QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS
FORM
10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
o
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the
Quarterly Period ended September 30, 2008
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
file number: 000-49950
InRob
Tech Ltd.
(Exact
name of Registrant as specified in its charter)
Nevada
|
|
88-0219239
|
(State
or other Jurisdiction of
|
|
(IRS
Employer
|
Incorporation
or Organization)
|
|
Identification
Number)
|
1515
Tropicana Ave, Suite 140
Las
Vegas NV 89119
702-795-3601
(Address
of Principal Executive Offices, Zip code)
702-795-3601
(Issuer’s
Telephone Number)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
past 12 months (or for such shorter period that the Registrant was required
to
file such reports), and (2) has been subject to such filing requirements for
the
past 90 days. Yes
x
No
¨
.
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer,” “large accelerated
filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2) of the Act. Yes
¨
No
x
.
There
were 380,000,000 shares of the Registrant's common stock outstanding as of
November 14, 2008.
INROB
TECH LTD. AND SUBSIDIARY
INDEX
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
Financial
Statements-
|
|
|
|
|
|
Consolidated
Balance Sheets as of September 30, 2008, and December 31,
2007
|
|
F-2
|
|
|
|
Consolidated
Statements of Operations and Comprehensive (Loss)
for
the Three Months and Nine Months Ended September 30, 2008, and
2007
|
|
F-3
|
|
|
|
Consolidated
Statements of Cash Flows for the
Nine
Months Ended September 30, 2008, and 2007
|
|
F-4
|
|
|
|
Notes
to Consolidated Financial Statements September 30, 2008, and
2007
|
|
F-6
|
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS (NOTE 2)
AS
OF SEPTEMBER 30, 2008, AND DECEMBER 31, 2007
(Unaudited)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
83,819
|
|
$
|
2,486,975
|
|
Accounts
Receivable - Trade
|
|
|
315,992
|
|
|
360,650
|
|
Inventories
|
|
|
437,083
|
|
|
507,744
|
|
Cost
of uncompleted contracts in excess of billings
|
|
|
163,064
|
|
|
56,407
|
|
Prepaid
expenses
|
|
|
68,205
|
|
|
19,574
|
|
Total
current assets
|
|
|
1,068,163
|
|
|
3,431,350
|
|
|
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
|
|
|
Office
and computer equipment
|
|
|
112,858
|
|
|
99,885
|
|
Furniture
and fixtures
|
|
|
74,586
|
|
|
65,335
|
|
Vehicles
|
|
|
579,828
|
|
|
587,522
|
|
Leasehold
improvements
|
|
|
53,015
|
|
|
43,760
|
|
|
|
|
820,287
|
|
|
796,502
|
|
Less
- Accumulated depreciation and amortization
|
|
|
(325,848
|
)
|
|
(352,700
|
)
|
Net
property and equipment
|
|
|
494,439
|
|
|
443,802
|
|
Other
Assets:
|
|
|
|
|
|
|
|
Deposits
and other
|
|
|
1,085
|
|
|
586
|
|
Debt
issuance costs, net
|
|
|
107,658
|
|
|
368,572
|
|
Loans
to related party companies
|
|
|
289,654
|
|
|
274,061
|
|
Interest
receivable on loan to Director and stockholder
|
|
|
60,748
|
|
|
46,537
|
|
Manufacturing
deposit
|
|
|
2,978,000
|
|
|
982,000
|
|
Total
other assets
|
|
|
3,437,145
|
|
|
1,671,756
|
|
Total
Assets
|
|
$
|
4,999,747
|
|
$
|
5,546,908
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Bank
overdrafts
|
|
$
|
360,154
|
|
$
|
191,870
|
|
Bank
loans and other debt, current portion
|
|
|
77,811
|
|
|
46,931
|
|
Current
portion of convertible notes
|
|
|
3,044,841
|
|
|
3,715,389
|
|
Accounts
payable - Trade
|
|
|
275,461
|
|
|
228,272
|
|
Due
to related party - Director and stockholder
|
|
|
-
|
|
|
2,849
|
|
Due
to related party - Affiliate company
|
|
|
54,063
|
|
|
2,880
|
|
Billings
on uncompleted contracts in excess of costs
|
|
|
117,993
|
|
|
195,341
|
|
Due
to related party - Investor group
|
|
|
171,438
|
|
|
178,438
|
|
Accrued
liabilities
|
|
|
342,267
|
|
|
252,260
|
|
Income
tax payable
|
|
|
-
|
|
|
19,643
|
|
Deferred
revenue
|
|
|
379,731
|
|
|
532,573
|
|
Total
current liabilities
|
|
|
4,823,759
|
|
|
5,366,446
|
|
|
|
|
|
|
|
|
|
Long-term
Debt, less current portion:
|
|
|
|
|
|
|
|
Bank
loans and other debt
