UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
Annual
Report Pursuant to Section 13 or 15 (d) of the Securities Act of
1934
For
the
fiscal year ended December 31, 2007
Commission
File Number: 000-49950
INROB
TECH LTD.
(Exact
name of small business issuer as specified in its charter)
Nevada
(State
or
other jurisdiction of Incorporation or organization)
88-0219239
(IRS
Employee Identification No.)
1515
Tropicana Ave, Suite 140
Las
Vegas, NV 89119
702-795-3601
(Address
of principal executive offices and telephone number)
Securities
Registered Under Section 12(b) of the Exchange Act: None
Securities
Registered Under Section 12(g) of the Exchange Act:
|
Name of each exchange
|
Title of Each Class
|
on which registered
|
Common Stock, par value $.0001
|
Over-the-Counter Bulletin Board
|
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the Registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Exchange
Act. Yes
¨
No
x
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this
Form 10-K.
¨
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
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
As
of
April 8, 2008, the aggregate market value of the Registrant’s common stock held
by non-affiliates of the Registrant was: $2,173,958.
The
number of shares outstanding of the Registrant’s Common Stock, $0.0001 par
value, was 96,436,182 as of April 8, 2008.
PART
I
FORWARD-LOOKING
STATEMENTS
The
following discussion should be read in conjunction with our audited 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.
ITEM
1. BUSINESS
History
We
were
incorporated under the laws of Nevada on March 25, 1986, under the name Beeper
Plus, Inc. In April 2001, we consummated a Purchase and Sale transaction
for the
sale of our paging business known as The Sports Page and Score Page to BeepMe,
a
third-party vendor and our creditor. As a consequence of the sale of our
paging
business, we ceased business operations in the paging business. In July 2003,
we
changed our name to Western Gaming Corporation. Under that name, we were
in the
business of collecting, organizing, and disseminating timely sports information
through wireless services to individual and corporate customers throughout
the
United States, Canada, and the Caribbean, as well as news information through
a
network of resellers.
On
July
21, 2005, we entered into a Stock Purchase Agreement with the sole shareholder
of Inrob Ltd., Ben-Tsur Joseph, whereby all of the issued and outstanding
shares
of Inrob Ltd. (10,020 shares of common stock) were acquired by us for a total
of
26,442,585 shares of Common Stock, issued after the reverse split of the
Common
Stock at the rate of 10.98 shares of old Common Stock for each one share
of new
Common Stock. As part of the reverse merger, 2,057,415 shares of our Common
Stock were purchased by Inrob Ltd. on behalf of Mr. Joseph. Thereafter, Mr.
Joseph entered into a Share Transfer and Loan Agreement with Inrob Ltd. whereby
Inrob Ltd. transferred to Mr. Joseph 2,057,415 shares of our Common Stock
in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The name of our Company was changed to Inrob Tech Ltd. effective August 17,
2005.
The
shares issued to Mr. Joseph, together with the shares issued to Inrob Ltd.
in
the reverse merger, gave Mr. Joseph, at the time of the transaction, control
over approximately 95% of the issued and outstanding shares of our common
stock
immediately after the effectiveness of the reverse split. As part of the
transaction with Mr. Joseph, Mr. Frank DeRenzo, our former President and
former
controlling shareholder, received a total of 350,000 shares of post reverse
common stock for consultancy services provided in the past.
Description
of Business
Inrob
Ltd., our wholly owned Israel-based subsidiary (herein referred to as “Inrob
Ltd.”), was established in 1988 as an engineering firm providing a
cost-efficient solution for organizations to outsource maintenance of critical
and sophisticated equipment. Through Inrob Ltd., we now provide maintenance
support of industrial electronic, electro-mechanical, optical, and other
scientific equipment, mainly to customers in the defense industry. We also
develop, integrate, and produce advanced wireless control solutions for unmanned
ground vehicle (“UVR”) robots. Our remote control systems are the "brains" for
many UVR solutions. Our objective is to be a world leader in the development
and
production of advanced wireless control systems and integrated solutions
for
robots. We aim to provide integrated solutions to meet the needs of a wide
range
of mission-critical military, law enforcement, and civilian
applications.
Inrob's
current maintenance activity encompasses the repair and calibration of
technologically advanced instruments and systems for companies and organizations
such as the Israeli defense forces and Ministry of defense, various defense
oriented industries, hospitals and medical centers, universities and academic
institutes, laboratories and research centers, energy and infrastructure
facilities, communication companies, and transport and aviation
organizations.
Inrob's
maintenance staff is composed of experienced staff and support technicians.
Inrob's personnel is regularly updated with current technological evolutions
and
participates on a regular basis in further training to keep themselves up
to
date with developments in Inrob's field of operation. For the supply of its
maintenance services, Inrob keeps a large and versatile array of high end,
top
of the line, electronic testing and repair appliances available for such
use.
The
current nature of Israel's security situation coupled with our close work
with
the Israel Defense Forces ("IDF") and the Israeli police have helped us gain
extensive experience in a wide range of military and law enforcement UVR
applications and control solutions. We have the ability to provide fast and
reliable solutions to meet the immediate operational needs of front-line
IDF
units as they arise. We recently began targeting the civilian applications
market, which includes dangerous tasks such as nuclear plant maintenance,
inspection and decommissioning, the demolition industry, firefighting, and
rescue services.
Our
UVR
solutions include:
|
·
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Remote
control systems (the "brains" of any robot);
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·
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Complete
robot systems;
|
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·
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Customized
solutions
|
We
are
certified to design, manufacture, and maintain electronic, optical, and
electro-mechanical equipment and are a certified supplier to the Israel Defense
Forces and the Israeli Air Force. We have also been issued a certificate
from
the Israeli Air Force stating that our quality system is approved to perform
inspection of products and services supplied to the Israeli Air
Force.
Market
for our Products
Robots
are increasingly used in tasks involving any of the "three Ds" — dirty,
dangerous, or dull. Many commercial industries have successfully made use
of
robotic technology in well-structured ground environments such as manufacturing
and in semi structured environments such as automated agriculture. There
is also
extensive use of unmanned vehicles in the relatively uncluttered environments
of
air and sea operations. However, perhaps the most difficult challenge for
robots
today is the use of unmanned ground vehicles in the unstructured, complex,
and
changing outdoor environment of land operations.
Our
target market is the full range of military, law enforcement, and civilian
mission-critical applications for unmanned ground vehicles. We have particular
expertise and experience in such applications of UVRs.
Advances
in remote-control technologies are leading to increased use of UVRs. For
example, UVRs are expected to produce significant changes in ground warfare.
Under a plan presented to the United States Congress by Senator John Warner
of
Virginia in 2000, one-third of U.S. ground combat vehicles would be unmanned
by
2015. The Senate Armed Services Committee responded by earmarking $246 million
in the 2001 budget for research in unmanned ground and air systems. The U.S.
defense budget also includes significant funding for unmanned vehicle projects
including research by the Defense Advanced Research Projects Agency (DARPA),
which develops advanced technologies for the US Army's future combat systems.
We
have, with one relatively insignificant exception, made no sales outside
of
Israel to date, and cannot assure you that sales to the United States or
other
countries will be made on commercially acceptable terms, if at all.
Over
time, robotic technologies will enable UVRs to be more independent. Maneuvering
autonomous and semi-autonomous mobile robots between obstacles in real
environments and operating independently, is one of the most challenging
research and development topics in mobile robotics today. The control algorithms
under development include collecting information from various sensors (laser
range finders, ultrasonic sensors, infrared sensors), processing this
information, including use of artificial intelligence, and generating real-time
instructions for the desired robot motion.
Military
Applications:
Explosive
Ordinance Disposal (“EOD”)
.
Robots
reduce or eliminate the bomb technician's time-on-target. Procedures performed
during bomb disposal missions include surveillance and inspection, X-ray
imaging, and disruption. These tasks require that sensors or tools be placed
in
close proximity to the threat. A robot takes risk out of potentially deadly
scenarios and lets a bomb technician focus on what to do with the explosive
device rather than on the immediate danger to his life.
Other
Military Applications
.
There
are many other military tasks that are candidates for UVR employment. These
include:
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·
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Weapons
platforms;
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·
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Reconnaissance
and intelligence gathering;
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·
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Target
acquisition, including a kamikaze role of guiding weapons to
target;
|
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·
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Nuclear,
biological, and chemical (NBC) warfare surveillance and
monitoring;
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·
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Ambushes;
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·
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Decoy
and deception;
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·
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Combat
engineering, including establishing and breaching obstacles;
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·
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Communications
relay;
|
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·
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Remote
sensors deployment and monitoring;
|
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·
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Deploying
mines;
|
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·
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Forward
area re-supply; and
|
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·
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Adding
greater realism in training
exercises.
|
Law
Enforcement Applications:
Improvised
Explosive Devices (“IED”)
. This
was one of the earliest applications of remotely controlled robots, developed
by
the British Army in the early 1970's for use in Northern Ireland. While there
are many similarities between military and law enforcement bomb disposal
operations, the threats are sufficiently different to treat the two as separate
markets. In addition to EOD, law enforcement bomb disposal more likely involves
dealing with relatively unstable explosive devices. The very act of approaching
a suspected object can be dangerous as points along the path to the device
may
be booby-trapped. In addition, no matter how careful a bomb technician is
in the
inspection or handling of an IED, the possibility always exists that the
bomber
is waiting nearby to remotely operate the device or a secondary device when
the
bomb technician is within range. There are approximately 550 bomb squads
in the
United States. According to an April 2000 report prepared by the Counter
Terrorism Technology Support Office (“CTTSO”), less than 30 percent are equipped
with bomb disposal robots. While this percentage may have risen since September
11, 2001, we believe there exists a significant market in the United States
for
bomb disposal robots.
Other
Law Enforcement Applications
. Other
likely law enforcement applications for robots include surveillance, SWAT
tasks,
and exchanging messages during hostage negotiations.
Civilian
Applications
Generally,
any industry or job involving the "three D’s" should consider a dedicated robot
or remote operated conversion of their standard vehicle. Examples include
nuclear plant maintenance, inspection and decommissioning, and the demolition
industry, which performs many dangerous tasks while pulling down a building.
Another important civilian application is firefighting and rescue
services.
