ITEM
1. BUSINESS.
In
this report, unless the context requires otherwise, references to the “Company”, “Novus Robotics”, “we”,
“us” and “our” are to Novus Robotics Inc.
CORPORATE
HISTORY
We
were formed in the State of Nevada on June 24, 2005 under the name Guano Distributors, Inc. Prior to our incorporation, on April
15, 2005, David Wallace, the then President/Chief Executive Officer/Secretary/Chief Financial Officer and sole director (“Wallace”),
formed Guano Distributors (Pty) Ltd., a South African registered company, for the purpose of selling Dry-Bar Cave bat guano. On
May 15, 2005, Mr. Wallace, transferred all of his ownership interest in Guano Distributors (Pty) Ltd. to us. On June 28, 2006,
we amended our Articles of Incorporation to change our name to Ecoland International, Inc. On March 13, 2012, we filed a Certificate
of Amendment with the Nevada Secretary of State in order to change our name from “Ecoland International Inc.” to “Novus
Robotics Inc.” (the “Name Change”). The Name Change was effective with the Nevada Secretary of State on March
13, 2012 when the Certificate of Amendment was filed. The Name Change was approved by our Board of Directors pursuant to written
consent resolutions dated February 21, 2012 and further approved by certain shareholders holding a majority of our total issued
and outstanding shares of common stock pursuant to written consent resolutions dated February 21, 2012. We filed the appropriate
documentation with FINRA in order to effectuate the Name Change in the OTC Markets. The Name Change was effected on the OTC Markets
April 10, 2012.
Reverse
Stock Split
On
October 26, 2015, the Board of Directors and our majority shareholders approved a reverse stock split of one for three hundred
(1:300) of our total issued and outstanding shares of common stock (the “Reverse Stock Split”). Pursuant to our Bylaws
and the Nevada Revised Statutes, a vote by the holders of at least a majority of our outstanding votes is required to effect the
Reverse Stock Split. Our articles of incorporation do not authorize cumulative voting. As of the record date of October 26, 2015,
we had 111,370,000 voting shares of common stock issued and outstanding. The consenting stockholders of the shares of common stock
are entitled to 65,564,000 votes, which represented approximately 58.54% of the voting rights associated with our shares of common
stock. The consenting stockholders voted in favor of the Reverse Stock Split described herein in a unanimous written consent dated
October 26, 2015. See “Item 5. Market For Common Equity, Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities”.
The
Board of Directors had previously considered factors regarding their approval of the Reverse Stock Split including, but not limited
to: (i) the current volume of trading and trading price of our shares of common stock on the OTCQB Market and potential to increase
the marketability and liquidity of our common stock based on structuring of potential business operations and acquisition; and
(ii) limitation of marketability of our common stock among brokerage firms and institutional investors based upon current per-share
price. Our Board of Directors approved the Reverse Stock Split and recommended the majority shareholders of the Company review
and approve the Reverse Stock Split.
The
Reverse Stock Split was effected on January 21, 2016 based upon the filing of appropriate documentation with FINRA. The Reverse
Stock Split decreased the Company’s total issued and outstanding shares of common stock from approximately 111,370,000 shares
to 371,233 shares of common stock. The common stock will continue to be $0.001 par value. The trading symbol of the Company will
have a “D” placed on the ticker symbol for twenty business days from the effective date of the Reverse Stock Split.
After twenty business days has passed, the Company’s trading symbol will continue to be “NRBT”. Our new cusip
number is 670011H207. Our trading symbol continues to be “NRBT”.
Share
Exchange Agreement
Ecoland
International, Inc., now known as Novus Robotics Inc., D&R Technology Inc., a private corporation (“D&R Technology”)
and, Berardino Paolucci and Drakso Karanovic, the shareholders of D&R Technology Inc. (the “D&R Shareholders”)
entered into that certain share exchange agreement dated January 27, 2012 (the “Share Exchange Agreement”). Our Board
of Directors approved the execution and consummation of the transaction under the Share Exchange Agreement on February 1, 2012.
In accordance with the terms and provisions of the Share Exchange Agreement, we issued an aggregate of 59,000,000 pre-Reverse
Stock Split shares of our restricted common stock to the D&R Shareholders (which consisted of Messrs. Paolucci and Karanovic
and D Mecatronics, which is holding the shares for the benefit of the remaining shareholders of D&R Technology) in exchange
for 100% of the total issued and outstanding shares of D&R Technology, thus making D&R Technology its wholly-owned subsidiary.
Our Board of Directors deemed it in the best interests of our shareholders to enter into the Share Exchange Agreement pursuant
to which it would acquire all the technology and assets and assume all liabilities of D&R Technology. This resulted in a change
in control and our overall business operations thus bringing potential value to our shareholders. D&R Technology was previously
the wholly-owned subsidiary of D Mecatronics Inc., a Delaware corporation. On approximately November 10, 2011, D Mecatronics spun-off
D&R Technology. D&R Technology subsequently issued shares of its restricted common stock to the shareholders of D Mecatronics
on a pro-rata basis in accordance with their respective equity holdings in D Mecatronics. The equity percentages regarding the
issuance of shares by D&R Technology were 48% to Berardino Paolucci, 24% to Drasko Karanovic and 28% to various shareholders
(which shares were previously held by D Mecatronics on behalf of these shareholders).
Escrow
Agreement.
On June 4, 2013, our Board of Directors authorized the execution of that certain escrow agreement dated June 4,
2013 (the “Escrow Agreement”) with Manhattan Transfer Registrar Co., our transfer agent (“Manhattan Transfer”).
As disclosed in previous filings with the Securities and Exchange Commission, on approximately November 10, 2011, D Mecatronics
Inc. (“D Mecatronics”) spun-off our wholly-owned subsidiary, D&R Technology. D&R Technology subsequently issued
shares of its restricted common stock to the shareholders of D Mecatronics on a pro-rata basis in accordance with their respective
equity holdings in D Mecatronics. The equity percentages regarding the issuance of shares by D&R Technology were 48% to Berardino
Paolucci, 24% to Drasko Karanovic and 28% to various shareholders (which shares were being held by D Mecatronics on behalf of
these shareholders). The transfer agent for D Mecatronics at the time of the spin-off was Global Sentry Equity Transfer Inc. (“Global
Sentry”). At the time of the spin-off, management of D Mecatronics had attempted on several occasions to contact Global
Sentry with regards to its shareholder list and records. However, any and all attempts were to no avail. To date, D Mecatronics
has not been able to obtain any of its records, including a shareholders list, from Global Sentry. Management has no knowledge
or information as to the whereabouts of Global Sentry or its management nor of the location of its records and shareholders list.
This has impeded the issuance of the shares of D&R Technology to the appropriate 28% minority shareholders of D Mecatronics
and thus the reason why D Mecatronics was holding the shares in trust for the benefit of its shareholders.
