TRB Systems International Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2006
1. ORGANIZATION AND NATURE OF BUSINESS
TRB Systems International Inc. ("the Company") is a holding company incorporated
in Delaware on April 11, 1997. The Company has established a new subsidiary,
Alenax (Tianjing) Bicycle Corp. ("Alenax") to conduct business in China. Alenax
was incorporated on February 22, 2005 under the laws of People's Republic of
China or PROC.
The Company was established to produce and market bicycle, fitness and motorized
two wheel transportation products. For the period from its inception to date,
the Company has been a development stage enterprise, and accordingly, the
operations have been directed primarily toward developing business strategies,
raising capital, research and development activities, conducting testing of its
products, exploring marketing channels and recruiting personnel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant account policies of TRB Systems International,
Inc., is presented to assist in understanding the Company's financial
statements. The financial statements and the notes are the representation of
the Company's management, who are responsible for their integrity and
objectivity. These accounting policies conform to U.S. generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
a. Liquidity
As of September 30, 2007, the Company had cash and cash equivalents totaling
$18,720 as compared to $ 39,432 at September 30, 2006. As of September 30, 2007,
the Company had working capital of $(518,095) compared to a working capital of
$(441,454) at September 30, 2006. The Company has outstanding judgments in the
amount of $ 381,000 that is unable to pay within one-year period.
The Company believes its available cash, cash equivalents, in combination with
additional license and distributor payments will be sufficient to meet its
anticipated capital requirements. Prior to the commercialization of its
products, substantial capital resources will be required to fund continuing
operations related to the Company's research, development, manufacturing and
business development activities. The Company believes there may be a number of
alternatives available to meet the continuing capital requirements to its
operations, such as public and private financings. Further, the Company placed
the first order of its products and believes that will generate new license and
distributor agreements. There can be no assurance that any of these findings
will be consummated in the time frames needed for continuing operations or on
terms favorable to the Company. If adequate funds in the future are not
available, the Company will be required to significantly curtail its operating
plans and may have to sell or license out significant portions of the Company's
technology or potential products, and possibly cease operations.
b. Going Concern
The Company incurred accumulated net losses of $ 4,043,653 from the period of
April 11, 1997 (Date of Inception) through September 30, 2007, has recently
commenced limited operations, and is rather, still in the development stages,
thus raising substantial doubt about the Company's ability to continue as a
going concern. The Company may seek additional sources of capital through the
issuance of debt or equity financing, but there can be no assurance the Company
will be successful in accomplishing its objectives.
The ability of the Company to continue as a going concern is dependent on
additional sources of capital and the success of the Company's plan. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
c. Basis of Presentation
The financial statements of TRB Systems International Inc. are prepared using
the accrual basis of accounting whereas revenues are recognized when earned and
expenses are recognized when incurred. This basis of accounting conforms to
generally accepted accounting principles in the United States of America.
d. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of TRB
Systems International Inc., a non-operating holding company and Alenax
(Tianjin) Bicycle Corp., the operating company.
e. Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Estimates are used when accounting for certain items, such
as allowances for doubtful accounts, depreciation and amortization, income
taxes and contingencies. Actual results could differ from those estimates.
f. Cash and Cash equivalents
For the purpose of the statements of cash flows, the Company considers as cash
equivalents: cash on hand, cash in banks, time deposits and all highly liquid
short-term investments with maturity of three months or less.
g. Allowance for Doubtful Accounts
The allowance for doubtful accounts is established through a charge to an
expense account. The Company reserves based on experience and the risk assessed
to each account.
h. Inventories
Inventories consist of bicycles and bicycle parts. Inventories are stated at the
lower of cost or market using FIFO (First In, First Out).
i. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is computed using the straight-line method for financial reporting
purposes at rates based on the following estimated useful lives.