Customer
Needs Common for all Applications
A
major
customer need, common for all applications, is for integrated UGV systems
with
the ability to complete a total mission, versus an individual task. A robot
may
be able to perform a number of tasks very well, but if it fails or the user
believes it will fail in the performance of one task required to complete
a
particular mission, its utility is greatly diminished. To meet this need,
UGV
companies will have to provide integrated solutions that can be easily tailored
to the users' mission requirements.
Products
and Services
Products
A
variety
of companies around the world currently manufacture robots for use in military,
law enforcement, and civilian applications. The size of these robots varies
from
as small as a shoebox to as large as a tele-operated tank. Control and traction
methods vary considerably. Some are controlled by radio frequency while others
use fiber optic or coax cable. Traction varies from tank-like tracks to
multi-wheel combinations.
Principal
components of robots include the following:
Platform:
This
includes the motors, drive train, power source, and structural components.
The
platform could be a specially designed robot or a standard military or
commercial vehicle.
Operator
Control Unit:
This
allows the user to control the robot and its functions in an intuitive fashion.
The control unit is compact, lightweight, and easy to operate. It is made
of
durable waterproof materials, has its own battery source, and can operate
under
difficult and severe environmental conditions. The control unit allows two-way
communication with the robot, i.e. it enables the operator to send instructions
to the robot, as well as receive information back from the robot such as
real-time video pictures, battery status, traveling speed, and
temperature.
Communications:
The
communication system provides the clear transmission of data (operator
instructions, video images etc.) at the robot's operating range. Most robots
use
wireless radio frequency communication as the primary mode of communication,
although some robots use a fiber optic cable.
Tools:
These
enable the robot to carry out its primary mission. Tools may include a
manipulator with adequate reach and freedom, camera, disrupter, x-ray detector,
and various sensors and weapon systems.
We
design
and produce the operator control unit and the communication devices for the
UVRs. When a customer requests that we produce a complete UVR, we outsource
the
UVR’s platform, tools, and sensors to third-party manufacturers. We have
manufactured and sold our products, on each occasion on a customized
basis.
Services
Inrob
Ltd. provides maintenance services for:
|
·
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Laboratory
equipment including: testing and measurement equipment, temperature
chambers, and x-ray equipment.
|
|
·
|
Industrial
equipment including: balance machinery, presses, cleaning equipment,
and
production lines.
|
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·
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Scientific
and medical equipment including: spectrometry equipment, laser
apparatuses, and analytical tools.
|
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·
|
Closed
circuit television systems including: cameras, monitors, and traverse
sensors.
|
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·
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Optical
equipment including: cameras and boroscopes.
|
|
·
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Command
and control equipment including: transmission and reception systems,
control systems and robots.
|
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·
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Audio
equipment including: recording equipment, announcing systems,
amplification systems, and sound systems.
|
|
·
|
Miscellaneous
equipment including: power generators, fail-safe products, projectors,
and
control rooms.
|
Most
of
the equipment used for providing such maintenance services is standard equipment
purchased in the local market. Some of the equipment is especially designated
equipment that is purchased from the original manufacturers of the equipment
to
which we supply maintenance services.
Manufacturing
We
manufacture control and command units which include the following devices:
devices for the coordination of the driving mechanism, devices to control
and
command the "arms" of the robots, analyzing units for information received
from
the robot, dispersion of electric current, and development of software for
each
custom made unit according to the relevant application;
We
also
manufacture electric and electro-mechanic units, including engine drivers,
wiring, electric current supply model, and operating unit - ergonomics, device
for communication with robot, software for operation and interface of remote
control, and development and manufacture of command and electronic
cards.
Most
of
the equipment used for such production is standard equipment Inrob Ltd.
manufactures robots and control and command units that are sold as finished
goods ready to use by the customer.
On
December 24, 2007, we entered into an agreement and a manufacturing agreement
(the "Manufacturing Agreement," together with the Agreement, the "Agreements")
with CP Communication Services, Inc., a Philippines corporation ("CPCOM"),
that
provides for the lease of the use of CPCOM's premises on a full turnkey basis.
The premises include floor space, utilities, equipment, and machinery intended
to be used for the manufacture of various components of mobile robots and
other
products for both civilian and military use to be marketed and sold by us.
Under
the
terms of the agreements, CPCOM is committing to manufacture, and we have
the
right to order, products with a total value of up to $28,500,000. In order
to
secure this right, we are required to pay to CPCOM an amount of $2,950,000,
of
which $980,000 had been paid by December 31, 2007, and the balance by March
31, 2008.
The
agreements provide that CPCOM is required to adapt its existing premises
in
accordance with our specifications and to be ready to commence the manufacture
of products within 48 hours of the receipt of a purchase order from us. The
agreements grant us preferred status and priority over any other party for
whom
CPCOM may provide manufacturing services.
The
agreement will remain in effect for an unlimited period of time. The agreement
may be terminated by the Company at any time for any reason upon 10 days
prior
notice without refund of amounts paid.
Regulation
The
export of our products is subject to licensing requirements imposed by the
Israeli government and requires the approval of SIBAT, a Foreign Defense
Assistance and Defense Export Department of the Israeli Ministry of Defense.
Except for those regulations that affect businesses generally, we are not
affected by any other government regulation
.
Competition
Our
competitors include several large, defense contractors including:
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·
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Cybernetix,
France
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·
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ESI,
Canada
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·
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Foster-Miller,
USA
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Kentree,
Ireland
|
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OAO
Robotics (acquired by Lockheed Martin, Dec. 2001), USA
|
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·
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Remotec
(subsidiary of Northrop Grumman), USA
|
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·
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the
Israel Aircraft Industries Ltd., the Israel Military Industries
Ltd.,
Elbit Ltd., and Elop Ltd. (all Israeli
companies).
|
These
companies have significantly greater financial, technical, and human resources
than we do, as well as a wider range of products than we have. In addition,
many
of our competitors have much greater experience in marketing their products,
as
well as more established relationships with our target government customers.
Our
competitors may also have greater name recognition and more extensive customer
bases that they can use to their benefit. As a result, we may have difficulty
maintaining our market share
.
We
believe that our competitive edge is the quality, product features, and level
of
integration of our solutions. Because of Israel's security situation and
our
close work with the Israel Defense Forces and the Israeli police, we have
extensive experience in a wide range of military and law enforcement
applications. We have the ability to provide fast and reliable solutions
to meet
the immediate operational needs of front-line IDF units as they
arise.
According
to research in the United States, the most important issues in current UGV
usage
include the ability to provide integrated solutions and dependable control
and
communication systems. We have particular expertise and experience in these
two
critical areas. Overall, we believe that this experience gives our technology
and applications a crucial competitive advantage.
Intellectual
Property
We
do not
have any patents, trademarks, or any other protection over our intellectual
property. All of our intellectual property is "know how" and not original
proprietary intellectual property. As such, it cannot be protected by patent
or
trademark. In addition, we do not have confidentiality agreements with any
of
our employees or suppliers with respect to our intellectual property. The
theft
or unauthorized use of our intellectual property is not sufficiently provided
for, and our intellectual property is extremely susceptible to theft or
unauthorized use. Any theft or unauthorized use of our intellectual property
could materially adversely affect our operations.
Employees
As
of
December 31, 2007, we had 17 employees, as follows:
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Number of Employees
|
|
Management
|
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3
|
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Service
|
|
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5
|
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Sound/Service
Projects
|
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5
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Production/Products
|
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4
|
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In
addition, our relationship with Ben-Tsur Joseph, our President, is governed
by
the terms of a management agreement.
There
is
currently a collective agreement signed between the labor federation and
the
industry union in Israel, which applies to the employees of Inrob Ltd. under
an
expansion order. We believe that our employee relations are good.
RISK
FACTORS
Risks
Related to Our Business
We
have incurred significant losses to date and expect to continue to incur
losses.
During
the year ended December 31, 2007, we incurred net losses of approximately
$2,186,983. We expect to continue to incur losses for at least the next 12
months. Continuing losses will have an adverse impact on our cash flow and
may
impair our ability to raise additional capital required to continue and expand
our operations.
Our
registered independent auditors have issued a going concern opinion, which
may
make it more difficult for us to raise capital.
Our
registered independent auditors have included a going concern opinion on
our
financial statements because of concerns about our ability to continue as
a
going concern. These concerns arise from the fact that we have continuing
operating losses and negative working capital. If we are unable to continue
as a
going concern, you could lose your entire investment in us.
If
we
are unable to obtain additional funding, we may have to reduce our business
operations.
We
recently completed two $3,000,000 financings (November 15, 2006, and March
27,
2007) Nevertheless, if our marketing campaign is not successful in
promoting sales of our services, we will be required to seek additional
financing. We will also require additional financing to expand into other
markets and further develop our products and services. We have no current
arrangements with respect to any additional financing. Consequently, there
can
be no assurance that any additional financing will be available when needed,
on
commercially reasonable terms or at all. The inability to obtain additional
capital may reduce our ability to expand our business operations. Any additional
equity financing may involve substantial dilution to our then existing
shareholders.
If
we
cannot maintain our current relationship with A.R.T.S. Ltd., our operations
would be materially adversely affected.
One
of
our main sub-contractors, A.R.T.S. Ltd., provides critical research,
development, and production operations to us. During the past 10 years, A.R.T.S.
Ltd. has developed for us most of the software required for our robot related
activities. We do not have an agreement with A.R.T.S. Ltd. for the provision
of
their services to us, and cannot be assured that we will be able to maintain
this relationship with that entity. In the event that our relationship with
A.R.T.S. Ltd. ceases, the interruption to our research and development
activities and production operations would be harmful to our business, and
may
require a long period of time to establish relationships with new partners
with
the required level of know-how and expertise. We currently know of several
wireless communications software companies, both in Israel and worldwide,
capable of providing us with the same services we currently outsource to
A.R.T.S. Ltd.
As
we are
a technology-based company, we are required to update our technology and
knowledge base on a regular basis. We are a relatively small company, and
we
have never made the quantitative distinction between our R&D expenses and
any other expenses. Thus, we are not able to assess the amount of funds we
have
paid for R&D over the years, nor are we able to assess the financial effects
a break up with A.R.T.S. Ltd. may have on our business.
If
we
do not maintain our acknowledged supplier status with the Israeli Ministry
of
Defense our business could be materially adversely affected.
We
currently maintain the status of an acknowledged supplier to the Israeli
ministry of defense and have top security clearance. Acknowledged supplier
status allows us to provide services to the Israeli Ministry of Defense and
the
Israeli Defense Forces (i.e. Army, Navy, and Air Force), which comprise a
significant portion of our annual revenues (as shown in the table below).