Subsequently,
we entered into the Share Exchange Agreement. Our Board of Directors had approved the execution and consummation of the transaction
under the Share Exchange Agreement on February 1, 2012. In accordance with the terms and provisions of the Share Exchange Agreement,
we issued an aggregate of 59,000,000 pre-Reverse Stock Split shares of our restricted common stock to the D&R Shareholders
(which consisted of Messrs. Paolucci and Karanovic and D Mecatronics, which held the shares for the benefit of the remaining shareholders
of D&R Technology) in exchange for 100% of the total issued and outstanding shares of D&R Technology, thus making D&R
Technology our wholly-owned subsidiary. The Board of Directors deemed it in the best interests of the shareholders to enter into
the Share Exchange Agreement pursuant to which it would acquire all the technology and assets and assume all liabilities of D&R
Technology.
The
majority shareholders of D&R Technology approved the Share Exchange Agreement as did its Board of Directors. The Board of
Directors of D&R Technology resolved in its board resolutions to issue to D Mecatronics the 16,520,000 pre-Reverse Stock
Split shares to be issued to the missing 28% minority shareholders of D&R Technology (who are also the unknown shareholders
of D Mecatronics). Therefore, D Mecatronics held in trust and for the benefit of its unknown shareholders (and as shareholders
of D&R Technology) the shares to be issued to them by the Company. D Mecatronics is in the process of attempting to locate
the transfer agent in order to obtain its records.
We
are also in the process of locating the missing shareholders of D Mecatronics (and also as shareholders of D&R Technology)
to whom our shares should be issued in accordance with the terms and provisions of the Share Exchange Agreement. Therefore, we
entered into the Escrow Agreement. In accordance with the terms and provisions of the Escrow Agreement, D Mecatronics returned
to Manhattan Transfer the share certificate evidencing the shares of our common stock issued to it as trustee. A new share certificate
was issued to Manhattan Transfer as trustee in the aggregate denomination of 16,520,000 shares to be held in escrow. Together
with Manhattan Transfer, we created a shareholders list (the “Shareholders List”) indicating each record owner of the
shares. Subsequent to the date of the Escrow Agreement, Manhattan Transfer has released shares to certain of the persons indicated
on the Shareholders List. As of the date of this Quarterly Report, Manhattan Transfer has issued approximately 5,331,641 of the
16,520,000 pre-Reverse Stock Split shares held in escrow to the shareholders listed on the Shareholder List.
We
have placed on our website www.novusrobotics.com under “Investor Relations” contact information to be used by persons/entities
that believe they were shareholders of D Mecatronics. Such individuals/entities should contact our management.
CURRENT
BUSINESS OPERATIONS
We
are involved in the area of engineering, design and manufacture of robotics and automation technology solutions for tube bending
machines, which management believes will enable us to become a recognized technology pioneer and market leader in the area of
engineering. Through our wholly-owned subsidiary, D&R Technology, we will provide state of the art automation technologies
through its automated tube bending machines which we design, engineer and build for the automotive industry to solve its customers’
complex automation needs, increase efficiencies and improve manufacturing processes. Serving as a comprehensive engineering partner,
we will work with other leading robotic manufacturers to provide the best automation technologies. We will provide automation
solutions to a wide spectrum of customers and industries ranging from large Fortune 500 companies to small privately-held businesses.
Our automated solutions can be found in manufacturing, assembly and processing lines throughout the United States, Canada, Mexico
and South America. D&R Technology, has served the automotive industry for more than seven years and is currently applying
its service solutions to other markets, such as medical robotics, personal robotic devices and water treatment industry. Management
believes that increasing use of robotics in sectors such as food handling and processing, clean technology and energy, as well
as pharmaceutical and general consumer goods production, will lead to increased demand for company’s products as manufacturers
look to improve the speed, quality and reliability of production through automation. As of the date of this Annual Report, we
have not generated any revenue from the medical robotics, personal robotic devices, water treatment industry, food handling and
processing, clean technology and energy or pharmaceutical and general consumer goods production.
We
are involved in the area of engineering, design and the manufacturing of automated solutions through its automated tube bending
machines for the automotive industry and intends to rapidly become one of the leading providers of automated manufacturing solutions,
which are used primarily by three of the top ten Tier I automotive part suppliers in the world. We also make precision components
and tooling using our own custom-built manufacturing systems, process knowledge and automation technology. We purchase from third
parties components for the electrical cabinet, which creates the automation and controls section of the machinery. The electrical
cabinet consists of fuses, holders, relays, cables, wiring, controls and sensors, which we purchase from our suppliers, i.e. Gerrie
Electric, Beckhoff, Allen Bradley and others. We integrate these purchased parts from our suppliers into our electrical and controls
design to make the automated tube bending machines operational. We provide all the programming of the electrical cabinet as well.
The computer programming is based upon the specific needs.
Our
business is in the early development and operating stages. To date, our primary activities include designing and installation
of retrofits to existing automated systems, automated spare parts for our tube bending machines, automated maintenance and repairs.
We are currently offering products such as Seat Frame Systems, IP Tube systems and Integrated Bend-Weld Systems for the automotive
industry. Our primary focus will be placed on product engineering and manufacturing processes as discussed above to ensure the
highest quality, product features and efficient manufacturing processing.
We
are a full service provider of turn-key production solutions, specializing in tubular components for our tube bending machines.
Our experience is firmly rooted in fabrication solutions for automated components, such as seat frames and instrument panel beams.
Our expertise is in the areas of automation and machinery for computer numerical control (CNC) bending, forming, piercing and
laser cutting, which is applicable to a wide range of production solutions. We produce spare parts for the manufacturing equipment
we design. We do not produce spare parts for automobiles.
Technology
Purchase Agreement
On
February 25, 2016, our Board of Directors authorized the execution of that certain technology purchase agreement dated February
25, 2016 (the “Technology Purchase Agreement”) among the Company and Berardino Paolucci, our President/CEO and a member
of the Board of Directors, and Drasko Karanovic, a member of the Board of Directors (collectively, the “Sellers”).
The Sellers had previously researched, created and developed medical robotics technology, which deals with the design, construction
and operation of robots in automation for medical and surgical purposes (“Medical Robotic Technology”).