Machinery and equipment 3-10
Furniture and fixtures 3-10
Engineering equipment 3-10
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For federal income tax purposes, depreciation is computed using the Modified
Accelerated Cost Recovery System method (MACRS) therefore temporary differences
exist. Expenditures for major renewals and betterment that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs as charged to expense as incurred.
j. Impairment of Long-Lived Assets
The Company has adopted FASB Statements No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. If the total fair value is less than the carrying value
of the asset, a loss is recognized for the difference. Fair value is determined
based on market quotes, if available, or is based on valuation techniques.
k. Intangible Assets
Intangible assets subject to amortization include organization costs, loan
closing costs, and in-force leasehold costs. Organization costs and in-force
costs are being amortized using the interest method over the life of the
related loan.
l. Income Tax
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credits carry-forward. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is established to reduce the deferred tax asset if it is
more likely than not the related tax benefits will not be realized in the
future.
m. Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements.
n. Revenue Recognition
License and distributor fees are earned and recognized according to the terms
of each agreement.
o. License and Distributor Agreements
The Company's license and distributor agreements provide for compensation to be
paid during the first year of the agreements and eventual royalties on the sale
of the products. Terms of the agreements typically commence as of the date
executed and continue for a period of three years, renewable every three years.
The Company has license agreements in the following countries: Japan, India,
Nigeria & Benin, Canada, Ivory Coast, Tanzania, Brazil, Vietnam and Korea.
The Company has distributor agreements in the following states in the United
States: California in Orange County and Los Angeles County, Maryland, Delaware
and New York in Long Island County and Queens County.
Future Commitments Per Agreements
1st Yr 2nd Yr 3rd Yr
Countries States/Counties (Bikes) (Bikes) (Bikes) Total
----------------- ---------------- ------------- ------------ ------------ ------------
Japan 40,000 80,000 200,000 320,000
India 50,000 90,000 200,000 340,000
Nigeria & Benin 5,000 9,000 10,000 24,000
Tanzania 1,000 2,000 3,000 6,000
Vietnam 4,000 7,000 10,000 21,000
Korea 13,000 31,000 62,000 106,000
Distributors USA
CA-Orange County 1,500 3,000 5,000 9,500
CA-LA County 3,000 5,000 7,000 15,000
Maryland & Delaware 1,000 2,000 2,840 5,840
New York
Long Island/Queens 1,000 2,000 3,000 6,000
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p. Research and Development
Research and product development costs are expensed as incurred. The Company
incurred expense of $14,442 for the three-month period ended September 30, 2007
as compared to $14,668 for the same period ended September 30, 2006.
q. Net Operating Loss Carry-forward
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes
for operating losses that are available to offset future taxable income.
r. Reclassification
Certain account reclassifications have been made to the financial statements of
the prior year in order to conform to classifications used in the current year.
These changes had no impact on previously stated financial statements of the
Company.
NEW ACCOUNTING PRONOUNCEMENTS:
In February 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 155, "Accounting for
Certain Hybrid Financial Instruments--an amendment of FASB Statements No. 133
and 140" ("SFAS No. 155"). The provisions of SFAS No. 155 will be effective for
all financial instruments acquired, issued, or subject to a re-measurement
(new basis) event occurring after the beginning of an entity's first fiscal
year that begins after September 15, 2006. The fair value election provided
for in paragraph 4(c) of this Statement may also be applied upon adoption of
this Statement for hybrid financial instruments that had been bifurcated under
paragraph 12 of Statement 133 prior to the adoption of this Statement. Earlier
adoption is permitted as of the beginning of an entity's fiscal year, provided
the entity has not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. SFAS No. 155 amends
FASB SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), and SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"). SFAS No. 155 resolves issues addressed in SFAS No. 133 Implementation
Issue No. D1, "Application of Statement 133 to Beneficial Interests in
Securitized Financial Assets". This Statement: a) permits fair value
e-measurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, b) clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No.133, c) establishes a requirement to evaluate interests
n securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, d) clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives, and e) amends
SFAS No.140 to eliminate the prohibition on a qualifying special purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. The
Company is currently evaluating the impact of adopting SFAS No. 155.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets--an amendment of FASB Statement No. 140" ("SFAS No. 156"). An
entity shall adopt this Statement as of the beginning of its first fiscal year
that begins after September 15, 2006. Earlier adoption is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued
financial statements, including interim financial statements, for any period
of that fiscal year. The effective date of this Statement is the date that an
entity adopts the requirements of this Statement. SFAS No. 156 amends SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", with respect to the accounting for separately
recognized servicing assets and servicing liabilities. This Statement: a)
requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into
a servicing contract in any of the following situations, b) requires all
separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable, c) permits an entity to
choose between two subsequent measurement methods for each class of separately
recognized servicing assets and servicing liabilities, d) at its initial
adoption, permits a one-time reclassification of available-for-sale securities
to trading securities by entities with recognized servicing rights, without
calling into question the treatment of other available-for-sale securities
under SFAS No. 115, provided that the available-for-sale securities are
identified in some manner as offsetting the entity's exposure to changes in
fair value of servicing assets or servicing liabilities that a servicer elects
to subsequently measure at fair value, and e) requires separate presentation
of servicing assets and servicing liabilities subsequently measured at fair
value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities. The Company
is currently evaluating the impact of adopting SFAS No. 156.