|
|
|
250,102
|
|
|
183,792
|
|
Convertible
notes
|
|
|
-
|
|
|
750,000
|
|
Total
long-term debt
|
|
|
250,102
|
|
|
933,792
|
|
Total
liabilities
|
|
|
5,073,861
|
|
|
6,300,238
|
|
|
|
|
|
|
|
|
|
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
|
|
|
150,000
|
|
Common
stock, par value $.0001 per share; 380,000,000 shares authorized;
380,000,000 and 79,134,307 shares issued and outstanding in 2008
and 2007,
respectively
|
|
|
38,000
|
|
|
7,913
|
|
Additional
paid-in capital
|
|
|
4,699,056
|
|
|
3,010,977
|
|
Less
- Loan receivable - Director and stockholder
|
|
|
(475,000
|
)
|
|
(475,000
|
)
|
Accumulated
other comprehensive income
|
|
|
53,774
|
|
|
54,525
|
|
Accumulated
(deficit)
|
|
|
(4,539,944
|
)
|
|
(3,501,745
|
)
|
Total
stockholders' (deficit)
|
|
|
(74,114
|
)
|
|
(753,330
|
)
|
Total
Liabilities and Stockholders' (Deficit)
|
|
$
|
4,999,747
|
|
$
|
5,546,908
|
|
The
accompanying notes to consolidated financial statements
are
an
integral part of these consolidated balance sheets.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE
(LOSS) (NOTE 2) FOR THE
THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008, AND 2007
(Unaudited)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
|
475,323
|
|
$
|
379,938
|
|
$
|
1,437,547
|
|
$
|
1,137,018
|
|
Product
sales
|
|
|
182
|
|
|
60,701
|
|
|
51,321
|
|
|
284,768
|
|
Total
revenues
|
|
|
475,505
|
|
|
440,639
|
|
|
1,488,868
|
|
|
1,421,786
|
|
Cost
of Goods Sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
304,067
|
|
|
363,560
|
|
|
926,717
|
|
|
1,216,144
|
|
Product
sales
|
|
|
61
|
|
|
23,231
|
|
|
17,107
|
|
|
94,923
|
|
Total
cost of goods sold
|
|
|
304,128
|
|
|
386,791
|
|
|
943,824
|
|
|
1,311,067
|
|
Gross
Profit
|
|
|
171,377
|
|
|
53,848
|
|
|
545,044
|
|
|
110,719
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
184,599
|
|
|
623,113
|
|
|
981,979
|
|
|
1,291,554
|
|
Total
general and administrative expenses
|
|
|
184,599
|
|
|
623,113
|
|
|
981,979
|
|
|
1,291,554
|
|
(Loss)
from Operations
|
|
|
(13,222
|
)
|
|
(569,265
|
)
|
|
(436,935
|
)
|
|
(1,180,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
58,730
|
|
|
49,082
|
|
|
74,384
|
|
|
138,257
|
|
Gain
on disposal of asset
|
|
|
102
|
|
|
-
|
|
|
28,698
|
|
|
-
|
|
Loss
on disposal of asset
|
|
|
(790
|
)
|
|
-
|
|
|
(9,585
|
)
|
|
-
|
|
Interest
(expense)
|
|
|
(253,242
|
)
|
|
(371,251
|
)
|
|
(694,761
|
)
|
|
(687,331
|
)
|
Total
other income (expense)
|
|
|
(195,200
|
)
|
|
(322,169
|
)
|
|
(601,264
|
)
|
|
(549,074
|
)
|
(Loss)
before Income Taxes
|
|
|
(208,422
|
)
|
|
(891,434
|
)
|
|
(1,038,199
|
)
|
|
(1,729,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision)
Benefit for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
(Loss)
|
|
|
(208,422
|
)
|
|
(891,434
|
)
|
|
(1,038,199
|
)
|
|
(1,729,909
|
)
|
Comprehensive
(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
6,389
|
|
|
(6,383
|
)
|
|
(751
|
)
|
|
(3,025
|
)
|
Total
Comprehensive (Loss)
|
|
$
|
(202,033
|
)
|
$
|
(897,817
|
)
|
$
|
(1,038,950
|
)
|
$
|
(1,732,934
|
)
|
(Loss)
Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
per common share - Basic and Diluted
|
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
Weighted
Average Number of Common Shares Outstanding During the Periods-
Basic and
Diluted
|
|
|
289,789,824
|
|
|
67,289,465
|
|
|
197,875,475
|
|
|
65,221,781
|
|
The
accompanying notes to consolidated financial statements are
an
integral part of these consolidated statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008, AND 2007
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(1,038,199
|
)
|
$
|
(1,729,909
|
)
|
Adjustments
to reconcile net (loss) to net cash
|
|
|
|
|
|
|
|
(used
in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
113,244
|
|
|
67,390
|
|
Amortization
of debt issuance costs
|
|
|
260,914
|
|
|
218,937
|
|
(Recovery
of) loss on contract
|
|
|
-
|
|
|
(39,141
|
)
|
(Gain)
Loss on sale of vehicles
|
|
|
9,585
|
|
|
1,177
|
|
Changes
