be materially adversely affected.
We
currently maintain the status of an acknowledged supplier to the Israeli
Ministry of Defense and have top security clearance. Acknowledged supplier
status allows us to provide services to the Israeli Ministry of Defense and
the
Israeli Defense Forces (i.e. Army, Navy and Air Force), which comprise a
significant portion of our annual revenues (as shown in the table below). If
we
are unable to maintain the acknowledged supplier status, our business and
results of operations may be negatively impacted.
We
are highly dependent on sales to the Israeli Ministry of Defense.and the Israeli
Defense Forces.
We
are
highly dependent on sales of our products and services to the Israeli Ministry
of Defense.and the Israeli Defense Forces. The following table sets forth the
percentage of our total sales that were made to the Israeli Ministry of Defense
and the Israeli Defense Forces since 2001.
In
addition, orders by the Minstry of Defense are subject to cancellation without
prior notice. Unless we are able to diversify our customer base, in the event
that there is any interruption of sales orders from the Israeli Ministry of
Defense and the Israeli Defense Forces or a large number of unanticipated
cancellations of its orders to us, we may suffer a sharp decline in our results
of operations. If this were to occur, this will have a negative impact on the
value of the Company and your investment.
Any
significant delay in collecting outstanding receivables from Israel's Ministry
of Defense could adversely affect our ability to conduct our
business.
Israel's
Ministry of Defense is one of our significant customers and comprises a
significant portion of our accounts receivable. The M.O.D.'s conventional
payment terms are 60 days. In the past we have experienced significant delays
in
payment from the M.O.D. (up to current payment + 150 days). These delays are
mostly due to strikes by the M.O.D.'s public workers. Any future delays could
adversely affect our cash flow and ability to operate our business, especially
in light of the fact that this entity represents a large portion of our
revenues.
The
volatility of the Ministry of Defense’s budget could adversely affect the amount
of business it may conduct with us.
In
the
past, the Ministry of Defense’s budget has been volatile and any significant
cuts in its budget could adversely affect the amount of business it conducts
with us. As our largest customer, any significant reduction in the amount of
purchases the Ministry of Defense makes from us or from third parties which
have
subcontracted work to us, could materially adversely affect our results of
operations.
Our
intellectual property is unprotected and is susceptible to
piracy.
We
do not
have any patents, trademarks or any other protection over our intellectual
property. All of our intellectual property is "know how" and not original
proprietary intellectual property. As such, it cannot be protected by patent
or
trademark. In addition, we do not have confidentiality agreements with any
of
our employees or suppliers with respect to our intellectual property. The theft
or unauthorized use of our intellectual property is not sufficiently provided
for, and our intellectual property is extremely susceptible to theft or
unauthorized use. Any theft or unauthorized use of our intellectual property
could materially adversely affect our operations.
Our
President has absolute control of our affairs.
In
November 2006, we granted to Ben-Tsur Joseph, our President, Chief Financial
Officer and sole director, 1,000 shares of our Series A Preferred Stock, each
of
which carries voting rights equal to 400,000 shares of our common stock. As
a
result, for voting purposes, Mr. Joseph owns a total of 428,500,004 shares.
This
gives him absolute control over our affairs including the right to elect and
remove directors, appoint officers, amend our articles of incorporation and
by-laws, and approve a merger, consolidation or sale of all or substantially
all
of our assets. In addition, this concentration of voting control could inhibit
the management of our business and affairs and have the effect of delaying,
deferring or preventing a change in control or impeding a merger, consolidation,
takeover or other business combination which other shareholder, may view
favorably. Therefore, you will not be able to exert any control over our
business. This greatly reduces the value of your investment and your sole remedy
for disagreeing with the direction of our business will be to sell your
shares.
If
our employees' entitlements do not comply with Israeli law, we may have to
pay
additional compensation to our employees.
Terms
of
employment for our employees are individually negotiated with each and every
employee. The relationship between the parties, their rights and mutual duties
are determined solely on the basis of the verbal agreements reached after these
negotiations.
We
believe that we have a good overall relationship with our employees, and it
is
common practice for us to amicably settle all debts between the parties upon
the
termination of the employees' term with us. We have never made an active effort
to ascertain whether or not workers maybe entitled to such payments, benefits
or
advantages, nor have we ever made an active effort to ascertain what such
payments, benefits or advantages might be.
We
have
no knowledge as to whether we adhere to the aforementioned legal requirements.
Should an authorized court determine that we do not adhere to the said
requirements we may be responsible to pay significant damages that could
adversely affect the results of our operations.
If
we
lose our President, Ben-Tsur Joseph
,
or are
unable to attract or retain qualified personnel, our business could suffer.
Our
success is highly dependent on our ability to attract and retain qualified
scientific and management personnel. We are highly dependent on our management,
in particular, Ben-Tsur Joseph, who is critical to the development of our
business. Mr. Joseph’s services are made available to us under the terms of a
management agreeement, which may be terminated on three-month prior notice.
The
loss of his services could have a material adverse effect on our operations.
If
we were to lose this individual, we may experience difficulties in competing
effectively, developing our technology and implementing our business strategies.
We do not have key man life insurance in place for any person working for
us.
We
face intense competition that could adversely impact our market share and our
revenue.
Our
competitors include several large, integrated defense contractors (e.g. Northrop
Grumman, Lockheed Martin, Elbit, El-Op, Israel Aircraft Industries, Israel
Military Industries). These companies have significantly greater financial,
technical and human resources than we do, as well as a wider range of products
than we have. In addition, many of our competitors have much greater experience
in marketing their products, as well as more established relationships with
our
target government customers. Our competitors may also have greater name
recognition and more extensive customer bases that they can use to their
benefit. As a result, we may have difficulty maintaining or increasing our
market share.
The
intense competition in our industry has also led to rapid technological
developments, evolving industry standards and frequent releases of new products
and enhancements. It has also led to steep declines in the price of products
as
manufacturers find low cost locales for the manufacture of their products.
If we
are unable to continue enhancing our current capabilities, to adapt to other
technological changes in the industry, or offer our products at competitive
prices, our business, financial condition, liquidity and results of operations
could be significantly harmed.
We
are authorized to issue "blank check" preferred stock which, if issued without
stockholders approval, may adversely affect the rights of holders of our common
stock.
Our
certificate of incorporation authorizes the issuance of up to 20,000,000 shares
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by our Board of Directors, of which
to
date we have designated and issued 1,000 shares of Series A Preferred Stock.
Accordingly, our Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting or
other
rights which would adversely affect the voting power or other rights of our
stockholders. In the event of issuance, the preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control, which could have the effect of discouraging bids for Inrob
and thereby prevent stockholders from receiving the maximum value for their
shares. We have no present intention to issue any shares of its preferred stock
in order to discourage or delay a change of control. However, there can be
no
assurance that preferred stock will not be issued at some time in the
future.
Risks
Relating to Our Current Financing Arrangements:
The
variable price feature of our convertible notes could require us to issue a
substantially greater number of shares, which will cause dilution to our
existing stockholders.
On
November 15, 2006, and March 27, 2007, we issued our 8% convertible notes in
the
aggregate principal amount of $6,000,000 in two separate transactions. Of the
notes issued in November 2006, approximately $1,600,000 remains outstanding
as
of October 11, 2007. The
Notes
mature two years from the date of issuance. Amortizing payments of the
outstanding principal amount and interest under the Notes commenced on the
third
month anniversary date of the date of issuance of the Notes and occurs on
the
same day of each month thereafter until the principal amount and interest
have
been repaid in full. On each payment date, we are required to make payments
to
the holders of the Notes in the amount of 4.76% of the initial principal
amount
and all interest accrued on the Notes as of the Repayment Date. At our election,
monthly payments may be made (i) in cash in an amount equal to 115% of the
principal amount component of the monthly payment and 100% of all other
components, or (ii) in shares of our registered common stock at a conversion
price equal to the lesser of (A) $0.25, or (B) 75% of the average of the
closing
bid price of our common stock our common stock’s principal market. In October
2007, we amended the March 2007 financing arrangement to provide, among other
things, that all payments thereunder may be made in shares of our common
stock.
In addition, If we are unable to make payments in cash under the November
2006
arrangement, we must make those payments in shares of our common stock at
a
discount to the market price of our common stock. The number of shares we
are
required to issue upon conversion of the notes increases if the market price
of
our stock decreases.
Assuming
that we make no cash payments, the following is an example of the amount of
shares of our common stock issuable upon conversion of the entire remaining
balance of approximately $4,600,000 principal amount in convertible notes based
on market prices assumed to be 25%, 50% and 75% below the closing bid price
on
September 13, 2007 of $0.20:
%
BELOW MARKET
|
|
PRICE
PER
SHARE
|
|
WITH
25%
DISCOUNT
|
|
NUMBER
OF
SHARES
|
|
PERCENTAGE
*
|
|
25%
|
|
$
|
0.15
|
|
$
|
0.1125
|
|
|
40,888,888
|
|
|
37.7
|
%
|
50%
|
|
$
|
0.10
|
|
$
|
0.075
|
|
|
61,333,333
|
|
|
47.5
|
%
|
75%
|
|
$
|
0.05
|
|
$
|
0.0375
|
|
|
122,666,666
|
|
|
64.4
|
%
|
*
Based
upon 67,704,934 shares of common stock outstanding as of October 15, 2007.
The
convertible notes contain provisions that limit the stockownership of the
holders of those notes to 4.99%. Nevertheless, the percentages set forth in
the
table reflect the percentage of shares that may be issued to the holders in
the
aggregate.
As
illustrated, the number of shares of common stock issuable in connection with
the conversion of the convertible notes will increase if the market price of
our
stock declines, which will cause dilution to our existing
stockholders.
The
lower the stock price, the greater the number of shares issuable under the
convertible notes.
The
number of shares issuable upon conversion of the convertible notes is determined
by the market price of our common stock prevailing at the time of each
conversion. The lower the market price, the greater the number of shares
issuable under the agreement. Upon issuance of the shares, to the extent that
holders of those shares will attempt to sell the shares into the market, these
sales may further reduce the market price of our common stock. This in turn
will
increase the number of shares issuable under the agreement. This may lead to
an
escalation of lower market prices and ever greater numbers of shares to be
issued. A larger number of shares issuable at a discount to a continuously
declining stock price will expose our stockholders to greater dilution and
a
reduction of the value of their investment.
The
issuance of our stock upon conversion of the convertible notes could encourage
short sales by third parties, which could contribute to the future decline
of
our stock price and materially dilute existing stockholders' equity and voting
rights.
The
convertible notes have the potential to cause significant downward pressure
on
the price of our common stock. This is particularly the case if the shares
issued upon conversion and placed into the market exceed the market's ability
to
absorb the increased number of shares of stock. Such an event could place
further downward pressure on the price of our common stock. The opportunity
exists for short sellers and others to contribute to the future decline of
our
stock price. If there are significant short sales of our stock, the price
decline that would result from this activity will cause the share price to
decline more so, which, in turn, may cause long holders of the stock to sell
their shares thereby contributing to sales of stock in the market. If there
is
an imbalance on the sell side of the market for the stock, our stock price
will
decline. If this occurs, the number of shares of our common stock that is
issuable upon conversion of the convertible notes will increase, which will
materially dilute existing stockholders' equity and voting rights.
The
following risks relate principally to our common stock and its market
value:
There
is a limited market for our common stock which may make it more difficult for
you to dispose of your stock.
Our
common stock has been quoted on the OTC Bulletin Board under the symbol
"IRBL.OB." There is a limited trading market for our common stock. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop
for our common stock, the ability of holders of our common stock to sell our
common stock, or the prices at which holders may be able to sell our common
stock.
Our
stock
price may be volatile.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
·
|
technological
innovations or new products and services by us or our
competitors;
|
·
|
additions
or departures of key personnel;
|
·
|
sales
of our common stock
|
·
|
our
ability to integrate operations, technology, products and
services;
|
·
|
our
ability to execute our business plan;
|
·
|
operating
results below expectations;
|
·
|
loss
of any strategic relationship;
|
·
|
industry
developments;
|
·
|
economic
and other external factors; and
|
·
|
period-to-period
fluctuations in our financial
results.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.
We
have
never paid cash dividends on our common stock and do not anticipate paying
cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the Board of Directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
Our
common stock is deemed to be penny stock with a limited trading
market.
Our
common stock is currently listed for trading on the OTC Bulletin Board which
is
generally considered to be a less efficient market than markets such as NASDAQ
or other national exchanges, and which may cause difficulty in conducting trades
and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than
$5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Penny stocks sold in violation of
the
applicable rules may entitle the buyer of the stock to rescind the sale and
receive a full refund from the broker.
Many
brokers have decided not to trade "penny stock" because of the requirements
of
the penny stock rules and, as a result, the number of
broker-dealers
willing to act as market makers in such securities is limited. In the event
that
we remain subject to the "penny stock rules" for any significant period, there
may develop an adverse impact on the market, if any, for our securities. Because
our securities are subject to the "penny stock rules," investors will find
it
more difficult to dispose of our securities. Further, for companies whose
securities are traded in the OTC Bulletin Board, it is more difficult: (i)
to
obtain accurate quotations, (ii) to obtain coverage for significant news events
because major wire services, such as the Dow Jones News Service, generally
do
not publish press releases about such companies, and (iii) to obtain needed
capital.
FORWARD-LOOKING
STATEMENTS
Our
representatives and we may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements.
We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a)
|
volatility
or decline of our stock price;
|
(b)
|
potential
fluctuation in quarterly results;
|
(c)
|
our
failure to earn revenues or
profits;
|
(d)
|
inadequate
capital and barriers to raising the additional capital or to obtaining
the
financing needed to implement its business
plans;
|
(e)
|
inadequate
capital to continue business;
|
(f)
|
changes
in demand for our products and
services;
|
(g)
|
rapid
and significant changes in markets;
|
(h)
|
litigation
with or legal claims and allegations by outside parties;
and
|
(i)
|
insufficient
revenues to cover operating costs.
|
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by selling stockholders. We will receive no proceeds from
the
sale of shares of common stock in this offering.
Plan
of Operations
Our
operating subsidiary, Inrob Ltd. (“Inrob Israel”), was established in 1988 as an
engineering firm providing cost-efficient solutions for organizations to
outsource maintenance of critical and sophisticated equipment. We now provide
maintenance support of industrial electronic, electro-mechanical, optical and
other scientific equipment, mainly to customers in the defense
industry.
Inrob
Israel and its management team built on this engineering experience and customer
base, and in 1992 expanded into a second area of operations. Today, in
addition to our maintenance and support services, we develop, integrate and
produce advanced wireless control solutions for unmanned and ground vehicle
(UVR) robots. Our remote control systems are the "brains" for many UVR
solutions.
The
current nature of Israel's security situation coupled with our close work with
the Israel Defense Forces and the Israeli police, has helped us gain extensive
experience in a wide range of military and law enforcement UVR applications
and
control solutions. We have the ability to provide fast and reliable solutions
to
meet the immediate operational needs of front-line IDF units as they arise.
We
are also targeting the civilian applications market, which includes dangerous
tasks such as nuclear plant maintenance, inspection and decommissioning, the
demolition industry and firefighting, and rescue services.
Our
UVR
solutions include:
·
|
Remote
control systems (the "brains" of any robot)
|
·
|
Complete
robot systems
|
·
|
Customized
solutions
|
We
are
certified to design, manufacture and maintain electronic, optical and
electro-mechanical equipment and are a certified supplier to the Israel Defense
Forces and the Israeli Air Force. We have also been issued a certificate from
the Israeli Air Force stating that our quality system is approved to perform
inspection of products and services supplied to the Israeli Air
Force.
Our
objective goal is to be a world leader in the development and production of
advanced wireless control systems and integrated solutions for robots. We aim
to
provide integrated solutions to meet the needs of a wide range of
mission-critical military, law enforcement and civilian
applications.
Key
elements of our strategy to accomplish this goal are to:
|
·
|
Invest
resources in order to focus on providing UVR solutions;
|
|
·
|
Seek
strategic alliances with leading current international producers
of UVR
platforms;
|
|
·
|
Build
on our own experience and our close ties with Israeli security
services
and defense contractors focusing on meeting the customers'
need for an
integrated solution;
and
|
|
·
|
Expand
into new international markets, using the most appropriate
marketing and
distribution channels for these
markets.
|
It
is
common for robots of a particular configuration to be needed in only small
quantities. Therefore our business model includes several, possibly
complementary, approaches:
|
·
|
Sell
complete robot systems to the end-user. Sales of complete systems
have the
highest potential profitability, however competition here is
greatest.
|
|
·
|
Sell
our remote control systems to a current major UVR producer for
incorporation in their robots. Although profitability per unit is
relatively lower, overall profitability may be higher due to the
greater
volumes involved and the savings on direct marketing.
|
|
·
|
Sell
customized solutions to meet specific customer needs. Profitability
is
potentially high, however volumes are relatively
low.
|
Critical
Accounting Policies
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect our reported assets, liabilities, revenues, and expenses,
and the disclosure of contingent assets and liabilities. We base our estimates
and judgments on historical experience and on various other assumptions we
believe to be reasonable under the circumstances. Future events, however, may
differ markedly from our current expectations and assumptions. While there
are a
number of significant accounting policies affecting our consolidated financial
statements, we believe the following critical accounting policy involve the
most
complex, difficult and subjective estimates and judgments.
Restricted
Cash
The
Company maintains restricted cash as funds designated for specific purposes
or
for compliance with terms of contractual agreements. As of December 31, 2006,
$15,018 was pledged as collateral against certain bank loans, and offset against
bank overdrafts for financial reporting purposes.
Accounts
Receivable
Accounts
receivable consist of amounts due from customers, employees and related parties.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of December 31, 2006,
no
allowance for doubtful accounts was deemed necessary. While management uses
the
best information available upon which to base estimates, future adjustments
to
the allowance may be necessary if economic conditions differ substantially
from
the assumptions used for the purpose of analysis.
Revenue
Recognition
The
Company generates revenues from product sales and maintenance service
contracts.
Revenues
from product sales are recognized on a completed-contract basis, in accordance
with Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB No. 104") and Statement of Position 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts." Revenue
is recognized when delivery has occurred provided there is persuasive evidence
of an agreement, acceptance tests results have been approved by the customer,
the fee is fixed or determinable and collection of the related receivable is
probable. Customers are billed, according to individual agreements, upon
completion of the contract. All product costs are deferred and recognized on
completion of the contract and customer acceptance. A provision is made for
the
amount of any expected loss on a contract at the time in is known. As of
December 31, 2005, the Company had a reserve for estimated loss on a contract
in
the amount of $39,144.
On-going
maintenance service contracts are negotiated separately at an additional fee.
The maintenance service is separate from the functionality of the products,
which can function without on-going maintenance. Revenues relating to
maintenance service contracts are recognized as the services are rendered
ratably over the period of the related contract.
Research
and Development Costs
The
Company conducts research and development activities for others under
contractual arrangements. Research and development costs incurred under
contractual arrangements are accounted for in accordance with Statement of
Financial Accounting Standards No. 68, "Research and Development Agreements"
("SFAS 68"). All costs incurred under the contractual arrangements are deferred
and recognized as cost of sales (product sales) upon completion of the contract
work.
Foreign
Currency Translation
The
Company accounts for foreign currency translation pursuant to SFAS No. 52,
“
Foreign
Currency Translation”
(“SFAS
52”). The Company’s functional currency is the Israeli New Shekel. Under SFAS
52, all assets and liabilities are translated into United States dollars using
the current exchange rate at the end of each fiscal period. Revenues and
expenses are translated using the average exchange rates prevailing throughout
the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related
to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Results
of Operations
Year
Ended December 31, 2006, Compared to Year Ended December 31,
2005-
Revenues-
Revenues
increased to $1,656,798, or 4.8 percent, over revenues of $1,580,615 for 2005.
The increase was comprised of an increase in service revenues due to an increase
in business volume to new and existing clients amounting to $107,079, offset
by
a decrease in product sales of $30,896.
Cost
of Goods Sold-
Cost
of
goods sold increased from $934,930 in 2005 by $415,664, or 44.5 percent, to
$1,350,594 in 2006. The increase was primarily attributed to increases in
salaries and wages, repairs and maintenance, employee goodwill, vehicle
operating expenses, and a provision for loss on a contract, offset by reductions
in occupancy/rent costs, insurance, and project consulting
expenses.
General
and Administrative Expenses-
General
and administrative expenses increased by $562,774, or 112 percent, to $1,065,342
in 2006 when compared to $502,568 in 2005. The increase was primarily attributed
to increases in office and supply expenses, management fees, telephone and
communications expenses, professional fees, promotion and business expansion
expenses, depreciation expense, and realized foreign currency exchange losses,
offset by decreases in auto transportation expenses, and computer supplies
and
repair expenses.
Other
(Expense)-
Other
expense increased by $32,479, or 96.4 percent, to $66,154 during 2006. This
increase was due to an overall increase in interest expense from a Company
financing plus the amortization of debt issuance costs, offset by the
elimination of certain bank debt for the period, and an increase in interest
income amounting to $31,928 in 2006.
Comprehensive
Income (Loss)-
Comprehensive
income for 2006 amounted to $36,642, an increase of $16,452 or 81.5 percent,
when compared to comprehensive income of $20,190 for 2005, and was due primarily
to favorable fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 38,753,607
in 2005 to 61,350,201 in 2006. The increase was primarily due to various
transactions that were completed involving our Common Stock.