In
accordance with the terms and provisions of the Technology Purchase Agreement, we acquired all of the Sellers’ right, title
and interest in and to certain assets as follows (the “Assets”):
(a)
All plans, specifications, drawings, concepts, designs, prototypes, techniques, tools, diagrams, outlines, descriptions, information,
data, engineering studies and reports, test results, models, manufacturing processes and flowcharts;
(b)
All raw materials, supplies, work in progress, finished product and lists of suppliers;
(c)
All software programs and software code relating thereto, if any and all copies and tangible embodiments of the software programs
and software code (in source and object code form), together with all documentation related to such programs and code;
(d)
All intellectual property rights including, but not limited to, future patent applications, patents, trademarks, trade names,
copyrights, exercisable or available in any jurisdiction of the world, and the exclusive right for Purchaser to hold itself out
to be the successor to the Medical Robotic Technology business of Sellers;
(e)
All licenses to the Assets and properties of third parties (including licenses with respect to intellectual property rights owned
by third parties);
(f)
Claims, causes of actions, royalty rights, deposits, and rights and claims to refunds (including tax refunds) and adjustments
of any kind (including rights to set-off and recoupment), and insurance proceeds;
(g)
All Internet domain names and registrations that are held or owned by Sellers which relate or refer to the business or Assets;
(h)
All franchises, permits, licenses, agreements, waivers, and authorizations from, issued, or granted by any governmental authority;
and
(i)
Copies of marketing and sales information, including potential pricing and customer lists.
In further accordance with the terms and provisions
of the Technology Purchase Agreement, we issued to each of Messrs. Paolucci and Karanovic 500,000 shares of our Series B Preferred
Stock and 24,500,000 post-Reverse Stock Split shares of restricted common stock. See “Item 5. See “Item 5.
Market For Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities” and “Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.
The
Sellers each represented and confirmed that Berardino Paolucci is the Chief Executive Officer/President and a member of the Board
of Directors and Drasko Karanovic is a member of the Board of Directors of the Company, that both Berardino Paolucci and Drasko
Karanovic acknowledged and confirmed their fiduciary duties as such, and that Berardino Paolucci and Drasko Karanovic and we have
negotiated in good faith with the best interests of our shareholders in consideration of the transaction.
Industry
The
automotive parts industry is divided into three tiers of original equipment manufacturers (“OEMs”), which supply automotive
manufacturers with parts for new vehicles, and the aftermarket parts suppliers, which manufacture parts for used vehicles.
The
automobile industry is one of the largest sectors of the global economy. In 2011, a market research firm valued the global automobile
components sector at over $1.8 trillion dollars and the global automotive parts and equipment sector at almost $600,000,000. The
global automotive manufacturing industry operates in an increasingly aggressive marketplace whose performance is tied directly
to performance of the large and growing retail automobile industry. The top six companies in the global manufacturing industry
are General Motors (GM), Toyota, Ford, Daimler/Chrysler, Volkswagen and Honda and, of those, the Corporation’s subsidiary,
D&R Technology, has produced machines supplying parts and components for five of the top six manufacturers. The systems that
we build for our customers are for Tier 1 OEM suppliers. An OEM supplier is an “original equipment manufacturer or, in other
words, a company that manufactures products or components that are purchased by a company and retailed under that purchasing company’s
brand name. OEM refers to the company that originally manufactured the product. When referring to automotive parts, OEM designates
a replacement part made by the manufacturer of the original part. In this usage, OEM means “original equipment from manufacturer”
The Tier I OEM suppliers deal directly with the automakers - General Motors, Ford, Nissan, Honda, Toyota, Hyundai etc. We supply
the systems to the Tier 1 OEM suppliers that produce the seats, front dashboards and other products for the big automakers.
The
automotive industry marketplace is the nation’s largest manufacturing industry. It is a marketplace with an estimated value
in the hundreds of billions. The nation’s automotive manufacturing industry is tied to the U.S. automotive industry, which
is considered one of the largest automotive retail marketplaces in the world. Management reviews marketplace press releases which
state that economies are growing steadily from last year and that over the next five years, older automobiles will need to be
replaced. India and China are cited as requiring more products for their growing population. Management believes that this demand
will require more systems by the Tier 1 OEMs. See “Behind the Wheel” with Phil LeBeau, CNBC Correspondent, published
March 15, 2012 and Edmunds.com May 2012 “Auto Sales Forecast: Steady Pace Continues as Summer Approaches”.
Products
We
provide special purpose machinery products and services to Automotive Tier I businesses and their suppliers. Our services include
design and installation of retrofits to existing systems, spare parts, maintenance, repairs and production support. We build seat
frame systems and tube processing lines. Each system consists of self contained tooling modules linked by a series of automated
transfer or robots. Several modules will be integrated into a processing system by adding single or multi-axis transfer units.
This approach allows uniformity of design, which provides ease of expansion, simplicity of operation, and excellent throughput
rates.
At
conception of the project, we review component designs and provide suggestions to our customers to reduce manufacturing costs.
We work with customers to ensure that proposed systems strike the right balance of throughput, flexibility, automation and tooling/capital
budgets. Throughout the project, our team managers work to keep the customer’s team informed with progress updates, highlighting
decision points and tracking component design changes. Our designs and technologist work to ensure that our production solutions
are robust, reliable and maintainable. We collaborate with our technology partners to ensure that every aspect is leading edge
and proven reliable. Ultimately, we work with our customers to ensure that our production solutions provide value to every level
of their organization.
Our
value propositions regarding our machinery products and services are: (i) delivery – providing on-time delivery thereby
reducing customer inventory and providing them with overall cost reduction; (ii) quality – products and services that we
deliver are of high quality and have attributes that enable customers to carry out their business functions; and (iii) price –
products are competitively priced thus helping customers control their own overhead and expenses. We work with our customers on
a one-to-one basis to the best of its ability to keep our prices competitive and within the customers’ budgets. When our
customers desire to bid on jobs, they contact and provide us with certain prerequisites. We then discuss their respective needs
and start to compile all relevant information into a request for quote file. We then review all compiled information and submit
to the customer its quotation regarding pricing. We have a very broad and diverse field that we have developed from which to obtain
certain pricing. We would not receive purchase orders to provide our services to our respective customers if our prices were not
competitive in the marketplace. Therefore, we believe we offer very competitive pricing based upon prior successful demand and
awards for our products and services.
Our
primary focus will be placed on product engineering and manufacturing processes to ensure the highest quality, high level of product
features, and the most efficient manufacturing process possible. We will focus our market offerings on two major customer groups:
(i) automobile seating manufacturers; and (ii) manufacturers of tubing products. Our products are listed below:
Seat
Frame System is comprised of the following of which all components thereof are designed and manufactured by the Corporation:
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Unbundler,
Weld seam station with Roland Seamfinder, CNC bending stations with barcode readers,
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Transfers,
Reject Station, Vertical 4- post press module with tooling change options
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Material
Handling Robots, Exit racks and Safety Fences.
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IP
Tube System: Instrument Panel Tube machine makes the bent tube form that holds your steering wheel, gauges etc. All of these
components are held on a tube form.