in net assets and liabilities-
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
44,658
|
|
|
(228,052
|
)
|
Inventories
|
|
|
70,661
|
|
|
286,031
|
|
Cost
of uncompleted contracts in excess of billings
|
|
|
(106,657
|
)
|
|
143,605
|
|
Prepaid
expenses and deposits
|
|
|
(49,130
|
)
|
|
(17,723
|
)
|
Manufacturing
contract deposit
|
|
|
(1,996,000
|
)
|
|
-
|
|
Accounts
payable - trade and accrued liabilities
|
|
|
434,814
|
|
|
339,589
|
|
Billings
on uncompleted contracts in excess of related costs
|
|
|
(77,348
|
)
|
|
83,685
|
|
Deferred
revenue
|
|
|
(152,842
|
)
|
|
(92,169
|
)
|
Income
taxes payable and other
|
|
|
(19,643
|
)
|
|
-
|
|
Net
Cash (Used in) Operating Activities
|
|
|
(2,505,943
|
)
|
|
(966,580
|
)
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of vehicles
|
|
|
62,035
|
|
|
19,623
|
|
Purchases
of and adjustments to property and equipment
|
|
|
(235,501
|
)
|
|
(140,500
|
)
|
Net
Cash (Used in) Investing Activities
|
|
|
(173,466
|
)
|
|
(120,877
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
144,145
|
|
|
109,476
|
|
Payments
on long-term debt
|
|
|
(46,955
|
)
|
|
(49,407
|
)
|
Proceeds
from (offset to) bank overdrafts
|
|
|
168,284
|
|
|
93,962
|
|
Proceeds
from issuance of convertible notes
|
|
|
-
|
|
|
3,000,000
|
|
Debt
issuance costs - Convertible notes
|
|
|
-
|
|
|
(355,262
|
)
|
Proceeds
from (payments to) loan from related party - Investor
group
|
|
|
(7,000
|
)
|
|
17,236
|
|
Payments
on (advances to) Loan - Director and stockholder
|
|
|
(19,940
|
)
|
|
(73,664
|
)
|
Received
from (loans to) related party companies
|
|
|
38,470
|
|
|
(72,797
|
)
|
Net
Cash Provided by Financing Activities
|
|
|
277,004
|
|
|
2,669,544
|
|
Effect
of Exchange Rate Changes on Cash
|
|
|
(751
|
)
|
|
(3,025
|
)
|
Net
Increase (Decrease) in Cash
|
|
|
(2,403,156
|
)
|
|
1,579,062
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
|
2,486,975
|
|
|
2,278,371
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
|
83,819
|
|
$
|
3,857,433
|
|
The
accompanying notes to consolidated financial statements are
an
integral part of these consolidated statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008, AND 2007
(Unaudited)
Supplemental
Disclosures of Cash Flow Information:
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
2007
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
32,499
|
|
$
|
35,173
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
Supplemental
Information of Noncash Investing and Financing Activities:
During
the nine-month periods ended September 30, 2008, and 2007, the Company issued
300,965,693 shares and 8,546,776 shares of its common stock as payment of
$1,420,548 and $1,382,292 of principal, and $297,620 and $139,784 of accrued
interest on certain convertible notes, respectively.
The
accompanying notes to consolidated financial statements are
an
integral part of these consolidated statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(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.
The
consolidated financial statements as of September 30, 2008, 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
Unaudited
Interim Financial Statements
The
interim consolidated financial statements as of September 30, 2008, and for
the
three-month and nine-month periods ended September 30, 2008, and 2007, 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, 2008, and the consolidated results
of its
operations and its cash flows for the three-month and nine-month periods
ended
September 30, 2008, and 2007. These results are not necessarily indicative
of
the results expected for the calendar year ending December 31, 2008. The
accompanying consolidated financial statements and notes thereto do not reflect
all disclosures required under accounting principles generally accepted in
the
United States of America. Refer to Inrob Tech Ltd.’s audited financial
statements contained in its Annual Report on Form 10-KSB as of December 31,
2007, 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.
