Indicate the number of shares outstanding of
each of the registrant’s classes of common stock, as of the latest practicable date.
54,296,641
shares
of common stock are outstanding as of April 17, 2017.
PART
I
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
continue 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 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 Annual 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
(which is currently under construction) 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. Thus, based on such research, it is management’s best belief that this demand will
require more systems by the Tier 1 OEMs.
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.
In previous years, we have had significant
economic and commercial reliance and dependence on Johnson Controls Inc. (“JCI”). JCI was one our major customers after
the recession of 2009 through 2010 in which some of our previous customers filed for bankruptcy or acquired by larger companies.
However, as of the date of this Annual Report, management has determined that we are not economically dependent upon JCI. During
fiscal years ended December 31, 2016 and 2015, D&R Technology received purchase orders from JCI in the amount of $260,873 and
$350,182, respectively. During fiscal year 2016, approximately 30.3% sales were attributable to JCI. And, during fiscal year 2015,
approximately 53% sales and 20% of our receivables 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 Bernardino 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 produced 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 fiscal year 2016, D&R Technology received from Toyota
Boshoku purchase orders for $20,672. During fiscal year 2015, we received orders for $3,500 for spare parts. During fiscal years
2014 and 2013, we received purchase orders from Toyota Boshoku in the amounts of $146,101 and $2,500, respectively. Purchase orders
from Toyota Boshoku have decreased because Toyota Boshoku has not produced any new systems requiring systems from us.
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 sixteen full time employees. This
may fluctuate depending on our workload. We may also use temporary employees that have previously worked for us as required depending
on the workload. We have our President/Chief Executive Officer, Bernardino 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. We have also engaged the services of the wives
of Messrs. Paolucci and Drasko as part-time employees, respectively, on a limited basis.
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
previous had significant economic and commercial reliance and dependence on Johnson Controls Inc. as a major customer.
We previously had significant economic and
commercial reliance and dependence on Johnson Controls Inc. (“JCI”). In previous years, we have had significant economic
and commercial reliance and dependence on Johnson Controls Inc. (“JCI”). JCI was one 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.
However, as of the date of this Annual Report, management has determined that we are not economically dependent upon JCI. During
fiscal years ended December 31, 2016 and 2015, D&R Technology received purchase orders from JCI in the amount of $260,873
and $350,182, respectively. During fiscal year 2016, more than 30.3% sales were attributable to JCI. And, during fiscal year 2015,
more than 53% sales and 20%, of our receivables were attributable to JCI. Therefore, management believes that the decline in orders
received from JCI has not adversely affected our revenues and operating results and, therefore, no longer believes that we are
subject to significant financial risk in the event of the financial distress of JCI. This could change, however, during subsequent
fiscal years.
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
.
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 445,703,359 authorized and unissued shares of our common
stock which have not been reserved and are available for future issuance. On February 25, 2016, we issued 24,500,000 shares of
common stock each to Messrs. Paolucci and Karanovic with regards to the Technology Purchase Agreement. On October 18, 2016, we
issued a further 5,000,000 shares of post Reverse Stock Split in accordance with conversion of debt. 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”.
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 designated
100 shares Series A preferred stock and 49,999,999 shares Series B preferred stock. 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 92.7% 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 92.7% 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.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
As
of the date of this Annual Report, we do not have any unresolved staff comments from the Securities and Exchange Commission.
ITEM
2. DESCRIPTION OF PROPERTY
Property
We
currently have a three-year lease on a standalone building located at 7669 Kimbel Street, Mississauga, Ontario, Canada, which
is 18,000 square feet. The building is located on approximately one acre of land. The building has two floors of office/engineering
space, 1,500 square feet, and the balance is used for its welding, assembly and machining areas. We also have two loading docks
for shipping.
The
base rent is $8,400 CDN per month. As at December 31, 2016, the aggregate minimum annual lease payments under operating lease
was $58,500 for 2016. Total remaining lease payments of $260,400 CDN are required to the lease expiration date, which is July
31, 2019.
ITEM
3. LEGAL PROCEEDINGS.
As
of the date of this Annual Report, management is not aware of any legal proceedings contemplated by any governmental authority
or any other party involving us or our properties. As of the date of this Annual Report, no director, officer or affiliate is
(i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management
is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
Applicable.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASERS OF EQUITY SECURITIES.
MARKET
INFORMATION
As
of the date of this Annual Report and after giving effect to the Reverse Stock Split, there are 54,296,641 outstanding
shares of our common stock of which approximately 78,941 shares are restricted securities as that term is defined in Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”). Although the Securities Act and Rule 144 place
certain prohibitions on the sale of restricted securities, restricted securities may be sold into the public market under certain
conditions, including so long as those shares have been held for over six months. We were possibly considered a prior shell company
as defined in Rule 230.405 of the Securities Act and, therefore, our shares of restricted stock available for sale under Rule
144 were affected. On December 5, 2008, prior management designated us a shell corporation, thus we had to cure ourselves of our
shell status by: (i) no longer fitting the definition of a shell company as defined in Rule 144(i)(1); (ii) subjecting to the
reporting requirements under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and filing all
reports (other than Form 8-K reports) required under the Exchange Act for the preceding twelve months; and (iii) filing current
“Form 10 information” with the Securities and Exchange Commission reflecting its status as an entity that is no longer
an issuer described in Rule 144(i)(1) and one year has elapsed since the filing of the “Form 10 information” with
the Securities and Exchange Commission. We filed our “Form 10 information” April 20, 2012. Therefore, as of the date
of this Annual Report, we have cured our “shell” status.
Any
significant downward pressure on the price of our common stock as the shareholders sell their shares of the Corporation’s
common stock could encourage short sales by the selling shareholders or others. Any such sales could place further downward pressure
on the price of our common stock.
Our
common stock has been quoted on the Over-the-Counter Bulletin Board since July 12, 2010, under the symbol ECIT.OB and recently
to NRBT.OTC:QB. The market for our common stock is limited and can be volatile. The following table sets forth the high and low
bid prices relating to the common stock on a quarterly basis for the periods indicated as quoted by the NASDAQ OTC:QB stock market.
These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.
|
2016
Financial Year
|
|
High
Bid
|
|
|
Low
Bid
|
|
|
Fourth Quarter
|
|
$
|
1.96
|
|
|
|
1.52
|
|
|
Third Quarter
|
|
$
|
4.86
|
|
|
$
|
2.33
|
|
|
Second Quarter
|
|
$
|
1.33
|
|
|
$
|
2.95
|
|
|
First Quarter
|
|
$
|
6.90
|
|
|
$
|
3.00
|
|
|
2015
Financial Year
|
|
High
Bid
|
|
|
Low
Bid
|
|
|
Fourth
Quarter:
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
Third
Quarter
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
Second
Quarter
|
|
$
|
0.06
|
|
|
$
|
0.07
|
|
|
First
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
As
of the date of this Annual Report, an aggregate of 54,296,641 shares of common stock were issued and outstanding and were
owned by approximately 64 holders of record, based on information provided by our transfer agent.
Rule
144
On
December 15, 2008, the Board of Directors changed our reporting status to a shell corporation as evidenced in the filing of a
current report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2008. Rule 144 will be available
for the re-sale of securities by the shareholders of the Corporation one year from April 20, 2012, which is the date of filing
of our Current Report on Form 8-K containing Form 10 information. As of April 20, 2013 and the date of this Annual Report, we
have cured our “shell” status.
DIVIDENDS
We
have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the future. We are under no
legal or contractual obligation to declare or to pay dividends, and the timing and amount of any future cash dividends and distributions
is at the discretion of our Board of Directors and will depend, among other things, on our future after-tax earnings, operations,
capital requirements, borrowing capacity, financial condition and general business conditions. We plan to retain any earnings
for use in the operation of our business and to fund future growth. You should not purchase our Shares on the expectation of future
dividends.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As
of the date of this Annual Report, we do not have any equity compensation plan.