If we
are unable to maintain the acknowledged supplier status, our business and
results of operations may be negatively impacted.
We
are highly dependent on sales to the Israeli Ministry of Defense and the
Israeli
Defense Forces.
We
are
highly dependent on sales of our products and services to the Israeli Ministry
of Defense and the Israeli Defense Forces. The following table sets forth
the
percentage of our total sales that were made to the Israeli Ministry of Defense
and the Israeli Defense Forces since 2004.
% of total
|
|
% of total
|
|
% of total
|
|
% of total
|
|
sales in 2004
|
|
sales in 2005
|
|
sales in 2006
|
|
sales in 2007
|
|
42.71
|
%
|
|
39.33
|
%
|
|
38.85
|
%
|
|
40.28
|
%
|
In
addition, orders by the Ministry of Defense are subject to cancellation without
prior notice. Unless we are able to diversify our customer base, in the event
that there is any interruption of sales orders from the Israeli Ministry
of
Defense and the Israeli Defense Forces or a large number of unanticipated
cancellations of its orders to us, we may suffer a sharp decline in our results
of operations. If this were to occur, this will have a negative impact on
the
value of the Company and your investment.
Any
significant delay in collecting outstanding receivables from Israel's Ministry
of Defense could adversely affect our ability to conduct our
business.
Israel's
Ministry of Defense is one of our significant customers and comprises a
significant portion of our accounts receivable. The M.O.D.'s conventional
payment terms are 60 days. In the past, we have experienced significant delays
in payment from the M.O.D. (up to current payment + 150 days). These delays
are
mostly due to strikes by the M.O.D.'s public workers. Any future delays could
adversely affect our cash flow and ability to operate our business, especially
in light of the fact that this entity represents a large portion of our
revenues.
The
volatility of the Ministry of Defense’s budget could adversely affect the amount
of business it may conduct with us.
In
the
past, the Ministry of Defense’s budget has been volatile and any significant
cuts in its budget could adversely affect the amount of business it conducts
with us. As our largest customer, any significant reduction in the amount
of
purchases the Ministry of Defense makes from us or from third parties which
have
subcontracted work to us, could materially adversely affect our results of
operations.
Our
intellectual property is unprotected and is susceptible to
piracy.
We
do not
have any patents, trademarks, or any other protection over our intellectual
property. All of our intellectual property is "know how" and not original
proprietary intellectual property. As such, it cannot be protected by patent
or
trademark. In addition, we do not have confidentiality agreements with any
of
our employees or suppliers with respect to our intellectual property. The
theft
or unauthorized use of our intellectual property is not sufficiently provided
for, and our intellectual property is extremely susceptible to theft or
unauthorized use. Any theft or unauthorized use of our intellectual property
could materially adversely affect our operations.
Our
President has absolute control of our affairs.
In
November 2006, we granted to Ben-Tsur Joseph, our President, Chief Financial
Officer, and sole Director, 1,000 shares of our Series A Preferred Stock,
each
of which carries voting rights equal to 400,000 shares of our common stock.
As a
result, for voting purposes, Mr. Joseph owns a total of 428,500,004 shares.
This
gives him absolute control over our affairs including the right to elect
and
remove Directors, appoint officers, amend our Articles of Incorporation and
Bylaws, and approve a merger, consolidation, or sale of all or substantially
all
of our assets. In addition, this concentration of voting control could inhibit
the management of our business and affairs and have the effect of delaying,
deferring, or preventing a change in control or impeding a merger,
consolidation, takeover, or other business combination which other shareholders
may view favorably. Therefore, you will not be able to exert any control
over
our business. This greatly reduces the value of your investment and your
sole
remedy for disagreeing with the direction of our business will be to sell
your
shares.
If
our employees' entitlements do not comply with Israeli law, we may have to
pay
additional compensation to our employees.
Terms
of
employment for our employees are individually negotiated with each and every
employee. The relationship between the parties, their rights, and mutual
duties
are determined solely on the basis of the verbal agreements reached after
these
negotiations.
We
believe that we have a good overall relationship with our employees, and
it is
common practice for us to amicably settle all debts between the parties upon
the
termination of the employees' term with us. We have never made an active
effort
to ascertain whether or not workers may be entitled to such payments, benefits,
or advantages, nor have we ever made an active effort to ascertain what such
payments, benefits, or advantages might be.
We
have
no knowledge as to whether we adhere to the aforementioned legal requirements.
Should an authorized court determine that we do not adhere to the said
requirements, we may be responsible to pay significant damages that could
adversely affect the results of our operations.
Loss
of Ben-Tsur Joseph
,
our
President, could impair our ability to operate.
If
we
lose our President, Ben-Tsur Joseph, or are unable to attract or retain
qualified personnel, our business could suffer. Our success is highly dependent
on our ability to attract and retain qualified scientific and management
personnel. We are highly dependent on our management, in particular, Ben-Tsur
Joseph, who is critical to the development of our business. Mr. Joseph’s
services are made available to us under the terms of a management agreement,
which may be terminated on three-month prior notice. The loss of his services
could have a material adverse effect on our operations. If we were to lose
this
individual, we may experience difficulties in competing effectively, developing
our technology, and implementing our business strategies. We do not have
key man
life insurance in place for any person working for us.
We
face intense competition that could adversely impact our market share and
our
revenue.
Our
competitors include several large, integrated defense contractors (e.g. Northrop
Grumman, Lockheed Martin, Elbit, El-Op, Israel Aircraft Industries, Israel
Military Industries). These companies have significantly greater financial,
technical, and human resources than we do, as well as a wider range of products
than we have. In addition, many of our competitors have much greater experience
in marketing their products, as well as more established relationships with
our
target government customers. Our competitors may also have greater name
recognition and more extensive customer bases that they can use to their
benefit. As a result, we may have difficulty maintaining or increasing our
market share.
The
intense competition in our industry has also led to rapid technological
developments, evolving industry standards, and frequent releases of new products
and enhancements. It has also led to steep declines in the price of products
as
manufacturers find low cost locales for the manufacture of their products.
If we
are unable to continue enhancing our current capabilities, to adapt to other
technological changes in the industry, or offer our products at competitive
prices, our business, financial condition, liquidity, and results of operations
could be significantly harmed.
We
are authorized to issue "blank check" preferred stock which, if issued without
stockholders approval, may adversely affect the rights of holders of our
common
stock.
Our
Certificate of Incorporation authorizes the issuance of up to 20,000,000
shares
of "blank check" preferred stock with such designations, rights, and preferences
as may be determined from time to time by our Board of Directors, of which
to
date we have designated and issued 1,000 shares of Series A Preferred Stock.
Accordingly, our Board of Directors is empowered, without stockholder approval,
to issue preferred stock with dividend, liquidation, conversion, voting,
or
other rights which would adversely affect the voting power or other rights
of
our stockholders. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying,
or
preventing a change in control, which could have the effect of discouraging
bids
for Inrob and thereby prevent stockholders from receiving the maximum value
for
their shares. We have no present intention to issue any shares of its preferred
stock in order to discourage or delay a change of control. However, there
can be
no assurance that preferred stock will not be issued at some time in the
future.
ITEM
2. DESCRIPTION OF PROPERTY
We
own no
real property. Our Registered Agent, Mr. Frank DeRenzo, allows us the use
of his
office as a United States address for a nominal fee of $500 per year. The
space
is sufficient for our needs.
For
the
year ended December 31, 2005, we were a party to a lease agreement for our
premises in Israel, which expired in January, 2006. In 2006, we entered into
a
new one-year lease agreement, with an option to extend the agreement for
an
additional year for the use of 1,135 square meters of office and
engineering/operations space. We may terminate the lease agreement upon 60-days
notice. Future minimum annual payments (exclusive of taxes, insurance, and
maintenance costs) under the lease are approximately $91,935 for the calendar
year 2006. This agreement was terminated, and in June 2006, Inrob Ltd. entered
into a new lease agreement for the use of 300 square meters. The lease is
for a
period of 36 months. The monthly payments under the lease are $3.50 per square
meter. The Company is also a party to a lease agreement for a warehouse in
Israel entered into in 1999 for the use of 175.3 square meters. The monthly
payments under the lease are approximately $900.
ITEM
3. LEGAL PROCEEDINGS
We
are
not aware of any pending or threatened litigation against us that we expect
will
have a material adverse effect on our business, financial condition, liquidity,
or operating results. However, legal claims are inherently uncertain and
we
cannot assure you that we will not be adversely affected in the future by
legal
proceedings.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART
II
Item
5. Market for Common Equity and Related Stockholder
Matters
Our
common stock has been included for quotation on the OTC Bulletin Board under
the
symbol “IRBL.OB” since July 21, 2005.
The
following table shows the reported high and low closing bid quotations per
share
for our common stock based on information provided by the OTC Bulletin Board.
Particularly since our common stock is traded infrequently, such
over-the-counter market quotations reflect inter-dealer prices, without markup,
markdown, or commissions and may not necessarily represent actual transactions
or a liquid trading market.
Year Ended December 31, 2005
|
|
HIGH
|
|
LOW
|
|
First
Quarter
|
|
|
5.60
|
|
|
0.32
|
|
Second
Quarter
|
|
|
1.75
|
|
|
0.54
|
|
Third
Quarter
|
|
|
4.39
|
|
|
0.13
|
|
Fourth
Quarter
|
|
|
0.42
|
|
|
0.15
|
|
Year
Ended December 31, 2006
|
|
HIGH
|
|
LOW
|
|
First
Quarter
|
|
|
0.68
|
|
|
0.38
|
|
Second
Quarter
|
|
|
0.68
|
|
|
0.41
|
|
Third
Quarter
|
|
|
0.44
|
|
|
0.21
|
|
Fourth
Quarter
|
|
|
0.38
|
|
|
0.26
|
|
Year Ended December 31, 2007
|
|
HIGH
|
|
LOW
|
|
First
Quarter
|
|
|
0.315
|
|
|
0.24
|
|
Second
Quarter
|
|
|
0.26
|
|
|
0.19
|
|
Third
Quarter
|
|
|
0.27
|
|
|
0.18
|
|
Fourth
Quarter
|
|
|
0.19
|
|
|
0.109
|
|
As
of
March 29, 2008, there were approximately 269 holders of record of our common
stock.