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, 2008,
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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
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 September 30, 2008, and 2007, 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
SEPTEMBER
30, 2008, AND 2007
(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. 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
No. 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 September 30, 2008, the
Company amortized $260,914 of debt issuance costs related to convertible
notes
as additional interest expense.
Advertising
and Promotion Costs
Advertising
and promotion costs are charged to operations when incurred. For the periods
ended September 30, 2008, and 2007, advertising and promotion costs amounted
to
$16,745 and $22,225, respectively.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
Comprehensive
Income (Loss)
The
Company presents comprehensive income (loss) in accordance with Statement
of
Financial Accounting Standards No. 130, “
Reporting
Comprehensive Income”
(“SFAS
No. 130”). SFAS No. 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,
2008,
and 2007, 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
No. 109”). Under SFAS No.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
No. 52”). The Company’s functional currency is the Israeli New Shekel. Under
SFAS No. 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).
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
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, 2008, 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 of America. 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,
2008, and consolidated revenues and expenses for the periods ended September
30,
2008, and 2007. Actual results could differ from those estimates made by
management.
(2)
Going
Concern
During
the period ended September 30, 2008, 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
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 significant operating losses through September 30, 2008, and has
insufficient cash resources and 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, 2008, inventories consisted of the following:
|
|
2008
|
|
|
|
|
|
Work
in progress
|
|
$
|
386,161
|
|
Materials
|
|
|
50,922
|
|
Total
|
|
$
|
437,083
|
|
(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
percent per annum, and is payable to Inrob Israel on demand. As of September
30,
2008, the balance owed on the loan plus accrued interest amounted to $535,748.
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)
Loans
to and Interest Receivable from Related Parties
Loans
to
related party entities bear interest at a variable rate equivalent to the
minimum rate allowed by the Israel Income Tax Ordinance (4%), are unsecured,
and
are 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 $60,748 as of September 30, 2008. The following
summarizes the amounts receivable as of September 30, 2008:
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
|
|
2008
|
|
Ben-Tsur
Joseph Holdings Ltd.
|
|
$
|
289,654
|
|
Totals
|
|
$
|
289,654
|
|
(6)
Bank
Indebtedness
The
Company has certain loans and bank arrangements to fund its operations in
Israel
which begin to mature in early 2009.
(7)
Manufacturing
Deposit
On
December 24, 2007, the Company through its wholly owned subsidiary, Inrob
Philippines, Incorporated, entered into a Manufacturing Agreement with CP
Communications Services, Inc. (“CPCOM”), a Philippines corporation located in
Makati City, Philippines. The Agreement
provides
for the lease of the use of CPCOM's premises on a full turnkey
basis.
Under
the terms of the Agreement, CPCOM is committing to manufacture, and the Company
has the right to order products with a total value of up to $28,500,000.
In
order to secure this right, the Company was required to pay to CPCOM the
amount
of $2,950,000, of which $1,000,000 was due by December 31, 2007, with the
balance due and payable by March 31, 2008. The Agreement will remain in effect
for an unlimited period of time. However, the Agreement may be terminated
by the
Company at any time for any reason upon ten days prior notice without refund
of
any amounts paid to CPCOM. As of December 31, 2007, the Company had paid
$980,000 to CPCOM, which was considered as satisfaction of the $1,000,000
obligation. As of March 31, 2008, the remaining amount due of $1,970,000
was
paid by the Company to CPCOM. As of September 30, 2008, the total non-refundable
deposit paid to CPCOM amounted to $2,978,000, and was classified as a
manufacturing deposit in the accompanying consolidated balance
sheets.
(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 eight 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(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-month periods ended September 30, 2008, and 2007, the Company issued
300,965,693 shares and 8,546,776 shares of its common stock as payment of
$1,420,548, and $1,382,292 of principal and $297,620, and $139,784 of accrued
interest related to Convertible Notes, respectively.
(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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
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.
On
July
25, 2008, the Company filed a Preliminary Information Statement on Schedule
14C
with the SEC. The shareholders of the Company were requested to approve the
following actions: (1) to amend the Company's Articles of Incorporation in
order
to increase the number of authorized shares of common stock, par value $.0001
per share, of the Company from 380,000,000 shares to 1,000,000,000 shares;
and
(2) to amend the Company’s Articles of Incorporation to effect a reverse stock
split of all of the outstanding shares of common stock of the Company at
a ratio
of 1 for 500. The Company will mail to the shareholders of record as of August
1, 2008, the information presented in the Schedule 14C, and the above mentioned
actions will be taken 20 days after the mailing.