Equity
Compensation Plan Information
|
Plan
Category
|
|
Number
of
securities
to be issued
upon
exercise
of
outstanding
options,
warrants
and rights
|
|
|
Weighted-
average
exercise
price
of
outstanding
options,
warrants
and
rights
|
|
|
Number
of
securities
remaining
available for
future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in
column (a))
|
|
|
Equity
compensation plans approved by security holders
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
RECENT
SALES OF UNREGISTERED SECURITIES
During
fiscal year ended December 31, 2016 and to date of this Annual Report, we have issued shares of our common stock and preferred
stock as follows:
Convertible
Notes
On
October 18, 2016, our Board of Directors authorized the issuance of an aggregate 5,000,000 post Reverse Stock Split shares of
restricted common stock to certain unrelated parties. We received certain conversion notices dated October 18, 2016 from the unrelated
parties (collectively, the “Conversion Notices”) and authorized the issuance of 5,000,000 shares of our post Reverse
Stock split restricted common stock. The shares were issued in a private transaction to two non-United States residents, in reliance
on Regulation S promulgated under the United States Securities Act of 1933, as amended (the “Securities Act”). The
shares of common stock have not been registered under the Securities Act or under any state securities laws and may not be offered
or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration
requirements. The parties acknowledged that the securities to be issued have not been registered under the Sec45.83urities Act
and that they understood the economic risk of an investment in the securities
On
August 26, 2016, Bernardino Paolucci, our President/Chief Executive Officer, entered into those certain debt purchase agreements
dated August 26, 2016 (each, the “Debt Purchase Agreement”), which each Debt Purchase Agreement was consummated on
September 2, 2016 with payment of consideration. It was previously reported and disclosed that the Company 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 the Company 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 the Company 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 the Company 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 the Company and D Mecatronics Inc., a private corporation
(“D Mecatronics”) and the shareholders of D Mecatronics (the “D Mecatronics Shareholders”), the Company
acquired all of the total issued and outstanding shares of D Mecatronics in exchange for the issuance of shares of its 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 (collectively, the “Convertible Notes”).
During
the first quarter of 2016, it was determined that as of the date of the Share Exchange Agreement, there were certain inaccuracies
regarding the amounts recorded as owing on the convertible Notes payable that were assigned to Mr. Paolucci. These Convertible
Notes were converted for 75,733 shares of common stock in January 2015. Upon making this determination, Mr. Paolucci terminated
the transaction, returned his shares to treasury for cancellation and reinstated the Convertible Notes.
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 the Company, which Debt is evidenced on the audited and reviewed
financial statements of the Company commencing as filed with the Securities and Exchange Commission. Therefore, on September 7,
2016, 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 Annual Report, an aggregate $25,000 of the Debt was converted into 5,000,000 shares of common stock.
On January 17, 2017, the Board of Directors
authorized the execution of that certain settlement agreement (the Settlement Agreement”) and corresponding promissory note
(the “Note”) between the Company and Mr. Paolucci. In accordance with the terms and provisions of the Settlement Agreement,
Mr. Paolucci agreed to refrain from converting certain debt into shares of our common stock and to accept the settlement and payoff
of $100,000 (the “Settlement Debt”). Mr. Paolucci’s agreement to forego his right and opportunity to convert
the debt into approximately 2,616,600 shares of our common stock represented a large potential monetary loss based upon the anticipated
increase in the trading price and valuation of our shares of common stock. As of the date of the Settlement Agreement, our common
stock was trading at $1.7425, which represented a then monetary value of $4,559,425.50 in the event such debt was converted. Mr.
Paolucci recognized his potential conflict of interest associated with the Settlement Agreement and as a member of the Board of
Directors analyzed several factors and criteria with regards to his decision to enter into the Settlement Agreement as being in
the best interests of the Company and its shareholders. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operation – Liquidity and Capital Resources – Material Commitments.”
Technology
Purchase Agreement
On
March 15, 2016 and in accordance with the terms and provisions of the Technology Purchase Agreement, our Board of Directors authorized
the issuance of an aggregate 500,000 shares of our Series B preferred stock and 24,500,000 post-Reverse Stock Split shares of
restricted common stock to each of Bernardino Paolucci, our President/Chief Executive Officer, and Drasko Karanovic.
The
shares were valued at par and issued in a private transaction to the two non-United States residents in reliance on Regulation
S promulgated under the United States Securities Act of 1933, as amended (the “Securities Act”). None of the shares
have been registered under the Securities Act or under any state securities laws and, therefore, may not be offered or sold without
registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements.
TRANSFER
AGENT AND REGISTRAR
Our
transfer agent and registrar is Manhattan Transfer Registrar Company. 57 Eastwood Road, Miller Place, New York 11764.
DESCRIPTION
OF SECURITIES
The
following description of our securities and provisions of our articles of incorporation and bylaws is only a summary. We refer
to the copies of our articles of incorporation and bylaws, copies of which have been incorporated by reference as exhibits to
certain current reports on Form 8-K. The following discussion is qualified in its entirety by reference to such exhibits. Management
has access to all corporate books and records, including transfer agent records.
Authorized
Capital Stock
The
total number of stock authorized that may be issued by us is 550,000,000 shares of which 50,000,000 shall be shares of preferred
stock with a par value of $0.001 per share (100 shares designated as Series A preferred and 49,990,000 shares designated as Series
B) and 500,000,000 shall be shares of common stock with a par value of $0.001 per share.
Capital
Stock Issued and Outstanding
As
of the date of this Annual Report, our issued and outstanding securities are as follows:
|
●
|
54,296,641
shares of common stock;
|
|
|
|
|
●
|
1,000,000 shares of Series B preferred stock;
|
|
|
|
|
●
|
No options to purchase any capital stock; and
|
|
|
|
|
●
|
No warrants to purchase any capital stock or securities convertible into capital stock. .
|
Description
of Common Stock
The
holders of common stock are entitled to one vote per share. Our Articles of Incorporation do not provide for cumulative voting.
The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors
out of legally available funds; however, the current policy of the Board of Directors is to retain earnings, if any, for operations
and growth. Upon liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets
that are legally available for distribution. The holders of common stock have no preemptive, subscription, redemption or conversion
rights.
Subject
to the rights of the holders of preferred stock to elect directors as a class, a director may be removed only for cause and only
by the affirmative vote of the holders of 60% of the combined voting power of the then outstanding shares of stock entitled to
vote generally in the election of directors, voting together as a single class.
The
affirmative vote of the holders of at least 60% of the voting power of all shares entitled to vote generally, in the election
of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal
Article EIGHTH of the Articles of Incorporation. Except as may be otherwise fixed by resolution of the Board of Directors pursuant
to the provisions relating to the rights of the holders of preferred stock, any action required or permitted to be taken by our
stockholders may be effected at a duly called annual or special meeting of such holders and may be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the rights of the holders of the preferred stock,
special meetings of stockholders may be called only by the chairman, if any, on his own initiative, the President on his own initiative
or by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Notwithstanding
anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 60% of
the voting power of all shares entitled to vote generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or repeal this Article EIGHTH.
In
further accordance with Article SEVENTH, and except as may otherwise be fixed by resolution of the Board of Directors relating
to the rights of the holders of preferred stock, the number of directors shall be fixed from time to time by or pursuant to the
Bylaws of the corporation but in no instance shall exceed seven members. Moreover, except as may otherwise be fixed by resolution
of the Board of Directors relating to the rights of the holders of preferred stock, newly created directorships resulting from
any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification,
removal or any other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office even
though less than a quorum of the Board of Directors. The Board of Directors is expressly authorized to: (i) adopt, amend and repeal
our bylaws; (ii) to fix and determine and vary the amount of our working capital; (iii) to authorize the purchase or other acquisition
of our shares of stock; (iv) to determine the location where our books shall be kept; (v) to authorize the sale, lease or other
disposition of our properties; and (vi) to authorize the borrowing of money and issuance of bonds or debentures. In accordance
with Section 78.565 regarding sale, lease or exchange of assets, shareholder approval will be required in the event the Board
of Directors approves the sale, lease or exchange of substantially all of our properties and assets, including goodwill and corporate
franchises. Lastly, Article SEVENTH further provides that the affirmative vote of the holders of at least 60% of the voting power
of all shares entitled to vote generally in the election of the directors, voting together as a single class, shall be required
to alter, amend, adopt any provision inconsistent with or repeal Article SEVENTH.
Description
of Preferred Stock
Creation
of Series A Preferred Stock
Effective
July 27, 2010, we filed with the Secretary of State of the State of Nevada, a Certificate of Designation creating one hundred
(100) shares, designated as “Series A Preferred Stock.” The shares of Series A Preferred Stock may be issued from
time to time by our Board of Directors. None of the shares of Series A Preferred Stock have been issued.
The
following is a summary of the material rights and restrictions associated with our Series A Preferred Stock. This description
does not purport to be a complete description of all of the rights of our stockholders and is subject to, and qualified in its
entirety by, the provisions of our Certificate of Designation relating to our shares of Series A Preferred Stock.