ITEM.
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD-LOOKING
STATEMENTS
The
following discussion should be read in conjunction with our audited 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)
●
Complete robot systems
●
Customized solutions
We
are
certified to design, manufacture, and maintain electronic, optical, and
electro-mechanical equipment and are a certified supplier to the Israel Defense
Forces and the Israeli Air Force. We have also been issued a certificate
from
the Israeli Air Force stating that our quality system is approved to perform
inspection of products and services supplied to the Israeli Air Force.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2007, Compared to Year Ended December 31,
2006
Revenues-
Revenues
increased to $1,993,822 in 2007, or 20.3 percent, over revenues of $1,656,798
for 2006. The increase was comprised of an increase in service revenues due
to
an increase in business volume to new and existing clients amounting to
$438,235, offset by a decrease in product sales of
$101,211.
Cost
of Goods Sold-
Cost
of
good sold increased from $1,350,954 in 2006 by $230,189 or 17.0 percent,
to
$1,580,783 in 2007. The increase was primarily attributed to increases in
salaries and wages, employee goodwill, and vehicle operating expenses, offset
by
reductions in occupancy/rent costs, insurance, repairs and maintenance, and
project consulting expenses.
General
and Administrative Expenses-
General
and administrative expenses increased by $773,096, or 72.6 percent, to
$1,838,438 in 2007 when compared to $1,065,342 in 2006. The increase was
primarily attributed to increases in office and supply expenses, management
fees, promotion and business expansion expenses, depreciation expense, and
bank
fees, offset by decreases in telephone and communications expenses, and
professional fees.
Other
(Expense)-
Other
expense increased by $695,430, or 1,051.12 percent, to $761,584 during 2007.
This increase was due to an overall increase in interest expense from certain
convertible notes plus the amortization of debt issuance expenses, offset
by the
elimination of certain bank debt for the period, and an increase in interest
income to $198,855 in 2007.
Comprehensive
(Loss)-
Comprehensive
income for 2007 amounted to $14,114, a decrease of $22,528, or 61.5 percent,
when compared to comprehensive income of $36,642 for 2006, and was due primarily
to fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 61,350,201
in 2006 to 66,704,947 in 2007. The increase was primarily due to various
transactions that were completed involving our common stock.
Year
Ended December 31, 2006, Compared to Year Ended December 31,
2005
Revenues-
Revenues
increased to $1,656,798 in 2006, or 4.8 percent, over revenues of $1,580,615
for
2005. The increase was comprised of an increase in service revenues due to
an
increase in business volume to new and existing clients amounting to $107,079,
offset by a decrease in product sales of $30,896.
Cost
of Goods Sold-
Cost
of
good sold increased from $934,930 in 2005 by $415,664, or 44.5 percent, to
$1,350,594 in 2006. The increase was primarily attributed to increases in
salaries and wages, repairs and maintenance, employee goodwill, vehicle
operating expenses, and a provision for loss on a contract, offset by reductions
in occupancy/rent costs, insurance, and project consulting expenses.
General
and Administrative Expenses-
General
and administrative expenses increased by $562,774, or 112 percent, to $1,065,342
in 2006 when compared to $502,568 in 2005. The increase was primarily attributed
to increases in office and supply expenses, management fees, telephone and
communications expenses, professional fees, promotion and business expansion
expenses, depreciation expense, and realized foreign currency exchange losses,
offset by decreases in auto transportation expenses, and computer supplies
and
repair expenses.
Other
(Expense)-
Other
expense increased by $32,479, or 96.4 percent, to $66,154 during 2006. This
increase was due to an overall increase in interest expense from a Company
financing plus the amortization of debt issuance expenses, offset by the
elimination of certain bank debt for the period, and an increase in interest
income to $48,269 in 2006.
Comprehensive
Income (Loss)-
Comprehensive
income for 2006 amounted to $36,642, an increase of $16,452, or 81.5 percent,
when compared to comprehensive income of $20,190 for 2005, and was due primarily
to favorable fluctuations in Israeli currency.
Weighted
Average Number of Shares Outstanding-
The
weighted average number of common shares outstanding increased from 38,753,607
in 2005 to 61,350,201 in 2006. The increase was primarily due to various
transactions that were completed involving our common stock.
Liquidity
and Financial Resources
During
the year ended December 31, 2007, net cash (used in) operating activities
amounted to $(2,302,714) when compared to net cash (used in) operating
activities of $(176,647) for the same period in 2006. The increase in net
cash
(used in) operations was due primarily to increases in net (loss), accounts
receivable, a deposit on a manufacturing contract, and a decrease in deferred
revenue, offset by decreases in inventory, cost of uncompleted contracts
in
excess of billings, and increases in accounts payable and accrued liabilities,
depreciation, and the amortization of debt issuance costs. Net cash used
in
investing activities in 2007 for the purchase of property and equipment amounted
to $(305,804). In 2007, financing activities provided $2,803,008 in net cash
primarily due to the issuance of convertible notes in the amount of $3,000,000,
and bank loans. As of December 31, 2007, current liabilities exceeded current
assets by $1,935,096, and the accumulated deficit amounted to $(3,501,745).
Considering our obligation under a manufacturing contract, we will need to
complete the manufacturing and sale of products and services under the turn-key
arrangement, and additional capital formation transaction in 2008 in order
to
sustain our operations for at least the next 12 months.
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 of which this Prospectus forms a part.
We
believe that the proceeds from the sale of the notes will be sufficient to
sustain us through the next 12 months. Nevertheless, the aforementioned factors
raise substantial doubt about our ability to continue as a going concern.
We
anticipate that in order to fulfill our plan of operation including repayment
of
certain bank debt, a convertible debenture, and other liabilities, we will
need
to seek debt and/or equity financing from outside sources. We are currently
pursuing debt and equity capital formation activities in order to increase
our
working capital and overall solvency positions.
March
2007 Financing
On
March
27, 2007, we entered into and consummated a subscription agreement with a
group
of accredited investors providing for the issuance to the investors of our
8%
convertible notes in the principal amount of $3,000,000. The notes mature
two
years from the date of issuance (the "2007 Financing").
Under
the
terms of the transactional documents, all rights and benefits to be granted
to
the investors (including the security interest) are identical to and are
intended to be shared equally with holders of convertible notes and warrants
issued by the Company as of November 15, 2006. In addition, all repayment
and
conversion terms of and registration rights relating to these notes are
identical to those contained the notes issued in November 2006.
Most
of
the proceeds from this financing will be used for research and development,
including but not limited to, research and development to upgrade existing
products, new product development, engagement in joint ventures with strategic
partners to develop new opportunities, and markets for both new and existing
products.
On
October 23, 2007, we entered into an amendment to the 2007 Financing documents.
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 2007 Financing.
Significant
Customers
For
the
years ended December 31, 2007, and 2006, we had certain customers that accounted
for more than 10% of total revenues, as follows:
|
|
2007
|
|
2006
|
|
Ministry
of Defense
|
|
$
|
803,089
|
|
$
|
643,612
|
|
Item
7. Financial Statements
The
Financial Statements are annexed at the end of the filing.
Item
8. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
(a)
On
November 1, 2005, the Company notified its registered independent auditor,
Spector & Wong, LLP, 780 South Lake Avenue, Suite 723, Pasadena, CA 91101,
(888) 584-5577, that it was being replaced as the registered independent
auditor
of the Company, by Davis Accounting Group P.C.
On
November 1, 2005, we engaged Davis Accounting Group P.C., located at 1957
W.
Royal Hunte Drive #150, Cedar City, Utah 84720, (435) 865-2808, as our
registered independent auditors to audit our financial statements for the
fiscal
year ended December 31, 2005.
During
the period of their engagement through November 1, 2005, there were no
disagreements between Spector & Wong, LLP, and the Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction
of
Spector & Wong, LLP, would have caused them to make reference to the subject
matter of the disagreement in connection with its reports on the Company's
financial statements, other than the fee dispute that has arisen between
the
parties.
(b)
Effective November 1, 2006, Davis Accounting Group P.C., was retained as
our
registered independent auditor. Prior to the engagement, we did not consult
with
Davis Accounting Group P.C. regarding the application of accounting principles
to a specified transaction, or the type of audit opinion that may be rendered
with respect to our financial statements, as well did not consult with Davis
Accounting Group P.C., as to the application of accounting principles to
a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on the small business issuer's financial statements
and
either written or oral advice was provided that was an important factor
considered by the small business issuer in reaching a decision as to the
accounting, auditing or financial reporting issue.
Item
8A. Controls and Procedures
Evaluation
and Disclosure Controls and Procedures
We
have
adopted and maintain disclosure controls and procedures (as such term is
defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as
amended (the “Exchange Act”)) that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act, is recorded,
processed, summarized, and reported within the time periods required under
the
SEC’s rules and forms and that the information is gathered and communicated to
our management, including our Chief Executive Officer (Principal Executive
Officer) and Chief Financial Officer (Principal Financial Officer), as
appropriate, to allow for timely decisions regarding required
disclosure.
As
required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial
Officer carried out an evaluation under the supervision and with the
participation of our management, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange
Act
Rule 15d-14 as of the end of the period covered by this Report. Based on
the
foregoing evaluation, they have concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic SEC filings and to ensure that
information required to be disclosed in our periodic SEC filings is accumulated
and communicated to our management, including our Chief Executive Officer
and
Chief Financial Officer, to allow timely decisions regarding required disclosure
about our internal control over financial reporting discussed
below.
This
Annual Report does not include an attestation report of the Company’s registered
independent auditor regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
independent auditor pursuant to temporary rules of the Securities and Exchange
Commission.
Changes
in Internal Controls
There
were no changes to the internal controls during the fourth quarter ended
December 31, 2006, 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.
Item
8B. Other Information
Not
applicable.
PART
III
Item
9.
Directors,
Executive Officers, Promoters, Control Persons, and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act.
Our
sole
Director and executive officer is:
Name
|
|
Age
|
|
Position
|
Ben-Tsur
Joseph
|
|
47
|
|
President,
Chief Executive Officer, and
Director
|
Ben-Tsur
Joseph, Co-founder, President, and sole Director, co-founded our subsidiary,
Inrob Ltd. ("Inrob Israel") in Israel in 1988, and was joint CEO until 1999.
He
has extensive experience and knowledge of unmanned air and ground vehicle
operations and continues to work closely with major defense clients. Mr.
