NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
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
September 30, 2007, and the operations for the three months and nine months
ended September 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 September 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 September 30, 2007, and for
the
periods ended September 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 September 30,
2007, and the consolidated results of its operations and its cash flows for
the
periods ended September 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
SEPTEMBER
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 September 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
|
|
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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
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 September 30, 2007, and 2006, 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.
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 September 30, 2007, the Company had recorded
debt issuance costs related to convertible notes of $695,763 of such costs,
and
amortized $240,218 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 September 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
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 September 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 September 30, 2007, and consolidated
revenues and expenses for the periods ended September 30, 2007, and 2006. Actual
results could differ from those estimates made by management.
Reclassifications
Certain
amounts in the consolidated financial statements for the nine months ended
September 30, 2007, have been reclassified to conform to the presentation for
the three months ended September 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 September
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
investors (including the security interest) were to be identical to and 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. As described in Note 8, subsequent to September 30, 2007, the terms
of
the second issuance of Convertible Notes were amended by agreement between
the
accredited investors of the second issuance of Convertible Notes and the
Company.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
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 September 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.
(3)
Inventories
As
of
September 30, 2007, inventories consisted of the following:
|
|
|
2007
|
|
|
Work
in progress
|
|
$
|
381,724
|
|
|
Materials
|
|
|
44,017
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
425,741
|
|
(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 September
30,
2007, the balance owed on the loan plus accrued interest amounted to $516,748.
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 $41,748 as of September 30, 2007. The
following summarizes the amounts receivable as of September 30,
2007:
|
|
|
2007
|
|
|
Ben-Tsur
Joseph Holdings Ltd.
|
|
$
|
253,808
|
|
|
Ben-Tsur
Joseph - Interest receivable
|
|
|
41,748
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
295,556
|
|
(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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
(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 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, June 30, 2007, and September
30, 2007, the Company issued 2,446,690, 3,043,418, and 3,056,668 shares,
respectively, of its common stock as payment of $1,382,292 of principal, and
$139,784 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. On October 16, 2007, the Company filed a post effective amendment
to
the Registration Statement on Form SB-2 for the purpose of updating its
financial and other disclosures. The amount of 9,822,822 shares of common stock
included in that post effective amendment was lower than the number of shares
included in the Registration Statement (as described above) as a result of
sales
of shares by the selling security holders following the effective date of the
Registration Statement. In addition, on October 30, 2007, a second post
effective amendment to the Registration Statement on Form SB-2 was filed with
the SEC to further update certain developments relating to the Company.
Specifically, as described below, on October 23, 2007, the Company entered
into
an agreement with the investors in its March 2007 second issuance of Convertible
Notes.
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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
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 above. In additional, under the terms of the transactional
documents, all rights and benefits to be granted to the investors (including
the
security interest) were identical to and 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. Under the terms of the Subscription Agreement pertaining
to
the second issuance of Convertible Notes, the Company had 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. However, after filing
two
amendments to this Registration Statement with the SEC, on October 18, 2007,
the
Company withdrew the Registration Statement. Subsequently, on October 23, 2007,
the Company entered into an amendment agreement (the “Amendment Agreement”) with
the accredited investors to the second issuance of Convertible Notes of March
27, 2007. Under the terms of the Amendment Agreement, the Company was no longer
required to register the shares issuable upon conversion of the Convertible
Notes and exercise of the warrants issued in connection with the March 27,
2007
agreement. The interest rate under the second issuance of Convertible Notes
was
increased to 18 percent and was deemed to have accrued from the date of issuance
(March 27, 2007) of the Convertible Notes. The Company is also required to
make
principal and interest payments under the Convertible Notes in common stock
only
at 75 percent 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 2007 second issuance of Convertible
Notes.
For
the
nine months ended September 30, 2007, the Company accrued interest amounting
to
$276,658 related to the second issuance of Convertible Notes which is presented
in the caption interest expense in the accompanying consolidated statements
of
operations. Further, as described above, for the nine months ended September
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.
(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 were exercisable for a period of five years following the
effective date of a registration
statement
filed with the SEC. As described in Note 8, effective October 23, 2007, the
exercise price of the warrants pertaining to the second issuance of Convertible
Notes was reduced to $0.25 and their expiration date was fixed at the sixth
anniversary of the closing date of the March 2007 second issuance of Convertible
Notes.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
(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.
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 nine months
ended September 30, 2007, the company accrued $180,000 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007, AND 2006
(Unaudited)
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.
(13)
Subsequent
Event
As
described in Notes 2 and 8, 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. Under the terms of the
Subscription Agreement pertaining to the second issuance of Convertible Notes,
the Company had 160 days from the date of filing a Registration Statement on
Form SB-2 with the SEC to obtain approval from the SEC on such Registration
Statement. However, after filing two amendments to this Registration Statement
with the SEC, on October 18, 2007, the Company withdrew the Registration
Statement. Subsequently, on October 23, 2007, the Company entered into an
Amendment Agreement with the accredited investors to the second issuance of
Convertible Notes of March 27, 2007. Under the terms of the Amendment Agreement,
the Company was no longer required to register the shares issuable upon
conversion of the Convertible Notes and exercise of the warrants issued in
connection with the March 27, 2007 agreement. As a result, the interest rate
under the second issuance of Convertible Notes was increased to 18 percent and
was deemed to have accrued from the date of issuance (March 27, 2007) of the
Convertible Notes. The Company is also required to make principal and interest
payments under the Convertible Notes in common stock only at 75 percent 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 2007 second issuance of Convertible Notes.