Each
share of Series A Preferred Stock is convertible on a one-for-one basis into common stock and has all of the voting rights that
the holders of our common stock has. In addition, the holders of a majority of the shares of Series A Preferred Stock represented
at a duly called special or annual meeting of such shareholders or by an action by written consent for that purpose shall be entitled
to elect three (3) directors (the “Series A Directors”). The holders of the Series A Preferred Stock may waive their
rights to elect such three (3) directors at any time and assign such right to the board of directors to elect such directors;
and (b) the holders of a majority of the shares of common stock represented at a duly called special or annual meeting of such
shareholders or by an action by written consent for that purpose shall be entitled to elect two (2) directors.
So
long as any shares of Series A Preferred Stock are outstanding, we shall not, without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred
Stock, voting as a separate class:
(1)
amend our Articles of Incorporation or Bylaws;
(2)
change or modify the rights, preferences or other terms of the Series A Preferred Stock, or increase or decrease the number of
authorized shares of Series A Preferred Stock;
(3)
reclassify or recapitalize any outstanding equity securities, or authorize or issue, or undertake an obligation to authorize or
issue, any equity securities (or any debt securities convertible into or exercisable for any equity securities) having rights,
preferences or privileges senior to or on a parity with the Series A Preferred Stock;
(4)
authorize or effect any transaction constituting a Liquidation Event (as defined in this subparagraph) under these Articles, or
any other merger or consolidation of the Corporation. For purposes of these Articles, a “Deemed Liquidation” shall
mean: (A) the closing of the sale, transfer or other disposition of all or substantially all of our assets (including an irrevocable
or exclusive license with respect to all or substantially all of our intellectual property); (B) the consummation of a merger,
share exchange or consolidation with or into any other corporation, limited liability company or other entity (except one in which
the holders of our capital stock as constituted immediately prior to such merger, share exchange or consolidation continue to
hold at least 50% of the voting power of our capital stock or the surviving or acquiring entity (or its parent entity)), (C) authorize
or effect any transaction liquidation, dissolution or winding up, either voluntary or involuntary,
provided
,
however
, that none of the following shall be considered a Deemed Liquidation: (i) a merger effected exclusively for the purpose of
changing our domicile, or (ii) a transaction or other event deemed to be exempt from the definition of a Deemed Liquidation by
the holders of at least a majority of the then outstanding Series A Preferred Stock;
(5)
increase or decrease the size of the Board of Directors as provided in our bylaws or remove any of the Series A Directors (unless
approved by the Board of Directors including the Series A Directors);
(6)
declare or pay any dividends or make any other distribution with respect to any class or series of capital stock (unless approved
by the Board of Directors including the Series A Directors);
(7)
redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares
of capital stock (other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant
to agreements approved by the Board of Directors under which the Corporation has the option to repurchase such shares at no greater
than original cost upon the occurrence of certain events, such as the termination of employment) (unless approved by the Board
of Directors including the Series A Directors);
(8)
amend any stock option plan, if any (other than amendments that do not require approval of the stockholders under the terms of
the plan or applicable law) or approve any new equity incentive plan;
(9)
replace the President and/or Chief Executive Officer (unless approved by the Board of Directors including the Series A Directors);
or
(10)
transfer assets to any subsidiary or other affiliated entity.
Creation
of Series B Preferred Stock
Effective
July 27, 2010, we filed with the Secretary of State of the State of Nevada, a Certificate of Designation creating one million
(1,000,000) shares, designated as “Series B Preferred Stock.” The shares of Series B Preferred Stock may be issued
from time to time by our Board of Directors.
The
following is a summary of the material rights and restrictions associated with our Series B Preferred Stock. This description
does not purport to be a complete description of all of the rights of our stockholders and is subject to, and qualified in its
entirety by, the provisions of our Certificate of Designation relating to our shares of Series B Preferred Stock.
The
Series B Preferred Stock shall vote or act by written consent together with the common stock and not as a separate class. Each
share of Series B Preferred Stock shall have that number of votes equal to five thousand (5,000) shares of common stock at any
special or annual meeting of our stockholders and in any act by written consent in lieu of any special or annual meeting of our
stockholders. Each share of Series B Preferred Stock is convertible into one share of common stock. In the case we shall at any
time subdivide (by any share split, share dividend or otherwise) our outstanding shares of common stock into a greater number
of shares, the number of shares of common stock of which are equal in voting power to each share of Series B Preferred Stock,
as in effect immediately prior to such subdivision, shall be proportionately increased and, conversely, in case the outstanding
common stock shall be combined into a smaller number of shares, the number of shares of common stock of which are equal in voting
power to each share of Series B Preferred Stock, as in effect immediately prior to such combination, shall be proportionately
reduced.
So
long as any shares of Series B Preferred Stock are outstanding, we shall not, without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred
Stock, voting as a separate class, change or modify the rights, preferences or other terms of the Series B Preferred Stock, or
increase or decrease the number of authorized shares of Series B Preferred Stock.
Anti-Takeover
Effects
The
creation of the Series A Preferred Stock and Series B Preferred Stock (collectively the “Preferred Stock”) provides
us with shares of Preferred Stock which permits us to issue additional shares of capital stock that could dilute both voting power
and the ownership of the holders of our common stock by one or more persons seeking to effect a change in the composition of our
Board of Directors or contemplating a tender offer or other transaction for the combination of the Corporation with another company.
The creation of the Preferred Stock is not being undertaken in response to any effort of which our Board of Directors is aware
to enable anyone to accumulate shares of our common stock or gain control of the Corporation. The purpose of the creation of the
Preferred Stock is to grant us the flexibility to issue our equity securities in the manner best suited for us, or as may be required
by the capital markets. However, we presently have no plans, proposals, or arrangements to issue any of the newly created shares
of Preferred Stock for any purpose whatsoever, including future acquisitions and/or financings.
ISSUER
PURCHASE OF SECURITIES
None.
ITEM
6. SELECTED FINANCIAL DATA.
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATION
RESULTS
OF OPERATION
Overview
We,
through our wholly owned subsidiary D&R Technology Inc., are involved in the engineering, design and manufacture of robotics
and automation technology solutions, which management believes will enable us to become a recognized technology pioneer and market
leader in the area of engineering. Serving as a comprehensive engineering partner, we work with other leading robotic manufacturers
to provide the best automation technologies. We provide automation solutions to a wide spectrum of customers and industries ranging
from large Fortune 500 companies to small privately-held businesses. The automated solutions can be found in manufacturing, assembly
and processing lines throughout the United States, Canada, Mexico and South America. D&R Technology Inc. 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. As of the date of this Annual Report, we have not realized any revenue
from the medical robotics, personal robotic devices or water treatment industry.
We
are involved in the area of engineering, design and the manufacturing of automated solutions through our automated tube bending
machines for the automotive industry and intend 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 control
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 its 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 its 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.
|
For
the Years Ended December 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,258,760
|
|
|
$
|
1,637,381
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
786,106
|
|
|
|
1,060,192
|
|
|
Gross
Profit
|
|
|
472,653
|
|
|
|
577,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
495,788
|
|
|
|
589,610
|
|
|
Occupancy
costs
|
|
|
69,860
|
|
|
|
67,173
|
|
|
Travel
|
|
|
30,499
|
|
|
|
44,621
|
|
|
Professional
fees
|
|
|
74,715
|
|
|
|
119,108
|
|
|
Communication
|
|
|
9,646
|
|
|
|
10,686
|
|
|
Office
and general
|
|
|
77,095
|
|
|
|
89,776
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
757,603
|
|
|
|
920,974
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before other income
|
|
|
(284,950
|
)
|
|
|
(343,785)
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain
|
|
|
(74,279
|
)
|
|
|
166,671
|
|
|
Recovery
of scientific research and development expenditures
|
|
|
31,700
|
|
|
|
72,453
|
|
|
Loss
on settlement of debt
|
|
|
(84,123)
|
|
|
|
-0
-
|
|
|
Total
Other Income
|
|
|
(126,702
|
)
|
|
|
239,124
|
|
|
Net
Income (loss)
|
|
|
(416,362
|
)
|
|
|
(104,661)
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
Foreign
exchange adjustment
|
|
|
6,398
|
|
|
|
(293,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
(409,964
|
)
|
|
$
|
(397,969)
|
|
The
financial information in the table above is derived from the audited financial statements. The following discussion should be
read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Annual Report on
Form 10-K. 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 Annual Report on Form 10-K. The
financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted
Accounting Principles.
Year
Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue.