Joseph
is currently the President and sole Director of Inrob Israel. He is also
the
founder, CEO, and Director of Ben-Tsur Joseph Holdings, Ltd. He also acted
as Chief Executive Officer of Elina Industries from 1989 to 2004. During
2000
and 2001, Mr. Joseph was chairman of Elad Hotels, an Israeli publicly traded
company. He was also Chief Executive Officer of D.J.G. Industries- Electrical
and Lighting Products Ltd., an Israeli publicly traded company. Mr. Joseph’s
services to us are made available through a management agreement which may
be terminated by either party upon 90 days prior notice.
Item
10. Executive Compensation
The
following table sets forth the total compensation we paid for our fiscal
years
ended December 31, 2007, and 2006, to our executive officers. During the
fiscal
years ended December 31, 2006, and 2005, no Executive Officer or Director
of the
Company received remuneration. There are no arrangements for the compensation
of
Directors.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
Name and principal position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock Awards ($)
|
|
Compensation ($)
|
|
Total ($)
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(i)
|
|
(j)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben-Tsur
Joseph
|
|
|
2007
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
President
and Chief Executive Officer
|
|
|
2006
|
|
|
-0-
|
|
|
-0-
|
|
|
150,000
|
***
|
|
-0-
|
|
|
-0-
|
|
*
Mr. Joseph’s services to us are made available through a management
agreement which may be terminated by either party upon 90 days prior notice.
During the years ended December 31, 2006, and 2007, under the management
agreement, we accrued $220,000 and $240,000 in management fees, respectively.
During 2006 and 2007, no management fees were paid to Mr. Joseph. Mr. Joseph
provided for the offset of $205,000 owed to the Company by a related party
entity of Mr. Joseph against the management fee liability which reduced the
total amount owed as of December 31, 2006, to approximately
$135,000.
**
Consists of 1,000 shares of Preferred Stock
Option
Grants in Fiscal Year 2007
We
did
not issue any option grants during fiscal year 2007.
Our
Employee Stock Option Plan was previously extended to 2010. Currently no
options
have been issued under the Employee Stock Option Plan.
Section
16(a) Beneficial Ownership Reporting Compliance
Under
Section 16(a) of the Exchange Act, our Directors and certain of our officers,
and persons holding more than 10 percent of our common stock are required
to
file forms reporting their beneficial ownership of our common stock and
subsequent changes in that ownership with the Securities and Exchange
Commission. Such persons are also required to furnish us with copies of all
forms so filed.
Based
solely upon a review of copies of such forms filed on Forms 3, 4, and 5,
and
amendments thereto furnished to us, we believe that during the year ended
December 31, 2007, our executive officers, Directors, and greater than 10
percent beneficial owners complied on a timely basis with all Section 16(a)
filing requirements.
Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table describes, as of March 31, 2007, the beneficial ownership
of our
Common Stock by persons known to us to own more than 75% of such stock and
the
ownership of Common Stock by our Director, and by all officers and Directors
as
a group.
Name of Shareholder
|
|
Number of Shares
|
|
Percent
|
|
Ben-Tsur
Joseph
2
Haprat St.
Yavne
Israel
|
|
|
428,500,004
|
(1)
|
|
91.6
|
%
|
All
Directors and officers as a group (one person)
(1)
Includes 1,000 shares of Series A Preferred Stock, each of which carries
voting
rights equal to 400,000 shares of common stock.
Item
12. Transactions with Related Person, Promoters, and Certain Control
Persons.
As
of
December 31, 2007, Mr. Ben-Tsur Joseph, President and Director of the Company,
had loaned a total of $2,849 to the Company for working capital purposes.
The
loan is unsecured, non-interest bearing, and has no terms for
repayment.
In
July
2005, Inrob Israel purchased, on behalf of Ben-Tsur Joseph, its President,
Director, and sole stockholder, 2,057,415 shares of common stock of the Company
in connection with the reverse merger. The amount of consideration provided
by
Inrob Israel for the shares was $475,000. Thereafter, Mr. Joseph entered
into a
Share Transfer and Loan Agreement with Inrob Israel whereby the Company
transferred to Mr. Joseph 2,057,415 shares of the common stock of the Company
in
exchange for a promissory note issued by Mr. Joseph in the amount of $475,000.
The promissory note carries an interest rate of four percent per annum, and
is
payable to Inrob Israel on demand.
Inrob
Israel entered into a management agreement with an officer and Director on
October 1, 2003, which was subsequently extended as to its commencement date
to
May 1, 2005. Other terms and conditions related to equipment usage commenced
with the original date of the agreement. Under the terms of the agreement,
the
Company is obligated to pay $15,000 per month during the first year and $20,000
per month thereafter for management fees. For the years ended December 31,
2006,
and 2007, the Company accrued $220,000 and $240,000, respectively, under
the
management agreement. Mr. Joseph provided for the offset of $205,000 owed
to the
Company by a related party entity of Mr. Joseph against the management fee
liability which reduced the total amount owed as of December 31, 2006, to
approximately $135,000. The management agreement does not have a specific
completion date, but may be terminated by either party on written notice
of
three months.
Item
13. Exhibits
Exhibit
|
|
Description
|
3.1
|
|
Certificate
of Incorporation (1)
|
3.1a
|
|
Certificate
of Designation for Series A Preferred Stock(2)
|
3.2
|
|
Bylaws
(1)
|
4.1
|
|
Form
of Secured Convertible Note, dated November 15, 2006
(3)
|
4.2
|
|
Form
of Warrant, dated November 15, 2006 (3)
|
4.3
|
|
Form
of Secured Convertible Note, dated March 27, 2007 (4)
|
4.4
|
|
Form
of Warrant, dated March 27, 2007 (4)
|
10.1
|
|
Subscription
Agreement, dated November 15, 2006 (3)
|
10.2
|
|
Funds
Escrow Agreement, dated November 15, 2006 (3)
|
10.3
|
|
Security
Agreement, dated November 15, 2006 (3)
|
10.4
|
|
Stock
Pledge Agreement, dated November 15, 2006 (3)
|
10.5
|
|
Guaranty
Agreement, dated November 15, 2006 (3)
|
10.6
|
|
Collateral
Agent Agreement, dated November 15, 2006 (3)
|
10.7
|
|
Agreement,
dated October 1, 2003, between Inrob, Ltd and Ben-Tsur Joseph
(1)
|
10.8
|
|
Subscription
Agreement, dated March 27, 2007 (4)
|
10.9
|
|
Funds
Escrow Agreement, dated March 27, 2007 (4)
|
10.10
|
|
Stock
Pledge Agreement, dated March 27, 2007 (4)
|
10.11
|
|
Guaranty
Agreement, dated March 27, 2007 (4)
|
10.12
|
|
Collateral
Agent Agreement, dated March 27, 2007 (4)
|
10.13
|
|
Security
Agreement, dated March 26, 2007 (4)
|
10.14
|
|
Amendment
to Subscription Agreement, dated October 23, 2007 (5)
|
10.15
|
|
Agreement,
dated December 24, 2007, by and between Inrob Philippines Ltd,
and CP
Communication Services, Inc. (6)
|
10.16
|
|
Manufacturing
Agreement, dated December 24, 2007, by and between Inrob Philippines
Ltd,
and CP Communication Services, Inc. (6)
|
31.1
|
|
Certification
of Principal Executive and Financial Officer Pursuant to Exchange
Act Rule
13a-14(A)/15d-14(A) as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
|
|
Certification
Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
The Sarbanes-Oxley Act Of 2002
|
*
Filed herewith
|
|
(1)
|
Incorporated
by reference to Registrant’s Registration Statement on Form SB-2 (SEC File
No. 333-129074) filed on December 20, 2006.
|
|
(2)
|
Incorporated
by reference to Registrant’s Definitive Information Statement filed on
September 18, 2006.
|
|
(3)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on November
21, 2006.
|
|
(4)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on March 30,
2007.
|
|
(5)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on October
29, 2007.
|
|
(6)
|
Incorporated
by reference to Registrant’s Current Report on Form 8-K filed on December
28, 2007.
|
ITEM
14. PRINCIPAL REGISTERED INDEPENDENT AUDITOR FEES AND
SERVICES
1)
Audit
Fees
The
aggregate fees billed by Davis Accounting Group P.C. for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended December 31, 2007, and the audit of Inrob Israel for the
year
ended December 31, 2006, was $28,250.
2)
Audit-Related Fees
The
Company did not engage its principal registered independent auditors to provide
assurance and related services during the last two fiscal periods.
3)
Tax
Fees
The
Company did not engage its principal registered independent auditors to provide
tax compliance, tax advice, and tax planning services during the last two
fiscal
years.
4)
All
Other Fees
The
Company did not engage its principal registered independent auditors to render
services to the Company during the last two fiscal years, other than reported
above.
Signatures
In
accordance with Section 13 or 15(d) of the Exchange Act the Company caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 14, 2007
|
Inrob Tech Ltd.
|
|
|
|
/s/
|
Ben-Tsur
Joseph
|
|
Ben-Tsur Joseph, President and Chief
|
|
Executive and Accounting Officer
|
|
|
Date: April 14, 2007
|
Inrob Tech Ltd.
|
|
|
|
/s/
|
Ben-Tsur
Joseph
|
|
Ben-Tsur Joseph, Sole Director
|
INROB
TECH LTD. AND SUBSIDIARY
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
Report
of Registered Independent Auditors
|
F-2
|
|
|
Consolidated
Financial Statements-
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
F-3
|
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
|
|
for
the Years Ended December 31, 2007 and 2006
|
F-4
|
|
|
Consolidated
Statements of Stockholders’ (Deficit) for the Years
|
|
Ended
December 31, 2007 and 2006
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended
|
|
December
31, 2007, and 2006
|
F-6
|
|
|
Notes
to Consolidated Financial Statements for the Years
|
|
Ended
December 31, 2007, and 2006
|
F-8
|
REPORT
OF REGISTERED INDEPENDENT AUDITORS
To
the
Board of Directors and Stockholders of
Inrob
Tech Ltd.:
We
have
audited the accompanying consolidated balance sheet of Inrob Tech Ltd. (a Nevada
corporation) and subsidiary as of December 31, 2007, and the related
consolidated statements of operations and comprehensive (loss), stockholders’
(deficit), and cash flows for each of the two years in the period ended December
31, 2007. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is
not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Inrob Tech Ltd. and
subsidiary as of December 31, 2007, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 2007,
in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced operating losses,
and has negative working capital. These and other factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans regarding these matters are also described in Note 2 to the financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Respectfully
submitted,
/s/
Davis
Accounting Group P.C.
