NRBT Novus Robotics Inc (PK)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

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, our then-chief executive officer, chief financial officer and sole director, 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.

Please note that throughout this Annual Report, and unless otherwise noted, the words “we,” “our,” “us,” the “Company,” or “Novus Robotics,” refers to Novus Robotics Inc.

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.

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 Company’s trading symbol continues to be “NRBT”. Our new cusip number is 670011H207.

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 Drasko 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 twelve 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 2. Unregistered Sales of Securities and Use of Proceeds”.

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.

Valuation. Per ASC 850-10, transactions between related parties are quite normal in the course of business. It however, does not contain any measurement or recognition requirements for related-party transactions. Therefore to determine how to treat the value of the transaction, consideration must be given as to whether the Technology Purchase Agreement was in the normal course of business.

Management would suggest this is the first step in diversifying our business interests. We have been exclusively catering to the automotive market and a decision has been made to develop a new line of business to assist with the cash flow fluctuations inherent with the ebbs and the flows faced in today’s economy. This event would then suggest it is currently not in the normal course of business to transfer intellectual property not related to its current operation to the corporation from its owners. The transaction would then conceivably be properly recorded in equity to reflect the benefit conferred to the majority shareholders of the business being Mr Paolucci and Mr Karanovic as a reduction of the additional paid-in capital account. As this property was self-constructed and there is no independent valuation, the most conservative estimate would be to value the intangible property at $1.

Management has placed a value on the property commensurate with the shares that have been issued. The following analysis considers the alternatives:

The transfer of intellectual property is not in the normal course of business as we have purchased intellectual property to support our venture into the medical technology field from shareholders. There was no substantive change in ownership interest of the property as Mr. Paolucci and Mr. Karanovic continue to hold the majority equity position after the transaction. Accordingly, the property should be valued at its carrying amount being $0 with the benefit conferred being $50,000 charged against additional paid in capital.

The financial information in the table above is derived from the quarterly unaudited financial statements. The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Current Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. The Corporation’s actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Current Report on Form 10-Q. The financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Nine Month Period Ended September 30, 2016 Compared to Nine Month Period Ended September 30, 2015.

We generated revenue during the nine month period ended September 30, 2016 in the amount of $1,201,139 compared to $1,481,998 generated during the nine month period ended September 30, 2015 (a decrease of $280,859) Major components of the revenue mix for change from September 30, 2015 to September 30, 2016 are as follows:

Cost of sales: During the nine month period ended September 30, 2016, cost of sales was $751,820 compared to $974,819 during the nine month period ended September 30, 2015 (a decrease of $222,999). The change in products sold in the nine month period ended September 30, 2016 contributed to a decrease in our gross margin over the nine month period ended September 30, 2015. Ongoing work for prototype parts and retrofit systems where the majority of the costs are borne by the customer assisted in offsetting the lower product margins generated on the sale of seat frames in 2015. With the mix change as noted above being revenue primarily for the much lower seat frame system, the cost of sales increased markedly in 2016 versus 2015.

Gross Profit. Thus, based on the above, our gross profit decreased to $449,319 during the nine month period ended September 30, 2016 from $507,179 during the nine month period ended September 30, 2015.

Operating expenses: During the nine month period ended September 30, 2016, we incurred operating expenses in the amount of $574,597 compared to operating expenses incurred during the nine month period ended September 30, 2015 of $666,572 (a decrease of $91,975). Operating expenses include: (i) compensation of $368,799 (2015: $445,469); (ii) occupancy costs of $51,592 (2015: $51,557); (iii) travel of $27,102 (2015: $37,503); (iv) professional fees of $40,287 (2015: $101,019); (v) communication of $7,678 (2015: $8,768); and (vi) office and general of $79,139 (2015: $22,256). In respect of compensation, less labor charges were capitalized to the work in process projects during the nine month period ended September 30, 2016 compared to the nine month period ended September 30, 2015 due to the timing and completion of specific projects resulting in a reduction of $76,670 being charged in 2016. Travel decreased by $10,401 as we focused on acquiring new customers and opportunities locally during the nine month period ended September 30, 2016 as compared to the same period in 2015. Professional fees fell by $60,732 in the third quarter of 2016 as the additional charges associated with the change in auditors during this time frame in 2015 did not recur. Office and general expenses increased by $56,883 due to an accrual for factored receivable charges of approximately $30,000 which was not recorded in 2015.