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IP
Beam System: Instrument Panel Beam process line: the machine that produces the beams – which are made from larger diameter
tubes for the front and car doors
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Integrated
Bend-Weld System is a system that will transfer the formed tube to a welding station to be welded to the bottom of the seat
frame.
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The
automated tube bending machines that we build require spare parts that will replace the used and worn out components on various
parts of the machines. We design and manufacture the machinery and replace them as required. We will provide all maintenance and
repair to the machines as the wear and tear of running them over long periods of time becomes evident.
Services
and Support
Our
customer centric focus enables its customers to preserve and increase the value of existing processing equipment. We provide the
following programs and services:
Maintenance
and Repairs Programs: warranty support, after sales and emergency services, preventative maintenance programs, and spare parts
and consumables solutions.
Value
Added Services: system upgrades and rebuilds, control system upgrades, tooling retrofits, pre-production and prototyping requirements,
training, equipment relocation and redeployment, systems audit, manufacturing consulting and project management services.
Marketing
Our
target customers are: (i) automotive seating manufacturers, who are customers requiring customized machine tools to better serve
their clients; and (ii) manufacturers of tubing products, who are customers requiring a value adding process layout. We will continue
to focus our market offerings to automobile seating manufacturers and manufacturers of tubing products. We do not have any contractual
agreements in place with its customers and utilizes purchase orders with its customers. Our market research reflects that these
customer segments are the most demanding in terms of the engineering, technical service support, and automated machinery design.
We are particularly strong in these areas and will utilize our capacities to serve these clients. We will seek customers who require
production of components used in upper-end product lines. This will provide a further possibility for us to offer our value-added
engineering robotics services.
We
have significant economic and commercial reliance and dependence on Johnson Controls Inc. (“JCI”). During the past
two years ended December 31, 2015 and 2014, D&R Technology has received purchase orders from JCI in the amount of $350,182
and $1,379,083, respectively. Currently, JCI is one of our major customers after the recession of 2009 through 2010
in which some of our previous customers went into bankruptcy or were acquired by larger companies. Thus, we have significant economic
and commercial dependence on JCI. As a result, we are subject to significant financial risk in the event of the financial distress
of JCI. As a result, we are subject to significant financial risk in the event of the financial distress of JCI. For the year
ended December 31, 2015, we were dependent on JCI for its business of which completed sales and receivables constitutes 53% and
20%, respectively of our revenue. For fiscal year ended December 31, 2014, more than 58% sales and 90% of our receivable were
attributable to JCI.
We
do not have an exclusive agreement with JCI and rely upon bids and subsequent purchase orders. Our business relationship
with JCI is well established having commenced in 2004 with Berardino Paolucci, our President/Chief Executive Officer, and
Drasko Karanovic, a member of the Board of Directors. Both individuals established a strong relationship with JCI during
their tenure at Dieco Technology based upon their respective extensive knowledge of JCI’s machines and the
manufacturing and servicing section of JCI.
We
also produce a 420A system to produce new seat frames. The system is built for Toyota Boshoku Emire, Ontario, to produce the seat
frame to be used in their plants for the Rav 4 production. During 2014 and 2013, D&R Technology received purchase orders from
Toyota Boshoku in the amounts of $146,101 and $2,500, respectively. During 2011, D&R Technology received purchase orders from
Toyota Boshoku in the aggregate amount of $242,159. During 2015, we received orders for $3,500 for spare parts.
The
material terms regarding the purchase orders are as follows: (i) progress payment terms consisting of $30% at award of purchase
order, 30% at approximate eighty percent completion, 30% at acceptance, and 10% net thirty days’ (ii) completion time for
designing and building system is generally 23 to 26 weeks; (iii) if spare parts required to construct system, delivery is 3 to
10 weeks from receipt of purchase order and terms for spare parts are net 45 days; and (iv) orders cancellable but in the event
engineering and purchase orders for items with a long delivery time are placed with our suppliers, the customer is liable for
any time, material and costs incurred.
Our
market strategy is to capitalize on its expertise by manufacturing high quality, durable machinery with a significant number of
product features and options, which are extremely precise in control of motions. We will focus on a segment of the market and
attempt to achieve the best reputation within that segment. Our goal in the next year is to secure more engineering and manufacturing
positions. Our goal in the next five years is to continue with our “value added” scheme that will assist us in achieving
a strong position within the marketplace.
Suppliers
The
majority of raw materials required by us are readily available from a variety of suppliers. For certain specialty items related
to controls, the Corporation has two principal suppliers: (i) Allen Bradly Controls; and (ii) Baldor Controls.
The
products we require for the assembly of its systems come from electrical companies, hydraulic and pneumatic suppliers and control
system from automation companies. We do not have exclusive contracts with these companies as we disseminate Requests for Quotations
on Pricing and Delivery time in order for us to maximize savings in the production process. Examples include: motors from Rockwell
Ind., electrical components from Gerrie Electric/Province Electrical hydraulics power unit from Hydrafab. We machine remaining
parts as required.
Employees
We
employ fourteen (14) full time employees and two (2) contract engineers. This fluctuates depending on our workload. We also uses
temporary employees that have previously worked for us as required depending on the workload. We also have our President/Chief
Executive Officer, Berardino Paolucci, and a member of our Board of Directors, Drasko Karanovic, on a full-time basis. These
individuals are primarily responsible for all of our day-to-day operations. Other services may be provided by outsourcing and
consultant and special purpose contracts.
RESEARCH
AND DEVELOPMENT ACTIVITIES
We
have incurred approximately $250,000 during the past two fiscal years on research and development for products. None of these
research or development costs are borne by the customer. The costs are in our Cost of Sales and Engineering Labour accounts.
INTELLECTUAL
PROPERTY
We
currently use the Rockwell Automation system in our machines. We purchase on a yearly basis the automation portion of the system
directly from Rockwell Automation, which is known as a “tool kit”. The tool kit enables us to receive updates, upgrades,
technical assistance with the portion of the automation system that we use. We must use the supplier that the customer designates
in their specifications when the customer orders the tube bending system from us. Each customer has their own preference regarding
the supplier for this part of the machine. We do not have an exclusive requirements contract with Rockwell Automation. There are
a substantial number of other companies in the marketplace that offer the automated portion of the control system.
As
of the date of this Annual Report, we have not filed patents on any of our systems. We do not release any drawings of our machines.
The drawings are the property of D&R Technology. We may consider filing patent applications with respect to our system technologies
and any novel aspects of our technology to protect our intellectual property. Future patents, if issued, may be challenged, invalidated
or circumvented. Thus, any patent that we may own may not provide adequate protection against competitors. Any patent applications
that we may file in the future may not result in issued patents. Also, patents may not provide us with adequate proprietary protection
or advantages against competitors with similar or competing technologies. As a result of potential conflicts with the proprietary
rights of others, we may in the future have to prove that it is not infringing the patent rights of others or be required to obtain
a license to the patent.