Cedar
City, Utah,
April
12,
2008.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
AS
OF DECEMBER 31, 2007
|
|
2007
|
|
ASSETS
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,486,975
|
|
Accounts
Receivable-
|
|
|
|
|
Trade
|
|
|
303,133
|
|
Income
and other taxes
|
|
|
57,517
|
|
Less
- Allowance for doubtful accounts
|
|
|
-
|
|
Inventories
|
|
|
507,744
|
|
Cost
of uncompleted contracts in excess of billings
|
|
|
56,407
|
|
Prepaid
expenses
|
|
|
19,574
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,431,350
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
and computer equipment
|
|
|
99,885
|
|
Furniture
and fixtures
|
|
|
65,335
|
|
Vehicles
|
|
|
587,522
|
|
Leasehold
improvements
|
|
|
43,760
|
|
|
|
|
|
|
|
|
|
796,502
|
|
Less
- Accumulated depreciation and amortization
|
|
|
(352,700
|
)
|
|
|
|
|
|
Net
property and equipment
|
|
|
443,802
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Deposits
and other
|
|
|
586
|
|
Debt
issuance costs, net
|
|
|
368,572
|
|
Loans
to related party companies
|
|
|
274,061
|
|
Interest
receivable on loan to Ben-Tsur Joseph
|
|
|
46,537
|
|
Manufacturing
contract deposit
|
|
|
982,000
|
|
|
|
|
|
|
Total
other assets
|
|
|
1,671,756
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
5,546,908
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Bank
overdrafts
|
|
$
|
191,870
|
|
Bank
loans and other debt, current portion
|
|
|
46,931
|
|
Current
portion of convertible notes
|
|
|
3,715,389
|
|
Accounts
payable - Trade
|
|
|
228,272
|
|
Due
to related party - Director and stockholder
|
|
|
2,849
|
|
Due
to related party - Affiliate company
|
|
|
2,880
|
|
Billings
on uncompleted contracts in excess of costs
|
|
|
195,341
|
|
Due
to related party - Investor group
|
|
|
178,438
|
|
Accrued
liabilities
|
|
|
252,260
|
|
Income
tax payable
|
|
|
19,643
|
|
Deferred
revenue
|
|
|
532,573
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,366,446
|
|
|
|
|
|
|
Long-term
Debt, less current portion:
|
|
|
|
|
Bank
loans and other debt
|
|
|
183,792
|
|
Convertible
notes
|
|
|
750,000
|
|
Total
long-term debt
|
|
|
933,792
|
|
|
|
|
|
|
Total
liabilities
|
|
|
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
|
|
Common
stock, par value $.0001 per share; 380,000,000 shares
|
|
|
|
|
authorized;
79,134,307 shares issued and outstanding
|
|
|
7,913
|
|
Additional
paid-in capital
|
|
|
3,010,977
|
|
Less
- Loan receivable - Director and stockholder
|
|
|
(475,000
|
)
|
Accumulated
other comprehensive income
|
|
|
54,525
|
|
Accumulated
(deficit)
|
|
|
(3,501,745
|
)
|
|
|
|
|
|
Total
stockholders' (deficit)
|
|
|
(753,330
|
)
|
|
|
|
|
|
Total
Liabilities and Stockholders' (Deficit)
|
|
$
|
5,546,908
|
|
The
accompanying notes to financial statements
are
an
integral part of this balance sheet.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE
(LOSS)
FOR
THE YEARS ENDED DECEMBER 31, 2007, AND 2006
|
|
2007
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
Services
|
|
$
|
1,700,246
|
|
$
|
1,262,011
|
|
Product
sales
|
|
|
293,576
|
|
|
394,787
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
1,993,822
|
|
|
1,656,798
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold:
|
|
|
|
|
|
|
|
Services
|
|
|
1,482,924
|
|
|
1,185,000
|
|
Product
sales
|
|
|
97,859
|
|
|
165,594
|
|
|
|
|
|
|
|
|
|
Total
cost of goods sold
|
|
|
1,580,783
|
|
|
1,350,594
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
413,039
|
|
|
306,204
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,838,438
|
|
|
1,065,342
|
|
|
|
|
|
|
|
|
|
Total
general and administrative expenses
|
|
|
1,838,438
|
|
|
1,065,342
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
|
|
(1,425,399
|
)
|
|
(759,138
|
)
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
198,855
|
|
|
48,269
|
|
Interest
(expense)
|
|
|
(960,439
|
)
|
|
(114,423
|
)
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(761,584
|
)
|
|
(66,154
|
)
|
|
|
|
|
|
|
|
|
Income
(Loss) before Income Taxes
|
|
|
(2,186,983
|
)
|
|
(825,292
|
)
|
|
|
|
|
|
|
|
|
(Provision)
for income taxes
|
|
|
-
|
|
|
(2,940
|
)
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
(2,186,983
|
)
|
|
(828,232
|
)
|
|
|
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
14,114
|
|
|
36,642
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive (Loss)
|
|
$
|
(2,172,869
|
)
|
$
|
(791,590
|
)
|
|
|
|
|
|
|
|
|
(Loss)
Per Common Share:
|
|
|
|
|
|
|
|
(Loss)
per common share - Basic and Diluted
|
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares
|
|
|
|
|
|
|
|
Outstanding
During the Periods- Basic and Diluted
|
|
|
66,704,947
|
|
|
61,350,201
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' (DEFICIT) (NOTE 2)
FOR
THE PERIODS ENDED DECEMBER 31, 2007, AND 2006
|
|
|
|
|
|
|
|
|
|
Less - Loan
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Additional
|
|
Receivable -
|
|
Other
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Paid-in
|
|
Common Stock
|
|
Paid-in
|
|
Director and
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Description
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Stockholder
|
|
Income (Loss)
|
|
(Deficit)
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2005
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
61,350,180
|
|
$
|
6,135
|
|
$
|
907,783
|
|
$
|
(475,000
|
)
|
$
|
3,769
|
|
$
|
(486,530
|
)
|
$
|
(43,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction
of common stock for fractional shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series A preferred stock for services rendered
|
|
|
1,000
|
|
|
-
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,642
|
|
|
-
|
|
|
36,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(828,232
|
)
|
|
(828,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
150,000
|
|
$
|
61,350,201
|
|
$
|
6,135
|
|
$
|
907,783
|
|
$
|
(475,000
|
)
|
$
|
40,411
|
|
$
|
(1,314,762
|
)
|
$
|
(685,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for payments on convertible notes and accrued
interest
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,784,106
|
|
|
1,778
|
|
|
2,103,194
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,104,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israeli
currency translation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
14,114
|
|
|
-
|
|
|
14,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,186,983
|
)
|
|
(2,186,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2007
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
150,000
|
|
$
|
79,134,307
|
|
$
|
7,913
|
|
$
|
3,010,977
|
|
$
|
(475,000
|
)
|
$
|
54,525
|
|
$
|
(3,501,745
|
)
|
$
|
(753,330
|
)
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE YEARS ENDED DECEMBER 31, 2007, AND 2006
|
|
2007
|
|
2006
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(2,186,983
|
)
|
$
|
(828,232
|
)
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
106,427
|
|
|
78,567
|
|
Amortization
of debt issuance costs
|
|
|
305,910
|
|
|
21,281
|
|
Series
A preferred stock issued for officer's compensation
|
|
|
-
|
|
|
150,000
|
|
Reserve
for (recovery of ) loss on contract
|
|
|
(39,141
|
)
|
|
(10,956
|
)
|
Loss
on sale of vehicles
|
|
|
1,232
|
|
|
-
|
|
Changes
in net assets and liabilities-
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(103,769
|
)
|
|
64,651
|
|
Inventories
|
|
|
204,028
|
|
|
(234,465
|
)
|
Cost
of uncompleted contracts in excess of billings
|
|
|
104,964
|
|
|
28,612
|
|
Prepaid
expenses and deposits
|
|
|
(8,775
|
)
|
|
5,702
|
|
Manufacturing
contract deposit
|
|
|
(982,000
|
)
|
|
-
|
|
Accounts
payable - Trade and accrued liabilities
|
|
|
417,547
|
|
|
124,128
|
|
Billings
on uncompleted contracts in excess of related costs
|
|
|
60,907
|
|
|
133,431
|
|
Deferred
revenue
|
|
|
(202,704
|
)
|
|
310,781
|
|
Income
taxes payable and other
|
|
|
19,643
|
|
|
(20,147
|
)
|
|
|
|
|
|
|
|
|
Net
Cash (Used in) Operating Activities
|
|
|
(2,302,714
|
)
|
|
(176,647
|
)
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of vehicles
|
|
|
20,487
|
|
|
-
|
|
Purchases
of and adjustments to property and equipment
|
|
|
(326,291
|
)
|
|
(89,114
|
)
|
|
|
|
|
|
|
|
|
Net
Cash (Used in) Investing Activities
|
|
|
(305,804
|
)
|
|
(89,114
|
)
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
247,987
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(68,961
|
)
|
|
(324,225
|
)
|
Proceeds
from bank overdrafts
|
|
|
96,960
|
|
|
54,549
|
|
Payment
on convertible debenture and related interest
|
|
|
-
|
|
|
(46,750
|
)
|
Proceeds
from issuance of convertible notes
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Debt
issuance costs - Convertible notes
|
|
|
(355,263
|
)
|
|
(340,500
|
)
|
Loan
receivable - Director and stockholder
|
|
|
27,447
|
|
|
-
|
|
Interest
on loan receivable - Director and stockholder
|
|
|
(46,537
|
)
|
|
(18,962
|
)
|
Proceeds
from loan from related party - Investor group
|
|
|
17,236
|
|
|
161,202
|
|
Due
from related party - Director and stockholder
|
|
|
-
|
|
|
(490
|
)
|
Due
to related parties
|
|
|
(76,202
|
)
|
|
-
|
|
Received
from (loans to) related party companies
|
|
|
(39,659
|
)
|
|
22,666
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
2,803,008
|
|
|
2,507,490
|
|
|
|
|
|
|
|
|
|
Effect
of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
14,114
|
|
|
36,642
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash Equivalents
|
|
|
208,604
|
|
|
2,278,371
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
|
2,278,371
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Period
|
|
$
|
2,486,975
|
|
$
|
2,278,371
|
|
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS (NOTE 2)
FOR
THE YEARS ENDED DECEMBER 31, 2007, AND 2006
Supplemental
Disclosures of Cash Flow Information:
|
|
2007
|
|
2006
|
|
Cash
paid during the periods for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
43,336
|
|
$
|
64,213
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
20,147
|
|
Supplemental
Information of Noncash Investing and Financing Activities:
During
the year ended December 31, 2007, the Company issued 17,784,106 shares of its
common stock as payment of $1,534,611 of principal and $570,361 of accrued
interest on certain convertible notes.