Three
Months Ended June 30, 2007 Compared to Three Months Ended June 30,
2006
Revenues-
For
the
three months ended June 30, 2007, the Company recognized $537,847 in revenues
compared to $478,617 for the same period in 2006, which resulted in an overall
increase of $59,230, or 12.4%. The overall increase in revenues resulted
primarily from an increase in product sales from to $69,135 in 2006 to $119,730
in 2007, and increase of $50,595 or 73.2%. Service revenues also increased
from
$409,482 in 2006 to $418,117 in 2007, an increase of 2.1%. The increase in
service revenues resulted from the completion of additional projects under
contract during the quarter.
Cost
of Goods Sold-
Cost
of
goods sold amounted to $340,822 compared to $272,539 for the same period in
2006, resulting in an increase of $68,283, or 25.1%. The increase was primarily
attributed to increases in salaries and wages, repairs and maintenance, employee
goodwill, and vehicle operating expenses, offset by reductions in occupancy/rent
costs, insurance, and project consulting expenses.
General
and Administrative Expenses-
General
and administrative expenses increased from $138,135 in 2006, to $269,093 for
the
same period in 2007, resulting in an overall increase of $130,958, or 94.8%.
The
increase was primarily attributed to increases in office and supply expenses,
management fees, telephone and communications expenses, professional fees,
promotion and business expansion expenses, and depreciation expense, offset
by
decreases in auto transportation expenses, realized foreign currency exchange,
and computer supplies and repair expenses.
Other
Income (Expense)-
Other
income (expense) for the three months ended June 30, 2007 amounted to an expense
of $125,998, from income of $12,021 for the same prior year period. The decrease
of $138,019 or 1148.1% was primarily attributable to an increase in interest
expense of $178,514 related to the Company’s convertible notes offset by an
increase in interest and other income of $40,495.
Net
Income (Loss)-
Net
Income (Loss) for the three months ended June 30, 2007 went from net income
of
$69,545 in 2006 to a net loss of $198,066. The decrease of $267,111, or 384.8%,
was due to the net impact of the items described previously in
2007.
Comprehensive
Income (Loss)-
Comprehensive
income (loss) for the three months ended June 30, 2007, decreased from
comprehensive income of $104,520 in 2006 to comprehensive loss of $288,501
in
2007, for an overall decrease of $393,021, or 376%. The decrease was due
primarily to the business activities described above and unfavorable
fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 61,350,180
in 2006 to 65,541,665 in 2007. The increase was primarily due to various
transactions that were completed involving our Common Stock, including
conversions by holders of the Company’s convertible notes and the payments of
principal and interest under those notes that were made in shares.
Six
Months Ended June 30, 2007 Compared to Six Months Ended June 30,
2006
Revenues-
For
the
six months ended June 30, 2007, the Company realized $981,147 in revenues
compared to $1,044,841 for the same period in 2006, which resulted in an overall
decrease of $63,694, or 6.1%. The overall decrease in revenues resulted
primarily from a decrease in service revenues from $860,316 to $757,080 or
a
decline of 12%. The decline resulted from the number of projects that were
in-progress, and related deferred revenues which amounted to $412,419 as of
June
30, 2007. Product sales increased from $184,525 in 2006 to $224,067 in 2007,
representing an increase of 21.4%.
Cost
of Goods Sold-
Cost
of
goods sold amounted to $924,276 compared to $599,240 for the same period in
2006, resulting in an increase of $325,036, or 54.2%. The increase was primarily
attributed to increases in salaries and wages, repairs and maintenance, employee
goodwill, and direct job costs, offset by reductions in occupancy/rent costs,
insurance, vehicle operating expenses, and project consulting
expenses.
General
and Administrative Expenses-
General
and administrative expenses increased from $327,142 for the six months period
ended June 30, 2006, to $668,441 for the same period in 2007, resulting in
an
overall increase of $341,299, or 104.3%. The increase was primarily attributed
to increases in office and supply expenses, management fees, professional fees,
auto transportation expenses, promotion and business expansion expenses, and
depreciation expense, offset by decreases in computer supplies, foreign currency
exchange, and repair expenses.
Other
Income (Expense)-
Other
income (expense) for the six months ended June 30, 2007 amounted to an expense
of $226,906, from income of $16,110 for the same prior year period, representing
a decrease of $243,016, or 1,508%. The decrease was primarily attributable
to an
increase in interest expense of $294,540 related to the Company’s convertible
notes, offset by an increase in interest and other income of
$51,524.
Net
Income (Loss)-
The
Company incurred a net loss for the six months ended June 30, 2007 which amount
to $838,476 compared to net income of $116,424 for the corresponding period
in
2006. The decrease of $954,900, or 820.2%, was due to the items previously
described in 2007.
Comprehensive
Income (Loss)-
The
Company incurred a comprehensive loss for the six months ended June 30, 2007,
of
$833,539 compared to comprehensive income of $130,885 in 2006, for an overall
decrease of $964,424, or 736.8%. The decrease was due primarily to the business
activities described above, and unfavorable fluctuations in Israeli
currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 61,350,180
in 2006 to 64,061,947 in 2007. The increase was primarily due to various
transactions that were completed involving our Common Stock, including
conversions by holders of the Company’s convertible notes and interest payments
under those notes that were made in shares.
Three
Months Ended March 31, 2007 v. Three Months Ended March 31,
2006
Revenues-
For
the
three months ended March 31, 2007 v. March 31, 2006, the Company realized
$443,300 in revenues compared to $566,224 for the same period in 2006, which
resulted in an overall decrease of $122,924, or 21.7%. The overall decrease
in
revenues resulted primarily from a decrease in service revenues of $111,871
or
24.8%. Product sales also decreased from $115,390 in 2006 to $104,337 in 2007,
a
decrease of $11,053 or 9.6%.
Cost
of Goods Sold-
Cost
of
goods sold amounted to $583,456 compared to $326,701 for the same period in
2006, resulting in an increase of $256,755, or 78.6%. The increase was primarily
attributed to increases in salaries and wages, repairs and maintenance, employee
goodwill, vehicle operating expenses, and a provision for loss on a contract,
offset by reductions in occupancy/rent costs, insurance, and project consulting
expenses.
General
and Administrative Expenses-
General
and administrative expenses increased from $189,008 in 2006, to $399,347 for
the
same period in 2007, resulting in an overall increase of $210,339, or 111.3%.
The increase was primarily attributed to increases in office and supply
expenses, management fees, telephone and communications expenses, professional
fees, promotion and business expansion expenses, depreciation expense, and
realized foreign currency exchange losses, offset by decreases in auto
transportation expenses, and computer supplies and repair expenses.
Other
Income (Expense)-
Other
income (expense) for the three months ended March 31, 2007, went from income
of
$4,089 to expense of $100,907, which resulted in an overall decrease in other
income of $104,996, between the periods. The decrease was primarily attributable
to an increase in interest expense of $116,026.
Net
Income (Loss)-
Net
Income (Loss) for 2007 went from net income of $46,878 in 2006 to a net loss
of
$640,410 in 2007, resulting in an overall decrease in net income of $687,288,
for the period.
Comprehensive
Income (Loss)-
Comprehensive
income (loss) for the three months ended March 31, 2007, decreased from
comprehensive (loss) of $20,514 in 2006 to comprehensive income of $93,793
in
2007, for an overall increase $114,307. The increase was due primarily to
favorable fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 61,350,201
in 2006 to 62,259,503 in 2007. The increase was primarily due to various
transactions that were completed involving our Common Stock.
Liquidity
and Financial Resources
During
the six months ended June 30, 2007, net cash (used in) operating activities
amounted to $462,625 when compared to net cash provided by operating activities
of $22,783 for the same period in 2006. The increase in net cash used in
operations was primarily due to the net loss for the period, decreases in
accounts receivable, deferred revenue and prepaid expenses, offset by the impact
of debt issuance costs and depreciation, and increases in inventories, cost
of
uncompleted contracts in excess of billings, accounts payable - trade, and
billings on uncompleted contracts in excess of related costs.
Net
cash
(used in) investing activities in 2007 for the purchase of property and
equipment amounted to $62,114. In 2007, net cash provided by financing
activities amounted to $2,588,247 when compared to net cash provided by
financing activities of $6,398 for the same period in 2006. This increase
resulted primarily from $3,000,000 in proceeds obtained from the issuance of
convertible notes offset by $355,262 in debt issuance costs.
As
of
June 30, 2007, current assets exceeded current liabilities by $409,076, and
the accumulated deficit amounted to $(2,153,238).
We
believe that our current cash on hand generated by the financing transactions
discussed below are sufficient to sustain our operations for at least the next
twelve months, subject to the operating factors discussed previously and use
of
capital described below.
Recent
Financing Activities
November
2006 Financing
On
November 15, 2006, we issued to a group of accredited investors our 8% two-year
convertible notes in the principal amount of $3,000,000, of which approximately
$1,600,000 remains outstanding. Amortizing payments of the outstanding principal
amount and interest under the Notes will commence on the third month anniversary
date of the date of issuance of the Notes and on the same day of each month
thereafter until the principal amount and interest have been repaid in full.
On
each payment date, we are required to make payments to the holders of the Notes
in the amount of 4.76% of the initial principal amount and all interest accrued
on the notes as of the payment date. At our election, monthly payments may
be
made (i) in cash in an amount equal to 115% of the principal amount component
of
the monthly payment and 100% of all other components, or (ii) in shares of
our
registered common stock at a conversion price equal to the lesser of (A) $0.25,
or (B) 75% of the average of the closing bid price of our common stock for
the
five trading days ending on the date prior to the date the holder of the Note
delivers a notice of conversion, or, if no such conversion notice is delivered,
for the five trading days ending on the date prior to the date a payment is
made. The holders have a right to convert the notes into shares of common stock
at $0.25 per share. We also issued Class A Warrants to purchase 6,000,000 shares
of our common stock at $0.40 per share and Class B Warrants to purchase
6,000,000 shares of our common stock at $0.50 per share. All warrants are
exercisable for a period of five years following the effective date of the
registration statement of which this prospectus forms a part.
Upon
an
event of default the interest rate will automatically be increased to 15%.
Events of default under the Notes include our
default
of a material term, covenant, warranty or undertaking of any of the financing
document to which we and the holder of the Notes are parties. In addition,
specific events of default include the failure to make payments under the Notes
when due (plus a five-day grace period), our bankruptcy or insolvency, entering
of a judgment against us (and the non-payment for 45 days thereafter) in the
amount of $50,000 or more and the removal of our securities from the OTC
Bulletin Board. The holders of the Notes have indicated their consent that
the
first payment that was due on June 27, 2007, and that remains unpaid, will
not
be payable until September 27, 2007. As a result, no event of default has
occurred under the Notes.
In
connection with the notes, we also issued Class A Warrants to purchase 6,000,000
shares of our common stock at $0.40 per share and Class B Warrants to purchase
6,000,000 shares of our common stock at $0.50 per share. All warrants are
exercisable for a period of five years following the effective date of the
registration statement of which this prospectus forms a part.
A
portion
of the proceeds from the afore-mentioned offering has been reserved for the
acquisition of or obtaining the right of access to mass production facilities
in
a low cost country. To that end, we have entered into negotiations for the
acquisition of a manufacturing facility in the Philippines. We have not entered
into any definitive agreements regarding this acquisition and there can be
no
assurance that the proposed transaction will be completed.
March
2007 Financing
On
March
27, 2007, we entered into and consummated a subscription agreement with a group
of accredited investors providing for the issuance to the Investors of our
8%
convertible notes in the principal amount of $3,000,000. The notes mature two
years from the date of issuance.
Under
the
original transactional documents, upon an event of default the interest rate
will automatically be increased to 15%. Events of default under the Notes
include our
default
of a material term, covenant, warranty or undertaking of any of the financing
document to which we and the holder of the Notes are parties. In addition,
specific events of default include the failure to make payments under the
Notes
when due (plus a five-day grace period), our bankruptcy or insolvency, entering
of a judgment against us (and the non-payment for 45 days thereafter) in
the
amount of $50,000 or more and the removal of our securities from the OTC
Bulletin Board.
Under
the
terms of the transactional documents, all rights and benefits to be granted
to
the investors (including the security interest) are identical to and are
intended to be shared equally with holders of convertible notes and warrants
issued by the Company as of November 15, 2006. In addition, all repayment and
conversion terms of and registration rights relating to these notes are
identical to those contained in the notes issued in November 2006.
On
October 23, 2007, we entered into an amendment to the March 2007 financing
arrangement. Under the terms of the agreement as amended, we are no longer
required to register the shares issuable upon conversion of the Notes and
exercise of the warrants issued in connection with the March agreement. The
interest rate under the Notes was increased to 18% and is deemed to have
accrued
from the date of issuance of the Notes. The Company will be required to make
principal and interest payments under the Notes in common stock only at
75%
of
the average of the closing bid price of the common stock for the five trading
days preceding the date an interest or principal payment, as the case may
be, is
due
.
In
addition, the exercise price of the warrants was reduced to $0.25 and their
expiration date was fixed at the sixth anniversary of the closing date of
the
March financing.
Most
of
the proceeds from this financing will be used for research and development,
including but not limited to, research and development to upgrade existing
products, new product development, engagement in joint ventures with strategic
partners to develop new opportunities and markets for both new and existing
products.
We
believe that the proceeds from the sale of the notes will be sufficient to
sustain us through the next 12 months. Nevertheless, the aforementioned factors
raise substantial doubt about our ability to continue as a going concern. We
anticipate that in order to fulfill our plan of operation including repayment
of
certain bank debt, a convertible debenture, and other liabilities, we will
need
to seek debt and/or equity financing from outside sources. We are currently
pursuing debt and equity capital formation activities in order to increase
our
working capital and overall solvency positions.
We
further believe that we will be in a position to meet our repayment obligations
under the Notes. However, we intend to exercise our option to repay the amounts
due under the Notes issued in November 2006 in shares of our common stock.
General
We
were
incorporated under the laws of Nevada on March 25, 1986, under the name Beeper
Plus, Inc. In April 2001, we consummated a Purchase and Sale transaction for
the
sale of our paging business known as The Sports Page and Score Page to BeepMe,
a
third party vendor and our creditor. As a consequence of the sale of our paging
business, we ceased business operations in the paging business. In July 2003,
we
changed our name to Western Gaming Corporation. Under that name we were in
the
business of collecting, organizing and disseminating timely sports information
through wireless services to individual and corporate customers throughout
the
United States, Canada and the Caribbean, as well as news information through
a
network of resellers.
On
July
21, 2005, we entered into a Stock Purchase Agreement with the sole shareholder
of Inrob Ltd., Ben-Tsur Joseph, whereby all of the issued and outstanding shares
of Inrob Ltd. (10,020 shares of common stock) were acquired by us for a total
of
26,442,585 shares of Common Stock, issued after the reverse split of the Common
Stock at the rate of 10.98 shares of old Common Stock for each one share of
new
Common Stock. As part of the reverse merger, 2,057,415 shares of our Common
Stock were purchased by Inrob Ltd on behalf of Mr. Joseph. Thereafter, Mr.
Joseph entered into a Share Transfer and Loan Agreement with Inrob Ltd. whereby
Inrob Ltd. transferred to Mr. Joseph 2,057,415 shares of our Common Stock in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The name of our Company was changed to Inrob Tech Ltd. effective September
1,
2005.
The
shares issued to Mr. Joseph, together with the shares issued to Inrob Ltd.
in
the reverse merger, gave Mr. Joseph, at the time of the transaction, control
over approximately 95% of the issued and outstanding shares of our common stock
immediately after the effectiveness of the reverse split. As part of the
transaction with Mr. Joseph, Mr. Frank DeRenzo, our former President and former
controlling shareholder, received a total of 350,000 shares of post reverse
common stock for consultancy services provided in the past.
General
Information
Inrob
Ltd., our wholly owned Israel based subsidiary (herein referred to as “Inrob
Israel”), was established in 1988 as an engineering firm providing a
cost-efficient solution for organizations to outsource maintenance of critical
and sophisticated equipment. Through Inrob Israel, we now provide maintenance
support of industrial electronic, electro-mechanical, optical and other
scientific equipment, mainly to customers in the defense industry. We also
develop, integrate and produce advanced wireless control solutions for unmanned
ground vehicle (UVR) robots. Our remote control systems are the "brains" for
many UVR solutions. Our objective is to be a world leader in the development
and
production of advanced wireless control systems and integrated solutions for
robots. We aim to provide integrated solutions to meet the needs of a wide
range
of mission-critical military, law enforcement and civilian
applications.
Inrob's
current maintenance activity encompasses the repair and calibration of
technologically advanced instruments and systems for companies and organizations
such as the Israeli defense forces and Ministry of defense, various defense
oriented industries, hospitals and medical centers, universities and academic
institutes, laboratories and research centers, energy and infrastructure
facilities, communication companies and transport and aviation
organizations.
Inrob's
maintenance staff is composed of experienced staff and support technicians.
Inrob's personnel is regularly updated with current technological evolutions
and
participates on a regular basis in further training to keep themselves up to
date with developments in Inrob's field of operation. For the supply of its
maintenance services Inrob keeps a large and versatile array of high end, top
of
the line, electronic testing and repair appliances available for such
use.
The
current nature of Israel's security situation coupled with our close work with
the Israel Defense Forces ("IDF") and the Israeli police, have helped us gain
extensive experience in a wide range of military and law enforcement UVR
applications and control solutions. We have the ability to provide fast and
reliable solutions to meet the immediate operational needs of front-line IDF
units as they arise. We recently began targeting the civilian applications
market, which includes dangerous tasks such as nuclear plant maintenance,
inspection and decommissioning, the demolition industry, firefighting, and
rescue services.
Our
UVR
solutions include:
|
·
|
Remote
control systems (the "brains" of any robot);
|
|
|
|
|
·
|
Complete
robot systems;
|
|
|
|
|
·
|
Customized
solutions
|
We
are
certified to design, manufacture and maintain electronic, optical and
electro-mechanical equipment and are a certified supplier to the Israel Defense
Forces and the Israeli Air Force. We have also been issued a certificate from
the Israeli Air Force stating that our quality system is approved to perform
inspection of products and services supplied to the Israeli Air
Force.
Market
for our Products
Robots
are increasingly used in tasks involving any of the "three Ds"
—
dirty,
dangerous
or dull. Many commercial industries have successfully made use of robotic
technology in well-structured ground environments such as manufacturing and
in
semi structured environments such as automated agriculture. There is also
extensive use of unmanned vehicles in the relatively uncluttered environments
of
air and sea operations. However, perhaps the most difficult challenge for robots
today is the use of unmanned ground vehicles in the unstructured, complex and
changing outdoor environment of land operations.
Our
target market is the full range of military, law enforcement and civilian
mission-critical applications for unmanned ground vehicles. We have particular
expertise and experience in such applications of UVRs.
Advances
in remote-control technologies are leading to increased use of UVRs. For
example, UVRs are expected to produce significant changes in ground warfare.
Under a plan presented to the United States Congress by Senator John Warner
of
Virginia in 2000, by 2015 one-third of U.S. ground combat vehicles would be
unmanned. The Senate Armed Services Committee responded by earmarking $246
million in the 2001 budget for research in unmanned ground and air systems.
The
U.S. defense budget also includes significant funding for unmanned vehicle
projects including research by the Defense Advanced Research Projects Agency
(DARPA), which develops advanced technologies for the US Army's future combat
systems. We have with one relatively insignificant exception made no sales
outside of Israel to date, and cannot assure you that sales to the United States
or other countries will be made on commercially acceptable terms, if at
all.
Over
time, robotic technologies will enable UVRs to be more independent. Autonomous
and semi autonomous mobile robots maneuvering between obstacles in real
environments and operating independently, is one of the most challenging
research and development topics in mobile robotics today. The control algorithms
under development include collecting information from various sensors (laser
range finders, ultrasonic sensors, infrared sensors), processing this
information, including use of artificial intelligence, and generating real-time
instructions for the desired robot motion.
Military
Applications:
Explosive
Ordinance Disposal (EOD)
. Robots
reduce or eliminate the bomb technician's time-on-target. Procedures performed
during bomb disposal missions include surveillance and inspection, X-ray
imaging, and disruption. These tasks require that sensors or tools be placed
in
close proximity to the threat. A robot takes risk out of potentially deadly
scenarios and lets a bomb technician focus on what to do with the explosive
device rather than on the immediate danger to his life.
Other
Military Applications
. There
are many other military tasks that are candidates for UVR employment. These
include:
|
·
|
Reconnaissance
and intelligence gathering;
|
|
·
|
Target
acquisition, including a kamikaze role of guiding weapons to
target;
|
|
·
|
Nuclear,
biological and chemical (NBC) warfare surveillance and
monitoring;
|
|
·
|
Combat
engineering, including establishing and breaching
obstacles;
|
|
·
|
Remote
sensors deployment and monitoring;
|
|
·
|
Forward
area re-supply; and
|
|
·
|
Adding
greater realism in training
exercises.
|
Law
Enforcement Applications:
Improvised
Explosive Devices (IED)
. This
was one of the earliest applications of remotely controlled robots, developed
by
the British Army in the early 1970's for use in Northern Ireland. While there
are many similarities between military and law enforcement bomb disposal
operations, the threats are sufficiently different to treat the two as separate
markets. In addition to EOD, law enforcement bomb disposal more likely involves
dealing with relatively unstable explosive devices. The very act of approaching
a suspected object can be dangerous as points along the path to the device
may
be booby-trapped. In addition, no matter how careful a bomb technician is in
the
inspection or handling of an IED, the possibility always exists that the bomber
is waiting nearby to remotely operate the device or a secondary device when
the
bomb technician is within range. There are approximately 550 bomb squads in
the
United States. According to an April 2000 report prepared by the Counter
Terrorism Technology Support Office (CTTSO), less than 30 percent are equipped
with bomb disposal robots. While this percentage may have risen since September
11, 2001 we believe there exists a significant market in the United States
for
bomb disposal robots.