Income from Operations. Thus, this resulted in a loss before other income of ($125,278) during the nine month period ended September 30, 2016 compared to a loss before other income of ($159,393) during the nine month period ended September 30, 2015.

Other Income (Expense). During the nine month period ended September 30, 2016, we recorded ($29,256) in other expense as compared to $238,064 in other income in the nine month period ended September 30, 2015. The continued weakening Canadian dollar in 2016 against the United States dollar resulted during the nine month period September 30, 2016 in a foreign exchange loss of $61,057 compared to a gain of $164,538 during the nine month period ended September 30, 2015 on denominations transacted and settled in foreign currencies, primarily being sales to the United States from which the monies are being converted and used to satisfy Canadian dollar operational requirements. We recovered $31,800 in expenses associated with recovery of scientific research and development expenditures during the nine month period ended September 30, 2015 compared to $73,526 during the nine month period ended September 30, 2016.

Net income (loss). Thus, during the nine month period ended September 30, 2016, this resulted in net income (loss) of ($154,535) compared to net income of $78,671 during the nine month period ended September 30, 2015.

Other Comprehensive Gain (Loss). During the nine month period ended September 30, 2016, we recorded a foreign exchange adjustment of $950 as compared to ($268,442) during the nine month period ended September 30, 2015.

Comprehensive Loss. Thus, during the nine month period ended September 30, 2016, our comprehensive loss was ($153,585) or ($0.00) per share compared to a comprehensive loss of ($189,771) or ($0.27) for the nine month period ended September 30, 2015. The weighted average number of shares outstanding was 34,218,577 for the nine month period ended September 30, 2016 compared to 295,500 for the nine month period ended September 30, 2015.

Three Month Period Ended September 30, 2016 Compared to Three Month Period Ended September 30, 2015.

We generated revenue during the three month period ended September 30, 2016 in the amount of $53,619 compared to $467,642 generated during the three month period ended September 30, 2015 (a decrease of $414,023). Major components of the revenue mix for change from September 30, 2015 to September 30, 2016 are reflected above.

Cost of sales: During the three month period ended September 30, 2016, cost of sales was $44,159 compared to $407,186 during the three month period ended September 30, 2015 (a decrease of $363,027). The change in products sold in the three month period ended September 30, 2016 contributed to a decrease in our gross margin over the three month period ended September 30, 2015.

Gross Profit. Thus, based on the above, our gross profit decreased to $9,460 during the three month period ended September 30, 2016 from $60,456 during the three month period ended September 30, 2015.

Operating expenses: During the three month period ended September 30, 2016, we incurred operating expenses in the amount of $150,961 compared to operating expenses incurred during the three month period ended September 30, 2015 of $207,932 (a decrease of $56,971). Operating expenses include: (i) compensation of $118,611 (2015: $128,960); (ii) occupancy costs of $15,779 (2015: $15,232); (iii) travel of $8,628 (2015: $12,553); (iv) professional fees of $4,591 (2015: $31,794); (v) communication of $3,223 (2015: $3,126); and (vi) office and general of $129 (2015: $16,267). In respect of compensation, less labor charges were capitalized to the work in process projects during the three month period ended September 30, 2016 compared to the three month period ended September 30, 2015. Professional fees decreased by $27,203 in 2016 as the additional charges associated with the change in auditors during this time frame in 2015 did not recur. Office and general expenses increased by $16,138.

Income from Operations. Thus, this resulted in a loss before other income of ($141,501) during the three month period ended September 30, 2016 compared to a loss before other income of ($147,476) during the three month period ended September 30, 2015.

Other Income. During the three month period ended September 30, 2016, we incurred $312,508 in other income as compared to $120,521 in other income in the three month period ended September 30, 2015. The continued weakening Canadian dollar in 2016 against the United States dollar resulted during the three month period ended September 30, 2016 in a foreign exchange gain of $280,707 compared to a gain of $121,936 during the three month period ended September 30, 2015 on denominations transacted and settled in foreign currencies, primarily being sales to the United States from which the monies are being converted and used to satisfy Canadian dollar operational requirements. We recovered $31,800 in expenses associated with recovery of scientific research and development expenditures during the three month period ended September 30, 2015 compared to ($1,415) during the three month period ended September 30, 2016.