In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109".
FIN 48 requires that the Company recognize in the consolidated financial
statements the impact of a tax position that is more likely than not to be
sustained upon examination based on the technical merits of the position. The
provisions of FIN No. 48 will be effective for the Company beginning in the
March 2007 quarter, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The Company
is currently evaluating the impact of adopting FIN No. 48.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Earlier application is encouraged, provided that the
reporting entity has not yet issued financial statements for that fiscal year,
including any financial statements for an interim period within that fiscal
year. The Company is currently evaluating the impact of adopting SFAS No. 157.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans" ("SFAS No. 158"). SFAS
No.158 provides different effective dates for the recognition and related
disclosure provisions and for the required change to a fiscal year-end
measurement date. Also, the effective date of the recognition and disclosure
provisions differs for an employer that is an issuer of publicly traded equity
securities from one that is not. For purposes of this Statement, an employer is
deemed to have publicly traded equity securities if any of the following
conditions is met: a) the employer has issued equity securities that trade in
a public market, which may be either a stock exchange (domestic or foreign) or
an over-the-counter market, including securities quoted only locally or
regionally, b) the employer has made a filing with a regulatory agency in
preparation for the sale of any class of equity securities in a public market,
or c) the employer is controlled by an entity covered by (a) or (b). An employer
with publicly traded equity securities shall initially apply the requirement to
recognize the funded status of a benefit plan and the disclosure requirements
as of the end of the fiscal year ending after December 15, 2006. Application as
of the end of an earlier fiscal year is encouraged; however, early application
shall be for all of an employer's benefit plans. The requirement to measure
plan assets and benefit obligations as of the date of the employer's fiscal
year-end statement of financial position (paragraphs 5, 6, and 9) shall be
effective for fiscal years ending after December 15, 2008, and shall not be
applied retrospectively. Earlier application is encouraged; however, early
application shall be for all of an employer's benefit plans. An employer with
publicly traded equity securities shall initially apply the requirement to
recognize the funded status of a benefit plan (paragraph 4) and the disclosure
requirements (paragraph 7) as of the end of the fiscal year ending after
December 15, 2006. The Company is currently evaluating the impact of adopting
SFAS No. 158.
3. ACCOUNTS RECEIVABLE
Accounts Receivable represents the balance due from the License and Distributor
agreements.
09/30/2007 06/30/2007
---------------- --------------
Accounts Receivable $ 2,614,767 $ 2,614,767
Less: Allowance for Doubtful Accounts (375,000) (375,000)
----------------- --------------
Net Accounts Receivable $ 2,239,767 $ 2,239,767
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4. PROPERTY AND EQUIPMENT
Fixed assets are summarized by classifications as follows:
2007
---------------
Office Equipment $ 43,424
Tools and Machinery 79,321
Automobile 50,947
Moldings 689,061
Booth for Show 137,470
Informational tapes and other promotional materials 50,000
--------------
1,050,223
Less: Accumulated Depreciation (884,498)
--------------
$ 165,725
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5. RELATED PARTY TRANSACTIONS
ABL Properties, wholly owned by Byung Yim, President, CEO of TRB Systems
International, Inc., and under common control with the Company, owns the
patents. These patents are exclusively licensed to TRB Systems Inc, the
subsidiary (TRB) for the worldwide manufacture and sale of the Transbar Power
System (TPS). The timing, methodology and general details of the manufacture
and sales are left to TRB, as is the design and utilization of the goods
employing the technology. The rights, licensed to TRB by ABL Properties Company,
call for a payment of $200,000 during the first year of active sales, 1%
royalty on annual sales to $10,000,000, 0.75% on sales over $10,000,000 but
under $20,000,000, and 0.5% on all sales thereafter. And all profits gleaned
from international sales to an aggregate limit of $3,325,000. ABL Properties and
the Company agreed to defer payment of the $200,000 until TRB Systems Inc has
suitable cash flow to meet its current needs.