Other
Law Enforcement Applications
. Other
likely law enforcement applications for robots include surveillance, SWAT tasks
and exchanging messages during hostage negotiations.
Civilian
Applications
Generally
any industry or job involving the "three Ds" should consider a dedicated robot
or remote operated conversion of their standard vehicle. Examples include
nuclear plant maintenance, inspection and decommissioning and the demolition
industry, which performs many dangerous tasks while pulling down a building.
Another important civilian application is firefighting and rescue
services.
Customer
Needs Common for all Applications
A
major
customer need common for all applications is for integrated UVR systems with
the
ability to complete a total mission, versus an individual task. A robot may
be
able to perform a number of tasks very well, but if it fails or the user
believes it will fail in the performance of one task required to complete a
particular mission, its utility is greatly diminished. To meet this need UVR
companies will have to provide integrated solutions that can be easily tailored
to the users' mission requirements
Products
and Services
Products
A
variety
of companies around the world currently manufacture robots for use in military,
law enforcement and civilian applications. The size of these robots varies
from
as small as a shoebox to as large as a tele-operated tank. Control and traction
methods vary considerably. Some are controlled by radio frequency while others
use fiber optic or coax cable. Traction varies from tank-like tracks to
multi-wheel combinations.
Principal components of robots include the following:
Platform:
This
includes the motors, drive train, power source, and structural components.
The
platform could be a specially designed robot or a standard military or
commercial vehicle
Operator
Control Unit:
This
allows the user to control the robot and its functions in an intuitive fashion.
The control unit is compact, lightweight, and easy to operate. It is made of
durable waterproof materials, has its own battery source, and can operate under
difficult and severe environmental conditions. The control unit allows two-way
communication with the robot, i.e. it enables the operator to send instructions
to the robot, as well as receive information back from the robot such as
real-time video pictures, battery status, traveling speed, and
temperature.
Communications:
The
communication system provides the clear transmission of data (operator
instructions, video images etc.) at the robot's operating range. Most robots
use
wireless radio frequency communication as the primary mode of communication,
although some robots use a fiber optic cable.
Tools:
These
enable the robot to carry out its primary mission. Tools may include a
manipulator with adequate reach and freedom, camera, disrupter, x-ray detector
and various sensors and weapon systems.
We
design
and produce the operator control unit and the communication devices for the
UVRs. When a customer requests that we produce a complete UVR, we outsource
the
UVR’s platform, tools and sensors to third party manufacturers. We have
manufactured and sold our products, on each occasion on a customized
basis.
Services
Inrob
Ltd. provides maintenance services for:
|
·
|
Laboratory
equipment including: testing and measurement equipment, temperature
chambers and x-ray equipment.
|
|
·
|
Industrial
equipment including: balance machinery, presses, cleaning equipment
and
production lines.
|
|
·
|
Scientific
and medical equipment including: spectrometry equipment, laser
apparatuses
and analytical tools.
|
|
·
|
Closed
circuit television systems including: cameras, monitors and traverse
sensors.
|
|
·
|
Optical
equipment including: cameras and boroscopes.
|
|
·
|
Command
and control equipment including: transmission and reception systems,
control systems and robots.
|
|
·
|
Audio
equipment including: recording equipment, announcing systems,
amplification systems and sound systems.
|
|
·
|
Miscellaneous
equipment including: power generators, fail-safe products, projectors
and
control rooms.
|
Most
of
the equipment used for providing such maintenance services is standard equipment
purchased in the local market. Some of the equipment is special designated
equipment that is purchased from the original manufacturers of the equipment
we
supply maintenance services for.
Manufacturing
We
manufacture control and command units which includes the following devices:
devices for the coordination of the driving mechanism, devices to control and
command the "arms" of the robots, analyzing units for information received
from
the robot, dispersion of electric current, development of software for each
custom made unit according to the relevant application;
We
also
manufacture electric and electro-mechanic units, including engine drivers,
wiring, electric current supply model, and operating unit - ergonomics, device
for communication with robot, software for operation and interface of remote
control, development and manufacture of command and electronic
cards.
Most
of
the equipment used for such production is standard equipment. Inrob Israel
manufactures robots and control and command units that are sold as finished
goods ready to use by the customer.
We
are in
the process of negotiating the acquisition of a manufacturing plant in the
Philippines where we will be able to manufacture most of our own products on
more favorable terms. We have not entered into any definitive agreements
regarding this acquisition and there can be no assurance that the proposed
transaction will be completed.
Regulation
Export
Licensing
The
export of our products is subject to licensing requirements imposed by the
Israeli government and requires the approval of SIBAT, a Foreign Defense
Assistance and Defense Export Department of the Israeli Ministry of Defense.
Except for those regulations that affect businesses generally, we are not
affected by any other government regulation
Competition
Our
competitors include several large, defense contractors including:
|
·
|
Cybernetix,
France
|
|
·
|
ESI,
Canada
|
|
·
|
Foster-Miller,
USA
|
|
·
|
Kentree,
Ireland
|
|
·
|
OAO
Robotics (acquired by Lockheed Martin, Dec. 2001), USA
|
|
·
|
Remotec
(subsidiary of Northrop Grumman), USA
|
|
·
|
the
Israel Aircraft Industries Ltd., the Israel Military Industries
Ltd.,
Elbit Ltd., and Elop Ltd. (all Israeli
companies).
|
These
companies have significantly greater financial, technical and human resources
than we do, as well as a wider range of products than we have. In addition,
many
of our competitors have much greater experience in marketing their products,
as
well as more established relationships with our target government customers.
Our
competitors may also have greater name recognition and more extensive customer
bases that they can use to their benefit. As a result, we may have difficulty
maintaining our market share.
We
believe that our competitive edge is the quality, product features and level
of
integration of our solutions. Because of Israel's security situation and our
close work with the Israel Defense Forces and the Israeli police, we have
extensive experience in a wide range of military and law enforcement
applications. We have the ability to provide fast and reliable solutions to
meet
the immediate operational needs of front-line IDF units as they
arise.
According
to research in the United States, the most important issues in current UVR
usage
include the ability to provide integrated solutions and dependable control
and
communication systems. We have particular expertise and experience in these
two
critical areas. Overall, we believe that this experience gives our technology
and applications a crucial competitive advantage.
Intellectual
Property
We
do not
have any patents, trademarks or any other protection over our intellectual
property. All of our intellectual property is "know how" and not original
proprietary intellectual property. As such, it cannot be protected by patent
or
trademark. In addition, we do not have confidentiality agreements with any
of
our employees or suppliers with respect to our intellectual property. The theft
or unauthorized use of our intellectual property is not sufficiently provided
for, and our intellectual property is extremely susceptible to theft or
unauthorized use. Any theft or unauthorized use of our intellectual property
could materially adversely affect our operations.
As
of
December 31, 2006, we had 16 employees, as follows:
|
|
Number of Employees
|
|
Management
|
|
|
3
|
|
Service
|
|
|
4
|
|
Sound/Service
Projects
|
|
|
5
|
|
Production/Products
|
|
|
4
|
|
In
addition, our relationship with Ben-Tsur Joseph, our President, is governed
by
the terms of a management agreement.
There
is
currently a collective agreement signed between the labor federation and the
industry union in Israel, which applies to the employees of Inrob Ltd. under
an
expansion order. We believe that our employee relations are good.
Description
of Property
For
the
year ended December 31, 2005, we were a party to a lease agreement for our
premises in Israel, which expired in January, 2006. In 2006, we entered into
a
new one-year lease agreement, with an option to extend the agreement for an
additional year for the use of 1,135 square meters of office and
engineering/operations space. We may terminate the lease agreement upon 60-days
notice. Future minimum annual payments (exclusive of taxes, insurance and
maintenance costs) under the lease are approximately $91,935 for the calendar
year 2006. This
agreement
was terminated, and in June 2006 Inrob Ltd. entered into a new lease agreement
for the use of 300 square meters. The lease is for a period of 36 months. The
monthly payments under the lease are $3.50 per square foot. The company is
also
party to a lease agreement for a warehouse in Israel entered into in 1999 for
the use of 175.3 square meters. The monthly payments under the lease are
approximately $900.
We
are
not aware of any pending or threatened litigation against us that we expect
will
have a material adverse effect on our business, financial condition, liquidity,
or operating results. However, legal claims are inherently uncertain and we
cannot assure you that we will not be adversely affected in the future by legal
proceedings.
DIRECTORS
AND EXECUTIVE OFFICERS
Directors
and Executive Officers
Our
sole
director and executive officer is:
Name
|
|
Age
|
|
Position
|
Ben-Tsur
Joseph
|
|
48
|
|
President,
Chief Financial Officer and
Director
|
Ben-Tsur
Joseph, Co-founder, President and sole Director, co-founded our subsidiary,
Inrob Ltd. ("Inrob Israel") in Israel in 1988, and was joint CEO until 1999.
He
has extensive experience and knowledge of unmanned air and ground vehicle
operations and continues to work closely with major defense clients. Mr. Joseph
is currently the President and sole Director of Inrob Israel. He is also the
founder, CEO and director of Ben-Tsur Joseph Holdings, Ltd. He also acted
as Chief Executive Officer of Elina Industries from 1989 to 2004. During 2000
and 2001 Mr. Joseph was chairman of Elad Hotels, an Israeli publicly traded
company. He was also Chief Executive Officer D.J.G . Industries- Electrical
and
Lighting Products Ltd., an Israeli publicly traded company. Mr. Joseph’s
services to us are made available through a management agreement which may
be terminated by either party upon 90 day prior notice.
EXECUTIVE
COMPENSATION
The
following table sets forth the total compensation we paid for our fiscal years
ended December 31, 2006, and 2005, to each of our executive officers. During
the
fiscal years ended December 31, 2005, 2004, and 2003, no Executive Officer
or
Director of the Company received cash remuneration in excess of $100,000. There
are no standard arrangements for the compensation of directors.
Summary
Compensation Table
Name
and principal position
(a)
|
|
Year
(b)
|
|
Salary ($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock Awards
($)
(e)
|
|
All
Other
Compensation ($)
(i)
|
|
Total ($)
(j)*
|
|
Ben-Tsur
Joseph
President
and Chief Executive Officer
|
|
|
2006
|
|
|
-0-
|
|
|
-0-
|
|
|
150,000
|
***
|
|
-0-
|
|
|
-0-
|
|
|
|
|
2005
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
-0-
|
|
|
-0-
|
|
Frank
H. DeRenzo
President**
|
|
|
2005
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
-0-
|
|
|
-0-
|
|
*
Mr. Joseph’s services to us are made available through a management
agreement which may be terminated by either party upon 90 day prior notice.
During the years ended December 31, 2005, and 2006, under the management
agreement, we accrued $120,000 and $220,000 in management fees, respectively.
During 2005 and 2006, no management fees were paid to Mr. Joseph. Mr. Joseph
provided for the offset of $205,000 owed to the Company by a related party
entity of Mr. Joseph against the management fee liability which reduced the
total amount owed as of December 31, 2006, to approximately
$135,000.
**
Mr. DeRenzo resigned his position in 2005.
***
Consists of 1,000 shares of Preferred Stock
Option
Grants in Fiscal Year 2006
We
did
not issue any option grants during fiscal year 2006.
Our
Employee Stock Option Plan was previously extended to 2010. Currently no options
have been issued under the Employee Stock Option Plan.
Section
16(a) Beneficial Ownership Reporting Compliance
Under
Section 16(a) of the Exchange Act, our directors and certain of our officers,
and persons holding more than 10 percent of our common stock are required to
file forms reporting their beneficial ownership of our common stock and
subsequent changes in that ownership with the Securities and Exchange
Commission. Such persons are also required to furnish us with copies of all
forms so filed.
Based
solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and
amendments thereto furnished to us, we believe that during the year ended
December 31, 2006, our executive officers, directors and greater than 10 percent
beneficial owners complied on a timely basis with all Section 16(a) filing
requirements.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information as of October 15, 2007 regarding the
beneficial ownership of our Common Stock, based on information provided by
(i)
each of our executive officers and directors; (ii) all executive officers and
directors as a group; and (iii) each person who is known by us to beneficially
own more than 5% of the outstanding shares of our Common Stock.
Unless
otherwise indicated, each person named in the table above has the sole voting
and investment power with respect to the shares of our common and preferred
stock which he beneficially owns.
For
purposes of this table, a person is deemed to be a beneficial owner of the
securities if that person has the right to acquire such securities within 60
days of October 15, 2007 upon the exercise of options or warrants. In
determining the percentage ownership of the persons in the table below, we
assumed in each case that the person exercised all options and warrants which
are currently held by that person and which are exercisable within such 60
day
period, but that options and warrants held by all other persons were not
exercised, and based the percentage ownership on 67,704,934 shares outstanding
on October 15, 2007.
|
|
Number of Shares
|
|
Percent
|
|
Ben-Tsur
Joseph
|
|
|
428,500,004
|
(1)
|
|
91.6
|
%
|
2
Haprat St.
|
|
|
|
|
|
|
|
Yavne
|
|
|
|
|
|
|
|
Israel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and officers as a group (one person)
|
|
|
|
|
|
|
|
(1)
Includes 1,000 shares of Series A Preferred Stock, each of which carries voting
rights equal to 400,000 shares of common stock.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock is noted on the OTC Bulletin Board under the symbol "IRBL.OB” since
July 21, 2005.
The
following table shows the reported high and low closing bid quotations per
share
for our common stock based on information provided by the OTC Bulletin Board.
Particularly since our common stock is traded infrequently, such
over-the-counter market quotations reflect inter-dealer prices, without markup,
markdown or commissions and may not necessarily represent actual transactions
or
a liquid trading market.
Year
Ended December 31, 2005
|
|
HIGH
|
|
LOW
|
|
First
Quarter
|
|
|
5.60
|
|
|
0.32
|
|
Second
Quarter
|
|
|
1.75
|
|
|
0.54
|
|
Third
Quarter
|
|
|
4.39
|
|
|
0.13
|
|
Fourth
Quarter
|
|
|
0.42
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
|
HIGH
|
|
|
LOW
|
|
First
Quarter
|
|
|
0.68
|
|
|
0.38
|
|
Second
Quarter
|
|
|
0.68
|
|
|
0.41
|
|
Third
Quarter
|
|
|
0.44
|
|
|
0.21
|
|
Fourth
Quarter
|
|
|
0.38
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
|
HIGH
|
|
|
LOW
|
|
First
Quarter
|
|
|
0.315
|
|
|
0.24
|
|
Second
Quarter
|
|
|
0.26
|
|
|
0.19
|
|
Third
Quarter
|
|
|
0.30
|
|
|
0.171
|
|
Number
of Stockholders
As
of
October 15, 2007, there were approximately 258 holders of record of our common
stock.
Dividend
Policy
Historically,
we have not paid any dividends to the holders of our common stock and we do
not
expect to pay any such dividends in the foreseeable future as we expect to
retain our future earnings for use in the operation and expansion of our
business.
SELLING
SHAREHOLDERS
The
following table presents information regarding the selling shareholders.
Selling
Shareholder
|
|
Shares Beneficially
Owned
Prior to
Offering (1)
|
|
Shares to be Sold
in
Offering (2)
|
|
Shares Beneficially
Owned After
Offering
|
|
Percentage of Shares
Beneficially Owned
After
Offering
|
|
Professional
Offshore Opportunity Fund, Ltd. (3)
|
|
|
1,632,501
|
|
|
1,073,001
|
|
|
559,500
|
|
|
*
|
|
First
Mirage, Inc. (4)
|
|
|
619,642
|
|
|
386,131
|
|
|
233,511
|
|
|
*
|
|
Generation
Capital Associates (5)
|
|
|
619,642
|
|
|
386,131
|
|
|
233,511
|
|
|
*
|
|
The
Hart Organization (6)
|
|
|
256,670
|
|
|
163,034
|
|
|
93,636
|
|
|
*
|
|
Platinum Partner Long Term Growth IV (7)
|
|
|
1,883,534
|
|
|
1,231,198
|
|
|
652,336
|
|
|
*
|
|
Centurion
Microcap, LP (8)
|
|
|
2,543,534
|
|
|
1,611,648
|
|
|
931,886
|
|
|
1.3
|
|
Truk
Opportunity Fund, LLC (9)
|
|
|
1,610,128
|
|
|
578,079
|
|
|
1,032,049
|
|
|
1.4
|
|
Truk
International, L.P. (10)
|
|
|
362,655
|
|
|
79,688
|
|
|
282,967
|
|
|
*
|
|
Alpha
Capital Anstalt (11)
|
|
|
1,357,787
|
|
|
798,287
|
|
|
559,500
|
|
|
*
|
|
Vision Opportunity Master Fund, Ltd. (12)
|
|
|
13,381,522
|
|
|
3,515,625
|
|
|
9,865,897
|
|
|
13
|
%
|
Total
Shares to be Sold
|
|
|
|
|
|
9,822,822
|
|
|
|
|
|
|
|
*
less
than 1%.
|
(1)
|
The
number and percentage of shares beneficially owned is determined
in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
and the
information is not necessarily indicative of beneficial ownership
for any
other purpose. Under such rule, beneficial ownership includes any
shares
as to which the selling stockholders has sole or shared voting power
or
investment power and also any shares, which the selling stockholders
has
the right to acquire within 60 days. Nevertheless, for purposes hereof,
for each selling shareholder does not give effect to the 4.99% limitation
on the number of shares that may be held by each shareholder under
the
transaction documents which limitation is subject to waiver by the
holder
upon 61days prior written notice to us. The actual number of shares
of
common stock issuable upon the conversion of the secured convertible
notes
is subject to adjustment depending on, among other factors, the future
market price of the common stock, and could be materially less or
more
than the number estimated in the table. The percentage of shares
owned by
each is based on a total outstanding number of 67,704,934 as of October
15, 2007.
|
|
(2)
|
For
each selling shareholder the indicated number represents the number
of
shares to be registered on behalf of that selling shareholder as
a
proportion of the total number of shares that may be included in
the
registration statement of which this prospectus forms a part in accordance
with the subscription agreement, minus the shares that have already
been
issued to and sold by each such person.
|
|
(3)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. Howard Berger has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(4)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. David Rappaport has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(5)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. David Rappaport has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(6)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. David Rappaport has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(7)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. Mark Nordlicht has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(8)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. Abraham Schwartz
may be
deemed the control person of the securities registered on behalf
of
Centurion Microcap, L.P.
|
|
(9)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. Michael Fein has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(10)
|
Number
of shares beneficially owned includes shares issuable upon conversion
of
convertible notes and exercise of warrants. Mr. Michael Fein has
sole
voting and dispositive power over the shares beneficially owned by
this
entity.
|
|
(11)
|
Number
of shares beneficially owned consists of shares issuable upon
conversion of convertible notes and exercise of warrants. Alpha Capital
is
a private investment fund that is owned by all its investors and
managed
by Mr. Konrad Ackermann, who may be deemed the control person of
the
shares owned by Alpha Capital. Rainer Posch, a director, has voting
and
dispositive power over the shares.
|
|
(12)
|
Number
of shares beneficially owned consists of shares issuable upon conversion
of convertible notes and exercise of warrants. Adam Benowitz and
Randy
Cohen share investment and dispositive power of the shares held by
this
entity.
|
The
following is a description of the selling shareholders relationship to us and
how each the selling shareholder acquired the shares to be sold in this
offering:
On
November 15, 2006, we issued to a group of accredited investors our two-year
8%
convertible notes in the principal amount of $3,000,000 of which approximately
$1,600,00 remains outstanding. Amortizing payments of the outstanding principal
amount and interest under the Notes will commence on the third month anniversary
date of the date of issuance of the Notes and on the same day of each month
thereafter until the principal amount and interest have been repaid in full.
On
each payment date, we are required to make payments to the holders of the Notes
in the amount of 4.76% of the initial principal amount and all interest accrued
on the notes as of the payment date. At our election, monthly payments may
be
made (i) in cash in an amount equal to 115% of the principal amount component
of
the monthly payment and 100% of all other components, or (ii) in shares of
our
registered common stock at a conversion price equal to the lesser of (A) $0.25,
or (B) 75% of the average of the closing bid price of our common stock for
the
five trading days preceding the date a notice of conversion is given to us
after
we notify the holder of the notes of its election to make a monthly payment
in
shares of Common Stock. The holders have a right to convert the notes into
shares of common stock at $0.25 per share. We also issued Class A Warrants
to
purchase 6,000,000 shares of our common stock at $0.40 per share and Class
B
Warrants to purchase 6,000,000 shares of our common stock at $0.50 per share.
All warrants are exercisable for a period of five years following the effective
date of the registration statement of which this prospectus forms a
part.
We
agreed
to file the registration statement of which this prospectus forms a part for
the
purpose of registering the shares issuable upon conversion of the notes. The
numbers of shares set forth in the table above represent the shares still owned
by each seller as a result of conversions and resulting sales of shares.
In
July
2005, Inrob Israel purchased, on behalf of Ben-Tsur Joseph, its President,
Director and sole stockholder, 2,057,415 shares of common stock of the Company
in connection with the reverse merger. The amount of consideration provided
by
Inrob Israel for the shares was $475,000. Thereafter, Mr. Joseph entered into
a
Share Transfer and Loan Agreement with Inrob Israel whereby the company
transferred to Mr. Joseph 2,057,415 shares of the common stock of the Company.
in exchange for a promissory note issued by Mr. Joseph in the amount of
$475,000. The promissory note carries an interest rate of four (4) percent
per
annum, and is payable to Inrob Israel on demand.