We generated revenue during the year ended December 31, 2016 in the amount of $1,258,760 compared to $1,637,381generated
during the year period ended December 31, 2015. Overall, revenue decreased primarily due to few projects related to spare part
sales and retrofit systems, being offset by more seat frame systems being sold. Major components of the revenue mix for change
from December 31, 2015 to December 31, 2016 are as follows:
|
|
1.
|
Prototypes
Parts - increased $27,349 for prototypes for Adient/JCI projects.
|
|
|
|
|
|
|
2.
|
Spare
Parts and Services - decreased $140,394 for parts not required by many customers including JCI, Toyota, PWO Kitchener, Van
Rob Mexico and M.I.G. Athens to replace worn parts.
|
|
|
|
|
|
|
3.
|
Retrofit
Systems - decrease of $101,221. We assess old machines and recommend that specified work needs to be done on them. This includes
all mechanical , electrical, hydraulic and pneumatics as required. We then replace worn parts on old benders overhauled benders
for JCI- Lakewood Bender 2, MIG-Athens, PWO - Kitchener, JCI-Athens and JCI-Ramos move machines for customers, install additional
tooling units on existing benders. Retooling work primarily for in the second quarter of 2016 JCI Mexico and Constellium did
not occur in the current year.
|
|
|
|
|
|
|
4.
|
Seat
Frame System - increase of $69,645 being slightly higher prices points on the total machines sold in 2016 versus 2015.
|
|
|
|
|
|
|
5.
|
Medical
robotics, personal robotic devices and water treatment industry We have not generated revenue from these sources as yet and
will continue to investigate opportunities in these areas to augment its core business.
|
Cost
of sales:
During the year ended December 31, 2016, cost of sales was $786,106 compared to $1,060,192 during the year ended
December 31, 2015; the decrease explained by the difference in product sale mix. Less work for retrofit systems, where the majority
of the costs are borne by the customer, did not assist in offsetting the lower product margins generated on the sale of seat frames
during the year ended December 31, 2016.
Gross
Profit.
Thus, based on the above, our gross profit decreased to $472,653 for the year ended December 31, 2016 from $577,189
during the year ended December 31, 2015.
Operating expenses:
During the year
ended December 31, 2016, we incurred operating expenses in the amount of $757,603 compared to operating expenses incurred during
the year ended December 31, 2015 of $920,974. Operating expenses include: (i) compensation of $495,788 (2015: $589,610); (ii) occupancy
costs of $69,860 (2015: $67,173); (iii) travel of $30,499 (2015: $44,621); (iv) professional fees of $74,715 (2015: $119,108);
(v) communication of $9,646 (2015: $10,686); and (vi) office and general of $81,806 (2015: $89,776). Compensation decreased by
$93,822 during the year ended December 31, 2016 as compared to the year ended December 31, 2015 due to less manufacturing work
completed and a great portion of labor being absorbed in the general and administrative function. In 2015, the work mix was quite
different and these costs were included in the cost of goods sold. Professional fees decreased by $44,393 during the year ended
December 31, 2016 as compared to the year ended December 31, 2015 due to streamlining of costs associated with the ongoing audits
and quarterly reviews by the external accountants and assistance provided by legal counsel and lesser consulting charges associated
with determining recoverable scientific research and development expenses. Office and general expenses declined by $12,681 due
to efforts by management to reduce overhead expenses in an effort to continue to streamline operations. Only our occupancy costs
increased by $2,687 during fiscal year ended December 31, 2016 compared to December 31, 2015.
Foreign
exchange:
The continued weakening Canadian dollar in 2016 against the United States dollar resulted during fiscal year 2016
in a realized foreign exchange loss of $74,279 compared to a gain of $166,671 in 2015 in denominations transacted and settled
in foreign currencies, primarily being sales to the United States (USD) from which the monies are being converted and used to
satisfy Canadian dollar operational requirements.
Recovery
of scientific Research and Development Expenditures:
During the year ended December 31, 2016, we recognized $31,700 (2015:
$72,453) in recovery of scientific research and development expenditures.
Loss
on Settlement of Debt. During the year ended December 31, 2016, we incurred a loss on settlement of debt of $84,123 (2015: $-0-)
relating to conversion of debt.
Net
Income (loss)
. Thus, this resulted in net loss of ($416,362) during fiscal year ended December 31, 2016 compared to
net loss of ($104,661) during fiscal year ended December 31, 2015.
Other
Comprehensive income (loss).
During fiscal year ended December 31, 2016, our unrealized foreign exchange adjustment was $6,398
compared to fiscal year ended December 31, 2015 of an unrealized foreign exchange adjustment of ($293,308).
Comprehensive
income (loss).
Thus, this resulted in comprehensive loss of ($409,964) or ($0.01) per share for fiscal year ended December
31, 2016 compared to comprehensive income of ($397,969) or ($0.01) per share for fiscal year ended December 31, 2015. The weighted
average number of shares outstanding was 43,303,782 for fiscal year ended December 31, 2016 and 296,641 shares for December 31,
2015, respectively, taking into effect the Reverse Stock Split.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal
Year Ended December 31, 2016
As
at fiscal year ended December 31, 2016, our current assets were $2,375,353 and our current liabilities were $2,293,979,
which resulted in a working capital surplus of $81,374. As of the fiscal year ended December 31, 2016, current assets were
comprised of: (i) $479,380 in cash; (ii) $292,407 in accounts receivable, net; (iii) $1,489,955 in inventory; (iv) $93,107 in
sales taxes recoverable; (v) $9,827 in security deposits; and (vi) $10,676 in prepaid expense. As at fiscal year ended December
31, 2016, current liabilities were comprised of: (i) $341,179 in accounts payable and accrued expenses; (ii) $100,000
in note payable; (iii) $1,835,791 in customer deposits; (iv) $8,885 in warranty provision; and (v) $8,124 in current
portion of obligation under capital lease.
As
of the fiscal year ended December 31, 2016, our total assets were $2,508,032 comprised of: (i) current assets of $2,375,353; and
(ii) fixed assets, net of depreciation of $132,678. The increase in total assets during fiscal year ended December 31, 2016 from
fiscal year ended December 31, 2015 was primarily due to an increase in inventory of $1,279,669.
As of December 31, 2016, our total liabilities
were $2,308,056 comprised of: (i) $2,293,979 in current liabilities; and (ii) $14,077 in obligation under capital lease. The increase
in liabilities during fiscal year ended December 31, 2016 from fiscal year ended December 31, 2015 was primarily due to the increase
in customer deposits of $1,486,762 and in accounts payable and accrued expenses of $158,621.
Stockholders’ equity decreased from
$584,939 for fiscal year ended December 31, 2015 to $199,975 for fiscal year ended December 31, 2016.
Cash
Flows from Operating Activities
We have generated positive cash flows
from operating activities. For fiscal year ended December 31, 2016, net cash flows provided by operating activities was $3,033
compared to $1,570 for fiscal year ended December 31, 2015. Net cash flows provided by operating activities consisted primarily
of net loss of ($416,362) (2015: $104,661), which was partially adjusted by $23,303 (2015: $23,982) in depreciation, $3,052 (2015:
$-0-) and $84,123 (2015: $-0-) in loss on settlement of debt. The reduction in depreciation expense is due to the increased plant
production in 2016 resulting in a greater amount capitalized as a product cost in 2016. Net cash flows provided by operating activities
was further changed by: (i) a decrease of $24,190 (2015: ($119,744)) in accounts receivable; (ii) an increase of $1,279,669 (2015:
($9,480) in inventory; (iii) an increase of $8,338 (2015: ($665) in pre-paid expenses; (iv) a decrease of $1,117 (2015: $2,059)
in security deposits; (v) an increase of $158,621 (2015: $15,052) in accounts payable and accrued expenses; (vi) an increase
of $1,486,762 (2015: ($208,686)) in deferred revenue; (vii) an increase of $908 (2015: $1,207) in warranty payable; and (viii)
a decrease of $73,672 (2015: ($16,322) in taxes recoverable.
Cash
Flows from Investing Activities
We
used cash of $5,859 in investing activities during fiscal year ended December 31, 2016 which consisted of purchase of fixed assets.
We used cash of $43,118 in investing activities during fiscal year ended December 31, 2015 in purchase of fixed assets.
Cash
Flows From Financing Activities
We used cash of $6,312 in financing
activities during fiscal year ended December 31, 2016, which consisted of payment of obligation under capital lease. During fiscal
year ended December 31, 2015, cash used in financing activities was $10,132, which consisted of $1,131 of payment of obligation
under capital lease and $9,001 in repayment of convertible debenture.