We
may consider filing a copyright application for the drawings of our machines. We will rely on trade secrets and unpatentable know-how
that we seek to protect, in part, by confidentiality agreements. However, it is possible that parties may breach those agreements,
and we may not have adequate remedies for any breach. It is also possible that its trade secrets or unpatentable know-how will
otherwise become known or be independently developed by competitors. There can be no assurance that third parties will not assert
infringement or other claims against us with respect to any existing or future systems or products. Litigation to protect our
proprietary information or to determine the validity of any third-party claims could result in significant expense to us and divert
the efforts of our technical and management personnel, whether or not we are successful in such litigation.
COMPETITION
The
markets for special purpose automotive machinery products and services is highly competitive. Competition is based on the quality
and range of such products, market availability, pricing, promotion and customer service as well as the nature of the distribution
channels. Our management believes that we have several highly significant competitive advantages: (i) engineering and technical
support service; (ii) automated seat frame systems and IP beam process lines design and build expertise; (iii) vendors service
and support; and (iv) current relationships with several major automotive companies. In the special purpose automotive machinery
produces and services business, additional competitive factors include the demonstrated effectiveness of the products being offered,
as well as available funding sources. We face competition from other technology-based companies providing the same products and
services. Competition may increase to the extent that other entities enter the market and to the extent that current competitors
or new competitors develop and introduce new products that compete directly with the products distributed by us or develop or
expand competitive sales channels. Our management believes that our marketing position is unique to certain of the markets in
which we compete.
ITEM
1A. RISK FACTORS.
You
should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely
affect our business, financial condition, operating results and prospects and could negatively affect the market price of our
common stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties that we do not yet know of, or that we currently believe are immaterial, may also impair our business
operations and financial results. Our business, financial condition or results of operations could be harmed by any of these risks.
The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
In
assessing these risks you should also refer to the other information contained in or incorporated by reference to this Annual
Report on Form 10-K, including our financial statements and the related notes.
RISKS
RELATED TO BUSINESS
Our
operating results are difficult to predict and fluctuations in them may cause volatility in the price of our shares.
Given
the nature of the markets in which we compete, our revenues and profitability are difficult to predict for many reasons, including
the following:
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Operating
results are highly dependent on the volume and timing of orders received during the quarter,
which are difficult to forecast. Customers generally order on an as-needed basis and
we typically do not obtain firm, long-term purchase commitments from our customers. As
a result, our revenues in any quarter depend primarily on orders shipped in that quarter.
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We
must incur a large portion of our costs in advance of sales orders because we must plan research and production, order components
and enter into development, sales and marketing, and other operating commitments prior to obtaining firm commitments from
its customers. This makes it difficult for us to adjust our costs in response to a revenue shortfall, which could adversely
affect our operating results.
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Engineering
and production capacities that do not match demand for our products could result in lost sales or in a reduction in its gross
margins.
Our industry is characterized by rapid technological change, frequent new product introductions, short-term customer
commitments and rapid changes in demand. We determine capacities based on our forecasts of demand for our products. Actual demand
for our products depends on many factors, which make it difficult to forecast. We have experienced differences between our actual
and our forecasted demand in the past and expect differences to arise in the future. The following problems could occur as a result
of these differences:
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If
demand for our products is below our forecasts, we could produce excess personnel or have excess manufacturing capacity. Excess
personnel could negatively impact our cash flows and could result in higher design costs. Excess manufacturing capacity could
result in higher production costs per unit and lower margins.
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If
demand for our products exceeds our forecasts, we could have to rapidly ramp up production. We depend on suppliers and manufacturers
to provide components and sub-assemblies. As a result, we may not be able to increase our production levels to meet unexpected
demand and could lose sales in the short term while we try to increase production. If customers turn to competitive sources
of supply to meet their needs, our revenues could be adversely affected.
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Rapidly
increasing our production levels to meet unanticipated customer demand could result in higher costs for components and sub-assemblies,
increased expenditures for freight to expedite delivery of materials or finished goods, and higher overtime costs and other
expenses. These higher expenditures could result in lower gross margins.
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If
we do not timely introduce successful products, our business and operating results could suffer.
The
market for our products is characterized by rapidly changing technology, evolving industry standards, short product life cycles
and frequent new product introductions. As a result, we must continually introduce new products and technologies and enhance existing
products in order to remain competitive. The success of our new products depends on several factors, including our ability to:
(i) anticipate technology and market trends; (ii) timely develop innovative new products and enhancements; (iii) distinguish our
products from those of our competitors; (iv) manufacture and deliver high-quality products; and (v) price our products competitively.
Our
failure to manage growth could harm us.
We
will rapidly and significantly expand the number and types of products we sell and we will endeavor to further expand our product
portfolio. This expansion places a significant strain on our management, operations and engineering resources. Specifically, the
areas that are strained most by our growth include the following:
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New
product launch. With the growth of our product portfolio, we will experience increased
complexity in coordinating product development, manufacturing and commissioning. As this
complexity increases, it places a strain on our ability to accurately coordinate the
commercial launch of our products with adequate support to meeting anticipated customer
demand. If we are unable to scale and improve our product launch coordination, we could
frustrate our customers and lose earned space and product sales.
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Forecasting,
planning and supply chain logistics. With the growth of our product portfolio, we will also experience increased complexity
in forecasting customer demand and in planning for production and transportation and logistics management. If we are unable
to scale and improve our forecasting, planning and logistics management, we could frustrate our customers, lose product sales
or accumulate excess inventory.
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To
manage the growth of our operations, we will need to continue to improve our transaction processing, operational and financial
systems, and procedures and controls to effectively manage the increased complexity. If we are unable to scale and improve them,
the consequences could include delays in shipment of product, degradation in levels of customer support, lost sales and increased
inventory. These difficulties could harm or limit our ability to expand.
If
we do not compete effectively, demand for our products could decline and our business and operating results could be adversely
affected.
Our
industry is intensely competitive. It is characterized by a trend of declining average selling prices in the market, and continual
performance enhancements and new features, as well as rapid adoption of technological and product advancements by competitors
in its market. Also, aggressive industry pricing practices and downward pressure on margins have resulted in increased price competition
from both our primary competitors as well as from less established ones. If we do not continue to distinguish our products through
distinctive, technologically advanced features, design and services, as well as continue to build and strengthen our brand recognition,
our business could be harmed. If we do not otherwise compete effectively, demand for our products will decline, our gross margins
could decrease, we would lose market share, and our revenues could decline.
We
have significant economic and commercial reliance and dependence on Johnson Controls Inc. as a major customer.