Inrob Israel
entered into a management agreement with an officer and director on October
1,
2003, which was subsequently extended as to its commencement date to May 1,
2005. Other terms and conditions related to equipment usage commenced with
the
original date of the agreement. Under the terms of the agreement, the Company
is
obligated to pay $15,000 per month during the first year and $20,000 per month
thereafter for management fees. For the years ended December 31, 2005, and
2006,
the Company accrued $120,000 and $220,000, respectively, under the management
agreement. Mr. Joseph provided for the offset of $205,000 owed to the Company
by
a related party entity of Mr. Joseph against the management fee liability which
reduced the total amount owed as of December 31, 2006, to approximately
$135,000. The management agreement does not have a specific completion date,
but
may be terminated by either party on written notice of three
months.
As
of
December 31, 2006, Mr. Joseph, our President and Director, had loaned a total
of $61,435 to the Company for working capital purposes. The loan is
unsecured, non-interest bearing, and has no terms for repayment.
DESCRIPTION
OF SECURITIES
The
following description of our capital stock and provisions of our articles of
incorporation and bylaws, each as amended, is only a summary. You should also
refer to the copies of our articles of incorporation and bylaws which are
included as exhibits to our Report on 10-KSB for the fiscal year ended December
31, 2004. Our authorized capital stock consists of 380,000,000 shares of common
stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock
$0.0001 par value per share.
Common
Stock
We
are
authorized to issue 380,000,000 shares of common stock of which as of October
15, 2007, 67,704,934 shares are issued and outstanding. Holders of our common
stock are entitled to one vote for each share held on all matters submitted
to a
vote of our stockholders. Holders of our common stock are entitled to receive
dividends ratably, if any, as may be declared by the board of directors out
of
legally available funds, subject to any preferential dividend rights of any
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject
to
the prior rights of any outstanding preferred stock. Holders of our common
stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of our common stock are subject to, and
may be adversely affected by, the rights of holders of shares of any series
of
preferred stock which we may designate and issue in the future without further
stockholder approval.
Preferred
Stock
We
are
currently authorized to issue 20,000,000 shares of preferred stock, 1,000 of
which have been designated as Series A Preferred Stock. All of these shares
have
been issued. Each share of Series A Preferred Stock carries voting rights equal
to 400,000 shares of common stock and has no other preferential rights or
privileges.
Transfer
Agent and Registrar
PLAN
OF DISTRIBUTION
The
selling stockholders, or their pledgees, donees, transferees, or any of their
successors in interest selling shares received from the named selling
stockholders as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be a selling
stockholder) may sell the common stock offered by this prospectus from time
to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise,
at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholders may sell the common stock by one or more
of
the following methods, without limitation:
·
|
Block
trades in which the broker or dealer so engaged will attempt to sell
the
common stock as agent but may position and resell a portion of the
block
as principal to facilitate the transaction;
|
·
|
An
exchange distribution in accordance with the rules of any stock exchange
on which the common stock is listed;
|
·
|
Ordinary
brokerage transactions and transactions in which the broker solicits
purchases;
|
·
|
Privately
negotiated transactions;
|
·
|
In
connection with short sales of company shares;
|
·
|
Through
the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
|
·
|
By
pledge to secure debts of other obligations;
|
·
|
In
connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions
in
standardized or over-the-counter options;
|
·
|
Purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account; or
|
·
|
In
a combination of any of the above.
|
These
transactions may include crosses, which are transactions in which the same
broker acts as an agent on both sides of the trade. The selling stockholders
may
also transfer the common stock by gift. We do not know of any arrangements
by
the selling stockholders for the sale of any of the common stock.
The
selling stockholders may engage brokers and dealers, and any brokers or dealers
may arrange for other brokers or dealers to participate in effecting sales
of
the common stock. These brokers or dealers may act as principals, or as an
agent
of a selling stockholder. Broker-dealers may agree with a selling stockholder
to
sell a specified number of the stocks at a stipulated price per share. If the
broker-dealer is unable to sell common stock acting as agent for a selling
stockholder, it may purchase as principal any unsold shares at the stipulated
price. Broker-dealers who acquire common stock as principals may thereafter
resell the shares from time to time in transactions in any stock exchange or
automated interdealer quotation system on which the common stock is then listed,
at prices and on terms then prevailing at the time of sale, at prices related
to
the then-current market price or in negotiated transactions. Broker-dealers
may
use block transactions and sales to and through broker-dealers, including
transactions of the nature described above. The selling stockholders may also
sell the common stock in accordance with Rule 144 or Rule 144A under the
Securities Act, rather than pursuant to this prospectus. In order to comply
with
the securities laws of some states, if applicable, the shares of common stock
may be sold in these jurisdictions only through registered or licensed brokers
or dealers.
From
time
to time, one or more of the selling stockholders may pledge, hypothecate or
grant a security interest in some or all of the shares owned by them. The
pledgees, secured parties or person to whom the shares have been hypothecated
will, upon foreclosure in the event of default, be deemed to be selling
stockholders. The number of a selling stockholder's shares offered under this
prospectus will decrease as and when it takes such actions. The plan of
distribution for that selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell
the
shares short, and, in those instances, this prospectus may be delivered in
connection with the short sales and the shares offered under this prospectus
may
be used to cover short sales.
To
the
extent required under the Securities Act, the aggregate amount of selling
stockholders' shares being offered and the terms of the offering, the names
of
any agents, brokers, dealers or underwriters, any applicable commission and
other material facts with respect to a particular offer will be set forth in
an
accompanying prospectus supplement or a post-effective amendment to the
registration statement of which this prospectus is a part, as appropriate.
Any
underwriters, dealers, brokers or agents participating in the distribution
of
the common stock may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a selling stockholder and/or purchasers
of
selling stockholders' shares, for whom they may act (which compensation as
to a
particular broker-dealer might be less than or in excess of customary
commissions). Neither we nor any selling stockholder can presently estimate
the
amount of any such compensation.
The
selling stockholders and any underwriters, brokers, dealers or agents that
participate in the distribution of the common stock will be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers are deemed to be underwriters
under the Securities Act while affiliates of registered broker-dealers may
be
underwriters under the Securities Act. We will not pay any compensation or
give
any discounts or commissions to any underwriter in connection with the
securities being offered by this prospectus.
A
selling
stockholder may enter into hedging transactions with broker-dealers and the
broker-dealers may engage in short sales of the common stock in the course
of
hedging the positions they assume with that selling stockholder, including,
without limitation, in connection with distributions of the common stock by
those broker-dealers. A selling stockholder may enter into option or other
transactions with broker-dealers, who may then resell or otherwise transfer
those common stock. A selling stockholder may also loan or pledge the common
stock offered hereby to a broker-dealer and the broker-dealer may sell the
common stock offered by this prospectus so loaned or upon a default may sell
or
otherwise transfer the pledged common stock offered by this
prospectus.
The
selling stockholders and other persons participating in the sale or distribution
of the common stock will be subject to applicable provisions of the Exchange
Act, and the rules and regulations under the Exchange Act, including Regulation
M. This regulation may limit the timing of purchases and sales of any of the
common stock by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. Regulation M may restrict the ability of any person engaged in
the
distribution of the common stock to engage in market-making activities with
respect to the particular common stock being distributed for a period of up
to
five business days before the distribution. These restrictions may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common
stock.
We
have
agreed to indemnify the selling stockholder and any brokers, dealers and agents
who may be deemed to be underwriters, if any, of the common stock offered by
this prospectus, against specified liabilities, including liabilities under
the
Securities Act. The selling stockholder has agreed to indemnify us against
specified liabilities.
The
issued and outstanding common stock, as well as the common stock to be issued
offered by this prospectus was originally, or will be, issued to the selling
stockholders pursuant to an exemption from the registration requirements of
the
Securities Act, as amended. We agreed to register the common stock issued or
to
be issued to the selling stockholders under the Securities Act, and to keep
the
registration statement of which this prospectus is a part effective until all
of
the securities registered under this registration statement have been sold.
We
have agreed to pay all expenses incident to the registration of the common
stock
held by the selling stockholders in connection with this offering, but all
selling expenses related to the securities registered shall be borne by the
individual holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf.
We
cannot
assure you that the selling stockholders will sell all or any portion of the
common stock offered by this prospectus. In addition, we cannot assure you
that
a selling stockholder will not transfer the shares of our common stock by other
means not described in this prospectus.
LEGAL
MATTERS
The
validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York.
EXPERTS
The
Company's balance sheet as of December 31, 2006 and the related statements
of
operations and comprehensive income (loss), stockholders' (deficit), and cash
flows for each of the two years in the period ended December 31,
2006, included in this Prospectus have been audited by Davis Accounting
Group P.C., Certified Public Accountants, as set forth in its report appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
filed
with the SEC a registration statement on Form SB-2 under the Securities Act
for
the common stock to be sold in this offering. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules that were filed with the registration statement. For further
information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with
the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we
refer
you to the full text of the contract or other document filed as an exhibit
to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may
be
inspected without charge at the public reference facilities maintained by the
SEC, 100 F Street, N.E., Washington, DC 20549. Copies of all or any part of
the
registration statement may be obtained from the SEC upon payment of the
prescribed fee. Information regarding the operation of the public reference
rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains
a
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
Under
the
Nevada General Corporation Law and our Articles of Incorporation, as amended,
our directors will have no personal liability to us or our stockholders for
monetary damages incurred as the result of the breach or alleged breach by
a
director of his "duty of care". This provision does not apply to the directors'
(i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) acts or omissions that a director believes
to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) approval
of
any transaction from which a director derives an improper personal benefit,
(iv)
acts or omissions that show a reckless disregard for the director's duty to
the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders, (v) acts or omissions that constituted an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, or (vi) approval of an unlawful dividend,
distribution, stock repurchase or redemption. This provision would generally
absolve directors of personal liability for negligence in the performance of
duties, including gross negligence.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
INROB
TECH LTD.
INDEX
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
Financial
Statements-
|
|
|
|
Report
of Registered Independent Auditors
|
F-2
|
|
|
Balance
Sheet as of December 31, 2006
|
F-3
|
|
|
Statements
of Operations and Comprehensive Income (Loss) for the Years Ended
December
31, 2006, and 2005
|
F-4
|
|
|
Statements
of Stockholders' (Deficit) for the Years Ended December 31, 2006, and
2005
|
F-5
|
|
|
Statements
of Cash Flows for the Years Ended December 31, 2006, and
2005
|
F-6
|
|
|
Notes
to Financial Statements for the Years Ended December 31, 2006, and
2005
|
F-8
|
INDEX
TO INTERIM CONSOLIDATED
FINANCIAL
STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
Financial
Statements-
|
|
|
|
Consolidated
Balance Sheet as of June 30, 2007
|
F-25
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the
Three
Months And Six Months Ended June 30, 2007, and 2006
|
F-26
|
|
|
Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2007,
and
2006
|
F-27
|
|
|
Notes
to Financial Statements for the Six Months Ended June 30, 2007, and
2006
|
F-29
|
REPORT
OF REGISTERED INDEPENDENT AUDITORS
To
the
Board of Directors and Stockholders of
Inrob
Tech Ltd.:
We
have
audited the accompanying balance sheet of Inrob Tech Ltd. (a Nevada corporation)
as of December 31, 2006, and the related statements of operations and
comprehensive income (loss), stockholders’ (deficit), and cash flows for each of
the two years in the period ended December 31, 2006. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits 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 includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes 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 financial statements referred to above present fairly, in all
material respects, the financial position of Inrob Tech Ltd. as of December
31,
2006, and the results of its operations and its cash flows for each of the
two
years in the period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has experienced operating losses, and has negative
working capital. These and other factors raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans regarding
these matters are also described in Note 2 to the financial statements. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Respectfully
submitted,
/s/
Davis Accounting Group P.C.
|
|
|
|
|
|
|
|
Cedar
City, Utah,
April
20, 2007.
|
|
|
|
INROB
TECH LTD.
|
BALANCE
SHEET (NOTE 2)
|
AS
OF DECEMBER 31, 2006
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,278,371
|
|
Accounts
Receivable-
|
|
|
|
|
Trade
|
|
|
256,881
|
|
Less
- Allowance for doubtful accounts
|
|
|
-
|
|
Inventories
|
|
|
711,772
|
|
Cost
of uncompleted contracts in excess of billings
|
|
|
161,371
|
|
Prepaid
expenses
|
|
|
8,597
|
|
Total
current assets
|
|
|
3,416,992
|
|
Property
and Equipment:
|
|
|
|
|
Office
and computer equipment
|
|
|
88,027
|
|
Furniture
and fixtures
|
|
|
59,633
|
|
Vehicles
|
|
|
346,096
|
|
Leasehold
improvements
|
|
|
39,941
|
|
|
|
|
533,697
|
|
Less
- Accumulated depreciation and amortization
|
|
|
(288,040
|
)
|
Net
property and equipment
|
|
|
245,657
|
|
Other
Assets:
|
|
|
|
|
Deposits
and other
|
|
|
2,788
|
|
Debt
issuance costs, net
|
|
|
319,219
|
|
Loans
to and interest receivable from related parties
|
|
|
261,849
|
|
Total
other assets
|
|
|
583,856
|
|
Total
Assets
|
|
$
|
4,246,505
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Bank
overdrafts
|
|
$
|
94,910
|
|
Bank
loans and other debt, current portion
|
|
|
43,858
|
|
Current
portion of convertible notes
|
|
|
1,570,800
|
|
Accounts
payable - Trade
|
|
|
238,606
|
|
Due
to related party - Director and stockholder
|
|
|
61,435
|
|
Due
to related party company
|
|
|
20,496
|
|
Billings
on uncompleted contracts in excess of costs
|
|
|
134,434
|
|
Due
to related party - Investor group
|
|
|
161,202
|
|
Accrued
liabilities
|
|
|
394,740
|
|
Reserve
for estimated loss on contract
|
|
|
39,141
|
|
Deferred
revenue
|
|
|
735,277
|
|
Total
current liabilities
|
|
|
3,494,899
|
|
|
|
|
|
|
Long-term
Debt, less current portion:
|
|
|
|
|
Bank
loans and other debt
|
|
|
7,839
|
|
Convertible
notes
|
|
|
1,429,200
|
|
Total
long-term debt
|
|
|
1,437,039
|
|
Total
liabilities
|
|
|
4,931,938
|
|
Commitments
and Contingencies
|
|
|
|
|
Stockholders'
(Deficit):
|
|
|
|
|
Preferred
stock, par value $.0001 per share; 20,000,000 shares authorized;
1,000
Series A shares issued and outstanding
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
150,000
|
|
Capital
stock, par value $.0001 per share; 380,000,000 shares authorized;
61,350,201 shares issued and outstanding
|
|
|
|
|
Additional
paid-in capital
|
|
|
907,783
|
|
Less
- Loan receivable - Director and stockholder
|
|
|
(475,000
|
)
|
Accumulated
other comprehensive income
|
|
|
40,411
|
|
Accumulated
(deficit)
|
|
|
(1,314,762
|
)
|
Total
stockholders' (deficit)
|
|
|
(685,433
|
)
|
Total
Liabilities and Stockholders' (Deficit)
|
|
$
|
4,246,505
|
|
The
accompanying notes to financial statements
are
an
integral part of this balance sheet.
INROB
TECH LTD.
|
STATEMENTS
OF OPERATIONS AND
|
COMPREHENSIVE
INCOME (LOSS) (NOTE 2)
|
FOR
THE YEARS ENDED DECEMBER 31, 2006, AND
2005
|
|
|
2006
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
Services
|
|
$
|
1,262,011
|
|
$
|
1,154,932
|
|
Product
sales
|
|
|
394,787
|
|
|
425,683
|
|
Total
revenues
|
|
|
1,656,798
|
|
|
1,580,615
|
|
Cost
of Goods Sold:
|
|
|
|
|
|
|
|
Services
|
|
|
1,185,000
|
|
|
832,315
|
|
Product
sales
|
|
|
165,594
|
|
|
102,615
|
|
Total
cost of goods sold
|
|
|
1,350,594
|
|
|
934,930
|
|
Gross
Profit
|
|
|
306,204
|
|
|
645,685
|
|
Expenses:
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,065,342
|
|
|
502,568
|
|
Total
general and administrative expenses
|
|
|
1,065,342
|
|
|
502,568
|
|
Income
(Loss) from Operations
|
|
|
(759,138
|
)
|
|
143,117
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
48,269
|
|
|
16,341
|
|
Interest
(expense)
|
|
|
(114,423
|
)
|
|
(50,016
|
)
|
Total
other income (expense)
|
|
|
(66,154
|
)
|
|
(33,675
|
)
|
Income
(Loss) before Income Taxes
|
|
|
(825,292
|
)
|
|
109,442
|
|
|
|
|
|
|
|
|
|
(Provision)
Benefit for income taxes
|
|
|
(2,940
|
)
|
|
(14,057
|
)
|
Net
Income (Loss)
|
|
|
(828,232
|
)
|
|
95,385
|
|
Comprehensive
Income (Loss):
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
36,642
|
|
|
20,190
|
|
Total
Comprehensive Income (Loss)
|
|
$
|
(791,590
|
)
|
$
|
115,575
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Per Common Share:
|
|
|
|
|
|
|
|
Income
(Loss) per common share - Basic and Diluted
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares Outstanding During the Periods-
Basic and
Diluted
|
|
|
61,350,201
|
|
|
38,753,607
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD.
|
STATEMENTS
OF STOCKHOLDERS' (DEFICIT) (NOTE 2)
|
FOR
THE PERIODS ENDED DECEMBER 31, 2006, AND
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less - Loan
Receivable -
|
|
Accumulated
|
|
|
|
|
|
|
|
Preferred
|
|
Additional
|
|
Common
|
|
Additional
|
|
Director
|
|
Other
|
|
|
|
|
|
|
|
Stock
|
|
Paid-in
|
|
Stock
|
|
Paid-in
|
|
and
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Description
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stockholder
|
|
Income (Loss)
|
|
(Deficit)
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2004
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
26,880,484
|
|
$
|
2,688
|
|
$
|
(711,856
|
)
|
$
|
-
|
|
$
|
(16,421
|
)
|
$
|
(581,915
|
)
|
$
|
(1,307,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options to reduce debt and liabilities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
109,290
|
|
|
11
|
|
|
47,989
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to reduce debt and liabilities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
602,806
|
|
|
60
|
|
|
152,526
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
152,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of common stock for cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,057,415
|
|
|
206
|
|
|
474,794
|
|
|
(475,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for liabilities and services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
350,000
|
|
|
35
|
|
|
39,965
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debenture into common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,114,470
|
|
|
1,011
|
|
|
248,989
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debenture into common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,035,715
|
|
|
2,104
|
|
|
630,396
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
632,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for accrued interest on convertible
debenture
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
200,000
|
|
|
20
|
|
|
24,980
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,190
|
|
|
-
|
|
|
20,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
95,385
|
|
|
95,385
|
|
Balance
- December 31, 2005
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
61,350,180
|
|
$
|
6,135
|
|
$
|
907,783
|
|
$
|
(475,000
|
)
|
$
|
3,769
|
|
$
|
(486,530
|
)
|
$
|
(43,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction
of commons tock for fractional shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A preferred stock for services rendered
|
|
|
1,000
|
|
|
-
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
36,642
|
|
|
-
|
|
|
36,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(828,232
|
)
|
|
(828,232
|
)
|
Balance
- December 31, 2006
|
|
|
1,000
|
|
$
|
-
|
|
$
|
150,000
|
|
|
61,350,201
|
|
$
|
6,135
|
|
$
|
907,783
|
|
$
|
(475,000
|
)
|
$
|
40,411
|
|
$
|
(1,314,762
|
)
|
$
|
(685,433
|
)
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD.
|
STATEMENTS
OF CASH FLOWS (NOTE 2)
|
FOR
THE YEARS ENDED DECEMBER 31, 2006, AND
2005
|
|
|
2006
|
|
2005
|
|
Operating
Activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(828,232
|
)
|
$
|
95,385
|
|
Adjustments
to reconcile net income (loss) to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
78,567
|
|
|
45,441
|
|
Amortization
of debt issuance costs
|
|
|
21,281
|
|
|
-
|
|
Series
A preferred stock issued for officer's compensation
|
|
|
150,000
|
|
|
-
|
|
Reserve
for (recovery of ) loss on contract
|
|
|
(10,956
|
)
|
|
50,097
|
|
Changes
in net assets and liabilities-
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
64,651
|
|
|
(31,799
|
)
|
Inventories
|
|
|
(234,465
|
)
|
|
(276,113
|
)
|
Cost
of uncompleted contracts in excess of billings
|
|
|
28,612
|
|
|
(189,983
|
)
|
Prepaid
expenses and deposits
|
|
|
6,507
|
|
|
22,785
|
|
Deposits
|
|
|
(805
|
)
|
|
-
|
|
Accounts
payable - trade and accrued liabilities
|
|
|
124,128
|
|
|
(90,433
|
)
|
Billings
on uncompleted contracts in excess of related costs
|
|
|
133,431
|
|
|
1,003
|
|
Deferred
revenue
|
|
|
310,781
|
|
|
146,276
|
|
Income
taxes payable and other
|
|
|
(20,147
|
)
|
|
(6,334
|
)
|
Net
Cash (Used in) Operating Activities
|
|
|
(176,647
|
)
|
|
(233,675
|
)
|
Investing
Activities:
|
|
|
|
|
|
|
|
Purchases
of and adjustments to property and equipment
|
|
|
(89,114
|
)
|
|
8,195
|
|
Proceeds
from sale of property and equipment
|
|
|
-
|
|
|
5,120
|
|
Net
Cash (Used in) Provided by Investing Activities
|
|
|
(89,114
|
)
|
|
13,315
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(324,225
|
)
|
|
(58,680
|
)
|
Proceeds
from (offset to) bank overdrafts
|
|
|
54,549
|
|
|
(523,818
|
)
|
Proceeds
from issuance of convertible debentures
|
|
|
-
|
|
|
617,500
|
|
Payment
on convertible debenture and related interest
|
|
|
(46,750
|
)
|
|
-
|
|
Proceeds
from issuance of convertible notes
|
|
|
3,000,000
|
|
|
-
|
|
Debt
issuance costs - Convertible notes
|
|
|
(340,500
|
)
|
|
-
|
|
Loan
receivable - Director and stockholder
|
|
|
-
|
|
|
(475,000
|
)
|
Interest
on loan receivable - Director and stockholder
|
|
|
(18,962
|
)
|
|
(8,484
|
)
|
Proceeds
from loan from related party - Investor group
|
|
|
161,202
|
|
|
-
|
|
Payments
on (advances to) Loan - Director and stockholder
|
|
|
-
|
|
|
155,525
|
|
Due
from related party - Director and stockholder
|
|
|
(490
|
)
|
|
82,421
|
|
Received
from (loans to) related party companies
|
|
|
22,666
|
|
|
410,706
|
|
Net
Cash Provided by Financing Activities
|
|
|
2,507,490
|
|
|
200,170
|
|
Effect
of Exchange Rate Changes on Cash
|
|
|
36,642
|
|
|
20,190
|
|
Net
Increase (Decrease) in Cash
|
|
|
2,278,371
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
- Beginning of Period
|
|
|
-
|
|
|
-
|
|
Cash
- End of Period
|
|
$
|
2,278,371
|
|
$
|
-
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD.
|
STATEMENTS
OF CASH FLOWS (NOTE 2)
|
FOR
THE YEARS ENDED DECEMBER 31, 2006, AND
2005
|
|
|
2006
|
|
2005
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
$
|
64,213
|
|
$
|
48,945
|
|
Income
taxes
|
|
$
|
20,147
|
|
$
|
20,391
|
|
Supplemental
Information of Noncash Investing and Financing Activities:
On
January 5, 2005, a former Director and officer of Inrob Tech exercised 91,075
stock options to purchase a like number of shares of common stock for $0.439
per
share, or $40,000. The value of the common stock was charged against notes
payables, accrued interest and accrued compensation due to the former Director
and officer. In addition, on February 21, 2005, the Board of Directors of Inrob
Tech accepted the exercise of stock options by two parties to acquire 18,215
shares of common stock for $0.439 per share, or $8,000. The value of the common
stock was charged against accrued compensation due to the same former Director
and officer.