Material Commitments
On January 17, 2017, the Board of Directors
authorized the execution of that certain settlement agreement (the Settlement Agreement”) and corresponding promissory note
(the “Note”) between the Company and our President/Chief Executive Officer, Mr. Paolucci. In accordance with the terms
and provisions of the Settlement Agreement, Mr. Paolucci agreed to refrain from converting certain debt into shares of
our common stock and to accept the settlement and payoff of $100,000 (the “Settlement Debt”). Mr. Paolucci’s
agreement to forego his right and opportunity to convert the debt into approximately 2,616,600 shares of our common stock represented
a large potential monetary loss based upon the anticipated increase in the trading price and valuation of our shares of common
stock. As of the date of the Settlement Agreement, our common stock was trading at $1.7425, which represented a current
monetary value of $4,559,425.50 in the event such debt was converted. Mr. Paolucci recognized his potential conflict of interest
associated with the Settlement Agreement and as a member of the Board of Directors analyzed several factors and criteria with
regards to his decision to enter into the Settlement Agreement as being in the best interests of the Company and its shareholders.
Off-Balance
Sheet Arrangements
There
were no off-balance sheet arrangements during fiscal year ended December 31, 2016 that have, or are reasonably likely to have,
a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to our interests.
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 2017, 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 Tennessee Rand, are consistently submitting new projects. We had $1,860,401 of project work in process
at the end of December 31, 2016 with a total contract value of approximately $2,800,000. We have received committed future orders
of over $593,395, which are anticipated to be completed during the first half of 2017. 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
We
have no reportable material commitments for fiscal year ended December 31, 2016.
RECENT
ACCOUNTING PRONOUNCEMENTS
As
reflected in footnote no. 2 to the financial statements, there have been no recent accounting pronouncements or changes in accounting
pronouncements that impacted fiscal year 2016 and 2015 or which are expected to impact future periods that were not already adopted
or disclosed in prior periods.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As
a “smaller reporting company”, we are not required to provide this information.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of Novus Robotics, Inc.
We
have audited the accompanying consolidated balance sheets of Novus Robotics, Inc. as of December 31, 2016 and 2015, and the related
consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the two years then
ended. Novus Robotics, Inc.’s management is responsible for these financial statements. Our responsibility is to express
an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Novus
Robotics, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the two years then ended,
in conformity with accounting principles generally accepted in the United States of America.
|
|
|
Fruci
& Associates II, PLLC
|
|
|
Spokane,
Washington
|
|
|
April
17, 2017
|
|
NOVUS
ROBOTICS INC.
Consolidated
Balance Sheets
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
479,380
|
|
|
$
|
493,843
|
|
|
Amounts receivable, net
|
|
|
292,407
|
|
|
|
316,597
|
|
|
Inventory
|
|
|
1,489,955
|
|
|
|
210,286
|
|
|
Sales tax recoverable
|
|
|
93,107
|
|
|
|
19,435
|
|
|
Security deposits
|
|
|
9,827
|
|
|
|
10,944
|
|
|
Prepaid expense
|
|
|
10,677
|
|
|
|
2,338
|
|
|
Total current assets
|
|
|
2,375,353
|
|
|
|
1,053,443
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
|
|
|
|
|
|
|
Fixed assets, net of deprecation
|
|
|
132,678
|
|
|
|
137,399
|
|
|
Total assets
|
|
$
|
2,508,031
|
|
|
$
|
1,190,842
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILIITIES
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
341,179
|
|
|
$
|
182,558
|
|
|
Convertible note payable
|
|
|
-
|
|
|
|
37,825
|
|
|
Notes payable
|
|
|
100,000
|
|
|
|
-
|
|
|
Customer deposits
|
|
|
1,835,791
|
|
|
|
349,029
|
|
|
Warranty provision
|
|
|
8,885
|
|
|
|
7,977
|
|
|
Current portion of obligation under capital lease
|
|
|
8,124
|
|
|
|
6,529
|
|
|
Total current liabilities
|
|
|
2,293,979
|
|
|
|
583,919
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation under capital lease
|
|
|
14,077
|
|
|
|
21,984
|
|
|
Total liabilities
|
|
|
2,308,056
|
|
|
|
605,903
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES - Note 9
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
50,000,000 shares authorized with a par value of $0.001;
|
|
|
|
|
|
|
|
|
|
Series A - 100 designated, none outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Series B - 49,999,900 designated, 1,000,000 issued and outstanding (December 31, 2015 - Nil)
|
|
|
1,000
|
|
|
|
-
|
|
|
Common Stock 500,000,000 shares authorized with a par value of $0.001, 54,296,641 issued and outstanding (December 31, 2015- 296,641 common shares)
|
|
|
54,296
|
|
|
|
296
|
|
|
Additional paid in capital
|
|
|
58,354
|
|
|
|
88,354
|
|
|
Accumulated other comprehensive loss
|
|
|
(335,157
|
)
|
|
|
(341,555
|
)
|
|
Retained earnings
|
|
|
421,482
|
|
|
|
837,844
|
|
|
Total stockholders’ equity
|
|
|
199,975
|
|
|
|
584,939
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,508,031
|
|
|
$
|
1,190,842
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOVUS
ROBOTICS INC.
Consolidated
Statements of Operations and Comprehensive Loss
|
For The Year Ended December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,258,760
|
|
|
$
|
1,637,381
|
|
|
Cost of sales
|
|
|
786,106
|
|
|
|
1,060,192
|
|
|
Gross Profit
|
|
|
472,653
|
|
|
|
577,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
495,788
|
|
|
|
589,610
|
|
|
Occupancy costs
|
|
|
69,860
|
|
|
|
67,173
|
|
|
Travel
|
|
|
30,499
|
|
|
|
44,621
|
|
|
Professional fees
|
|
|
74,715
|
|
|
|
119,108
|
|
|
Communication
|
|
|
9,646
|
|
|
|
10,686
|
|
|
Office and general
|
|
|
81,806
|
|
|
|
89,776
|
|
|
Total operating expenses
|
|
|
762,314
|
|
|
|
920,974
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other income (expense)
|
|
|
(289,661
|
)
|
|
|
(343,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
(74,279
|
)
|
|
|
166,671
|
|
|
Recovery of scientific research and development expenditures
|
|
|
31,700
|
|
|
|
72,453
|
|
|
Loss on settlement of debt
|
|
|
(84,123
|
)
|
|
|
-
|
|
|
Total other income (expense)
|
|
|
(126,702
|
)
|
|
|
239,124
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(416,362
|
)
|
|
|
(104,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
Foreign exchange adjustment
|
|
|
6,398
|
|
|
|
(293,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(409,964
|
)
|
|
$
|
(397,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding - basic
|
|
|
43,303,782
|
|
|
|
296,641
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOVUS
ROBOTICS INC.
Consolidated
Statements of Stockholders’ Equity
For
the years ended December 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Preferred Stock Series A
|
|
Preferred Stock Series B
|
|
Common Stock
|
|
Additional
Paid-In
|
|
Retained
Earnings
|
|
Other
Comprehensive
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
(Deficit)
|
|
Income (Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
296,641
|
|
|
$
|
296
|
|
|
$
|
88,354
|
|
|
$
|
942,505
|
|
|
$
|
(48,247
|
)
|
|
$
|
982,908
|
|
|
Effect of foreign exchange rates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(293,308
|
)
|
|
|
(293,308
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(104,661
|
)
|
|
|
-
|
|
|
|
(104,661
|
)
|
|
Balance, December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
296,641
|
|
|
$
|
296
|
|
|
$
|
88,354
|
|
|
$
|
837,844
|
|
|
$
|
(341,555
|
)
|
|
$
|
584,939
|
|
|
Issuance of shares for assets
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
49,000,000
|
|
|
$
|
49,000
|
|
|
$
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercise of convertible debenture
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
|
5,000
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
Effect of foreign exchange rates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,398
|
|
|
|
6,398
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(416,362
|
)
|
|
|
-
|
|
|
|
(416,362
|
)
|
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,000,000
|
|
|
$
|
1,000
|
|
|
|
54,296,641
|
|
|
$
|
54,296
|
|
|
$
|
58,354
|
|
|
$
|
421,482
|
|
|
$
|
(335,157
|
)
|
|
$
|
199,975
|
|
The
accompanying notes are an integral part of these consolidated financial statements
NOVUS
ROBOTICS INC.