As
of
July 15, 2008, the Company had 380,000,000 shares of common stock issued
and
outstanding, par value $.0001 per share, of an authorized 380,000,000 shares
of
common stock. Until the increase in authorized shares and reverse stock split
are effected as described above, the Company is unable to issue shares of
its
common stock. Due to this inability to issue additional shares of common
stock,
the Company may become delinquent on various obligations.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
(10)
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. 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 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.
(11)
Commitments
and Contingencies
The
Company is a party to various operating lease agreements for office space,
warehouse space, and automobiles.
(12)
Recent
Accounting Pronouncements
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
"
(SFAS
No. 159), 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
In
December 2007, the FASB issued SFAS No. 160,
“Noncontrolling
Interests in Consolidated Financial Statements – an amendment of ARB No. 51”
(“SFAS
No. 160”),
which
establishes accounting and reporting standards to improve the relevance,
comparability, and transparency of financial information in its consolidated
financial statements. This is accomplished by requiring all entities, except
not-for-profit organizations, that prepare consolidated financial statements
to
(a) clearly identify, label, and present ownership interests in subsidiaries
held by parties other than the parent in the consolidated statement of financial
position within equity, but separate from the parent’s equity; (b) clearly
identify and present both the parent’s and the noncontrolling’s interest
attributable consolidated net income on the face of the consolidated statement
of income; (c) consistently account for changes in parent’s ownership interest
while the parent retains it controlling financial interest in subsidiary
and for
all transactions that are economically similar to be accounted for similarly;
(d) measure of any gain, loss, or retained noncontrolling equity at fair
value
after a subsidiary is deconsolidated; and (e) provide sufficient disclosures
that clearly identify and distinguish between the interests of the parent
and
the interests of the noncontrolling owners. This Statement also clarifies
that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for fiscal years and interim
periods on or after December 15, 2008. The management of the Company does
not
expect the adoption of this pronouncement to have a material impact on its
financial statements.
In
March
2008, the FASB issued FASB Statement No. 161,
“Disclosures
about Derivative Instruments and Hedging Activities – an amendment of FASB
Statement 133”
(“SFAS
No. 161”). SFAS No. 161 enhances required disclosures regarding derivatives and
hedging activities, including enhanced disclosures regarding how: (a) an
entity
uses derivative instruments; (b) derivative instruments and related hedged
items
are accounted for under FASB No. 133,
“Accounting
for Derivative Instruments and Hedging Activities”
;
and (c)
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. Specifically, FASB No. 161
requires:
|
●
|
Disclosure
of the objectives for using derivative instruments be disclosed
in terms
of underlying risk and accounting
designation;
|
|
●
|
Disclosure
of the fair values of derivative instruments and their gains and
losses in
a tabular format;
|
|
●
|
Disclosure
of information about credit-risk-related contingent features;
and
|
|
●
|
Cross-reference
from the derivative footnote to other footnotes in which
derivative-related information is
disclosed.
|
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
FASB
No.
161 is effective for fiscal years and interim periods beginning after November
15, 2008. Earlier application is encouraged. The management of the Company
does
not expect the adoption of this pronouncement to have a material impact on
its
financial statements.
In
May
2008, the FASB issued FASB Statement No. 162, “
The
Hierarchy of Generally Accepted Accounting Principles
”
(“SFAS
No. 162”). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States of America.
The
sources of accounting principles that are generally accepted are categorized
in
descending order as follows:
|
a)
|
FASB
Statements of Financial Accounting Standards and Interpretations,
FASB
Statement 133 Implementation Issues, FASB Staff Positions, and
American
Institute of Certified Public Accountants (AICPA) Accounting Research
Bulletins and Accounting Principles Board Opinions that are not
superseded
by actions of the FASB.
|
|
b)
|
FASB
Technical Bulletins and, if cleared by the FASB, AICPA Industry
Audit and
Accounting Guides and Statements of
Position.
|
|
c)
|
AICPA
Accounting Standards Executive Committee Practice Bulletins that
have been
cleared by the FASB, consensus positions of the FASB Emerging Issues
Task
Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
(EITF D-Topics).
|
|
d)
|
Implementation
guides (Q&As) published by the FASB staff, AICPA Accounting
Interpretations, AICPA Industry Audit and Accounting Guides and
Statements
of Position not cleared by the FASB, and practices that are widely
recognized and prevalent either generally or in the
industry.
|
On
May
26, 2008, the FASB issued FASB Statement No. 163, “
Accounting
for Financial Guarantee Insurance Contracts
”
(“SFAS
No. 163”). SFAS No. 163 clarifies how FASB Statement No. 60, “
Accounting
and Reporting by Insurance Enterprises
”
(“SFAS
No. 60”), applies to financial guarantee insurance contracts issued by insurance
enterprises, including the recognition and measurement of premium revenue
and
claim liabilities. It also requires expanded disclosures about financial
guarantee insurance contracts.