We
have significant economic and commercial reliance and dependence on Johnson Controls Inc. (“JCI”). During the past
two years ended December 31, 2015 and December 31, 2014, D&R Technology has received purchase orders from JCI in the amount
of $350,182 and $1,379,083, respectively. Currently, JCI is one of our major customers. Thus, we have significant economic
and commercial dependence on JCI. As a result, we are subject to significant financial risk in the event of the financial distress
of JCI. For the year ended December 31, 2015, we were dependent on JCI for its business of which completed sales and receivables
constitutes 53% and 20%, respectively of our revenue. For fiscal year ended December 31, 2014, more than 58% sales and 90% of
our receivable were attributable to JCI. We do not have an exclusive agreement with JCI and rely upon bids and subsequent purchase
orders. Any decline or interruption in orders received from JCI may adversely affect our revenues and operating results.
We
depend on OEMs (original equipment manufacturers) and contract manufacturers who may not have adequate capacity to fulfill our
needs or may not meet our quality and delivery objectives.
Original
component manufacturers and contractors produce key portions of our product lines. Our reliance on them involves significant risks,
including reduced control over quality and logistics management, the potential lack of adequate capacity and discontinuance of
the contractors’ assembly processes. Financial instability of our manufacturers or contractors could result in us having
to find new suppliers, which could increase our costs and delay our product deliveries. These manufacturers and contractors may
also choose to discontinue building our products for a variety of reasons. Consequently, we may experience delays in the timeliness,
quality and adequacy in product deliveries, any of which could harm our business and operating results.
We
purchase key components and products from single or limited sources, and our business and operating results could be harmed if
supply were delayed or constrained or if there were shortages of required components.
Lead
times for materials and components ordered by us or our contract manufacturers can vary significantly and depend on factors, such
as the specific supplier, contract terms and demand for a component at a given time. We do not have any established contractual
relations with our suppliers for key components. From time to time, we have experienced supply shortages and fluctuations in component
prices. While we are trying to manage our component levels through the purchase of buffer stock, there is no guarantee that we
will be able to maintain the inventory levels sufficient to meet our product demand. Currently, the shortages have not significantly
impacted our product cost. In addition, we may be at risk for these components if our customers reject or cancel orders unexpectedly
or with inadequate notice.
Shortages
or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products
from alternate sources at acceptable prices in a timely manner could delay shipment of our products or increase our production
costs, which could harm our business, financial condition and operating results.
We
purchase some products and some key components used in our products from single or limited sources. In particular, a significant
portion of our controls systems is single-sourced and the Controls Unit in our products is provided by a single supplier. If the
supply of these products or key components were to be delayed or constrained, we may be unable to find a new supplier on acceptable
terms or at all or its new and existing product shipment could be delayed. Any of this could harm our business, financial condition
and operating results.
If
we do not successfully coordinate the worldwide manufacturing and distribution of our product key components, we could lose sales.
Our
business requires us to coordinate the manufacture and distribution of our product components over much of the world. We increasingly
rely on third parties to manufacture our components and transport our products. On a worldwide basis, we will continue to evaluate
and consider changes in both our international and domestic suppliers. If we do not successfully coordinate these changes and
the timely manufacture and distribution of our components, we may have insufficient supply of products to meet customer demand
and could lose sales, or we may experience a build-up in inventory.
Our
introduction of new product lines may consume significant resources and not result in significant future revenues.
We
will continue to expand our product offerings with new product lines, such as Weld-Bend Systems and other products that are outside
of our traditional areas of expertise. To accomplish this, we have committed resources to develop, sell and market these new products.
With limited experience in these product lines and because these products may be based on technologies that are new to us, it
may be difficult for us to accurately anticipate and forecast revenues, manufacturing costs, customer support costs and product
returns. In addition, because the technologies may be new to us, we may have a greater risk of unknowingly infringing on proprietary
technology. Our ongoing investments in the development and marketing of new lines of products could produce higher costs without
a proportional increase in revenues.
We
may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products
that compete with our products.
Our
future success depends in part on our proprietary technology, technical know-how and other intellectual property. We rely on intellectual
property laws, confidentiality procedures and contractual provisions, such as nondisclosure terms, to protect our intellectual
property. Others may independently develop similar technology, duplicate our products, or design around our intellectual property
rights. In addition, unauthorized parties may attempt to copy aspects of our product or to obtain and use information that we
regard as proprietary. Any of these events could significantly harm our business, financial condition and operating results.
We
are also increasing our reliance on technologies that we acquire from others. We rely on third parties for the automated control
portion of the system. We purchase the computers’ logic component from Rockwell Automation and pay an annual fee to enable
us to get updates/upgrades and technical support to the logic portion of the system. We may find it necessary or desirable in
the future to obtain licenses or other rights relating to one or more of our products or to current or future technologies. These
licenses or other rights may not be available on commercially reasonable terms or at all. The inability to obtain certain licenses
or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters,
could have a material adverse effect on our business, financial condition and operating results. Moreover, the use of intellectual
property licensed from third parties may limit our ability to protect the proprietary rights in our products.
We
may encounter difficulties with future acquisitions, which could adversely affect our business and operating results.
We
have acquired and may continue to acquire companies that have products, personnel and technologies that complement our strategic
direction and roadmap. Our acquisitions involve risks and uncertainties including: (i) difficulties in integrating the acquired
company and its operations; (ii) diversion of management’s attention from the normal operations of business; (iii) potential
loss of key employees and customers of the acquired company; (iv) insufficient future revenues and profitability of the acquired
company that could negatively impact our consolidated results; and (v) exposure to potential product quality issues, which could
result in unanticipated contingent liabilities of the acquired company. Any of these and other factors could prevent us from realizing
the anticipated benefits of the acquisition and could adversely affect our business and operating results. Acquisitions are inherently
risky and no assurance can be given.
RISKS
ASSOCIATED WITH OUR SECURITIES
Because
we have yet to comply with rules requiring the adoption of certain corporate governance measures, our stockholders have limited
protections against interested director transactions, conflicts of interest and similar matters
.
The
Sarbanes-Oxley Act, as well as the rules enacted by the SEC and the national stock exchanges as a result of the Sarbanes-Oxley
Act, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the
integrity and efficiency of corporate management and the securities markets and apply to securities which are listed on those
exchanges. Because we have not presently complied with many of the corporate governance provisions, our stockholders have limited
protections. Certain of these corporate governance provisions are as follows: (i) establishment of an audit committee charter
and appointment of members to the audit committee; (ii) adoption of an ethics code; (iii) conduct analysis of our internal and
financial control procedures; and (iv) establishment of a compensation committee. Management intends to address these issues within
our organizational structure during fiscal year 2013 to ensure the best effective corporate governance and financial management.