Consolidated
Statements of Cash Flows
|
For The Year Ended December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(416,362
|
)
|
|
$
|
(104,661
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,303
|
|
|
|
23,982
|
|
|
Forgiveness of interest on issuance of note payable
|
|
|
3,052
|
|
|
|
-
|
|
|
Loss on settlement of debt
|
|
|
84,123
|
|
|
|
-
|
|
|
|
|
|
(306,885
|
)
|
|
|
(80,679
|
)
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
24,190
|
|
|
|
(119,744
|
)
|
|
Decrease (increase) in inventory
|
|
|
(1,279,669
|
)
|
|
|
(9,480
|
)
|
|
Decrease (increase) in prepaid expenses
|
|
|
(8,339
|
)
|
|
|
665
|
|
|
Decrease (increase) in security deposits
|
|
|
1,117
|
|
|
|
2,059
|
|
|
Increase (decrease) in accounts payable and accrued expense
|
|
|
158,621
|
|
|
|
(15,052
|
)
|
|
Increase (decrease) in deferred revenue
|
|
|
1,486,762
|
|
|
|
208,686
|
|
|
Increase (decrease) in warranty payable
|
|
|
908
|
|
|
|
(1,207
|
)
|
|
Increase (decrease) in taxes recoverable/payable
|
|
|
(73,672
|
)
|
|
|
16,322
|
|
|
Net cash provided by operating activities
|
|
|
3,033
|
|
|
|
1,570
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from investing activity
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(5,859
|
)
|
|
|
(43,118
|
)
|
|
Net cash used in investing activity
|
|
|
(5,859
|
)
|
|
|
(43,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing activities
|
|
|
|
|
|
|
|
|
|
Obligation under capital lease, net of repayments
|
|
|
(6,312
|
)
|
|
|
(1,131
|
)
|
|
Repayment of convertible debt
|
|
|
-
|
|
|
|
(9,001
|
)
|
|
Net cash used in financing activities
|
|
|
(6,312
|
)
|
|
|
(10,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate on changes in cash
|
|
|
(5,325
|
)
|
|
|
(232,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(14,463
|
)
|
|
|
(283,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
|
493,843
|
|
|
|
777,618
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
479,380
|
|
|
$
|
493,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Monetary Transactions
|
|
|
|
|
|
|
|
|
|
Purchase of assets in exchange for common and preferred shares
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Conversion of convertible note payable to equity
|
|
$
|
25,000
|
|
|
|
|
|
|
Issuance of note in exchange for convertible debenture
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
$
|
175,000
|
|
|
$
|
-
|
|
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
1.
Basis of Presentation and Continuance
Novus
Robotics Inc. (“Novus” or “the Company”) , formerly known as Ecoland International Inc. (“Ecoland”),
a Nevada corporation, was incorporated on June 24, 2005 under the name Guano Distributors, Inc. for the purpose of selling Dry-Bar
Cave bat guano. On June 28, 2006, the articles of incorporation were amended to change its name to Ecoland. On March 13, 2012,
the articles of incorporation were amended to change the Company’s name to Novus. The Company carries on business in one
segment being the engineering, design and the manufacturing of automated tube processing solutions for the automotive industry.
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States and are expressed in US dollars. The functional currency of Novus is the Canadian Dollar.
The
consolidated financial information furnished herein reflects all adjustments, which, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair statement of results in accordance with General Accepted
Accounting Principles in the United States (“U.S. GAAP”), have been included and properly prepared within reasonable
limits of materiality and within the framework of the significant accounting policies summarized below.
Principles
of Consolidation
The
consolidated financial statements include the accounts and operations of Novus and its wholly owned subsidiaries D&R Technologies
Inc and D&R Tools Inc. All inter-company accounts and transactions have been eliminated on consolidation.
Uses
of Estimates
The
preparation of interim consolidated financial statements in conformity with U.S. GAAP 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 exceeds 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.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - continued
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.
Warranty
provision
In
assessing the warranty provision, management makes estimates related to expectations of future repair cost needed to service new
seat frame sales under its two year warranty terms. These determinations and their individual assumptions require that management
make a decision based on the best available information at each reporting period
Long-lived
Assets
In
accordance with the Financial Accounting Standards Board (“FASB”) ASC No. 360, “Property, Plant and Equipment”
the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts
or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future
cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying
amount of the asset over its estimated fair value.
Regulatory
Matters
The
Company is subject to a variety of federal, provincial and state regulations governing land use, health, safety and environmental
matters. The Company’s management believes it has been in substantial compliance with all such regulations.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents.
At December 31, 2016, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which may exceed
federally insured limits. As of December 31, 2016, the Company’s 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
.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - continued
Factoring
Agreement and Accounts Receivable
The
Company has a financing agreement that included a non-recourse factoring arrangement that provides nonrecourse factoring on the
Company’s receivable from its primary customer Johnson Controls, Inc. to assist in its operational cash flow requirements.
The factor is based on credit approved orders, assumes the accounts receivable risk of the Company’s customer in the event
of insolvency or non-payment. The Company assumes the risk on accounts receivable not factored to which is shown as accounts receivable
on the accompanying balance sheets. As of December 31,2016 and December 31, 2015, factored accounts receivable were $Nil and $7,970
respectively. Finance charges associated with the sale of factored receivable for the year ended December 31, 2016 and 2015 were
$1,117 and $10,808 and are included in office and general expense.
Allowance
for Doubtful Accounts
The
Company extends credit to customers in the normal course of business. The allowance for doubtful accounts represents the Company’s
best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines
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 the Company believes it is probable the receivable will not be recovered.
Management believes that there are no concentrations of credit risk for which an allowance has not been established. Although
management believes that the allowance is adequate, it is possible that the estimated amount of cash collections with respect
to accounts receivable could change. As of December 31, 2016 and December 31, 2015, the Company has not deemed any accounts uncollectible.
Inventory
Inventory
is stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. Cost of work in progress and
finished goods includes raw materials, direct labor and indirect manufacturing costs. The Company’s inventory balance at
December 31, 2016 and December 31, 2015 was comprised of work-in-progress. This policy requires D&R to make estimates regarding
the market value of our inventory, including an assessment of excess or obsolete inventory. The Company determines excess and
obsolete inventory based on an estimate of the future demand and estimated selling prices for its products.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is recorded on a straight line basis reflective of the useful lives of the assets. Expenditures
for maintenance and repairs are charged to operations when incurred, while additions and betterments are capitalized. When assets
are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated from accounts and
any gain or loss is reflected in income.
|
|
|
Estimated
|
|
|
|
Useful Life
|
|
|
|
|
|
Office equipment
|
|
5 years
|
|
Computer equipment
|
|
5 years
|
|
Delivery trucks
|
|
5 years
|
|
Shop and Machinery equipment
|
|
5 to 10 years
|
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - continued
Foreign
Currency Translation
Gains
and losses arising upon settlement of foreign currency denominated transactions or balances are included in the determination
of income. The Company’s functional currency is the Canadian dollar. Transactions in foreign currency are translated into
Canadian dollars then translated into U.S. dollars for reporting in accordance with the ASC 830-30 as follows:
●
For assets and liabilities, the exchange rate at the balance sheet date shall be used.
●
For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.
Translation
adjustments are included in accumulated other comprehensive income (loss), a separate component of shareholders’ equity.
Financial
Instruments
The
carrying values of the Company’s financial instruments, which comprise cash, accounts receivable, accounts payable, payroll
liabilities, loan payable, taxes payable and due to officers/shareholders, approximate their fair values due to the immediate
or short-term maturity of these instruments. Currently, the Company does not use derivative instruments to reduce its exposure
to foreign currency risk.
Fair
Value Measurements
The
authoritative guidance for fair values establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value. Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs
in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Income
Taxes
Potential
benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted
ASC 740, “Accounting for Income Taxes,” as of its inception. Pursuant to ASC 740, the Company is required to compute
tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized
in these financial statements because the Company cannot be assured it is more likely than not it will be able to utilize the
net operating losses carried forward in future years.
Recorded
in other (income) and expenses are monies recovered relating to non-refundable, federal government Scientific Research & Experimental
Development (“SR&ED”) tax credits. Due to the uncertain nature of these expenditures, the Company does not record
any amount until such time as the deduction is approved by Canadian provincial and federal governments. SR&ED expenditures
relating to 2015 taxation year were applied to recover previously paid taxes for which the Company obtained approval and received
the requisite funds in the third quarter of 2016.
Advertising
Costs
Advertising
costs are expensed as incurred. No advertising costs have been incurred by the Company to date.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
2.
SIGNIFICANT ACCOUNTING POLICIES - continued
Revenue
Recognition
The
Company recognizes 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 on a percentage of completions basis and when collection of the resulting
receivable is reasonably assured.
|
|
1.
|
Spare
parts – Revenues and cost of sales are recognized at the time of sale.
|
|
|
|
|
|
|
2.
|
Service
– Revenues and cost of sales are recognized at the time services are performed and accepted by customer via sign off.
|
|
|
|
|
|
|
3.
|
Seat
systems and tooling – progress invoicing to the customer are recorded as deferred revenue. When the projects are installed
and accepted by the customer the final invoice is issued and all deferred revenue is recognized along with the related work
in process costs for the project. Systems generally take 20-28 weeks to design, manufacture, assemble, and then ship to our
various customers. As of December 31, 2016 and December 31, 2015 customer deposits were $1,835,791 and $349,092 respectively.
|
D&R
provides standard warranties for its product from the date of shipment. Estimated warranty obligations are recorded at the time
of sale. Estimated warranty obligations are recorded at the time of sale and amortized over the two year warranty period. As of
December 31, 2016 and December 31, 2015, warranty liability was $8,885 and $7,977.