The
accounting and disclosure requirements of SFAS No. 163 are intended to improve
the comparability and quality of information provided to users of financial
statements by creating consistency. Diversity exists in practice in accounting
for financial guarantee insurance contracts by insurance enterprises under
SFAS
No. 60, “
Accounting
and Reporting by Insurance Enterprises.
”
That
diversity results in inconsistencies in the recognition and measurement of
claim
liabilities because of differing views about when a loss has been incurred
under
FASB Statement No. 5, “
Accounting
for Contingencies
”
(“SFAS
No. 5”). SFAS No. 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default when there is evidence that credit
deterioration has occurred in an insured financial obligation. It also requires
disclosure about (a) the risk-management activities used by an insurance
enterprise to evaluate credit deterioration in its insured financial obligations
and (b) the insurance enterprise’s surveillance or watch list.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2008, AND 2007
(Unaudited)
SFAS
No.
163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal years,
except for disclosures about the insurance enterprise’s risk-management
activities. Disclosures about the insurance enterprise’s risk-management
activities are effective the first period beginning after issuance of SFAS
No.
163. Except for those disclosures, earlier application is not permitted.
Management of Inrob Tech does not expect the adoption of this pronouncement
to
have material impact on its financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS.
FORWARD-LOOKING
STATEMENTS
The
following discussion should be read in conjunction with our unaudited interim
financial statements and notes thereto included herein. In connection with,
and
because we desire to take advantage of, the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward-looking statements in the following discussion and elsewhere
in
this Report and in any other statement made by, or on our behalf, whether or
not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control, and
many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward-looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
PLAN
OF OPERATIONS
Our
operating subsidiary is Inrob Israel. 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, on top
of
our maintenance and support services, we develop, integrate, and produce
advanced wireless control solutions for unmanned ground vehicle robots. Our
remote control systems are the "brains" for many UGV 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 UGV 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
UGV
solutions include:
·
|
Remote
control systems (the "brains" of any
robot)
|
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.
RESULTS
OF OPERATIONS:
Three
Months Ended September 30, 2008 Compared to Three Months Ended September 30,
2007
Revenues-
For
the
three months ended September 30, 2008, the Company recognized $475,505 in
revenues compared to $440,639 for the same period in 2007, which resulted in
an
overall increase of $34,866, or 7.9%. The overall increase in revenues resulted
primarily from an increase in services from $379,938 in 2007 to $475,323 in
2008, an increase of $93,385 or 25.1%. Product sales decreased from $60,701
in
2007 to $182 in 2008, a decrease of 99.7%. 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 $304,128 compared to $386,791 for the same period in
2007, resulting in a decrease of $82,663, or 21.4%. The decrease was primarily
attributed to reductions in salaries and wages, repairs and maintenance,
insurance expenses offset by an increase in purchases and occupancy
costs.
General
and Administrative Expenses-
General
and administrative expenses decreased from $623,113 in 2007, to $184,599 for
the
same period in 2008, resulting in an overall decrease of $438,514, or 70.4%.
The
decrease was primarily attributed to decreases in office expenses, telephone
and
communications expenses, professional fees, and repairs and maintenance costs,
offset by increases in salaries and wages, auto expenses, depreciation, and
insurance expenses.
Other
Income (Expense)-
Other
income (expense) for the three months ended September 30, 2008 amounted to
an
expense of $195,200, from an expense of $322,169 for the same period in 2007.
The decrease of $126,969 was primarily attributable to a decrease in interest
expense of $118,009, an increase in interest income of $9,648, offset by an
increase in loss on disposal of fixed assets of $688.
Net
(Loss)-
Net
(Loss) for the three months ended September 30, 2007 went from a net loss of
$(891,434) in 2007 to a net loss of $(208,422) for the same period in 2008.
The
decrease in the loss of $683,012, or 76.6%, was due to the net impact of the
items described previously in 2008.
Comprehensive
(Loss)-
Comprehensive
(loss) for the three months ended September 30, 2008, decreased from a
comprehensive loss of $(897,817) in 2007 to a comprehensive loss of $(202,033)
in 2008, for an overall loss decrease of $695,784, or 77.5%. The decrease in
the
loss was due primarily to the business activities described above and
fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 67,289,465
in 2007 to 289,789,824 in 2008. 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.