Net income (loss). Thus, during the three month period ended September 30, 2016, this resulted in net income of $171,007 compared to a net loss of ($26,955) during the three month period ended September 30, 2015.

Other Comprehensive Gain (Loss). During the three month period ended September 30, 2016, we recorded a foreign exchange adjustment of $315,658 as compared to ($168,980) during the three month period ended September 30, 2015.

Comprehensive Income (Loss). Thus, during the three month period ended September 30, 2016, our comprehensive gain was $486,665 or $0.00 per share compared to a comprehensive loss of ($195,935) or ($0.09) for the three month period ended September 30, 2015. The weighted average number of shares outstanding was 49,295,500 for the three month period ended September 30, 2016 compared to 295,500 for the three month period ended September 30, 2015.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2016

As of September 30, 2016, our current assets were $2,063,432 and our current liabilities were $1,701,463, which resulted in a working capital surplus of $361,969. As of September 30, 2016, current assets were comprised of: (i) $841,262 in cash; (ii) $114,415 in amounts receivable, net; (iii) $1,040,917 in inventory; (iv) $51,875 in sales tax recoverable; (v) $10,060 in security deposits; and (vi) $4,904 in prepaid expenses. As of September 30, 2016, current liabilities were comprised of: (i) $346,726 in accounts payable and accrued expenses; (ii) $37,825 in convertible note payable; (iii) $1,296,571 in customer deposits; (iv) $12,313 in warranty provision; and (v) $8,026 in current portion of obligation under capital lease.

As of September 30, 2016, our total assets were $2,149,420 comprised of: (i) $2,063,432 in current assets; and (ii) $85,988 in fixed assets, net of depreciation. The increase of total assets during the nine month period ended September 30, 2016 from December 31, 2015 was primarily due an increase in cash of $347,419 in cash and $830,631 in amounts receivable.

As of September 30, 2016, our total liabilities were $1,718,066 comprised of: (i) $1,701,463 in current liabilities; and (ii) $16,604 in obligation under capital lease. The increase in liabilities during the nine month period ended September 30, 2016 was primarily due to an increase in accounts payable and accrued expenses of $164,168 and customer deposits of $947,542.

Total stockholders’ equity decreased from $584,939 as of December 31, 2015 to $431,354 as of September 30, 2016.

Cash Flows from Operating Activities

For the nine month period ended September 30, 2015, net cash flows provided by operating activities was $314,963 consisting primarily of net income of $154,535. Net cash flows provided by operating activities was adjusted by $16,023 in depreciation. Net cash flow from operating activities was further changed by: (i) a decrease of $202,182 in accounts receivable; (ii) an increase of $830,631 in inventory; (iii) an increase of $2,566 in prepaid expenses; (iv) a decrease of $884 in security deposit; (v) an increase of $164,168 in accounts payable and accrued expense; (vi) an increase of $947,542 in deferred revenue; (vii) an increase of $4,336 in warranty payable; and (viii) a decrease of $32,440 in taxes recoverable/payable.

For the nine month period ended September 30, 2015, net cash flows provided by operating activities was $209,930 consisting primarily of net income of $78,671. Net cash flows provided by operating activities was adjusted by $31,814 in depreciation. Net cash flow from operating activities was further changed by: (i) a decrease of $14,081 in accounts receivable; (ii) a decrease of $181,408 in inventory; (iii) a decrease of $536 in prepaid expenses; (iv) a decrease of $1,741 in security deposit; (v) a decrease of $96,862 in accounts payable and accrued expense; (vi) a decrease of $32,046 in deferred revenue; (vii) an increase of $1,413 in warranty payable; and (viii) an increase of $29,174 in taxes recoverable/payable.

Cash Flows from Investing Activities

For the nine month period ended September 30, 2016, net cash flows used in investing activity was $5,998 consisting of purchase of fixed assets compared to net cash flows used in investing activity of $19,873 during the nine month period ended September 30, 2015.

Cash Flows from Financing Activities

For the nine month period ended September 30, 2016, net cash flow provided by financing activity was $3,884 consisting of $3,884 in obligation under capital lease, net of repayments, compared to $-0- during the nine month period ended September 30, 2015.