In
July
2005, the Company issued 602,806 shares of its common stock in satisfaction
of
certain accounts payable, accrued liabilities, accrued compensation and related
taxes, and notes payable. The value of the obligations satisfied by issuance
of
common stock was $152,586.
On
July
21, 2005, Inrob Tech issued to a former Director and officer of the Company
350,000 shares of its common stock for prior services and the satisfaction
of
$40,000 of liabilities of the Company.
On
July
21, 2005, the Company entered into a Stock Purchase Agreement with Inrob Israel,
and issued 26,442,585 shares of its common (post reverse split) for all of
the
issued and outstanding capital stock of Inrob Israel (10,020 shares of common
stock). At the same time, the Company effected a 10.98 for 1 reverse stock
split
of its common stock. Immediately following the completion of the Stock Purchase
Agreement transaction, the Company had 29,999,995 shares of its common stock
outstanding. At that time, Mr. Ben-Tsur Joseph, the sole Director and officer
of
Inrob Israel, owned 28,500,000 shares of the Company's common stock, or 95
percent of the then issued and outstanding common stock of Inrob Tech, and
had
voting control. Through this process Inrob Israel is considered to have acquired
Inrob Tech by a reverse merger. The reverse merger has been recorded as a
recapitalization of the Company, with the net assets of Inrob Israel and Inrob
Tech brought forward at their historical bases. The costs associated with the
reverse merger have been expensed as incurred. On July 31, 2005, the Company
issued 10,114,470 shares of its common stock for the conversion of a convertible
debenture issued to a third-party entity by Inrob Israel. The value of the
common stock issued was $250,000.
On
September 15, 2005, the Company issued 21,035,715 shares of its common stock
for
the conversion of a convertible debenture issued to a third-party entity by
Inrob Israel. The value of the common stock issued was $632,500.
On
November 30, 2005, the Company issued 200,000 shares of its common stock in
connection with the satisfaction of accrued interest on the $250,000 convertible
debenture issued by Inrob Israel (see above). The value of the common stock
issued was $25,000.
On
November 9, 2006, the Company issued 1,000 shares of its Series A preferred
stock to the President, Chief Executive Officer, and Director of the Company
for
services rendered. The value of the preferred stock issued was
$150,000.
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(1)
Summary
of Significant Accounting Policies
Organization
and Basis of Presentation
Inrob
Tech Ltd. (“Inrob Tech” or the “Company”) is a Nevada corporation which provides
engineering products and services for the maintenance of critical and
sophisticated equipment, and the integration and production of advanced wireless
control solutions for unmanned ground vehicle (“UVR”) robots. The remote control
systems of the Company are the “brains” for many UVR solutions. The current
nature of Israel’s security situation coupled with the Company’s close work with
the Israeli Defense Forces (“IDF”) and the Israeli police, has helped the
Company gain extensive experience in a wide range of military and law
enforcement UVR applications and control solutions. The Company has also
targeted the civilian applications market, which includes solar powered
equipment, and dangerous tasks such as nuclear plant maintenance, inspection
and
decommissioning, the demolition industry, and firefighting and rescue services.
The accompanying financial statements of Inrob Tech were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, the accompanying financial statements reflect the
completion of a reverse merger between Inrob Tech and Inrob Ltd. (“Inrob
Israel”), which was effected on July 21, 2005.
Prior
to
the completion of the reverse merger, Inrob Tech was a near dormant corporation
with virtually no assets or operations (essentially since April 1, 2001, when
the Company sold its paging business, known as The Sports Page and Score Page
to
BeepMe, to a third party vendor and creditor). The Company was originally
incorporated in the State of Nevada under the name of Beeper Plus, Inc. On
July
15, 2003, the Company then changed its name to Western Gaming Corporation.
On
August 17, 2005, the Company again changed its name to Inrob Tech Ltd. to
reflect the reverse merger effected on July 21, 2005, and its new business
plan.
Inrob
Israel was organized as an Israeli corporation in 1988, under the name of Eligal
Laboratories Ltd., and its UVR solutions include: (i) remote control systems
(the “brains” of any robot); (ii) complete robot systems; and (iii) customized
solutions. Inrob Israel is certified to design, manufacture and maintain
electronic, optical and electro-mechanical equipment, and is a certified
supplier to the Israeli Defense Forces and the Israeli Air Force. It has also
been issued a certificate from the Israeli Air Force stating that its quality
system is approved to perform inspections of products and services supplied
to
the Israeli Air Force. Inrob Israel changed its name to Inrob Ltd. in September
2003.
In
addition, in January 2004, Inrob Israel completed two equity purchase
transactions with separate entities and raised $195,000 from the issuance of
30,000,000 shares of its common stock. Thereafter, Inrob Israel commenced a
registration activity of such shares of its common stock on behalf of the two
entities as selling shareholders on Form F-1 with the Securities and Exchange
Commission (“SEC”). The registration activity continued through December 31,
2004, and into the year 2005. In early 2005, Inrob Israel decided not to
complete the registration of the common stock of the selling shareholders with
the SEC, and withdrew its registration statement on July 28, 2005. As an
alternative transaction, effective July 21, 2005, Inrob Israel completed the
reverse merger with Inrob Tech, a publicly traded Nevada
corporation.
Given
that Inrob Israel is considered to have acquired Inrob Tech by a reverse merger
through a Stock Purchase Agreement, and its sole stockholder currently has
voting control of the Company, the accompanying financial statements and related
disclosures in the notes to financial statements present the financial position
as of December 31, 2006, and the operations for the two years in the period
ended December 31, 2006, of Inrob Israel under the name of Inrob Tech Ltd.
The
reverse merger has been recorded as a recapitalization of the Company, with
the
net assets of Inrob Israel and Inrob Tech brought forward at their historical
bases. The costs associated with the reverse merger have been expensed as
incurred.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
Cash
and Cash Equivalents
For
purposes of reporting within the statement of cash flows, the Company considers
all cash on hand, cash accounts not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity
of
three months or less to be cash and cash equivalents.
Restricted
Cash
The
Company maintains restricted cash as funds designated for specific purposes
or
for compliance with terms of contractual agreements. As of December 31, 2006,
$15,018 was pledged as collateral against certain bank loans, and offset against
bank overdrafts for financial reporting purposes.
Accounts
Receivable
Accounts
receivable consist of amounts due from customers, employees and related parties.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of December 31, 2006,
no
allowance for doubtful accounts was deemed necessary. While management uses
the
best information available upon which to base estimates, future adjustments
to
the allowance may be necessary if economic conditions differ substantially
from
the assumptions used for the purpose of analysis.
Revenue
Recognition
The
Company generates revenues from product sales and maintenance service
contracts.
Revenues
from product sales are recognized on a completed-contract basis, in accordance
with Staff Accounting Bulletin No. 104, “
Revenue
Recognition in Financial Statements
”
(“SAB
No. 104”) and Statement of Position 81-1, “
Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts.
”
Revenue
is recognized when delivery has occurred provided there is persuasive evidence
of an agreement, acceptance tests results have been approved by the customer,
the fee is fixed or determinable and collection of the related receivable is
probable. Customers are billed, according to individual agreements, upon
completion of the contract. All product costs are deferred and recognized on
completion of the contract and customer acceptance. A provision is made for
the
amount of any expected loss on a contract at the time it is known. As of
December 31, 2006, the Company had a reserve for estimated loss on a contract
in
the amount of $39,141.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
On-going
maintenance service contracts are negotiated separately at an additional fee.
The maintenance service is separate from the functionality of the products,
which can function without on-going maintenance. Revenues relating to
maintenance service contracts are recognized as the services are rendered
ratably over the period of the related contract.
The
Company is not required to perform significant post-delivery obligations, does
not provide warranties and does not allow product returns. As such, no provision
is made for costs of this nature.
The
Company does not sell products with multiple deliverables. It is management’s
opinion that EITF 00-21, “
Revenue
Arrangements With Multiple Deliverables
”
is
not
applicable.
Property
and Equipment
The
components of property and equipment are stated at cost. Property and equipment
costs are depreciated or amortized for financial reporting purposes over the
useful lives of the related assets by the straight-line method. Useful lives
utilized by the Company for calculating depreciation or amortization are as
follows:
Computer
and office equipment
|
|
5
to 10 years
|
Furniture
and fixtures
|
|
3
to 15 years
|
Vehicles
|
|
5
to 6 years
|
Leasehold
improvements
|
|
10
years
|
Upon
disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss
is
recognized.
Lease
Obligations
All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases. Assets recorded under capital leases
are
amortized according to the same methods employed for property and equipment
or
over the term of the related lease, if shorter.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable. For the
periods ended December 31, 2006, and 2005, no events or circumstances occurred
for which an evaluation of the recoverability of long-lived assets was
required.
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share is computed by dividing the net income (loss)
attributable to the common stockholders by the weighted average number of shares
of common stock outstanding during the period. Fully diluted earnings (loss)
per
share is computed similar to basic earnings (loss) per share except that the
denominator is increased to include the number of additional common shares
that
would have been outstanding if the potential common shares had been issued
and
if the additional common shares were dilutive.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
Common
Stock Registration Expenses
The
Company considers incremental costs and expenses related to the registration
of
equity securities with the SEC, whether by contractual arrangement as of a
certain date or by demand, to be unrelated to original issuance transactions.
As
such, subsequent registration costs and expenses are reflected in the
accompanying financial statements as general and administrative expenses, and
are expensed as incurred.
Research
and Development Costs
The
Company conducts research and development activities for others under
contractual arrangements. Research and development costs incurred under
contractual arrangements are accounted for in accordance with Statement of
Financial Accounting Standards No. 68,
“Research
and Development Agreements”
(“SFAS
68”). All costs incurred under the contractual arrangements are deferred and
recognized as cost of sales (product sales) upon completion of the contract
work.
Deferred
Offering Costs
The
Company defers as other assets the direct incremental costs of raising capital
until such time as the offering is completed. At the time of the completion
of
the offering, the costs are charged against the capital raised. Should the
offering be terminated, deferred offering costs are charged to operations during
the period in which the offering is terminated.
Debt
Issuance Costs
The
Company defers as other assets the costs associated with the issuance of debt
instruments. Such costs are amortized as additional interest expense over the
life of the related debt. During the period ended December 31, 2006, the Company
recorded $340,500 of debt issuance costs related to convertible notes, and
amortized $21,281 of such costs as additional interest expense.
Advertising
and Promotion Costs
Advertising
and promotion costs are charged to operations when incurred. For the periods
ended December 31, 2006, and 2005, advertising and promotion costs amounted
to
$92,867 and $8,481, respectively.
Comprehensive
Income (Loss)
The
Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, “
Reporting
Comprehensive Income”
(“SFAS
130”). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported
in
the financial statements. For the periods ended December 31, 2006, and 2005,
the
only components of comprehensive income (loss) were the net income (loss) for
the periods, and the foreign currency translation adjustments.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
Income
Taxes
The
Company accounts for income taxes pursuant to SFAS No. 109, “
Accounting
for Income Taxes”
(“SFAS
109”). Under SFAS 109, deferred tax assets and liabilities are determined based
on temporary differences between the bases of certain assets and liabilities
for
income tax and financial reporting purposes. The deferred tax assets and
liabilities are classified according to the financial statement classification
of the assets and liabilities generating the differences.
The
Company maintains a valuation allowance with respect to deferred tax assets.
The
Company establishes a valuation allowance based upon the potential likelihood
of
realizing the deferred tax asset and taking into consideration the Company’s
financial position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of sufficient
taxable income within the carryforward period under the Federal tax
laws.
Changes
in circumstances, such as the Company generating taxable income, could cause
a
change in judgment about the realizability of the related deferred tax asset.
Any change in the valuation allowance will be included in income in the year
of
the change in estimate.
Foreign
Currency Translation
The
Company accounts for foreign currency translation pursuant to SFAS No. 52,
“
Foreign
Currency Translation”
(“SFAS
52”). The Company’s functional currency is the Israeli New Shekel. Under SFAS
52, all assets and liabilities are translated into United States dollars using
the current exchange rate at the end of each fiscal period. Revenues and
expenses are translated using the average exchange rates prevailing throughout
the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related
to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair
Value of Financial Instruments
The
Company estimates the fair value of financial instruments using the available
market information and valuation methods. Considerable judgment is required
in
estimating fair value. Accordingly, the estimates of fair value may not be
indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2006, the Company’s financial instruments
approximated fair value to do the nature and maturity of such
instruments.
Estimates
The
financial statements are prepared on the basis of accounting principles
generally accepted in the United States. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities as of December 31, 2006, and revenues and expenses for the periods
ended December 31, 2006, and 2005. Actual results could differ from those
estimates made by management.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(2)
Going
Concern
During
the year ended December 31, 2006, and subsequent thereto, Inrob Tech continued
its operations, business expansion, and capital formation activities through
the
issuance of convertible debt. On November 15, 2006, the Company completed
a subscription agreement with a group of accredited investors for the issuance
of Convertible Notes in the amount of $3,000,000. The maturity date of the
Convertible Notes is two years from the date of issuance - November 15, 2008.
Net proceeds to the Company amounted to $2,659,500, after deducting debt
issuance costs. On March 27, 2007, the Company effected a second subscription
agreement with a group of accredited investors for the issuance of Convertibles
Notes also in the amount of $3,000,000. The maturity date of the second issuance
of Convertible Notes is two years from the date of issuance - March 27, 2009.
The second transaction was completed under essentially the same terms and
conditions as the first issuance. In additional, under the terms of the
transactional documents, all rights and benefits to be granted to the investor
(including the security interest) are identical to and are intended to be shared
equally with the holders of the Convertible Notes and warrants issued by the
Company as of November 15, 2006. Proceeds from the second subscription agreement
amounted to approximately $2,594,738 after debt issuance costs.
While
management of the Company believes that the Company will be successful in
increasing its working capital from operations and the generation of additional
business revenues from new and existing clients, there can be no assurance
that
the Company will be able to generate the funds needed to meet its debt and
working capital obligations under its business plan, or be successful in the
sale of its products and services to generate sufficient revenues to allow
the
Company to achieve profitability, and to sustain its operations.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred operating losses, and had negative working capital as of December
31,
2006. These and other factors raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements
do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
(3)
Inventories
As
of
December 31, 2006, inventories consisted of the following:
|
|
2006
|
|
|
|
|
|
Work
in progress
|
|
$
|
668,388
|
|
Materials
|
|
|
43,384
|
|
Total
|
|
$
|
711,772
|
|
(4)
Loan
Receivable - Director and Stockholder
As
discussed in Note 9, in July 2005, Inrob Israel purchased, on behalf of Ben-Tsur
Joseph, President, sole Director and stockholder, 2,057,415 shares of common
stock of Inrob Tech in connection with the reverse merger. The amount of
consideration provided by Inrob Israel for the shares was $475,000. Thereafter,
Mr. Joseph entered into a Share Transfer and Loan Agreement with Inrob Israel
whereby the company transferred to Mr. Joseph 2,057,415 shares of the common
stock of Inrob Tech in exchange for a promissory note issued by Mr. Joseph
in
the amount of $475,000. The promissory note carries an interest rate of four
(4)
percent per annum, and is payable to Inrob Israel on demand. As of December
31,
2006, the balance owed on the loan plus accrued interest amounted to $502,447.
The Company has classified the amount of the promissory note due from Mr.
Joseph, or $475,000, as an offset to common stock equity, due to the nature
of
the transaction as a common stock subscription arrangement.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(5)
Loan
to and Interest Receivable from Related Parties
A
loan to
a related party entity bears interest at a variable rate equivalent to the
minimum rate allowed by the Israel Income Tax Ordinance (4% percent), is
unsecured and is due, including principal and interest, on December 31, 2008.
Interest receivable from Mr. Joseph associated with the loan transaction
described in Note 4 above amounted to $27,447 as of December 31, 2006. The
following summarizes the amounts receivable as of December 31,
2006:
|
|
2006
|
|
|
|
|
|
Ben-Tsur
Joseph Holdings Ltd.
|
|
$
|
234,402
|
|
Ben-Tsur
Joseph - Interest receivable
|
|
|
27,447
|
|
Totals
|
|
$
|
261,849
|
|
(6)
Bank
Indebtedness
The
Company has certain loans and bank arrangements to fund its operations in
Israel
which are described as follows:
|
|
2006
|
|
|
|
|
|
Bank
Loan #1:
|
|
|
|
|
|
|
|
Monthly
payments including interest
|
|
|
|
at
6.15-6.95% per annum, matures
|
|
|
|
February
27, 2008, secured
|
|
$
|
31,708
|
|
|
|
|
|
|
Bank
Loan #2:
|
|
|
|
|
|
|
|
|
|
Monthly
payments including interest
|
|
|
|
|
at
6.1% per annum, matures
|
|
|
|
|
February
10, 2008, secured.
|
|
|
7,170
|
|
|
|
|
|
|
Bank
Loan #3:
|
|
|
|
|
|
|
|
|
|
Monthly
payments including interest
|
|
|
|
|
at
5.88% per annum, matures
|
|
|
|
|
June
2, 2007, secured.
|
|
|
12,819
|
|
Totals
|
|
|
51,697
|
|
|
|
|
|
|
Less
- Current portion
|
|
|
(43,858
|
)
|
Total
Bank Loans
|
|
$
|
7,839
|
|
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
Principal
repayments of bank debt are as follows:
|
|
|
|
|
|
|
|
2007
|
|
$
|
43,858
|
|
2008
|
|
|
7,839
|
|
Totals
|
|
$
|
51,697
|
|
(7)
Convertible
Debentures
As
of
August 1, 2004, in connection with the conversion of the common stock equity
investments of two shareholder entities (see Note 9), and the assignment
of the
rights and interests of such entities to a third-party entity, Inrob Israel
issued a convertible debenture (the “Debenture”) in the amount of $250,000. The
Debenture carried an interest rate of ten (10) percent per annum, and was
due on
July 31, 2005, unless otherwise paid to the holder, or converted into shares
of
common stock. So long as Inrob Israel was not in default, the holder of the
Debenture was to receive shares of common stock at a discount of fifty-five
(55%) percent of the average closing bid price for the three days immediately
prior to the receipt of the notice of conversion from the holder divided
into
the face amount of the Debenture plus accrued interest. The Debenture also
provided that the maturity date may be extended to a date when Inrob Israel’s
common stock was publicly traded on a recognized stock exchange. As of July
31,
2005, Inrob Israel was in default under the terms of the Debenture, and could
not repay the amount due. The Debenture was then assumed by Inrob Tech and
converted into 10,114,285 shares of its publicly traded common stock. On
November 30, 2005, accrued interest of $25,000 related to the Debenture was
also
satisfied by the issuance of 200,000 publicly traded shares of common
stock.