Nine
Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
2007
Revenues-
For
the
nine months ended September 30, 2008, the Company recognized $1,488,868 in
revenues compared to $1,421,786 for the same period in 2007, which resulted
in
an overall increase of $67,082, or 4.7%. The overall increase in revenues
resulted primarily from an increase in services from $1,137,018 in 2007 to
$1,437,547 in 2008, and increase of $300,529 or 26.4%. Product sales decreased
from $284,768 in 2007 to $51,321 in 2008, a decrease of $233,447, or 82.0%.
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 $943,824 in 2008, compared to $1,311,067 for the same
period in 2007, resulting in a decrease of $367,243, or 28.0%. The decrease
was
primarily attributed to decreases in management fees, telephone and
communications expenses, professional fees, depreciation expense, and auto
expenses offset by increases in travel and insurance expenses.
General
and Administrative Expenses-
General
and administrative expenses decreased from $1,291,554 in 2007, to $981,979
for
the same period in 2008, resulting in an overall decrease of $309,575, or 24.0%.
The decrease was primarily attributed to decreases in management salaries,
office and supply expenses, professional fees, promotion and business expansion
expenses, realized losses on foreign exchange transactions, auto transportation
expenses, and depreciation expenses, offset by increases in advertising, repairs
and maintenance, and travel.
Other
Income (Expense)-
Other
income (expense) for the nine months ended September 30, 2008 amounted to an
expense of $601,264, from an expense of $549,074 for the same period in 2007.
The increase in other expense of $52,190 was primarily attributable to an
increase in interest expense of $7,430 related to the Company’s convertible
notes and a decrease in interest and other income of $44,760.
Net
(Loss)-
Net
(Loss) for the nine months ended September 30, 2008 went from a loss of
$(1,729,909) in 2007 to a net loss of $(1,038,199). The decrease in the loss
of
$691,710, or 40.0%, was due to the net impact of the items described previously
in 2008.
Comprehensive
(Loss)-
Comprehensive
(loss) for the nine months ended September 30, 2008, decreased from a
comprehensive loss of $(1,732,934) in 2007 to a comprehensive loss of
$(1,038,199) in 2008, for an overall loss increase of $693,984, or 40.0%. The
decrease in the loss was due primarily to the business activities described
above and fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 65,221,781
in 2007 to 197,875,475 in 2008. 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.
Liquidity
and Financial Resources
During
the nine months ended September 30, 2008, net cash (used in) operating
activities amounted to $2,505,943 when compared to net cash (used in) operating
activities of $966,580 for the same period in 2007. The increase in net cash
used in operations was primarily due to the net loss for the period, increases
in cost of uncompleted contracts in excess of billings, prepaid expenses, and
a
manufacturing contract deposit, offset by the impact of debt issuance costs
and
depreciation, and decreases in accounts receivable, inventories and accounts
payable – trade and accrued liabilities
Net
cash
(used in) investing activities in 2008 was primarily for the purchase of
property and equipment and amounted to $173,466. In 2008, net cash provided
by
financing activities amounted to $277,004 when compared to net cash provided
by
financing activities of $2,669,544 for the same period in 2007. The decrease
was
primarily due to the fact that during 2007 the company received $3,000,000
in
proceeds obtained from the issuance of convertible notes offset by $355,262
in
debt issuance costs.
As
of
September 30, 2008, current liabilities exceeded current assets by
$3,755,596, and the accumulated deficit amounted to $(4,539,944).
We
believe that our current cash on hand as of September 30, 2008, is not
sufficient to sustain our operations for at least the next twelve months, and
we
will be required to obtain additional sources of debt and equity in the near
future.
We
cannot
ensure that we will achieve sufficient growth or obtain sufficient financing
to
develop profitable operations prior to utilizing all of our current capital
resources. We are currently investigating various ways to raise additional
financing to sustain our operations. These financings may involve the issuance
of additional debt or equity securities or a combination thereof. Any such
issuances may have a dilutive effect on our current shareholders’ interests.
There can be no assurance that we will be successful in our attempts to raise
additional financing or that such additional financing will actually improve
our
operating results. If these financing programs are not successful in raising
the
capital we need, it may be necessary to curtail, or cease entirely our
operations.
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. 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 note holders 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 our common stock’s principal market 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
our
common stock. We may prepay the outstanding principal amount of the Notes at
a
20% premium, together with accrued but unpaid interest thereon and any and
all
other sums due. The note holders have a right to convert the notes into shares
of common stock at $0.25 per share. No conversions may take place if it would
cause a holder to become the beneficial owner of more than 4.99% of the
outstanding shares of our common stock, which limitation is subject to waiver
by
the holder upon 61 days prior written notice to us.