Earnings
per Common Share
Net
income per share is provided in accordance with ASC 260-10, “Earnings per Share”. We present basic income per
share (“EPS”) and diluted EPS the face of the statement of operations. Basic EPS is computed by dividing reported
net income (loss) applicable to common shareholders by the weighted average number of common shares outstanding during the
period. Except where the result would be anti-diluted to income from continuing operations, diluted earnings per share would
be computed assuming the conversion of the convertible long-term debt and the elimination of the related interest expense,
and the exercise of stock warrants. Income per common share has been computed using the weighted average number of common
shares outstanding during the year. There were no common share equivalents outstanding as of December 31, 2016 or 2015
that would have an impact on EPS during periods where a net loss is present.
Comprehensive
Income
The
Company has adopted ASC 220, “Comprehensive Income,” which establishes standards for reporting and the display of
comprehensive income, its components and accumulated balances. Comprehensive income (loss) is defined to include all changes in
equity except those resulting from investments by owners or distributions to owners. Among other disclosures, ASC 220 requires
that all items that are required to be recognized under the current accounting standards as a component of comprehensive income
be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income
(loss) is displayed in the balance sheet as a component of shareholders’ equity.
Recent
Accounting Pronouncements
The
Company evaluated the following recent accounting updates and are evaluating the potential impact upon adoption:
●
ASU 2015-02 related to amendments for consolidation analysis
●
ASU 2015-14 related to deferral of effective date for new revenue recognition standard
●
ASU 2015-17 related to deferred taxes
●
ASU 2016-01 related to lease recognition and classification
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
3.
FIXED ASSETS
Fixed
assets are comprised of the following:
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Office equipment
|
|
$
|
7,623
|
|
|
$
|
7,425
|
|
|
Computer equipment
|
|
|
279,436
|
|
|
|
266,577
|
|
|
Delivery trucks
|
|
|
20,481
|
|
|
|
19,950
|
|
|
Shop and machinery equipment
|
|
|
377,237
|
|
|
|
367,462
|
|
|
Equipment under capital lease
|
|
|
47,146
|
|
|
|
45,924
|
|
|
Accumulated depreciation
|
|
|
(599,244
|
)
|
|
|
(569,939
|
)
|
|
Total fixed assets
|
|
$
|
132,678
|
|
|
$
|
137,399
|
|
Depreciation
expense for the year end December 31, 2016 was $14,332 (2015 - $23,982).
4.
CONVERTIBLE NOTES PAYABLE AND PROMISSORY NOTE
The
convertible notes payable to Berardino Paolucci, CEO, are unsecured, due on demand, accrue interest at the rate of 8.0% per annum,
and are convertible into shares of our restricted common stock at the rate of $0.005 per share. During fiscal 2014, the Company
repaid $176,599 to the assigned note holder. As at December 31, 2016, interest in the amount of $0 (December 31,
2015 -$526) is owing and has been included in accounts payable and accrued expenses.
During
the first quarter of 2016, it was determined that as of the date of the reverse merger and recapitalization between Ecoland and
D&R Technologies Inc. on January 27, 2012, there were certain inaccuracies regarding the amounts recorded as owing on the
convertible notes payable that were assigned to Mr. Paolucci. These notes were converted for 75,733 common shares in January 2015.
Upon making this determination, Mr. Paolucci terminated the transaction, returned his shares to treasury for cancellation and
reinstated the convertible notes payable under the terms and conditions referenced above. This reversal of the transaction is
deemed to have occurred in 2015 for accounting purposes and the outstanding principal and accrued interest payable on the aforementioned
notes have been adjusted to reflect the correct balances owing at December 31, 2015.
On
September 7, 2016, Mr. Paolucci sold a portion notes including interest to a third party. On October 18, 2016, the third party
converted $25,000 of the principal of the note in exchange for 5,000,000 common shares.
On
December 31, 2016, the Company agreed to issue Mr. Paolucci a $100,000 promissory note bearing interest at an annual rate of 8%
per annum, due on demand in exchange for him forgoing the ability to convert the remaining balance of the convertible debenture
totaling $12,825 and accrued interest of $3,052 into 2,616,000 common shares. As a result of this transaction, Novus recorded
a loss on settlement of debt in the amount of $$84,123.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
31, 2016
5.
OBLIGATION UNDER CAPITAL LEASE
The
Company 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 are as follows:
|
Year Ending December 31:
|
|
|
|
|
|
|
|
2017
|
|
|
$
|
9,840
|
|
|
2018
|
|
|
|
9,020
|
|
|
|
|
|
|
18,860
|
|
|
Less: amount representing interest
|
|
|
|
(3,946
|
)
|
|
Present value of minimum lease payments
|
|
|
$
|
14,914
|
|
6.
COMMON AND PREFERRED STOCK
On
October 26, 2015, the Board of Directors approved a reverse stock split of one for three hundred reverse stock split of the Company’s
total issued and outstanding shares of common stock. The Reverse Stock Split was affected on January 21, 2016 and reduced the
total number of issued and outstanding common shares from 88,650,000 to 296,641. The resultant decrease in the value attributed
to the common stock was transferred to Additional Paid In Capital (“APIC”) in the amount of $88,354. All share and
related stock option information presented in these consolidated financial statements has been retroactively adjusted to the reduced
number of shares resulting from this transaction.
Each
share of Series A Preferred Stock is convertible on a one-for-one basis into common stock, has all of the voting rights that the
holders of the common shares and has the ability to elect three directors.
The
Series B Preferred Stock (‘Series B’) has voting rights whose holders must vote together with the common stock. Each
Series B share has the same number of votes equal to 5,000 common shares and in the event of a stock split, share dividend or
otherwise for the common shares will retain this voting proportion.
On
February 25, 2016, the Company approved the purchase of materials relating to the design, construction and operation of robots
in automation for medical and surgical purposes valued at $50,000 from Mr. Dino Paolucci, a board member as well as President
and CEO and Mr. Drasko Karanovic, a board member, both being related parties, in exchange for 1,000,000 Series B Preferred Shares
and 49,000,000 common shares. The acquired technology was previously held by individuals who also have majority control the Company,
resulting in the Company recording the transaction at cost. As such, no value was assigned to the technology purchased and the
par value of shares issued was charged against additional paid-in capital.
As
referenced in Note 4, on October 18, 2016, $25,000 of the principal of the convertible note payable was converted in exchange
for 5,000,000 common shares.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
30, 2016
7.
INCOME TAXES
The
Company’s primary area of operations is Canada where the statutory Federal corporate income tax rate is 26% (2015 - 26%).
The following table is a reconciliation between the effective tax rate from continuing operations and the Canadian statutory tax
rate.
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Income tax expense at federal statutory rate
|
|
$
|
(110,336
|
)
|
|
$
|
(27,735
|
)
|
|
Permanent differences and other
|
|
|
(19,444
|
)
|
|
|
(76,853
|
)
|
|
Change in valuation allowance
|
|
|
106,240
|
|
|
|
104,588
|
|
|
Income tax expense (recovery)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
nature and tax effect of the temporary differences giving rise to deferred income tax assets are summarized as follows:
|
|
|
2016
|
|
2015
|
|
Deferred tax liability - fixed assets
|
|
$
|
(24,301
|
)
|
|
$
|
(18,900
|
)
|
|
Deferred tax asset - tax loss carry forwards
|
|
|
115,489
|
|
|
|
71,413
|
|
|
Deferred tax asset - R&D credit
|
|
|
-
|
|
|
|
108,683
|
|
|
Total deferred tax asset (liability)
|
|
|
91,188
|
|
|
|
161,196
|
|
|
Valuation allowance on deferred tax asset
|
|
|
(91,188
|
)
|
|
|
(161,196
|
)
|
|
Net of deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
income tax assets and liabilities reflect the Company’s net effect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company anticipates
an R&D tax credit of $NIL (2015 - $125,000), for its R&D expenditures during 2016.
The
Company applies the provisions of the ASC 740
“Income Taxes”
. ASC 740-10 prescribes a recognition threshold
and a measurement attributed for the financial statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination
by taxing authorities. The Company believes that its tax positions and deductions would be sustained on audit and does not anticipate
any adjustments that would result in a material change to its consolidated financial position. The Company recognizes accrued
interest and penalties related to unrecognized tax benefits as income tax expense. No interest and penalties were incurred at
December 31, 2016 and 2015.