On
July
21, 2005, Inrob Israel issued a convertible debenture (the “Second Debenture”)
in the amount of $575,000 to a third-party entity. The Second Debenture carried
an interest rate of ten (10) percent per annum, and payments of principal
and
interest were due and payable as follows: (i) on or about October 1, 2005,
$200,000; (ii) on or about December 1, 2005, $200,000; and, (iii) on or about
February 1, 2006, the remaining amount, including interest, of $232,500.
So long
as Inrob Israel was not in default, the holder of the Second Debenture was
to
receive shares of common stock at a discount of fifty-five (55%) percent
of the
average closing bid price for the three days immediately prior to the receipt
of
the notice of conversion from the holder divided into the face amount of
the
Second Debenture plus accrued interest. The amount of the Second Debenture
was
subsequently increased from $575,000 to $632,500. On September 13, 2005,
the
Second Debenture was in default for nonpayment. Thereafter, effective September
15, 2005, the Second Debenture obligation was assumed by Inrob Tech, and
satisfied by the issuance of 21,035,715 publicly traded shares of common
stock.
On
September 30, 2005, the Company issued a convertible debenture (the “Third
Debenture”) in the amount of $42,500 to the same third-party entity that was the
recipient of the Second Debenture. The Third Debenture carried an interest
rate
of ten (10) percent per annum, was due on November 30, 2005, and was convertible
into 2,000,000 publicly traded shares of the Company’s common stock. The due
date of the Third Debenture was extended to December 31, 2006, by written
agreement between the parties. In addition, effective September 30, 2006,
the
third-party entity executed a document wherein it indicated that it had waived
its right to convert the Third Debenture to common stock of the Company.
In
November, 2006, the Third Debenture, together with accrued interest, for
a total
amount of $46,750, was paid off.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(8)
Issuance
of Convertible Notes and Warrants
On
November 15, 2006, the Company effected a subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance - November 15, 2008.
Payments
amortizing the outstanding principal amount and related interest under the
Convertible Notes will commence on the third month anniversary date of the
date
of issuance (February 15, 2007) and on the same day of each month thereafter
until the principal amount and interest have been repaid in full. On each
repayment date, the Company is required to make payments to the investors in
the
amount of 4.76 percent of the initial principal amount and all interest accrued
on the Convertible Notes as of the repayment date. Upon an event of default,
the
interest rate will automatically be increased to 15 percent. At the Company’s
election, monthly repayments may be made (i) in cash in an amount equal to
115
percent of the principal amount component of the monthly payment, and 100
percent of all other components, or (ii) in shares of registered common stock
of
the Company at a conversion price equal to the lesser of (a) $0.25, or (b)
75
percent of the average of the closing bid price of the common stock of the
Company as reported by Bloomberg L.P. for the common stock’s principal market
for the five trading days preceding the date a notice of conversion given to
the
Company after the Company notifies the holder of the Convertible Notes of its
election to make a monthly repayment in shares of registered common
stock.
Provided
there is no default under the Convertible Notes, the Company may prepay the
outstanding principal amount of the Convertible Notes at a 20 percent premium,
together with accrued but unpaid interest thereon and any and all other sums
due.
The
investors have a right to convert the Convertible Notes into registered shares
of common stock of the Company at $0.25 per share. Upon an event of default,
the
conversion price shall be the lesser of $0.25 or 75 percent of the average
of
the closing bid prices of the common stock of the Company for the five trading
days prior to a conversion date. No conversions may take place if it would
cause
an investor to become the beneficial owner of more than 4.99 percent of the
outstanding shares of common stock of the Company, which limitation is subject
to waiver by an investor upon 61 days prior written notice to the
Company.
The
Company has granted a security interest in all of its assets, and the assets
of
Inrob Israel to secure its obligations under the Convertible Notes. Further,
in
connection with the Convertible Note transaction, the Company has determined
that there was no beneficial conversion feature recorded.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
The
Company also issued Class A warrants to purchase 6,000,000 shares of the
Company’s common stock at $0.40 per share and Class B warrants to purchase
6,000,000 shares of the Company’s common stock at $0.50 per share. All warrants
are exercisable for a period of five years following the effective date of
a
registration statement filed with the SEC, which the Company agreed to
complete.
The
Company filed a Registration Statement on Form SB-2 with the SEC on December
20,
2006, to register 18,405,000 shares of common stock related to the Convertible
Notes. The Registration Statement was declared effective by the SEC on January
11, 2007.
In
connection with the issuance of the Convertible Notes, the Company incurred
$340,500 in debt issuance costs, which included $300,000 paid in cash as a
finder’s fee. The Company is obligated to pay additional finder’s fees in the
amount of ten percent of the proceeds generated from the exercise of Class
A and
Class B warrants. In addition, the Company also issued 1,200,000 warrants to
the
finder (similar to and carrying the same rights as the Class A warrants issued
to the investors in the Convertible Notes) to purchase a like number of shares
of common stock of the Company for $0.25 per share. Such warrants are
exercisable for a period of five years following the effective date of the
Registration Statement filed by the Company with the SEC.
(9)
Capital
Stock Transactions
On
January 5, 2005, a former Director and officer of Inrob Tech exercised 91,075
stock options to purchase a like number of shares of common stock for $0.439
per
share, or $40,000. The value of the common stock was charged against notes
payable, accrued interest and accrued compensation due to the former Director
and officer. In addition, on February 21, 2005, the Board of Directors of Inrob
Tech accepted the exercise of stock options by two parties to acquire 18,215
shares of common stock for $0.439 per share, or $8,000. The value of the common
stock was charged against accrued compensation due to a former Director and
officer.
In
July
2005, the Company issued 602,806 shares of its common stock in satisfaction
of
certain accounts payable, accrued liabilities, accrued compensation and related
taxes, and notes payable. The value of the obligations satisfied by issuance
of
common stock was $152,586.
On
July
21, 2005, Inrob Israel purchased, on behalf of Ben-Tsur Joseph, President,
sole
Director and stockholder, 2,057,415 shares of common stock of the Company in
connection with the reverse merger. The amount of consideration provided by
Inrob Israel for the shares was $475,000. Thereafter, Mr. Joseph entered into
a
Share Transfer and Loan Agreement with Inrob Israel whereby the company
transferred to Mr. Joseph 2,057,415 shares of the common stock of Inrob Tech
in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The promissory note carries an interest rate of four (4) percent per annum,
and
is payable to Inrob Israel on demand. The Company has classified the amount
of
the promissory note due from Mr. Joseph, or $475,000, as an offset to common
stock equity, due to the nature of the transaction as a common stock
subscription arrangement.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
On
July
21, 2005, Inrob Tech issued to a former Director and officer of the Company
350,000 shares of its common stock for prior services and the satisfaction
of
$40,000 of liabilities of the Company.
On
July
21, 2005, the Company entered into a Stock Purchase Agreement with Inrob Israel,
and issued 26,442,585 shares of its common stock (post reverse split) for all
of
the issued and outstanding capital stock of Inrob Israel (10,020 shares of
common stock). At the same time, the Company effected a 10.98 for 1 reverse
stock split of its common stock. Immediately following the completion of the
Stock Purchase Agreement transaction, the Company had 29,999,995 shares of
its
common stock outstanding. At that time, Ben Tsur Joseph, the sole officer and
Director of Inrob Israel, owned 28,500,000 shares of the Company’s common stock,
or 95 percent of the then issued and outstanding common stock of Inrob Tech,
and
had voting control. Through this process Inrob Israel is considered to have
acquired Inrob Tech by a reverse merger. The reverse merger has been recorded
as
a recapitalization of the Company, with the net assets of Inrob Israel and
Inrob
Tech brought forward at their historical bases. The costs associated with the
reverse merger have been expensed as incurred.
Effective
January 1, 2004, Inrob Israel issued 30,000,000 shares of common stock (post
100
for 1 stock split) to two unrelated entities as equity investors for
consideration in the amount of $195,000. Thereafter, the Inrob Israel commenced
a registration activity of such shares of its common stock on behalf of the
two
entities as selling shareholders on a Form F-1 Registration Statement with
the
SEC. The proceeds from the issuance of common stock were used to pay legal
and
other professional fees and expenses associated with the Inrob Israel’s common
stock registration activities with the SEC. The registration activity continued
through December 31, 2004, and into the year 2005. In early 2005, management
decided not to complete the registration of the common stock of the selling
shareholders with the SEC, and withdrew its registration statement on July
28,
2005. As of August 1, 2004, Inrob Israel notified the two investors that it
was
converting their equity investment in common stock into the Debenture. The
two
shareholder entities immediately assigned their rights and interests in the
Debenture to a third-party entity. Inrob Israel canceled the 100 for 1 stock
split and the issuance of the 30,000,000 shares of its common
stock.
In
March
2005, Ben-Tsur Joseph, as President and a Director of Inrob Israel, entered
into
an agreement to purchase 5,010 shares of common stock, or fifty (50%) percent
of
the total outstanding common stock of that company, from Itshak Hamami, the
other Director of the Inrob Israel. Thereafter, Mr. Joseph owned 100 percent
of
the issued and outstanding shares of common stock of the Inrob Israel and became
the sole Director and officer of that company.
On
October 4, 2006, pursuant to authorization by the shareholders of the Company,
Inrob Tech filed Amended Articles of Incorporation with the Nevada Secretary
of
State to increase the number of authorized shares of its common stock from
80,000,000 shares authorized to 380,000,000 shares, and to change the par value
of its preferred and common stock from $0.001 per share to $0.0001 per share.
Subsequent to the filing, the Company was authorized to issue a total of
400,000,000 shares, consisting of 380,000,000 shares of common stock and
20,000,000 shares of preferred stock, all with a par value of $0.0001 per share.
In connection with the change in par value of preferred and common stock
described above, all prior transactions involving common stock with a par value
of $0.001 have restated to reflect the new par value of $0.0001 in the
accompanying financial statements.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
On
November 9, 2006, pursuant to written consent provided by the board of
directors, the Company established 1,000 shares of Series A Preferred Stock,
par
value $0.0001 with the Nevada Secretary of State. Each share of Series A
Preferred Stock carries voting rights equal to 400,000 shares of common stock
of
the Company. In addition, the board of directors authorized the issuance of
1,000 shares of Series A Preferred Stock to Mr. Ben-Tsur Joseph, President
and
Director of the Company for services rendered. The issuance of the Series A
Preferred Stock was valued at $150,000.
As
described in Note 8, in November 2006, the Company issued Class A warrants
to
purchase 6,000,000 shares of the Company’s common stock at $0.40 per share, and
Class B warrants to purchase 6,000,000 shares of the Company’s common stock at
$0.50 per share. In addition, 1,200,000 finder’s warrants were also issued to
purchase 1,200,000 shares of the Company’s common stock at $0.25 per share. All
warrants are exercisable for a period of five years following the effective
date
of a registration statement filed with the SEC, which the Company received
on
January 11, 2007.
(10)
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS No. 155,
“Accounting
for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133
and 140,
”
(“SFAS
No. 155”). This Statement permits fair value of re-measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation; clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133,
“Accounting
for Derivative Instruments and Hedging Activities,”
establishes a requirement to evaluate interests in securitized financial assets
to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation;
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives; and amended SFAS No. 140,
“Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, - A Replacement of FASB Statement 125,”
to
eliminate the prohibition on a qualifying special-purpose entity from holding
a
derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. SFAS No. 155 is effective for
all
financial instruments acquired, issued, or subject to a re-measurement (new
basis) event occurring after the beginning of an entity’s first fiscal year that
begins after September 15, 2006. The management of the Company does not believe
that this new pronouncement will have a material impact on its financial
statements.
In
March
2006, the FASB issued SFAS No. 156,
“Accounting
for Servicing of Financial Assets,”
(“SFAS
No. 156”), which amends SFAS No. 140,
“Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
”
In
a
significant change to current guidance, SFAS No. 156 permits an entity to choose
either of the following subsequent measurement methods for each class of
separately recognized servicing assets and servicing liabilities: (1)
Amortization Method or (2) Fair Value Measurement Method. SFAS No. 156 is
effective as of the beginning of an entity’s first fiscal year that begins after
September 15, 2006. The management of the Company does not believe that this
new
pronouncement will have a material impact on its financial
statements.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
In
June
2006, the FASB issued SFAS Board Interpretation No. 48, “
Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB statement No.
109
”
(“FIN
48”), which clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with FASB No. 109. The
interpretation prescribes a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. This interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Earlier application of the provisions of
FIN
48 is encouraged if the enterprise has not yet issued financial statements,
including interim financial statements, in the period this Interpretation is
adopted. The management of the Company does not believe that this new
pronouncement will have a material impact on its financial
statements.
In
September 2006, the FASB issued SFAS No. 157, “
Fair
Value Measurements
.” This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement applies under other accounting pronouncements
that require or permit fair value measurement, the FASB having previously
concluded in those accounting pronouncement that fair value is the relevant
measurement attribute. This statement does not require any new fair value
measurements. However, for some entities, the application of the statement
will
change current practice. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The management of the Company does not believe that
this new pronouncement will have a material impact on its financial
statements.
In
September 2006, the FASB issued SFAS No. 158, “
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106 and 132(R)
.” This
statement improves financial reporting by requiring an employer to recognize
the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multi-employer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year
in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets for a not-for-profit organization. This
statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. The management of the Company
does
not believe that this new pronouncement will have a material impact on its
financial statements.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
In
February 2007, the FASB issued SFAS No. 159, "
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
An
Amendment of FASB Statement No. 115
," which
permits entities to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value.
An
entity would report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. The decision about whether to elect the fair value option
is applied instrument by instrument, with a few exceptions; the decision is
irrevocable; and it is applied only to entire instruments and not to portions
of
instruments. SFAS No. 159 requires disclosures that facilitate comparisons
(a)
between entities that choose different measurement attributes for similar assets
and liabilities and (b) between assets and liabilities in the financial
statements of an entity that selects different measurement attributes for
similar assets and liabilities. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year provided the entity
also elects to apply the provisions of SFAS No. 157. Upon implementation, an
entity shall report the effect of the first re-measurement to fair value as
a
cumulative-effect adjustment to the opening balance of retained earnings. Since
the provisions of SFAS No. 159 are applied prospectively, any potential impact
will depend on the instruments selected for fair value measurement at the time
of implementation. The management of the Company is currently evaluating the
impact, if any, that the adoption of SFAS No. 159 will have on its financial
statements.
(11)
Related
Party Transactions
Inrob
Israel entered into a management agreement with a Director and officer on
October 1, 2003, which was subsequently extended as to its commencement date
to
May 1, 2005. Other terms and conditions related to equipment usage commenced
with the original date of the agreement. Under the terms of the agreement,
the
Company is obligated to pay $15,000 per month during the first year and $20,000
per month thereafter for management fees. For the periods ended December 31,
2006, and 2005, the Company accrued $220,000 and $120,000, respectively under
the management agreement. The Director and officer agreed to offset
approximately $205,000 owed to the Company by a related party entity of the
Director and officer against the management fee liability which reduced the
total amount owed as of December 31, 2006, to approximately $135,000. The
management agreement does not have a specific completion date, but may be
terminated by either party on written notice of three months.
As
described in Note 9 above, in July 2005, Inrob Israel purchased, on behalf
of
Ben-Tsur Joseph, its President, Director and sole stockholder, 2,057,415 shares
of common stock of Inrob Tech in connection with the reverse merger. The amount
of consideration provided by Inrob Israel for the shares was $475,000.
Thereafter, Mr. Joseph entered into a Share Transfer and Loan Agreement with
Inrob Israel whereby the company transferred to Mr. Joseph 2,057,415 shares
of
the common stock of Inrob Tech in exchange for a promissory note issued by
Mr.
Joseph in the amount of $475,000. The promissory note carries an interest rate
of four (4) percent per annum, and is payable to Inrob Israel on demand. The
Company has classified the amount of the promissory note due from Mr. Joseph,
or
$475,000, as an offset to common stock equity, due to the nature of the
transaction as a common stock subscription arrangement.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
As
of
December 31, 2006, Mr. Ben-Tsur Joseph, President and Director of the Company,
had loaned a total of $61,435 to the Company for working capital purposes.
The
loan is unsecured, non-interest bearing, and has no terms for
repayment.
(12)
Commitments
and Contingencies
For
the
year ended December 31, 2005, the Company was a party to a lease agreement
in
Israel for its premises which expired in January, 2006. In 2006, the Company
entered into a new one-year lease agreement, with an option to extend the
agreement for an additional year. The Company paid approximately $23,000 in
operating lease payments for its premises through June 2006. Thereafter,
effective July 1, 2006, the Company entered into a new lease agreement for
its
premises. The Company leased approximately 3,767 square feet of office and
production space for a period of three years. For the six months ended December
31, 2006, the Company paid approximately $6,300 in operating lease payments
for
its premises. Minimum lease payments for the years 2007, 2008, and 2009 under
the lease agreement will be $12,600, $12,600 and $6,300, respectively. After
the
initial term, the Company has two option periods to extend the lease through
2013.
The
Company leases on a month-to-month basis approximately 1,885 square feet of
warehouse space at the same facility that it occupies for production and office
space. The monthly rental amount for the warehouse space is $913 per
month.
The
Company leases four autos under an operating lease agreement which expires
in
December 2008. Minimum annual payments under the operating lease amount to
$23,424 per year.
The
Company also entered into two sublease agreements for its leased premises in
Israel which expired on December 31, 2005, under which it received approximately
$31,350 for the year. Subsequent to December 31, 2005, the sublease agreements
continued on a month-to-month basis until April, 2006, and June, 2006,
respectively, when the parties to the sublease agreements moved from the leased
premises of the Company. For the year ended December 31, 2006, the Company
received approximately $10,716 of sublease income from the two
parties.
In
December 2005, the Company entered into an agreement for securing capital
financing, and services related to stockholder relations and introductory
services to market makers with an unrelated entity. The terms of the agreement
required a payment of $50,000 at the commencement of the services which began
in
January 2006, and $10,000 per month thereafter for a period six months. For
the
nine months ended December 31, 2006, the Company paid $110,000 for services
related to the agreement. Funding for the agreement was provided by an advance
from a related party investor group.
In
February 2006, the Company entered into an agreement with MoneyTV for certain
media services related to the promotion of the Company on an international
level. The agreement required the payment of a fee of $11,500 for such services.
Funding for the agreement was provided by an advance from a related party
investor group.
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(13)
Income
Taxes
The
provision (benefit) for income tax for the periods ended December 31, 2006,
and
2005, were as follows (assuming a 34% effective tax rate):
|
|
2006
|
|
2005
|
|
Current
Tax Provision:
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
Taxable
income
|
|
$
|
2,940
|
|
$
|
14,057
|
|
Total
current tax provision
|
|
$
|
2,940
|
|
$
|
14,057
|
|
Deferred
Tax Provision:
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
Loss
carryforwards
|
|
|
281,600
|
|
|
32,400
|
|
Change
in valuation allowance
|
|
|
(281,600
|
)
|
|
(32,400
|
)
|
Total
deferred tax provision
|
|
$
|
-
|
|
$
|
-
|
|
The
Company had deferred income tax assets as of December 31, 2006, and 2005, as
follows:
|
|
2006
|
|
2005
|
|
Loss
carryforwards
|
|
$
|
447,000
|
|
$
|
165,400
|
|
Less
- Valuation allowance
|
|
|
(447,000
|
)
|
|
(165,400
|
)
|
Total
net deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
The
Company provided a valuation allowance equal to the deferred income tax assets
for the periods ended December 31, 2006, and 2005, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.
As
of
December 31, 2006, the Company had approximately $1,314,700 in tax loss
carryforwards that can be utilized in future periods to reduce taxable
income.
(14)
Significant
Customers
For
the
years ended December 31, 2006, and 2005, the Company had certain customers
that
accounted for more that ten (10) percent of total revenues, as follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Customer
A
|
|
$
|
643,612
|
|
$
|
610,579
|
|
Customer
B
|
|
|
-
|
|
|
168,681
|
|
INROB
TECH LTD.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2006, AND 2005
(15)
Subsequent
Events
On
March
27, 2007, the Company effected a second subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance - March 27, 2009. The transaction
was completed under essentially the same terms and conditions as the first
issuance described in Note 8 above. In additional, under the terms of the
transactional documents, all rights and benefits to be granted to the investor
(including the security interest) are identical to and are intended to be shared
equally with the holders of the Convertible Notes and warrants issued by the
Company as of November 15, 2006. Proceeds from the second subscription agreement
amounted to approximately $2,594,738 after debt issuance costs.
In
March
2007, the Company organized a wholly owned subsidiary under the name Inrob
Philippines, Incorporated for the purpose of establishing and operating a
manufacturing facility for its products and services in Manila, Philippine
Islands.