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 that was filed in connection with this financing
transaction.
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
eight
percent convertible notes in the principal amount of $3,000,000. The notes
mature two years from the date of issuance.
Under
the
terms of the agreement, all rights and benefits to be granted to the investors
(including the security interest) were 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 were identical to those
contained the notes issued in November 2006.
Most
of
the proceeds from this financing will be used to fund ongoing research
and development. These activities will focus on new product development,
upgrades to existing products, and engagement in joint ventures to develop
new opportunities and markets for new and existing products.
On
October 23, 2007, we entered into an amendment to the subscription agreement
dated March 27, 2007. Under the terms of the amendment, 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 Agreement. The interest
under the Notes was increased to 18% and is deemed to have accrued from the
date
of issuance of the Notes. We will be required to make principal and interest
payments under the Notes in common stock only. 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.
Currently
available cash will not be sufficient to sustain our operations. Unless we
raise
significant additional funds, we may be required to curtail our operations
or
cease to be a going concern. There can be no assurance that we will be able
to
raise additional funds on acceptable terms, if at all. If additional funds
are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our shareholders will be reduced, shareholders may
experience additional dilution and such securities may have rights, preferences,
and privileges senior to those of our common stock.
Item
3. CONTROLS AND PROCEDURES.
Evaluation
and Disclosure Controls and Procedures
The
Company, under the supervision and with the participation of our management,
under our Sole Executive Officer, filling the position of Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
design and operation of the Company’s
“Disclosure
Controls and Procedures,”
as such
term is defined in Rules 13a-15e promulgated under the Exchange Act as of this
Report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer has concluded that our disclosure controls and procedures
were
effective as of the end of the period covered by this Report to provide
reasonable assurance that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and
forms. The Company’s Chief Executive Officer and Chief Financial Officer has
also concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act are accumulated and communicated to our management to
allow timely decisions on required disclosure.
Management
is aware that there is a lack of segregation of duties due to the small number
of employees managing administrative and financial matters. This constitutes
a
significant deficiency in the financial reporting. Management has, as is
required by Israeli Law and also to mitigate these factors, hired an independent
accountant/bookkeeper to review and compile our financial statements on a
quarterly and annual basis.
At
this
time, management has decided that considering the employees involved and the
control procedures in place and the potential benefits of adding additional
employees to clearly segregate duties does not justify the additional
expense.
We
will
periodically reevaluate this situation. If the situation changes and sufficient
capital is secured, it is our intention to increase staffing to mitigate the
current lack of segregation of duties within the general administrative and
financial functions.
Changes
in Internal Controls
Management
has evaluated the effectiveness of the disclosure controls and procedures as
of
September 30, 2008. Based on such evaluation, management has concluded that
the
disclosure controls and procedures were effective September 30, 2008, for
their intended purpose described above. There were no changes to the internal
controls during the three-month period ended September 30, 2008, that have
materially affected or that are reasonably likely to affect the internal
controls.
Limitations
on the Effectiveness of Controls
A
control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of
fraud, if any, within a company have been detected. Our disclosure controls
and
procedures are designed to provide reasonable assurance of achieving its
objectives. Our principal executive officer and principal financial officer
concluded that the Company’s disclosure controls and procedures are effective at
that reasonable assurance level.
PART
II - OTHER INFORMATION
Item
1. LEGAL PROCEEDINGS.
On
January 20, 2008, the Israeli Antitrust authorities searched the Company's
offices and questioned members of the Company's management in connection with
an
investigation involving allegations of price fixing. The Antitrust
authority has recently notified the Company that it had obtained the materials
that it was looking for and will notify the Company whether or not it will
take
further action against the Company or its officers. The Company is not
aware of any wrongdoing on its part or on the part of any individuals involved
with the Company.
From
time
to time the Company may be subject to litigation incidental to its business.
The
Company is not currently a party to any material legal proceedings.
Item
2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
Item
3. DEFAULTS UPON SENIOR SECURITIES.
Not
applicable.
Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item
5. OTHER INFORMATION.
None.
Item
6. EXHIBITS.
Exhibits.
The
following exhibits are filed with this Report:
Exhibit
31.1 - Certification of CEO and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
32.1 - Certification of CEO and CFO pursuant to 18 U.S.C. Section
1350
SIGNATURE
In
accordance with the requirements of the Exchange Act, the Registrant has caused
this Report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
INROB
TECH LTD.
|
|
|
|
/s/ BEN-TSUR
JOSEPH
|
|
Ben-Tsur
Joseph,
Chief
Executive Officer/
Chief
Financial Officer
|
Date:
November 14, 2008
|
|
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