We expect that working capital requirements will continue to be funded through a combination of our existing funds and generation of revenues. Our working capital requirements are expected to increase in line with the growth of our business.

PLAN OF OPERATION

Our principal demands for liquidity are to increase capacity, inventory purchase, sales distribution, and general corporate purposes. We are in the process of being accepted as a global prototype supplier by Johnson Controls compared to our prior role as a supplier for North America. We had been involved in discussions with Johnson Controls regarding prototypes and parts production. Johnson Controls visited our facility during early 2012 to conduct an audit for global recommendation. Their goal was to understand the processes we use to run the business and the controls that we have in place so that we were assured to have utmost control over the quality of work. The audit was based on our employees and their qualifications, data management, processes, tooling and equipment and parts and material management. Johnson Controls conducted a tour of our facility, which was followed up with a final review on May 3, 2012. Subsequently we received a call from Johnson Controls stating that we had been accepted and recommended for their global work. Therefore, we have been accepted for global work and thus provided the basis for previously disclosed projections. We may achieve those revenue projections during fiscal year 2016, however, we may also not achieve that level of revenue.

We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment, purchase of inventory, and the expansion of its business, through cash flow provided by operations and funds raised through proceeds from the issuance of debt or equity.

With a flexible labor force, workers are hired on a project by project basis, and strong inventory management, we are able to manage our cash flow to meet the ever changing needs of the business. We can expand and contract very quickly based on customer demand. Our major customers, JCI and Constellium, are consistently submitting new projects. We have $549,319. of project work in process at the end of June 30, 2016 with a total contract value of approximately $1,900,025.00. We have received committed future orders of over $487,034.00, which are anticipated to be completed during the second half of 2016. Other revenue opportunities have historically materialized to supplement this revenue being service and retooling.

We have not paid any sums for public relations or investor relations.

MATERIAL COMMITMENTS

Other than the lease obligation and convertible notes described below, we have no other reportable material commitments for the nine month period ended September 30, 2016.

Lease

We entered into a lease to purchase equipment in November of 2015. An initial payment of $16,900 was made with the balance of the lease to be satisfied in 36 equal monthly payments of approximately $820. The interest rate related to the lease obligation is 14% with a maturity date of November 2018 at which time the option exists to purchase the equipment for $4,600. Minimum lease payments to maturity for fiscal years ended December 31, 2016, 2017 and 2018 are as follows, respectively: (i) $2,755; (ii) $9,840; and (iii) $9,020.

Convertible Notes

On August 26, 2016, Berardino Paolucci, our President/Chief Executive Officer, entered into those certain debt purchase agreements dated August 26, 2016 (each, the “Debt Purchase Agreement”), which Debt Purchase Agreement was consummated on September 2, 2016 with payment of consideration.

It was previously reported and disclosed that we had issued: (i) that certain convertible promissory note dated December 15, 2006 in the principal amount of $60,000.00 (the “Treanor Convertible Note”), to Stephen Treanor (“Treanor”), which a portion of the principal and accrued interest in the amount of $36,000 was subsequently settled pursuant to the terms and provisions of that certain settlement agreement dated December 15, 2009 between us and Treanor (the “Treanor Settlement Agreement”); (ii) that certain convertible promissory note dated April 15, 2008 in the principal amount of $40,000.00 (the “Boyle Convertible Note”), to Donna Boyle (“Boyle”), which all the principal and accrued interest in the amount of $41,600.00 was subsequently settled pursuant to the terms and provisions of that certain settlement agreement dated December 15, 2009 between us and Boyle (the “Boyle Settlement Agreement”); and (iii) that certain convertible promissory note dated December 15, 2006 in the principal amount of $60,000.00 (the “Russell Convertible Note”), to Raymond Russell (“Russell”), which a portion of the principal and accrued interest in the amount of $36,000 was subsequently settled pursuant to the terms and provisions of that certain settlement agreement dated December 15, 2009 between us and Russell (the “Russell Settlement Agreement”).