However, management has adopted certain corporate governance practices as follows: (i) adherence to a clear ethical basis within
all business operations; (ii) alignment of business goals with such ethical basis; (iii) strategic management which incorporates
shareholder value; (iv) identifying corporate organizational structure to effect good corporate governance; and (v) creating reporting
systems to provide transparency and accountability.
Until
we comply with the corporate governance measures adopted by the national securities exchanges after the enactment of Sarbanes-Oxley
Act, regardless of whether such compliance is required, the absence of standards of corporate governance may leave our stockholders
without protections against interested director transactions which may not be favorable to the shareholders, conflicts of interest
and similar matters, and investors may be reluctant to provide us with funds in the future if we determine it is necessary to
raise additional capital. We intend to comply with all applicable corporate governance measures relating to director independence
as soon as practicable.
We
failed to comply with Federal securities laws regarding filing of an Information Statement Under Section 14(c) of the Securities
Exchange Act pertaining to our name change.
The
Share Exchange Agreement required us to change our name to “Novus Robotics Inc.”. The Board of Directors and the shareholders
holding a majority of the total issued and outstanding shares voted their respective approval regarding the name change. The Board
of Directors authorized the name change to better reflect our future business operations and deemed it in the best interests of
the shareholders to effect the change in corporate name. Management was not aware that we were required to file an Information
Statement Under Section 14(c) of the Securities Exchange Act, as amended, advising the shareholders of the pending corporate action.
No Information Statement was filed with the Securities and Exchange Commission and may be deemed in non-compliance with Section
14 of the Securities Exchange Act.
D&R
Technology failed to comply with Section 5 of the Securities Act of 1933 regarding registration of its shares of common stock
issued to the shareholders of D Mecatronics in connection with the spin-off of D&R Technology.
In
accordance with the five conditions listed in Section 4.A of Staff Legal Bulletin No. 4 (September 16, 1977), the shares of stock
issued by D&R Technology to the shareholders of D Mecatronics in connection with the spin-off of D&R Technology were required
to be registered. On approximately November 10, 2011, D Mecatronics spun-off D&R Technology. D&R Technology subsequently
issued shares of its restricted common stock to the shareholders of D Mecatronics on a pro-rata basis in accordance with their
respective equity holdings in D Mecatronics. The equity percentages regarding the issuance of shares by D&R Technology were
48% to Berardino Paolucci, 24% to Drasko Karanovic and 28% to various shareholders (which shares are currently being held by
D Mecatronics on behalf of these shareholders). The transfer agent for D Mecatronics at the time of the spin-off was Global Sentry
Equity Transfer Inc. (“Global Sentry”). At the time of the spin-off, management of D Mecatronics had attempted on
several occasions to contact Global Sentry with regards to its shareholder list and records. However, any and all attempts were
to no avail. To date, D Mecatronics has not been able to obtain any of its records, including a shareholders list, from Global
Sentry. Management has no knowledge or information as to the whereabouts of Global Sentry or its management nor of the location
of its records and shareholders list. This has impeded the issuance of the shares of D&R Technology to the appropriate 28%
minority shareholders of D Mecatronics and thus the reason why D Mecatronics is holding the shares in trust for the benefit of
its shareholders. The majority shareholders of D Mecatronics and of D&R Technology were Messrs. Berardino Paolucci and Drakso
Karanovic. The other minority shareholders represented only approximately 28% of the total shares issued and, thus, our management
made a decision to proceed with the Share Exchange Agreement since it would be in the best interests of both our shareholders,
then known as Ecoland International Inc., and the shareholders of D&R Technology. In accordance with the terms and provisions
of the Share Exchange Agreement, we issued an aggregate of 59,000,000 shares of our restricted common stock to the D&R Shareholders
(which consisted of Messrs. Paolucci and Karanovic and D Mecatronics (which is holding the shares for the benefit of the remaining
shareholders of D&R Technology) in exchange for 100% of the total issued and outstanding shares of D&R Technology, thus
making D&R Technology our wholly-owned subsidiary.
Section
12(a)(1) of the Securities Act imposes liability on persons who offer or sell securities in violation of the Securities Act’s
registration requirements.
Section 12(a)(1)
allows purchasers to sue sellers for offering or selling a non-exempt security
without registering it. D&R Technology, our wholly-owned subsidiary, could face civil liability from a shareholder for offering
its shares of common stock to the shareholders of D Mecatronics without registering those shares in a registration statement under
the Securities Act of 1933. Moreover, Section 12(a)(1) further provides that as long as the shareholder can prove a direct link
between the shareholder and D&R Technology, and the suit is within the statute of limitations, the shareholder may obtain
rescission, interest or damages if the shareholder sells his securities for less than he purchased them.
Our
management is currently attempting to solve the issue regarding the transfer agency records relating to D Mecatronics so that
it can proceed with the issuances of our shares to the shareholders of D&R Technology in connection with the Share Exchange
Agreement. The shares are currently being held by D Mecatronics in trust for the benefit of those shareholders.
New
rules, including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract
qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or maintain
listing of our common stock
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We
may be unable to attract and retain those qualified officers, directors and members of board of directors committees required
to provide for our effective management because of the rules and regulations that govern publicly held companies, including, but
not limited to, certifications by principal executive officers. The perceived personal risk associated with the Sarbanes-Oxley
Act may deter qualified individuals from accepting roles as directors and executive officers.
Further,
some of these recent changes heighten the requirements for board or committee membership, particularly with respect to an individual’s
independence and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors
with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of
our business and our ability to obtain or maintain the listing of our common stock on any stock exchange (assuming we elect to
seek and are successful in obtaining such listing) could be adversely affected.
Our
common stock price is subject to significant volatility, which could result in substantial losses for investors.
Prices
for our shares are determined in the marketplace and may accordingly be influenced by many factors, including, but not limited
to:
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limited
“public float” in the hands of a small number of persons whose sales or lack of sales could result in positive
or negative pricing pressure on the market price for our common stock
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technological
innovations or new products and services by us or our competitors;
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intellectual
property disputes;
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additions
or departures of key personnel;
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the
depth and liquidity of the market for the shares;
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quarter-to-quarter
variations in our operating results;
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announcements
about our performance as well as the announcements of our competitors about the performance of their businesses;
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changes
in earnings estimates by, or failure to meet the expectations of, securities analysts;
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our
dividend policy; and
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general
economic and market conditions.
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Additionally,
the stock market often experiences significant price and volume fluctuations that are unrelated to the operating performance of
the specific companies whose stock is traded. These market fluctuations could adversely affect our share trading price. The price
at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market.
Investors may be unable to sell their shares of common stock at or above their purchase price, which may result in substantial
losses.
Future
sales of shares of our common stock by our shareholders could cause our stock price to decline.