The
accompanying notes to financial statements are
an
integral part of these statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
(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 robots (“UVR”). The remote control
systems of the Company are the “brains” for many UVR solutions. The current
nature of Israel’s security situation coupled with the Company’s close work with
the Israeli Defense Forces (“IDF”) and the Israeli police, has helped the
Company gain extensive experience in a wide range of military and law
enforcement UVR applications and control solutions. The Company has also
targeted the civilian applications market, which includes solar powered
equipment, and dangerous tasks such as nuclear plant maintenance, inspection
and
decommissioning, the demolition industry, and firefighting and rescue services.
The accompanying financial statements of Inrob Tech were prepared from the
accounts of the Company under the accrual basis of accounting in United States
dollars. In addition, the accompanying financial statements reflect the
completion of a reverse merger between Inrob Tech and Inrob Ltd. (“Inrob
Israel”), which was effected on July 21, 2005.
Prior
to
the completion of the reverse merger, Inrob Tech was a near dormant corporation
with virtually no assets or operations (essentially since April 1, 2001, when
the Company sold its paging business, known as The Sports Page and Score Page
to
BeepMe, to a third party vendor and creditor). The Company was originally
incorporated in the State of Nevada under the name of Beeper Plus, Inc. On
July
15, 2003, the Company then changed its name to Western Gaming Corporation.
On
August 17, 2005, the Company again changed its name to Inrob Tech Ltd. to
reflect the reverse merger effected on July 21, 2005, and its new business
plan.
Inrob
Israel was organized as an Israeli corporation in 1988, under the name of Eligal
Laboratories Ltd., and its UVR solutions include: (i) remote control systems
(the “brains” of any robot); (ii) complete robot systems; and (iii) customized
solutions. Inrob Israel is certified to design, manufacture and maintain
electronic, optical and electro-mechanical equipment, and is a certified
supplier to the Israeli Defense Forces and the Israeli Air Force. It has also
been issued a certificate from the Israeli Air Force stating that its quality
system is approved to perform inspections of products and services supplied
to
the Israeli Air Force. Inrob Israel changed its name to Inrob Ltd. in September
2003.
In
addition, in January 2004, Inrob Israel completed two equity purchase
transactions with separate entities and raised $195,000 from the issuance of
30,000,000 shares of its common stock. Thereafter, Inrob Israel commenced a
registration activity of such shares of its common stock on behalf of the two
entities as selling shareholders on Form F-1 with the Securities and Exchange
Commission (“SEC”). The registration activity continued through December 31,
2004, and into the year 2005. In early 2005, Inrob Israel decided not to
complete the registration of the common stock of the selling shareholders with
the SEC, and withdrew its registration statement on July 28, 2005. As an
alternative transaction, effective July 21, 2005, Inrob Israel completed the
reverse merger with Inrob Tech, a publicly traded Nevada
corporation.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
Given
that Inrob Israel is considered to have acquired Inrob Tech by a reverse merger
through a Stock Purchase Agreement, and its sole stockholder currently has
voting control of the Company, the accompanying financial statements and related
disclosures in the notes to financial statements present the financial position
as of December 31, 2007, and the operations for the two years in the period
ended December 31, 2007, 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 December 31, 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.
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 December 31, 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
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
DECEMBER
31, 2007, AND 2006
On-going
maintenance service contracts are negotiated separately at an additional fee.
The maintenance service is separate from the functionality of the products,
which can function without on-going maintenance. Revenues relating to
maintenance service contracts are recognized as the services are rendered
ratably over the period of the related contract.
The
Company is not required to perform significant post-delivery obligations, does
not provide warranties and does not allow product returns. As such, no provision
is made for costs of this nature.
The
Company does not sell products with multiple deliverables. It is management’s
opinion that EITF 00-21, “
Revenue
Arrangements With Multiple Deliverables
”
is
not
applicable.
Property
and Equipment
The
components of property and equipment are stated at cost. Property and equipment
costs are depreciated or amortized for financial reporting purposes over the
useful lives of the related assets by the straight-line method. Useful lives
utilized by the Company for calculating depreciation or amortization are as
follows:
Computer
and office equipment
|
5
to 10 years
|
Furniture
and fixtures
|
3
to 15 years
|
Vehicles
|
5
to 6 years
|
Leasehold
improvements
|
10
years
|
Upon
disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss
is
recognized.
Lease
Obligations
All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases. Assets recorded under capital leases
are
amortized according to the same methods employed for property and equipment
or
over the term of the related lease, if shorter.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of long-lived assets and the related
estimated remaining lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable. For the
periods ended December 31, 2007, and 2006, no events or circumstances occurred
for which an evaluation of the recoverability of long-lived assets was
required.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
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 December 31, 2007, the Company
recorded $695,763 of debt issuance costs related to convertible notes, and
amortized $327,191 of such costs as additional interest expense.
Advertising
and Promotion Costs
Advertising
and promotion costs are charged to operations when incurred. For the periods
ended December 31, 2007, and 2006, advertising and promotion costs amounted
to
$34,476 and $92,867, respectively.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
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 December 31, 2007,
and 2006, the only components of comprehensive (loss) were the net (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).
Fair
Value of Financial Instruments
The
Company estimates the fair value of financial instruments using the available
market information and valuation methods. Considerable judgment is required
in
estimating fair value. Accordingly, the estimates of fair value may not be
indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2007, the Company’s financial instruments
approximated fair value to do the nature and maturity of such
instruments.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
Estimates
The
financial statements are prepared on the basis of accounting principles
generally accepted in the United States. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and
liabilities as of December 31, 2007, and revenues and expenses for the periods
ended December 31, 2007, and 2006. Actual results could differ from those
estimates made by management.
During
the years ended December 31, 2007, and 2006, 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) 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. As described
in
Note 8, on October 23, 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.
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 is required to pay to CPCOM an 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. As of December 31, 2007, the Company had paid $980,000 to CPCOM,
which was considered as satisfaction of the initial $1,000,000
obligation.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
While
management of the Company believes that the Company will be successful in
increasing its working capital from operations and the generation of additional
business revenues from new and existing clients, there can be no assurance
that
the Company will be able to generate the funds needed to meet its debt and
working capital obligations under its business plan, or be successful in the
sale of its products and services to generate sufficient revenues to allow
the
Company to achieve profitability, and to sustain its operations.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred operating losses, and had negative working capital as of December
31,
2007. These and other factors raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements
do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
As
of
December 31, 2007, inventories consisted of the following:
|
|
2007
|
|
|
|
|
|
Work
in progress
|
|
$
|
461,733
|
|
Materials
|
|
|
46,011
|
|
Total
|
|
$
|
507,744
|
|
(4)
|
Loan
Receivable – Director and
Stockholder
|
As
discussed in Note 9, in July 2005, Inrob Israel purchased, on behalf of Ben-Tsur
Joseph, President, sole Director and stockholder, 2,057,415 shares of common
stock of Inrob Tech in connection with the reverse merger. The amount of
consideration provided by Inrob Israel for the shares was $475,000. Thereafter,
Mr. Joseph entered into a Share Transfer and Loan Agreement with Inrob Israel
whereby the company transferred to Mr. Joseph 2,057,415 shares of the common
stock of Inrob Tech in exchange for a promissory note issued by Mr. Joseph
in
the amount of $475,000. The promissory note carries an interest rate of four
(4)
percent per annum, and is payable to Inrob Israel on demand. As of December
31,
2007, the balance owed on the loan plus accrued interest amounted to $521,537.
The Company has classified the amount of the promissory note due from Mr.
Joseph, or $475,000, as an offset to common stock equity, due to the nature
of
the transaction as a common stock subscription arrangement.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
(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 $46,537 as of December 31, 2007. The
following summarizes the amounts receivable as of December 31,
2007:
|
|
2007
|
|
|
|
|
|
Ben-Tsur
Joseph Holdings Ltd.
|
|
$
|
274,061
|
|
Totals
|
|
$
|
274,061
|
|
The
Company has certain loans and bank arrangements to fund its operations in Israel
which are described as follows:
|
|
2007
|
|
|
|
|
|
Bank
Loan #1:
|
|
|
|
|
|
|
|
|
|
Monthly
payments including interest at 6% per annum, matures February 27,
2008,
secured.
|
|
$
|
2,986
|
|
|
|
|
|
|
Bank
Loan #2:
|
|
|
|
|
|
|
|
|
|
Monthly
payments including interest at 5% per annum, matures November 5,
2012,
secured.
|
|
|
126,025
|
|
|
|
|
|
|
Automobile
Loans:
|
|
|
|
|
Monthly
payments including interest at 4.5% per annum, matures June 29, 2012,
secured.
|
|
|
101,712
|
|
Totals
|
|
|
230,723
|
|
|
|
|
|
|
Less
- Current portion
|
|
|
(46,931
|
)
|
Total
Bank Loans
|
|
$
|
183,792
|
|
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
Principal
repayments of bank debt are as follows:
2008
|
|
$
|
46,931
|
|
2009
|
|
|
46,085
|
|
2010
|
|
|
48,328
|
|
2011
|
|
|
50,682
|
|
2012
|
|
|
38,697
|
|
Totals
|
|
$
|
230,723
|
|
(7)
|
Convertible
Debenture
|
On
September 30, 2005, the Company issued a convertible debenture (the “Debenture”)
in the amount of $42,500 to a third-party entity. The Debenture carried an
interest rate of ten (10) percent per annum, was due on November 30, 2005,
and
was convertible into 2,000,000 publicly traded shares of the Company’s common
stock. The due date of the Debenture was extended to December 31, 2006, by
written agreement between the parties. In addition, effective September 30,
2006, the third-party entity executed a document wherein it indicated that
it
had waived its right to convert the Debenture to common stock of the Company.