Any cost incurred by TRB Systems Inc. to maintain the patents and that calls
for reimbursement by ABL according to the agreement, will be used as a credit
toward the $200,000 license fees due to ABL on the first anniversary following
the commencement of active bicycle sales. As of September 30, 2007, ABL
Properties owes the Company $ 154,101.
During the year Byung Yim, CEO and director of the Company made loans to the
Company as the need for additional capital arose. As of September 30, 2007, the
outstanding amount due was $ 569,604.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses also include the capitalized portion of
legal and consulting expenses incurred in the development of standardized
contacts, promotional materials and the filling and registration of patents,
and are amortized over a sixty-month period. As of September 30, 2007 the
accounts payable and accrued expenses were $ 221,564 and $ 220,119, as of June
30, 2007.
7. NOTES AND INTEREST PAYABLE
Notes payable are unsecured notes to individuals. As of September 30, 2007, the
Company had notes payable in the amount of $ 1,631,840 and accrued interest
payable of $701,454. Interest expense attributable to notes payable totaled
$75,125 for the three-month period ended September 30, 2007. Interest rate on
he notes ranged from zero to 24%.
8. CONVERTIBLE DEBT
The Company entered into three loan agreements, two for $50,000 on February 29,
2003 and one for $42,611 on January 17, 2003 in the total amount of $142,611.
The notes are convertible into shares of the Company's common stock at a price
of $1 per share at the lenders option on December 31, 2004. The notes may be
required to be repaid if the value per share at the time of conversion falls
below $1, at which time the Company will have to repay the face amount of the
notes plus (10%) ten percent. As of September 30, 2007 the lenders have not
exercised their option, management is negotiating an extension on the notes.
9. PENDING SUITS AND JUDGMENT
As of September 30, 2007, there are outstanding judgments in the amount of
$381,000 against the Company. Management asserts that negotiations have been
initiated to have the amounts reduced but the outcome of such negotiations is
uncertain. Management believes the company is not in the financial position to
pay these amounts within one-year period and therefore classified the legal
judgments payable to long term.
The outstanding judgments consist of:
Creditors / Creditors' Attorneys 2007 2006
-----------------------------
David, Kessler & Associates, LLC $ 44,000 $ 44,000
Sawtooth Marketing Group 56,000 56,000
Cole, Schotz, Meiser,Forman & Leonard 89,000 89,000
Bernard & Koff 192,000 192,000
-------------------------------
Total $ 381,000 $ 381,000
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10. CAPITAL STOCK
The company is authorized to issue 30,000,000 at $0.001 par value share. As of
September 30, 2007 the amount of voting common shares issued and outstanding
are 23,699,922 and additional paid in capital of $ 3,228,810.
11. NET LOSS PER SHARE
Net loss per common share for the years ended September 30, 2007 and 2006 is
calculated using the weighted-average number of common shares outstanding and
common shares equivalents during the periods.
12. INCOME TAX
The net deferred tax asset in the accompanying consolidated balance sheet
includes the following components:
2007
-----------------
Net Deferred Tax Asset $ 1,384,384
Deferred Tax Asset Valuation Allowance (1,161,805)
-----------------
Net Deferred Tax Asset 222,579
-----------------
Deferred Tax Benefit $ 23,792
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13. COMMITMENTS AND CONTINGENCIES
13.1 Lease Commitments
The Company's future annual commitments at September 30 under an operating lease
for office space is as follows:
Lease
-------------
2008 16,800
2009 16,800
2010 16,800
2011 16,800
2012 16,800
-------------
Total $ 84,000
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Rental expense for the year ended September 30, 2007 and 2006 are $1,089 and
$3,300, respectively.
13.2 Litigation
As per the Company, as of September 30, 2007, there are no material actions,
suits, proceedings or claims pending against or materially affecting the
Company, which if adversely determined, would have a material adverse effect on
the financial condition of TRB International Systems, Inc. other than the
judgments in note 9.