CONSOLIDATED
BALANCE SHEET (NOTE 2)
AS
OF JUNE 30, 2007
(Unaudited)
|
|
2007
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,345,237
|
|
Accounts
Receivable-
|
|
|
|
|
Trade
|
|
|
311,510
|
|
Employees
and other
|
|
|
34,139
|
|
Less
- Allowance for doubtful accounts
|
|
|
-
|
|
Inventories
|
|
|
308,449
|
|
Cost
of uncompleted contracts in excess of billings
|
|
|
7,865
|
|
Prepaid
expenses
|
|
|
13,855
|
|
Total
current assets
|
|
|
5,021,055
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
and computer equipment
|
|
|
87,323
|
|
Furniture
and fixtures
|
|
|
59,787
|
|
Vehicles
|
|
|
395,470
|
|
Leasehold
improvements
|
|
|
39,621
|
|
|
|
|
582,201
|
|
Less
- Accumulated depreciation and amortization
|
|
|
(302,468
|
)
|
Net
property and equipment
|
|
|
279,733
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Deposits
and other
|
|
|
2,358
|
|
Debt
issuance costs, net
|
|
|
542,515
|
|
Loans
to and interest receivable from related parties
|
|
|
274,587
|
|
Total
other assets
|
|
|
819,460
|
|
Total
Assets
|
|
$
|
6,120,248
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Bank
overdrafts
|
|
$
|
100,693
|
|
Bank
loans and other debt, current portion
|
|
|
36,170
|
|
Current
portion of convertible notes
|
|
|
3,150,600
|
|
Accounts
payable - Trade
|
|
|
199,081
|
|
Due
to related party - Director and stockholder
|
|
|
266
|
|
Due
to related party company
|
|
|
36,428
|
|
Billings
on uncompleted contracts in excess of costs
|
|
|
247,679
|
|
Due
to related party - Investor group
|
|
|
172,126
|
|
Accrued
liabilities
|
|
|
256,517
|
|
Deferred
revenue
|
|
|
412,419
|
|
Total
current liabilities
|
|
|
4,611,979
|
|
|
|
|
|
|
Long-term
Debt, less current portion:
|
|
|
|
|
Bank
loans and other debt
|
|
|
61,739
|
|
Convertible
notes
|
|
|
1,912,920
|
|
Total
long-term debt
|
|
|
1,974,659
|
|
Total
liabilities
|
|
|
6,586,638
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders'
(Deficit):
|
|
|
|
|
Preferred
stock, par value $.0001 per share; 20,000,000 shares authorized;
1,000
Series A shares issued and outstanding
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
150,000
|
|
Capital
stock, par value $.0001 per share; 380,000,000 shares authorized;
66,840,309 shares issued and outstanding
|
|
|
6,684
|
|
Additional
paid-in capital
|
|
|
1,961,395
|
|
Less
- Loan receivable - Director and stockholder
|
|
|
(475,000
|
)
|
Accumulated
other comprehensive income
|
|
|
43,769
|
|
Accumulated
(deficit)
|
|
|
(2,153,238
|
)
|
Total
stockholders' (deficit)
|
|
|
(466,390
|
)
|
Total
Liabilities and Stockholders' (Deficit)
|
|
$
|
6,120,248
|
|
The
accompanying notes to financial statements
are
an
integral part of this balance sheet.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE
INCOME (LOSS) (NOTE 2) FOR THE
SIX
MONTHS ENDED JUNE 30, 2007, AND 2006
(Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
418,117
|
|
$
|
409,482
|
|
$
|
757,080
|
|
$
|
860,316
|
|
Product
sales
|
|
|
119,730
|
|
|
69,135
|
|
|
224,067
|
|
|
184,525
|
|
Total
revenues
|
|
|
537,847
|
|
|
478,617
|
|
|
981,147
|
|
|
1,044,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
303,909
|
|
|
248,815
|
|
|
852,584
|
|
|
523,423
|
|
Product
sales
|
|
|
36,913
|
|
|
23,724
|
|
|
71,692
|
|
|
75,817
|
|
Total
cost of goods sold
|
|
|
340,822
|
|
|
272,539
|
|
|
924,276
|
|
|
599,240
|
|
Gross
Profit
|
|
|
197,025
|
|
|
206,078
|
|
|
56,871
|
|
|
445,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
269,093
|
|
|
138,135
|
|
|
668,441
|
|
|
327,142
|
|
Total
general and administrative expenses
|
|
|
269,093
|
|
|
138,135
|
|
|
668,441
|
|
|
327,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
|
|
(72,068
|
)
|
|
67,943
|
|
|
(611,570
|
)
|
|
118,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
63,541
|
|
|
23,046
|
|
|
89,174
|
|
|
37,650
|
|
Interest
(expense)
|
|
|
(189,539
|
)
|
|
(11,025
|
)
|
|
(316,080
|
)
|
|
(21,540
|
)
|
Total
other income (expense)
|
|
|
(125,998
|
)
|
|
12,021
|
|
|
(226,906
|
)
|
|
16,110
|
|
Income
(Loss) before Income Taxes
|
|
|
(198,066
|
)
|
|
79,964
|
|
|
(838,476
|
)
|
|
134,569
|
|
(Provision)
Benefit for income taxes
|
|
|
-
|
|
|
(10,419
|
)
|
|
-
|
|
|
(18,145
|
)
|
Net
Income (Loss)
|
|
|
(198,066
|
)
|
|
69,545
|
|
|
(838,476
|
)
|
|
116,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
(90,435
|
)
|
|
34,975
|
|
|
4,937
|
|
|
14,461
|
|
Total
Comprehensive Income (Loss)
|
|
$
|
(288,501
|
)
|
$
|
104,520
|
|
$
|
(833,539
|
)
|
$
|
130,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) per common share - Basic and Diluted
|
|
$
|
(0.00
|
)
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares
Outstanding
During the Periods- Basic and Diluted
|
|
|
65,541,665
|
|
|
61,350,180
|
|
|
64,061,947
|
|
|
61,350,180
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE SIX MONTHS ENDED JUNE 30, 2007, AND 2006
(Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
2006
|
|
Operating
Activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(838,476
|
)
|
$
|
116,424
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
29,259
|
|
|
32,194
|
|
Amortization
of debt issuance costs
|
|
|
131,966
|
|
|
-
|
|
(Recovery
of) loss on contract
|
|
|
(39,141
|
)
|
|
(13,370
|
)
|
Gain
on sale of vehicle
|
|
|
(1,221
|
)
|
|
-
|
|
Changes
in net assets and liabilities-
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(88,768
|
)
|
|
(64,395
|
)
|
Inventories
|
|
|
403,323
|
|
|
(83,200
|
)
|
Cost
of uncompleted contracts in excess of billings
|
|
|
153,506
|
|
|
(28,535
|
)
|
Prepaid
expenses
|
|
|
(5,258
|
)
|
|
193
|
|
Deposits
|
|
|
430
|
|
|
-
|
|
Accounts
payable - trade and accrued liabilities
|
|
|
1,368
|
|
|
141,317
|
|
Billings
on uncompleted contracts in excess of related costs
|
|
|
113,245
|
|
|
15,679
|
|
Deferred
revenue
|
|
|
(322,858
|
)
|
|
(107,773
|
)
|
Income
taxes payable and other
|
|
|
-
|
|
|
14,249
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
(462,625
|
)
|
|
22,783
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of vehicle
|
|
|
10,049
|
|
|
-
|
|
Purchases
of and adjustments to property and equipment
|
|
|
(72,163
|
)
|
|
(43,642
|
)
|
Net
Cash (Used in) Provided by Investing Activities
|
|
|
(62,114
|
)
|
|
(43,642
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
95,076
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(48,864
|
)
|
|
(60,743
|
)
|
Proceeds
from (offset to) bank overdrafts
|
|
|
5,783
|
|
|
31,148
|
|
Proceeds
from issuance of convertible notes
|
|
|
3,000,000
|
|
|
-
|
|
Debt
issuance costs - Convertible notes
|
|
|
(355,262
|
)
|
|
-
|
|
Loan
receivable - Director and stockholder
|
|
|
(9,512
|
)
|
|
(9,420
|
)
|
Proceeds
from loan from related party - Investor group
|
|
|
10,924
|
|
|
146,250
|
|
Payments
on (advances to) Loan - Director and stockholder
|
|
|
(61,169
|
)
|
|
(35,250
|
)
|
Due
from related party - Director and stockholder
|
|
|
-
|
|
|
25,801
|
|
Received
from (loans to) related party companies
|
|
|
(48,729
|
)
|
|
(91,388
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
2,588,247
|
|
|
6,398
|
|
Effect
of Exchange Rate Changes on Cash
|
|
|
3,358
|
|
|
14,461
|
|
Net
Increase (Decrease) in Cash
|
|
|
2,066,866
|
|
|
-
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
|
2,278,371
|
|
|
-
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
|
4,345,237
|
|
$
|
-
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE SIX MONTHS ENDED JUNE 30, 2007, AND 2006
(Unaudited)
Supplemental
Disclosures of Cash Flow Information:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
2006
|
|
Cash
paid during the period for:
|
|
|
|
|
|
Interest
|
|
$
|
19,705
|
|
$
|
19,422
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
3,896
|
|
Supplemental
Information of Noncash Investing and Financing Activities:
During
the three month period ended March 31, 2007, the Company issued 2,446,690 shares
of its common stock as payment of $538,100 of principal and $76,056 of accrued
interest on certain convertible notes.
During
the three month period ended June 30, 2007, the Company issued 3,043,418 shares
of its common stock as payment of $398,380 of principal and $49,461 of accrued
interest on certain convertible notes.
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
(1)
Summary
of Significant Accounting Policies
Organization
and Basis of Presentation
Inrob
Tech Ltd. (“Inrob Tech” or the “Company”) is a Nevada corporation which provides
engineering products and services for the maintenance of critical and
sophisticated equipment, and the integration and production of advanced wireless
control solutions for unmanned ground vehicle (“UVR”) robots. The remote control
systems of the Company are the “brains” for many UVR solutions. The current
nature of Israel’s security situation coupled with the Company’s close work with
the Israeli Defense Forces (“IDF”) and the Israeli police, has helped the
Company gain extensive experience in a wide range of military and law
enforcement UVR applications and control solutions. The Company has also
targeted the civilian applications market, which includes solar powered
equipment, and dangerous tasks such as nuclear plant maintenance, inspection
and
decommissioning, the demolition industry, and firefighting and rescue services.
The accompanying consolidated financial statements of Inrob Tech were prepared
from the accounts of the Company and its wholly owned subsidiary under the
accrual basis of accounting in United States dollars. In addition, the
accompanying consolidated financial statements reflect the completion of a
reverse merger between Inrob Tech and Inrob Ltd. (“Inrob Israel”), which was
effected on July 21, 2005.
Prior
to
the completion of the reverse merger, Inrob Tech was a near dormant corporation
with virtually no assets or operations (essentially since April 1, 2001, when
the Company sold its paging business, known as The Sports Page and Score Page
to
BeepMe, to a third party vendor and creditor). The Company was originally
incorporated in the State of Nevada under the name of Beeper Plus, Inc. On
July
15, 2003, the Company then changed its name to Western Gaming Corporation.
On
August 17, 2005, the Company again changed its name to Inrob Tech Ltd. to
reflect the reverse merger effected on July 21, 2005, and its new business
plan.
Inrob
Israel was organized as an Israeli corporation in 1988, under the name of Eligal
Laboratories Ltd., and its UVR solutions include: (i) remote control systems
(the “brains” of any robot); (ii) complete robot systems; and (iii) customized
solutions. Inrob Israel is certified to design, manufacture and maintain
electronic, optical and electro-mechanical equipment, and is a certified
supplier to the Israeli Defense Forces and the Israeli Air Force. It has also
been issued a certificate from the Israeli Air Force stating that its quality
system is approved to perform inspections of products and services supplied
to
the Israeli Air Force. Inrob Israel changed its name to Inrob Ltd. in September
2003.
Effective
July 21, 2005, Inrob Israel completed the reverse merger with Inrob Tech, a
publicly traded Nevada corporation. Given that Inrob Israel is considered to
have acquired Inrob Tech by a reverse merger through a Stock Purchase Agreement,
and its sole stockholder currently has voting control of the Company, the
accompanying consolidated financial statements and related disclosures in the
notes to consolidated financial statements present the financial position as
of
June 30, 2007, and the operations for the three months and six months ended
June
30, 2007, and 2006, of Inrob Israel under the name of Inrob Tech Ltd. The
reverse merger has been recorded as a recapitalization of the Company, with
the
net assets of Inrob Israel and Inrob Tech brought forward at their historical
bases. The costs associated with the reverse merger have been expensed as
incurred.
The
consolidated financial statements as of June 30, 2007, include the accounts
of
Inrob Tech Ltd., Inrob Israel through a reverse merger transaction, and a wholly
owned subsidiary, Inrob Philippines, Incorporated. Intercompany transactions
and
balances have been eliminated in consolidation.
Unaudited
Interim Financial Statements
The
interim consolidated financial statements as of June 30, 2007, and for the
periods ended June 30, 2007, and 2006, are unaudited. However, in the opinion
of
management, the interim consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company’s consolidated financial position as of June 30,
2007, and the consolidated results of its operations and its cash flows for
the
periods ended June 30, 2007, and 2006. These results are not necessarily
indicative of the results expected for the calendar year ending December 31,
2007. The accompanying consolidated financial statements and notes thereto
do
not reflect all disclosures required under accounting principles generally
accepted in the United States. Refer to Inrob Tech Ltd.’s audited financial
statements contained in its Annual Report on Form 10-KSB as of December 31,
2006, for additional information, including significant accounting
policies.
Cash
and Cash Equivalents
For
purposes of reporting within the statement of cash flows, the Company considers
all cash on hand, cash accounts not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity
of
three months or less to be cash and cash equivalents.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
Accounts
Receivable
Accounts
receivable consist of amounts due from customers, employees and related parties.
The Company establishes an allowance for doubtful accounts in amounts sufficient
to absorb potential losses on accounts receivable. As of June 30, 2007, no
allowance for doubtful accounts was deemed necessary. While management uses
the
best information available upon which to base estimates, future adjustments
to
the allowance may be necessary if economic conditions differ substantially
from
the assumptions used for the purpose of analysis.
Revenue
Recognition
The
Company generates revenues from product sales and maintenance service
contracts.
Revenues
from product sales are recognized on a completed-contract basis, in accordance
with Staff Accounting Bulletin No. 104, “
Revenue
Recognition in Financial Statements
”
(“SAB
No. 104”) and Statement of Position 81-1, “
Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts.
”
Revenue
is recognized when delivery has occurred provided there is persuasive evidence
of an agreement, acceptance tests results have been approved by the customer,
the fee is fixed or determinable and collection of the related receivable is
probable. Customers are billed on an interim basis under the terms of individual
agreements, and revenue is recognized upon completion of the contracts. All
product costs are deferred and recognized on completion of the contract and
customer acceptance. A provision is made for the amount of any expected loss
on
a contract at the time it is known.
On-going
maintenance service contracts are negotiated separately at an additional fee.
The maintenance service is separate from the functionality of the products,
which can function without on-going maintenance. Revenues relating to
maintenance service contracts are recognized as the services are rendered
ratably over the period of the related contract.
The
Company is not required to perform significant post-delivery obligations, does
not provide warranties and does not allow product returns. As such, no provision
is made for costs of this nature.
The
Company does not sell products with multiple deliverables. It is management’s
opinion that EITF 00-21, “
Revenue
Arrangements With Multiple Deliverables
”
is
not
applicable.
Property
and Equipment
The
components of property and equipment are stated at cost. Property and equipment
costs are depreciated or amortized for financial reporting purposes over the
useful lives of the related assets by the straight-line method. Useful lives
utilized by the Company for calculating depreciation or amortization are as
follows:
Computer
and office equipment
|
5
to 10 years
|
Furniture
and fixtures
|
3
to 15 years
|
|
5
to 6 years
|
Leasehold
improvements
|
10
years
|
Upon
disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss
is
recognized.
Lease
Obligations
All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases. Assets recorded under capital leases
are
amortized according to the same methods employed for property and equipment
or
over the term of the related lease, if shorter.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable. For the
periods ended June 30, 2007, and 2006, no events or circumstances occurred
for
which an evaluation of the recoverability of long-lived assets was
required.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
Earnings
(Loss) Per Common Share
Basic
earnings (loss) per share is computed by dividing the net income (loss)
attributable to the common stockholders by the weighted average number of shares
of common stock outstanding during the period. Fully diluted earnings (loss)
per
share is computed similar to basic earnings (loss) per share except that the
denominator is increased to include the number of additional common shares
that
would have been outstanding if the potential common shares had been issued
and
if the additional common shares were dilutive.
Common
Stock Registration Expenses
The
Company considers incremental costs and expenses related to the registration
of
equity securities with the SEC, whether by contractual arrangement as of a
certain date or by demand, to be unrelated to original issuance transactions.
As
such, subsequent registration costs and expenses are reflected in the
accompanying financial statements as general and administrative expenses, and
are expensed as incurred.
Research
and Development Costs
The
Company conducts research and development activities for others under
contractual arrangements. Research and development costs incurred under
contractual arrangements are accounted for in accordance with Statement of
Financial Accounting Standards No. 68,
“Research
and Development Agreements”
(“SFAS
68”). All costs incurred under the contractual arrangements are deferred and
recognized as cost of sales (product sales) upon completion of the contract
work.
Deferred
Offering Costs
The
Company defers as other assets the direct incremental costs of raising capital
until such time as the offering is completed. At the time of the completion
of
the offering, the costs are charged against the capital raised. Should the
offering be terminated, deferred offering costs are charged to operations during
the period in which the offering is terminated.
Debt
Issuance Costs
The
Company defers as other assets the costs associated with the issuance of debt
instruments. Such costs are amortized as additional interest expense over the
life of the related debt. As of June 30, 2007, the Company had recorded debt
issuance costs related to convertible notes of $695,763 of such costs, and
amortized $153,248 as additional interest expense.
Comprehensive
Income (Loss)
The
Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards No. 130, “
Reporting
Comprehensive Income”
(“SFAS
130”). SFAS 130 states that all items that are required to be recognized under
accounting standards as components of comprehensive income (loss) be reported
in
the financial statements. For the periods ended June 30, 2007, and 2006, the
only components of comprehensive income (loss) were the net income (loss) for
the periods, and the foreign currency translation adjustments.
Income
Taxes
The
Company accounts for income taxes pursuant to SFAS No. 109, “
Accounting
for Income Taxes”
(“SFAS
109”). Under SFAS 109, deferred tax assets and liabilities are determined based
on temporary differences between the bases of certain assets and liabilities
for
income tax and financial reporting purposes. The deferred tax assets and
liabilities are classified according to the financial statement classification
of the assets and liabilities generating the differences.
The
Company maintains a valuation allowance with respect to deferred tax assets.
The
Company establishes a valuation allowance based upon the potential likelihood
of
realizing the deferred tax asset and taking into consideration the Company’s
financial position and results of operations for the current period. Future
realization of the deferred tax benefit depends on the existence of sufficient
taxable income within the carryforward period under the Federal tax
laws.
Changes
in circumstances, such as the Company generating taxable income, could cause
a
change in judgment about the realizability of the related deferred tax asset.
Any change in the valuation allowance will be included in income in the year
of
the change in estimate.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
Foreign
Currency Translation
The
Company accounts for foreign currency translation pursuant to SFAS No. 52,
“
Foreign
Currency Translation”
(“SFAS
52”). The Company’s functional currency is the Israeli New Shekel. Under SFAS
52, all assets and liabilities are translated into United States dollars using
the current exchange rate at the end of each fiscal period. Revenues and
expenses are translated using the average exchange rates prevailing throughout
the respective periods. Translation adjustments are included in other
comprehensive income (loss) for the period. Certain transactions of the Company
are denominated in United States dollars. Translation gains or losses related
to
such transactions are recognized for each reporting period in the related
statement of operations and comprehensive income (loss).
Fair
Value of Financial Instruments
The
Company estimates the fair value of financial instruments using the available
market information and valuation methods. Considerable judgment is required
in
estimating fair value. Accordingly, the estimates of fair value may not be
indicative of the amounts the Company could realize in a current market
exchange. As of June 30, 2007, the Company’s financial instruments approximated
fair value to do the nature and maturity of such instruments.
Estimates
The
consolidated financial statements are prepared on the basis of accounting
principles generally accepted in the United States. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of
consolidated assets and liabilities as of June 30, 2007, and consolidated
revenues and expenses for the periods ended June 30, 2007, and 2006. Actual
results could differ from those estimates made by management.
Reclassifications
Certain
amounts in the consolidated financial statements for the six months ended June
30, 2007, have been reclassified to conform to the presentation for the three
months ended June 30, 2007. Such reclassifications had no effect on the reported
net loss.
(2)
Going
Concern
During
the year ended December 31, 2006, and subsequent thereto through June 30, 2007,
Inrob Tech continued its operations, business expansion, and capital formation
activities through the issuance of convertible debt. On November 15, 2006,
the
Company completed a subscription agreement with a group of accredited investors
for the issuance of Convertible Notes in the amount of $3,000,000. The maturity
date of the Convertible Notes is two years from the date of issuance - November
15, 2008. Net proceeds to the Company amounted to $2,659,500, after deducting
debt issuance costs. On March 27, 2007, the Company effected a second
subscription agreement with a group of accredited investors for the issuance
of
Convertibles Notes also in the amount of $3,000,000. The maturity date of the
second issuance of Convertible Notes is two years from the date of issuance
-
March 27, 2009. The second transaction was completed under essentially the
same
terms and conditions as the first issuance. In additional, under the terms
of
the transactional documents, all rights and benefits to be granted to the
investor (including the security interest) are identical to and are intended
to
be shared equally with the holders of the Convertible Notes and warrants issued
by the Company as of November 15, 2006. Proceeds from the second subscription
agreement amounted to approximately $2,594,738 after debt issuance
costs.
While
management of the Company believes that the Company will be successful in
increasing its working capital from operations and the generation of additional
business revenues from new and existing clients, there can be no assurance
that
the Company will be able to generate the funds needed to meet its debt and
working capital obligations, achieve its planned expansion under its business
plan, or be successful in the sale of its products and services to generate
sufficient revenues to allow the Company to achieve profitability, and to
sustain its operations.