In
November 2006, the Debenture, together with accrued interest, for a total amount
of $46,750, was paid off.
(8)
|
Issuance
of Convertible Notes and
Warrants
|
On
November 15, 2006, the Company effected a subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance – November 15,
2008.
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
DECEMBER
31, 2007, AND 2006
Provided
there is no default under the Convertible Notes, the Company may prepay the
outstanding principal amount of the Convertible Notes at a 20 percent premium,
together with accrued but unpaid interest thereon and any and all other sums
due.
The
investors have a right to convert the Convertible Notes into registered shares
of common stock of the Company at $0.25 per share. Upon an event of default,
the
conversion price shall be the lesser of $0.25 or 75 percent of the average
of
the closing bid prices of the common stock of the Company for the five trading
days prior to a conversion date. No conversions may take place if it would
cause
an investor to become the beneficial owner of more than 4.99 percent of the
outstanding shares of common stock of the Company, which limitation is subject
to waiver by an investor upon 61 days prior written notice to the
Company.
The
Company has granted a security interest in all of its assets, and the assets
of
Inrob Israel to secure its obligations under the Convertible Notes. Further,
in
connection with the Convertible Note transaction, the Company has determined
that there was no beneficial conversion feature recorded.
The
Company also issued Class A warrants to purchase 6,000,000 shares of the
Company’s common stock at $0.40 per share and Class B warrants to purchase
6,000,000 shares of the Company’s common stock at $0.50 per share. All warrants
are exercisable for a period of five years following the effective date of
a
registration statement filed with the SEC, which the Company agreed to
complete.
The
Company filed a Registration Statement on Form SB-2 with the SEC on December
20,
2006, to register 18,405,000 shares of common stock related to the Convertible
Notes. The Registration Statement was declared effective by the SEC on January
11, 2007.
In
connection with the issuance of the Convertible Notes, the Company incurred
$340,500 in debt issuance costs, which included $300,000 paid in cash as a
finder’s fee. The Company is obligated to pay additional finder’s fees in the
amount of ten percent of the proceeds generated from the exercise of Class
A and
Class B warrants. In addition, the Company also issued 1,200,000 warrants to
the
finder (similar to and carrying the same rights as the Class A warrants issued
to the investors in the Convertible Notes) to purchase a like number of shares
of common stock of the Company for $0.25 per share. Such warrants are
exercisable for a period of five years following the effective date of the
Registration Statement filed by the Company with the SEC.
On
March
27, 2007, the Company effected a second subscription agreement with a group
of
accredited investors under Regulation D of the Securities Act of 1933, as
amended, which provided for the issuance to the investors, exempt from
registration, of certain 8 percent convertible notes (the “Convertible Notes”)
in the principal amount of $3,000,000. The maturity date of the Convertible
Notes is two years from the date of issuance – March 27, 2009. The
transaction was completed under essentially the same terms and conditions as
the
first issuance described 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
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
year ended December 31, 2007, the Company issued 17,784,106 shares of its common
stock as payment of $1,534,611 of principal and $570,361 of accrued interest
related to Convertible 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.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
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.
(10)
|
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 does not believe that this new pronouncement will have a material impact
on its financial statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
In
December 2007, the FASB issued SFAS No. 141R, “
Business
Combinations
–
Revised 2007
”
(“SFAS
No. 141R”), which replaces FASB Statement No. 141, “
Business
Combinations
.”
SFAS
No. 141R
establishes
principles and requirements intending to improve the relevance, representational
faithfulness, and comparability of information that a reporting entity provides
in its financial reports about a business combination and its effects. This
is
accomplished through requiring the acquirer to recognize assets acquired
and
liabilities assumed arising from contractual contingencies as of the acquisition
date, measured at their acquisition-date fair values. This includes contractual
contingencies only if it is more likely than not that they meet the definition
of an asset of a liability in FASB Concepts Statement No. 6, “
Elements
of Financial Statements
–
a
replacement of FASB Concepts Statement No. 3.
”
This
statement also requires the acquirer to recognize goodwill as of the acquisition
date, measured as a residual. However, this statement improves the way in
which
an acquirer’s obligations to make payments conditioned on the outcome of future
events are recognized and measured, which in turn improves the measure of
goodwill. This statement also defines a bargain purchase as a business
combination in which the total acquisition-date fair value of the consideration
transferred plus any noncontrolling interest in the acquiree, and it requires
the acquirer to recognize that excess in earnings as a gain attributable
to the
acquirer. This, therefore, improves the representational faithfulness and
completeness of the information provided about both the acquirer’s earnings
during the period in which it makes a bargain purchase and the measures of
the
assets acquired in the bargain purchase. The Company does not expect the
adoption of this pronouncement to have a material impact on its financial
statements.
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 for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. Specifically,
this
statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest
in a subsidiary that do not result in deconsolidation are equity transactions
if
the parent retains its controlling financial interest. In addition, this
statement requires that a parent recognize a gain or loss in net income when
a
subsidiary is deconsolidated. Such gain or loss will be measured using the
fair
value of the noncontrolling equity investment on the deconsolidation date.
SFAS
No. 160 also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest.
SFAS
No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
The management of the Company does not expect the adoption of this pronouncement
to have a material impact on its financial statements.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
In
March
2008, the FASB issued SFAS 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.
|
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.
(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,
2007, and 2006, the Company accrued $240,000 and $220,000, 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. The management
agreement does not have a specific completion date, but may be terminated by
either party on written notice of three months.
As
described in Note 9 above, in July 2005, Inrob Israel purchased, on behalf
of
Ben-Tsur Joseph, its President, Director and sole stockholder, 2,057,415 shares
of common stock of Inrob Tech in connection with the reverse merger. The amount
of consideration provided by Inrob Israel for the shares was $475,000.
Thereafter, Mr. Joseph entered into a Share Transfer and Loan Agreement with
Inrob Israel whereby the company transferred to Mr. Joseph 2,057,415 shares
of
the common stock of Inrob Tech in exchange for a promissory note issued by
Mr.
Joseph in the amount of $475,000. The promissory note carries an interest rate
of four (4) percent per annum, and is payable to Inrob Israel on demand. The
Company has classified the amount of the promissory note due from Mr. Joseph,
or
$475,000, as an offset to common stock equity, due to the nature of the
transaction as a common stock subscription arrangement.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
As
of
December 31, 2007, Mr. Ben-Tsur Joseph, President and Director of the Company,
had loaned a total of $2,849 to the Company for working capital purposes.
The
loan is unsecured, non-interest bearing, and has no terms for
repayment.
(12)
|
Commitments
and Contingencies
|
For
the
year ended December 31, 2005, the Company was a party to a lease agreement
in
Israel for its premises which expired in January, 2006. In 2006, the Company
entered into a new one-year lease agreement, with an option to extend the
agreement for an additional year for the use of 1,135 square meters of office
and engineering/operations space. The Company paid approximately $23,000 in
operating lease payments for its premises through June 2006. Thereafter,
effective July 1, 2006, the Company entered into a new lease agreement for
300
square meters of space. The Company leased the space for a period of three
years. For the year ended December 31, 2007, the Company paid approximately
$12,600 in operating lease payments for its premises. Minimum lease payments
for
the years 2008, and 2009 under the lease agreement will be $12,600 and $6,300,
respectively. After the initial term, the Company has two option periods to
extend the lease through 2013.
The
Company leases on a month-to-month basis approximately 175.3 square meters
of
warehouse space at the same facility that it occupies for production and office
space. The monthly rental amount for the warehouse space is $913 per
month.
The
Company leases four autos under an operating lease agreement which expires
in
December 2008. Minimum annual payments under the operating lease amount to
$23,424 per year.
The
Company also entered into two sublease agreements for its leased premises in
Israel which expired on December 31, 2005. Subsequent to December 31, 2005,
the
sublease agreements continued on a month-to-month basis until April, 2006,
and
June, 2006, respectively, when the parties to the sublease agreements moved
from
the leased premises of the Company. For the year ended December 31, 2006, the
Company received approximately $10,716 of sublease income from the two
parties.
In
December 2005, the Company entered into an agreement for securing capital
financing, and services related to stockholder relations and introductory
services to market makers with an unrelated entity. The terms of the agreement
required a payment of $50,000 at the commencement of the services which began
in
January 2006, and $10,000 per month thereafter for a period of six months.
For
the year ended December 31, 2006, the Company paid $110,000 for services related
to the agreement. Funding for the agreement was provided by an advance from
a
related party investor group.
In
February 2006, the Company entered into an agreement with MoneyTV for certain
media services related to the promotion of the Company on an international
level. The agreement required the payment of a fee of $11,500 for such services.
Funding for the agreement was provided by an advance from a related party
investor group.
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
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 is required to pay to CPCOM an 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
amounts paid. 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.
The
provision (benefit) for income tax for the periods ended December 31, 2007,
and
2006, were as follows (assuming a 34% effective tax rate):
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Current
Tax Provision:
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
Taxable
income
|
|
$
|
-
|
|
$
|
2,940
|
|
Total
current tax provision
|
|
$
|
-
|
|
$
|
2,940
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Provision:
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
Loss
carryforwards
|
|
|
743,500
|
|
|
281,600
|
|
Change
in valuation allowance
|
|
|
(743,500
|
)
|
|
(281,600
|
)
|
Total
deferred tax provision
|
|
$
|
-
|
|
$
|
-
|
|
The
Company had deferred income tax assets as of December 31, 2007, and 2006, as
follows:
|
|
2007
|
|
2006
|
|
Loss
carryforwards
|
|
$
|
1,190,500
|
|
$
|
|
|
Less
- Valuation allowance
|
|
|
|
)
|
|
|
)
|
Total
net deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
INROB
TECH LTD. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2007, AND 2006
The
Company provided a valuation allowance equal to the deferred income tax assets
for the periods ended December 31, 2007, and 2006, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.
As
of
December 31, 2007, the Company had approximately $3,501,745 in tax loss
carryforwards that can be utilized in future periods to reduce taxable
income.
(14)
|
Significant
Customers
|
For
the
years ended December 31, 2007, and 2006, the Company had one customer that
accounted for more that ten (10) percent of total revenues, as
follows:
|
|
2007
|
|
2006
|
|
Customer
A
|
|
$
|
803,089
|
|
$
|
643,612
|
|
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