We
cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock
for sale will have on the market price prevailing from time to time. If our shareholders sell substantial amounts of our common
stock in the public market upon the effectiveness of a registration statement, or upon the expiration of any holding period under
Rule 144, such sales could create a circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,
also could make it more difficult for the Corporation to raise additional financing through the sale of equity or equity-related
securities in the future at a time or price that we deem reasonable or appropriate. The shares of common stock issued in the Share
Exchange Agreement will be freely tradable upon the earlier of (i) effectiveness of a registration statement covering the resale
of such shares; or (ii) the date on which such shares may be sold without registration pursuant to Rule 144 under the Securities
Act and the sale of such shares could have a negative impact on the price of its common stock.
We
may issue additional shares of our capital stock or debt securities to raise capital or complete acquisitions, which could dilute
the equity interest of our stockholders.
After
giving effect to the Reverse Stock Split, there are approximately 449,704,500 authorized and unissued shares of our common stock
which have not been reserved and are available for future issuance. Subsequent to year end December 31, 2015, an additional 24,500,000
shares of common stock were issued each to Messrs. Paolucci and Karanovic with regards to the Technology Purchase Agreement. Although
we have no other commitments as of the date of this Annual Report to issue our securities, we may issue a substantial number of
additional shares of our common stock to complete a business combination or to raise capital. The issuance of additional shares
of our common stock:
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may
significantly dilute the equity interest of our existing stockholders; and
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may
adversely affect prevailing market prices for our common stock.
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We
have the authority and ability to issue preferred shares of stock and to designate the respective rights and preferences.
When
designated by the Board of Directors, the rights of the preferred stock could negatively affect holders of common stock and make
it more difficult to effect a change of control
.
As of the date of this Annual Report, the Board of Directors has created
Series A and Series B preferred shares. The Board of Directors is authorized by our articles of incorporation to create and issue
preferred stock. Certain of the rights of holders of preferred stock will take precedence over the rights of holders of common
stock and may be entitled to a preference upon liquidation, dissolution or winding up. The shares could be convertible voluntarily
at the election of the holder. See “Item 5. Market for common Equity, Related Stockholder Matters and Small Business Issuer
Purchasers of Equity Securities – Description of Securities.”
As
of the date of this Annual Report, we have issued 1,000,000 shares of Series B Preferred
Stock. Since all of our shares of preferred stock are issued and outstanding, we will need to amend our Articles of Incorporation
to create further blank check preferred shares. We will need to obtain shareholder approval to amend the Articles of Incorporation
to increase the authorized number of shares of preferred stock. If and when our Articles of Incorporation are amended and as future
tranches of capital are received by us, additional preferred stock may be issued which such terms and preferences as are determined
in the sole discretion of our Board of Directors. The rights of future preferred stockholders could delay, defer or prevent a
change of control, even if the holders of common stock are in favor of that change of control, as well as enjoy preferential treatment
on matters like distributions, liquidation preferences and voting.
Our
officers and directors and insiders own approximately 99.8% of the total issued and outstanding shares of our common stock
and 100% of the shares of Series B preferred stock, and will be able to influence control of us or decisions made by our management.
As of the date of this Annual Report, our officers, directors and insiders own approximately 99.8% of the total issued
and outstanding shares of our common stock and 100% of the shares of our Series B preferred stock and will be able to influence
control of us or decision making by our management. Moreover, in the event future issuances of common stock are authorized by
the Board of Directors pursuant to any future contractual relations, the officers, directors and insiders’ control of us
will increase. This may result in majority control of the voting power for all business decisions. See “Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.
Our
internal controls over financial reporting may not be effective and our independent registered public accounting firm may not
be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.
As
a public reporting company, we are in a continuing process of developing, establishing, and maintaining internal controls and
procedures that will allow our management to report on, and our independent registered public accounting firm to attest to, the
internal controls over financial reporting if and when required to do so under Section 404 of the Sarbanes-Oxley Act of 2002.
Our management will be required to report on internal controls over financial reporting under Section 404. If we fail to achieve
and maintain the adequacy of internal controls, we would not be able to conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. At such time, our independent registered public accounting firm
may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed
or operating. Moreover, our testing, or the subsequent testing by our independent registered public accounting firm, that must
be performed may reveal other material weaknesses or that the material weaknesses described above have not been fully remediated.
If we do not remediate the material weaknesses described above, or if other material weaknesses are identified or we are not able
to comply with the requirements of Section 404 in a timely manner, our reported financial results could be materially misstated
or could subsequently require restatement, we could receive an adverse opinion regarding our internal controls over financial
reporting from our independent registered public accounting firm and we could be subject to investigations or sanctions by regulatory
authorities, which would require additional financial and management resources, and the market price of our stock could decline.
The
application of the “penny stock” rules could adversely affect the market price of our common stock and increase your
transaction costs to sell those shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act
of 1934. The penny stock rules apply to non-NASDAQ companies whose common stock trades at less than $5.00 per share or that have
tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission, which contains the following:
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a
description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
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a
description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the
customer with respect to violation of such duties or other requirements of securities laws;
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a
brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny
stocks and the significance of the spread between the “bid” and “ask” price;
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A
toll-free telephone number for inquiries on disciplinary actions;
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definitions
of significant terms in the disclosure document or in the conduct of trading in penny stocks; and
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such
other information and is in such form (including language, type, size and format), as the Securities and Exchange Commission
shall require by rule or regulation.
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Prior
to effecting any transaction in penny stock, the broker-dealer also must provide the customer with the following:
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the
bid and offer quotations for the penny stock;
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the
compensation of the broker-dealer in the transaction;
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the
number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity
of the market for such stock; and
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monthly
account statements showing the market value of each penny stock held in the customer’s account.
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In
addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive
the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written suitability statement.
Due
to the requirements of penny stock rules, many brokers have decided not to trade penny stocks. As a result, the number of broker-dealers
willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant
period, that could have an adverse effect on the market, if any, for our securities. Moreover, if our securities are subject to
the penny stock rules, investors will find it more difficult to dispose of our securities.
Nevada
law and our Articles of Incorporation may protect our directors from certain types of lawsuits.
Nevada
law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all but certain
types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages
incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor
judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers
and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.
Broker-Dealer
requirements may affect trading and liquidity.
Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers
dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.
Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that
are deemed to be “penny stocks.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account
of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer
to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;
(ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that
the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions;
(iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination
in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects
the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements
may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
We
have not paid, and do not intend to pay, cash dividends in the foreseeable future.
We
have not paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend
to retain future earnings, if any, for reinvestment in the development and expansion of our business. Dividend payments in the
future may also be limited by other loan agreements or covenants contained in other securities which we may issue. Any future
determination to pay cash dividends will be at the discretion of our board of directors and depend on our financial condition,
results of operations, capital and legal requirements and such other factors as our board of directors deems relevant.