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. The Company
has incurred significant operating losses through June 30, 2007, and has
insufficient revenues to cover its on-going operating costs. These and other
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
(3)
Inventories
As
of
June 30, 2007, inventories consisted of the following:
|
|
2007
|
|
|
|
|
|
Work
in progress
|
|
$
|
266,245
|
|
Materials
|
|
|
42,204
|
|
|
|
|
|
|
Total
|
|
$
|
308,449
|
|
(4)
Loan
Receivable
–
Director
and
Stockholder
As
discussed in Note 9, in July 2005, Inrob Israel purchased, on behalf of Ben-Tsur
Joseph, President, sole Director and stockholder, 2,057,415 shares of common
stock of Inrob Tech in connection with the reverse merger. The amount of
consideration provided by Inrob Israel for the shares was $475,000. Thereafter,
Mr. Joseph entered into a Share Transfer and Loan Agreement with Inrob Israel
whereby the company transferred to Mr. Joseph 2,057,415 shares of the common
stock of Inrob Tech in exchange for a promissory note issued by Mr. Joseph
in
the amount of $475,000. The promissory note carries an interest rate of four
(4)
percent per annum, and is payable to Inrob Israel on demand. As of June 30,
2007, the balance owed on the loan plus accrued interest amounted to $511,959.
The Company has classified the amount of the promissory note due from Mr.
Joseph, or $475,000, as an offset to common stock equity, due to the nature
of
the transaction as a common stock subscription arrangement.
(5)
Loan
to and Interest Receivable from Related Parties
A
loan to
a related party entity bears interest at a variable rate equivalent to the
minimum rate allowed by the Israel Income Tax Ordinance (4% percent), is
unsecured and is due, including principal and interest, on December 31, 2008.
Interest receivable from Mr. Joseph associated with the loan transaction
described in Note 4 above amounted to $36,959 as of June 30, 2007. The following
summarizes the amounts receivable as of June 30, 2007:
|
|
2007
|
|
Ben-Tsur
Joseph Holdings Ltd.
|
|
$
|
237,628
|
|
Ben-Tsur
Joseph - Interest receivable
|
|
|
36,959
|
|
Totals
|
|
$
|
274,587
|
|
(6)
Bank
Indebtedness
The
Company has certain loans and bank arrangements to fund its operations and
vehicle purchases in Israel which mature through 2012.
(7)
Convertible
Debenture
On
September 30, 2005, the Company issued a convertible debenture (the “Debenture”)
in the amount of $42,500 to the same third-party entity. The Debenture carried
an interest rate of ten (10) percent per annum, was due on November 30, 2005,
and was convertible into 2,000,000 publicly traded shares of the Company’s
common stock. The due date of the Debenture was extended to December 31, 2006,
by written agreement between the parties. In addition, effective September
30,
2006, the third-party entity executed a document wherein it indicated that
it
had waived its right to convert the Debenture to common stock of the Company.
In
November, 2006, the Debenture, together with accrued interest, for a total
amount of $46,750, was paid off.
(8)
Issuance
of Convertible Notes and Warrants
On
November 15, 2006, the Company effected a subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance
–
November
15, 2008.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
Payments
amortizing the outstanding principal amount and related interest under the
Convertible Notes commenced on the third month anniversary date of the date
of
issuance (February 15, 2007) and will continue on the same day of each month
thereafter until the principal amount and interest have been repaid in full.
On
each repayment date, the Company is required to make payments to the investors
in the amount of 4.76 percent of the initial principal amount and all interest
accrued on the Convertible Notes as of the repayment date. Upon an event
of
default, the interest rate will automatically be increased to 15 percent.
At the
Company’s election, monthly repayments may be made (i) in cash in an amount
equal to 115 percent of the principal amount component of the monthly payment,
and 100 percent of all other components, or (ii) in shares of registered
common
stock of the Company at a conversion price equal to the lesser of (a) $0.25,
or
(b) 75 percent of the average of the closing bid price of the common stock
of
the Company as reported by Bloomberg L.P. for the common stock’s principal
market for the five trading days preceding the date a notice of conversion
given
to the Company after the Company notifies the holder of the Convertible Notes
of
its election to make a monthly repayment in shares of registered common stock.
For the three month periods ended March 31, 2007, and June 30, 2007, the
Company
issued 2,446,690 and 3,043,418 shares, respectively, of its common stock
as
payment of $936,480 of principal, and $125,517 of accrued interest on the
Convertible Notes.
Provided
there is no default under the Convertible Notes, the Company may prepay the
outstanding principal amount of the Convertible Notes at a 20 percent premium,
together with accrued but unpaid interest thereon and any and all other sums
due.
The
investors have a right to convert the Convertible Notes into registered shares
of common stock of the Company at $0.25 per share. Upon an event of default,
the
conversion price shall be the lesser of $0.25 or 75 percent of the average
of
the closing bid prices of the common stock of the Company for the five trading
days prior to a conversion date. No conversions may take place if it would
cause
an investor to become the beneficial owner of more than 4.99 percent of the
outstanding shares of common stock of the Company, which limitation is subject
to waiver by an investor upon 61 days prior written notice to the
Company.
The
Company has granted a security interest in all of its assets, and the assets
of
Inrob Israel to secure its obligations under the Convertible Notes. Further,
in
connection with the Convertible Note transaction, the Company has determined
that there was no beneficial conversion feature recorded.
The
Company also issued Class A warrants to purchase 6,000,000 shares of the
Company’s common stock at $0.40 per share and Class B warrants to purchase
6,000,000 shares of the Company’s common stock at $0.50 per share. All warrants
are exercisable for a period of five years following the effective date of
a
registration statement filed with the SEC, which the Company agreed to
complete.
The
Company filed a Registration Statement on Form SB-2 with the SEC on December
20,
2006, to register 18,405,000 shares of common stock related to the Convertible
Notes. The Registration Statement was declared effective by the SEC on January
11, 2007.
In
connection with the issuance of the Convertible Notes, the Company incurred
$340,500 in debt issuance costs, which included $300,000 paid in cash as a
finder’s fee. The Company is obligated to pay additional finder’s fees in the
amount of ten percent of the proceeds generated from the exercise of Class
A and
Class B warrants. In addition, the Company also issued 1,200,000 warrants to
the
finder (similar to and carrying the same rights as the Class A warrants issued
to the investors in the Convertible Notes) to purchase a like number of shares
of common stock of the Company for $0.25 per share. Such warrants are
exercisable for a period of five years following the effective date of the
Registration Statement filed by the Company with the SEC.
On
March
27, 2007, the Company effected a second subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance - March 27, 2009. The transaction
was completed under essentially the same terms and conditions as the first
issuance described in Note 8 above. In additional, under the terms of the
transactional documents, all rights and benefits to be granted to the investor
(including the security interest) are identical to and are intended to be shared
equally with the holders of the Convertible Notes and warrants issued by the
Company as of November 15, 2006. Proceeds from the second subscription agreement
amounted to approximately $2,594,738 after debt issuance costs.
The
Company filed a Registration Statement on Form SB-2 with the SEC on May 7,
2007,
to register 18,405,000 shares of common stock related to the second issuance
of
Convertible Notes. This Registration Statement pertaining to the second issuance
of Convertible Notes has not yet been declared effective by the SEC. Under
the
terms of the Subscription Agreement pertaining to the second issuance of
Convertible Notes, the Company has 160 days from the date of filing a
Registration Statement on Form SB-2 with the SEC to obtain an approval from
the
SEC on such Registration Statement. For the six months ended June 30, 2007,
the
Company accrued interest amounting to $63,288 related to the second issuance
of
Convertible Notes which is presented in the caption interest expense in the
accompanying consolidated statements of operations. Further, for the six
months ended June 30, 2007, the Company issued no shares of common stock related
to the second issuance of Convertible Notes as payment of principal or interest
pertaining to such notes.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
(9)
Capital
Stock Transactions
On
October 4, 2006, pursuant to authorization by the shareholders of the Company,
Inrob Tech filed Amended Articles of Incorporation with the Nevada Secretary
of
State to increase the number of authorized shares of its common stock from
80,000,000 shares authorized to 380,000,000 shares, and to change the par value
of its preferred and common stock from $0.001 per share to $0.0001 per share.
Subsequent to the filing, the Company was authorized to issue a total of
400,000,000 shares, consisting of 380,000,000 shares of common stock and
20,000,000 shares of preferred stock, all with a par value of $0.0001 per share.
In connection with the change in par value of preferred and common stock
described above, all prior transactions involving common stock with a par value
of $0.001 have restated to reflect the new par value of $0.0001 in the
accompanying financial statements.
On
November 9, 2006, pursuant to written consent provided by the board of
directors, the Company established 1,000 shares of Series A Preferred Stock,
par
value $0.0001 with the Nevada Secretary of State. Each share of Series A
Preferred Stock carries voting rights equal to 400,000 shares of common stock
of
the Company. In addition, the board of directors authorized the issuance of
1,000 shares of Series A Preferred Stock to Mr. Ben-Tsur Joseph, President
and
Director of the Company for services rendered. The issuance of the Series A
Preferred Stock was valued at $150,000.
As
described in Note 8, in November 2006, the Company issued Class A warrants
to
purchase 6,000,000 shares of the Company’s common stock at $0.40 per share, and
Class B warrants to purchase 6,000,000 shares of the Company’s common stock at
$0.50 per share. In addition, 1,200,000 finder’s warrants were also issued to
purchase 1,200,000 shares of the Company’s common stock at $0.25 per share. All
warrants are exercisable for a period of five years following the effective
date
of a registration statement filed with the SEC, which the Company received
on
January 11, 2007.
In
connection with the second issuance of Convertible Notes completed in March
2007, the Company also issued Class A warrants to purchase 6,000,000 shares
of
the Company’s common stock at $0.40 per share, and Class B warrants to purchase
6,000,000 shares of the Company’s common stock at $0.50 per share. In addition,
1,200,000 finder’s warrants were also issued to purchase 1,200,000 shares of the
Company’s common stock at $0.25 per share. All warrants are exercisable for a
period of five years following the effective date of a registration statement
filed with the SEC.
(10)
Recent
Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, “
Fair
Value Measurements
.” This
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement applies under other accounting pronouncements
that require or permit fair value measurement, the FASB having previously
concluded in those accounting pronouncement that fair value is the relevant
measurement attribute. This statement does not require any new fair value
measurements. However, for some entities, the application of the statement
will
change current practice. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The management of the Company does not believe that
this new pronouncement will have a material impact on its financial
statements.
In
September 2006, the FASB issued SFAS No. 158, “
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106 and 132(R)
.” This
statement improves financial reporting by requiring an employer to recognize
the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multi-employer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year
in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets for a not-for-profit organization. This
statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. The management of the Company
does
not believe that this new pronouncement will have a material impact on its
financial statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2007, AND 2006
(Unaudited)
In
February 2007, the FASB issued SFAS No. 159, "
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
An
Amendment of FASB Statement No. 115
," which
permits entities to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value.
An
entity would report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge
accounting provisions. The decision about whether to elect the fair value option
is applied instrument by instrument, with a few exceptions; the decision is
irrevocable; and it is applied only to entire instruments and not to portions
of
instruments. SFAS No. 159 requires disclosures that facilitate comparisons
(a)
between entities that choose different measurement attributes for similar assets
and liabilities and (b) between assets and liabilities in the financial
statements of an entity that selects different measurement attributes for
similar assets and
liabilities.
SFAS No. 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year provided the entity also elects to apply the
provisions of SFAS No. 157. Upon implementation, an entity shall report the
effect of the first re-measurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. Since the provisions
of
SFAS No. 159 are applied prospectively, any potential impact will depend on
the
instruments selected for fair value measurement at the time of implementation.
The management of the Company is currently evaluating the impact, if any, that
the adoption of SFAS No. 159 will have on its financial statements.
(11)
Related
Party Transactions
Inrob
Israel entered into a management agreement with a Director and officer on
October 1, 2003, which was subsequently extended as to its commencement date
to
May 1, 2005. Other terms and conditions related to equipment usage commenced
with the original date of the agreement. Under the terms of the agreement,
the
Company is obligated to pay $15,000 per month during the first year and $20,000
per month thereafter for management fees. For the periods ended December 31,
2006, and 2005, the Company accrued $220,000 and $120,000, respectively under
the management agreement. The Director and officer agreed to offset
approximately $205,000 owed to the Company by a related party entity of the
Director and officer against the management fee liability. For the six months
ended June 30, 2007, the company accrued $120,000 under the management
agreement. The management agreement does not have a specific completion date,
but may be terminated by either party on written notice of three
months.
In
July
2005, Inrob Israel purchased, on behalf of Ben-Tsur Joseph, its President,
Director and sole stockholder, 2,057,415 shares of common stock of Inrob Tech
in
connection with the reverse merger. The amount of consideration provided by
Inrob Israel for the shares was $475,000. Thereafter, Mr. Joseph entered into
a
Share Transfer and Loan Agreement with Inrob Israel whereby the company
transferred to Mr. Joseph 2,057,415 shares of the common stock of Inrob Tech
in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The promissory note carries an interest rate of four (4) percent per annum,
and
is payable to Inrob Israel on demand. The Company has classified the amount
of
the promissory note due from Mr. Joseph, or $475,000, as an offset to common
stock equity, due to the nature of the transaction as a common stock
subscription arrangement.
(12)
Commitments
and Contingencies
The
Company is a party to various operating lease agreements for office space,
warehouse space, and automobiles.
On
June
05, 2007, the Company entered into a Financial Investor Relations Agreement
with
WiseAlerts.com. The Agreement provides that WiseAlerts.com will write and
distribute a client newsletter, inform qualified OTC investors of news updates
pertaining to the Company, and feature the Company in internet broadcast chats.
This Agreement has a term of thirty days at a cost of $15,000.
On
June
27, 2007, the Company entered into a Consulting Agreement with Endeavor
Holdings, Inc. (“Endeavor”) of New York. Endeavor Holdings, Inc. will provide
marketing and business support to the Company. The Agreement is for a term
of
three months, and the Company will pay fees of $12,500 per month (beginning
in
June 2007) for the services provided by Endeavor.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM
24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under
the
Nevada General Corporation Law and our Articles of Incorporation, as amended,
our directors will have no personal liability to us or our stockholders for
monetary damages incurred as the result of the breach or alleged breach by
a
director of his "duty of care". This provision does not apply to the directors'
(i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) acts or omissions that a director believes
to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) approval
of
any transaction from which a director derives an improper personal benefit,
(iv)
acts or omissions that show a reckless disregard for the director's duty to
the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders, (v) acts or omissions that constituted an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, or (vi) approval of an unlawful dividend,
distribution, stock repurchase or redemption. This provision would generally
absolve directors of personal liability for negligence in the performance of
duties, including gross negligence.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth an estimate of the costs and expenses payable by
Inrob Tech Ltd. in connection with the offering described in this registration
statement. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
|
|
$
|
532
|
|
Accounting
Fees and Expenses
|
|
$
|
5,000
|
*
|
Legal
Fees and Expenses
|
|
$
|
15,000
|
*
|
Total
|
|
$
|
20,532
|
|
*Estimated
ITEM
26. RECENT SALES OF UNREGISTERED SECURITIES
On
July
21, 2005, Inrob Israel purchased, on behalf of Ben-Tsur Joseph, President,
sole
Director and stockholder, 2,057,415 shares of common stock of the Company in
connection with the reverse merger. The amount of consideration provided by
Inrob Israel for the shares was $475,000. Thereafter, Mr. Joseph entered into
a
Share Transfer and Loan Agreement with Inrob Israel whereby the company
transferred to Mr. Joseph 2,057,415 shares of the common stock of Inrob Tech
in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The promissory note carries an interest rate of four (4) percent per annum,
and
is payable to Inrob Israel on demand.
On
July
21, 2005, the Company entered into a Stock Purchase Agreement with Inrob Israel,
and issued 26,442,585 shares of its common stock (post reverse split) for all
of
the issued and outstanding capital stock of Inrob Israel (10,020 shares of
common stock). At the same time, the Company effected a 10.98 for 1 reverse
stock split of its common stock. Immediately following the completion of the
Stock Purchase Agreement transaction, the Company had 29,999,995 shares of
its
common stock outstanding. At that time, Ben Tsur Joseph, the sole officer and
Director of Inrob Israel, owned 28,500,000 shares of the Company’s common stock,
or 95 percent of the then issued and outstanding common stock of Inrob Tech,
and
had voting control. Through this process Inrob Israel is considered to have
acquired Inrob Tech by a reverse merger. The reverse merger has been recorded
as
a recapitalization of the Company, with the net assets of Inrob Israel and
Inrob
Tech brought forward at their historical bases. The costs associated with the
reverse merger have been expensed as incurred.
In
July
2005, the Company issued to a group of investors 10,114,285 shares of common
stock in satisfaction of a convertible debenture obligation in the principal
amount of $250,000 that was issued by Inrob Israel on August 1, 2004 (the “2004
Debenture”) , and that was subsequently assumed by the Company from Inrob
Israel.
In
September 2005, the Company issued to a group of investors 21,035,715 shares
of
common stock in satisfaction of a convertible debenture obligation in the
principal amount of $575,000 (plus accrued interest, for a total of $632,500)
that was issued by Inrob Israel on July 21, 2005, and that was subsequently
assumed by the Company from Inrob Israel.
In
November 2005, the Company issued to a group of investors 200,000 shares of
common stock in payment of accrued but unpaid interest on the 2004 Debenture
in
the amount of $25,000.
In
November 2006, the Company issued to Mr. Joseph 1,000 shares of its Series
A
Preferred Stock for services performed valued at $150,000.
In
November 2006, the Company issued 8% two-year convertible notes in the principal
amount of $3,000,000. In connection with the notes, the Company also issued
Class A Warrants to purchase 6,000,000 shares of common stock at $0.40 per
share
and Class B Warrants to purchase 6,000,000 shares of common stock at $0.50
per
share. All warrants are exercisable until January 2012.
In
March
2007, the Company issued 8% two-year convertible notes in the principal amount
of $3,000,000. In connection with the notes, the Company also issued Class
A
Warrants to purchase 6,000,000 shares of common stock at $0.40 per share and
Class B Warrants to purchase 6,000,000 shares of common stock at $0.50 per
share. All warrants are exercisable for a period of five years following the
effective date of this registration statement.
We
believe that the issuance of all of these securities was exempt from
registration under the Securities Act by reason of Section 4(2) thereof and/or
Regulation D under the Securities Act as a non-public sale of securities due
to
the absence of a general solicitation, the general nature and circumstances
of
the sale, including the qualifications of the purchasers, and the restrictions
on resales imposed on the securities acquired.
Exhibit
|
|
Description
|
3.1
|
|
Certificate
of Incorporation (1)
|
3.1a
|
|
Certificate
of Designation for Series A Preferred Stock(2)
|
3.2
|
|
Bylaws
(1)
|
4.1
|
|
Form
of Secured Convertible Note, dated November 15, 2006
(3)
|
4.2
|
|
Form
of Warrant, dated November 15, 2006 (3)
|
4.3
|
|
Form
of Secured Convertible Note, dated March 27, 2007 (4)
|
4.4
|
|
Form
of Warrant, dated March 27, 2007 (4)
|
5.1
|
|
Opinion
of Sichenzia Ross Friedman Ference LLP (1)
|
10.1
|
|
Subscription
Agreement, dated November 15, 2006 (3)
|
10.2
|
|
Funds
Escrow Agreement, dated November 15, 2006 (3)
|
10.3
|
|
Security
Agreement, dated November 15, 2006 (3)
|
10.4
|
|
Stock
Pledge Agreement, dated November 15, 2006 (3)
|
10.5
|
|
Guaranty
Agreement, dated November 15, 2006 (3)
|
10.6
|
|
Collateral
Agent Agreement, dated November 15, 2006 (3)
|
10.7
|
|
Agreement
dated October 1, 2003 between InRob, Ltd and Ben-Tsur Joseph
(1)
|
10.8
|
|
Subscription
Agreement, dated March 27, 2007 (4)
|
10.9
|
|
Funds
Escrow Agreement, dated March 27, 2007 (4)
|
10.10
|
|
Stock
Pledge Agreement, dated March 27, 2007 (4)
|
10.11
|
|
Guaranty
Agreement, dated March 27, 2007 (4)
|
10.12
|
|
Collateral
Agent Agreement, dated March 27, 2007 (4)
|
10.13
|
|
Security
Agreement, dated March 26, 2007 (4)
|
10.14
|
|
Amendment
to Subscription Agreement dated October 23, 2007 (5)
|
23.1
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in exhibit
5.1)
|
23.2
|
|
Consent
of Davis Accounting Group P.C.
*
|
*
Filed herewith
|
|
(1)
|
Incorporated
by reference to Registrant’s Registration Statement on Form SB-2 (SEC File
No. 333-129074) filed on December 20, 2006.
|
|
(2)
|
Incorporated
by reference to Registrant’s Definitive Information Statement filed on
September 18, 2006.
|
|
(3)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on November
21, 2006.
|
|
(4)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on March 30,
2007.
|
|
(5)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on October
29, 2007.
|
ITEM
28. UNDERTAKINGS
(a)
The
undersigned Registrant hereby undertakes to:
(1)
file,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and Notwithstanding the forgoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation From the low or high end
of
the estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that
it has reasonable grounds to believe that it meets all the requirements for
filing on Form SB-2 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Yavne, Israel
on
this October 30, 2007.
|
|
|
|
INROB
TECH LTD.
|
|
|
|
|
By:
|
/s/ Ben-Tsur
Joseph
|
|
Ben-Tsur
Joseph
President
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Ben-Tsur Joseph
|
|
Director
and Chief Executive Officer
|
|
October
30, 2007
|
|
|
Chief
Financial Officer
(Principal
Executive, Financial
|
|
|
|
|
and
Accounting Officer)
|
|
|
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