It was further previously disclosed that in accordance with the terms and provisions of that certain share exchange agreement dated January 27, 2012 (the “Share Exchange Agreement”) between us and D Mecatronics Inc., a private corporation (“D Mecatronics”) and the shareholders of D Mecatronics (the “D Mecatronics Shareholders”), we acquired all of the total issued and outstanding shares of D Mecatronics in exchange for the issuance of shares of our common stock to the D Mecatronic Shareholders and the assignment the Treanor Convertible Note, the Boyle Convertible Note and the Russell Convertible Note to Mr. Paolucci.

Debt Purchase Agreements

As of the date of the Debt Purchase Agreements, the aggregate amount that remained due and owing under the Treanor Convertible Note, the Boyle Convertible Note and the Russell Convertible Note was $39,864.00 (the “Debt”). Mr. Paolucci was the holder of all right, title and interest in and to the Debt due and owing by us, which Debt is evidenced on the audited and reviewed financial statements of the Company commencing as filed with the Securities and Exchange Commission. Therefore, two separate unrelated parties entered into a separate Debt Purchase Agreement with Mr. Paolucci for payment of consideration each in the amount of $12,500.00 (each, the “Purchase Price”) and Mr. Paolucci sold and transferred all of his respective right, title and interest, including conversion rights of $0.005 per share, in and to the Debt.

As of the date of this Quarterly Report, a certain portion of the Debt was converted into 5,000,000 shares of restricted common stock. See “Item 2. Unregistered Sales of Securities and Use of Proceeds”.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The discussion and analysis of our financial condition and plan of operations is based upon our interim consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, among others, those affecting revenue, the allowance for doubtful accounts, the salability of inventory and the useful lives of tangible and intangible assets. The discussion below is intended as a brief discussion of some of the judgments and uncertainties that can impact the application of these policies and the specific dollar amounts reported on our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed elsewhere in this Quarterly Report on Form 10-Q. We do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances.

Uses of Estimates

The preparation of interim consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Financial statement items subject to significant judgment include expense accruals, as well as income taxes and loss contingencies. Actual results could differ from those estimates.

The areas which require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to:

Assets’ carrying values and impairment charges

Assets, including property and equipment and inventory, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount exceed their recoverable amounts. In the determination of carrying values and impairment charges, management looks at the higher of recoverable amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair value on financial assets indicating impairment. These determinations and their individual assumptions require that management make a decision based on the best available information at each reporting period.

Income taxes and recoverability of potential deferred tax assets

In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. The Company considers whether relevant tax planning opportunities are within the Company’s control, are feasible, and are within management’s ability to implement. Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts of income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period. The Company is current on its Canadian tax filings through

2015, however is not current on its US tax filings.

Cash and Cash Equivalents

We consider all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents. At September 30, 2016, we had no cash equivalents. We maintain our cash in bank deposit accounts which may exceed federally insured limits. As of September 30, 2016, our accounts are insured for $100,000 CDN by Canadian Deposit Insurance Corporation for Canadian bank deposits and are insured for $250,000 by FDIC for US bank deposits. The entirety of our US bank deposits are insured at September 30, 2016.

Inventory

Inventory, comprised principally of raw materials, is stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. This policy requires D&R to make estimates regarding the market value of our inventory, including an assessment of excess or obsolete inventory. We determine excess and obsolete inventory based on an estimate of the future demand and estimated selling prices for its products.

Allowance for Doubtful Accounts

We extend credit to our customers in the normal course of business. The allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on specific customer information, historical write-off experience and current industry and economic data. Account balances are charged-off against the allowance when we believe it is probable the receivable will not be recovered. Management believes that there are no concentrations of credit risk for which an allowance should be established. Although management believes that no allowance is needed, it is possible that the estimated amount of cash collections with respect to accounts receivable could change. As of September 30, 2016 and December 31, 2015, we have not deemed any accounts uncollectible.

Revenue Recognition

We recognize revenue in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements” (“SAB 101”) as modified by SEC Staff Accounting Bulletin No.104. Under SAB 101, revenue is recognized when the project is complete, and when collection of the resulting receivable is reasonably assured.

D&R provides standard warranties for its product from the date of shipment. Estimated warranty obligations are recorded at the time of sale and amortized over the two year warranty period as of September 30, 2016 and December 31, 2015, warranty liability was $12,290.64 and $10,654.74, respectively.