8.
CONCENTRATIONS
In
previous years, the Company had significant economic and commercial dependence on Johnson Controls, Inc. (`JCI``). As a result,
D&R was subject to significant financial risk in the event of financial distress of JCI. For the year ended December 31, 2015
more than 53% sales and 20% of its receivables was to this entity. During the year ended December 31, 2016, it was determined
that Novus was not economically dependent on JCI.
NOVUS
ROBOTICS INC.
Notes
to Consolidated Financial Statements
December
30, 2016
9.
LEASES
AND OTHER COMMITMENTS
The
Company leases premises totaling 18,000 square feet with monthly lease payments of approximately CDN$8,400 per month. Total minimum
lease payments of CDN$260,400 are required to the lease expiration date on July 31, 2019.
D&R
Technology failed to comply with Section 5 of the Securities Act of 1933 regarding registration of its common shares issued to
shareholders of D Mecatronics in connection with its spin-off of D&R Technology in 2011. In management’s opinion, any
legal liability with this failure to comply has been deemed remote.
10
.
RESTATEMENT
In
the year ending December 31, 2015, the Company determined that as on January 27, 2012, the date of the reverse merger and recapitalization
between Ecoland and D&R Technologies Inc., that it had incorrectly recorded its purchase price deficiency in Additional Paid
In Capital rather than in retained earnings. The impact of the restatement was to reclassify the deficiency from APIC to retained
earnings such that APIC increased $220,803 and retained earnings decreased by $220,803. The net impact of this transaction had
no effect on the net income or comprehensive income or statement of cash flows.
11.
SUBSEQUENT
EVENT
In
March 2017, the Company agreed to a settlement with one of its customers on amounts owing for worked performed. As a result of
this agreement, Novus will forgive $298,905 of invoices and recognize this loss in the first quarter of 2017.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Engagement
of Fruci & Associates II, PLLC
Effective December 11, 2015, we engaged
Fruci & Associates (“Fruci”) as our principal independent registered public accounting firm, which
included audit of the financial statements for fiscal year ended December 31, 2016 and 2015. The decision to change our
principal independent registered public accounting firm has been approved by our Board of Directors.
The report of Fruci on our financial statements
for fiscal year ended December 31, 2016 did not contain an adverse opinion or a disclaimer of opinion, nor qualified or modified
as to uncertainty, audit scope or accounting principles, other than to state that there is substantial doubt as to our ability
to continue as a going concern. During our last fiscal year ended December 31, 2016, there were no disagreements between us and
Fruci, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to the satisfaction of Fruci, would have caused Fruci to make reference thereto in
its reports.
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
We
have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer/Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2016.
Based on such evaluation, we have concluded that, as of such date, our disclosure controls and procedures were not effective to
ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer/Principal Financial Officer, as appropriate, to allow timely discussions
regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining internal control over financial reporting for our internal control
system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Internal control over our financial
reporting includes those policies and procedures that:
|
(1)
|
pertain
to the maintenance of records that in reasonable detail accurately and fairy reflect our transactions.
|
|
|
|
|
(2)
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorization of our management and directors; and
|
|
|
|
|
(3)
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.
|
All
internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error or
circumvention through collusion of improper overriding of controls. Therefore, even those internal control systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes
in conditions, the effectiveness of internal control may vary over time.
Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2016. In making its assessment of internal control over financial
reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in
Internal-Control-Integrated Framework - 2013
and implemented a process to monitor and assess both the design
and operating effectiveness of our internal controls. Based on this assessment, management believes that as of December 31, 2016,
our internal control over financial reporting was not effective.
We
have instituted a remediation plan which involves educating our management, the accounting staff, and the administrative staff.
We increased the oversight of the process by increasing the frequency of involvement of outside accounting consultants. Internal
systems are being put into place to track and document significant dates, such as delivery, installation and customer acceptance.
In addition, the bookkeeping system has been modified so that all sales of extended warranties are automatically recorded as deferred
revenue and that the amount of revenue that is ultimately recognized as warranty revenue is as the result of an analysis of the
significant aspects of the warranty such as coverage and period.
Changes
in Internal Control Over Financial Reporting
Our
management has evaluated, with the participation of our Chief Executive Officer/Chief Financial Officer, changes in our internal
controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter of 2016. In connection
with such evaluation, there have been no changes to our internal control over financial reporting that occurred during fiscal
year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect our internal control
over financial reporting. While there have been no changes, we have assessed our internal controls as being deficient and will
be taking steps beginning in 2016 to remedy such deficiencies.
ITEM
9B. OTHER INFORMATION.
There
are no further disclosures.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors
and Executive Officers
The
following table includes the names and positions held of our executive officers and directors during fiscal year ended December
31, 2016 and to current date. Our directors hold office for one-year terms or until their successors have been elected and qualified.
|
Name
|
|
Position
|
|
Age
|
|
Bernardino
Paolucci
|
|
President/Chief
Executive Officer, Secretary,
Treasurer/Chief Financial Officer and a Director
|
|
68
|
|
H.
Beth Carey
|
|
Director
|
|
68
|
|
Drasko
Karanovic
|
|
Director
|
|
51
|
The
biographies of our directors and officers are set forth below as follows:
Bernardino
Paolucci.
Mr. Paolucci is our President/Chief Executive Officer, Secretary and Treasurer/Chief Financial Officer and a member
of the Board of Directors since February 2012. Mr. Paolucci has been the Chief Executive Officer and director and shareholder
of D&R Technology since its inception in 2004. His duties as Chief Executive Officer of D&R Technology primarily focused
on the financial and manufacturing sectors since inception. Mr. Paolucci also assumed the responsibilities of the purchasing division
in April 2011 for D&R Technology. Mr. Paolucci has over thirty years experience in customer and quality-focused business and
provides strategic vision and leadership qualities that drive operational process, productivity, efficiency and improvement at
multisite manufacturing organizations. He is an expert in combining financial and business planning with tactical execution to
optimize long-term gains in performance, revenues and profitability. His breadth of experience includes quality and manufacturing
operations, lean concept, root cause and corrective action preventive action (CAPA) analysis, team concepts, total preventive
maintenance, set-up reduction and standard work. Mr. Paolucci has been employed by D&R Technologies Inc. from 2004 through
current date where he held the position of manufacturing supervisor. His previous responsibilities included: (i) manage and direct
all electrical, mechanical, hydraulic and process functions within departments; (ii) continuously impact and improve the key performance
indicators across the process such as machine mechanical, hydraulic, pneumatic and electrical build, process improvement, identification
and sourcing of new equipment as well as the payout and reallocation of equipment and workforce; (iii) develop and initiate appropriate
actions that lead to optimizing production capabilities of all machinery, equipment and resources resulting in improved machine
utilization, labor efficiency, expense reduction and on-time delivery; (iv) recommend solutions to customers for preventative
maintenance, machine layouts and configuration of machinery for the purpose of proaction planning as well as responding to day
to day service issues; and (v) manage and develop department’s team members by conducting regular appraisal, developing
performance improvement plans, administering salary and compensation as per company policy and providing direction and support
for the development of individuals within the department. The nature of his responsibilities discussed above, including the underlying
requisite managerial and administrative skills, establish Mr. Paolucci’s qualification as a member of our Board of Directors
and as President/Chief Executive Officer. Mr. Paolucci also owned his own machine shop and was plant foreman for Dieco Technology
Inc. for over ten years where he was responsible for production, inventory, purchasing, labor and overall supervision of the plant.
Dieco Technology Inc. was a Canadian based company specializing in the production of tubular steel oriented components and assemblies
for automotive industry, which ceased business operations in May 2004.
Drasko
Karanovic.
Mr. Karanovic is a member of our Board of Directors since February 2012. Mr. Karanovic has over twenty years of
experience in progressive design, supervisory and management experience in engineering fields, comprehensive knowledge of engineering
technology, strong management, communication, interpersonal and customer service skills, extensive knowledge of CAD systems and
tooling engineering and development expertise. He was employed with Dieco Technology from 1994 through 2004 and D Mecatronics
Inc. from 2004 to current date. His responsibilities included: (i) member of senior management team in setting strategic operation
direction; (ii) prepare proposals, evaluating future equipment performance and recommend improvements for new and existing products;
(iii) direct personnel activities of staff, i.e. hire, train, appraise, reward, motivate, discipline, recommend termination (iv)
direct, coordinate and exercise functional authority for planning, organization, control, integration and completion of engineering
projects; (v) supervising staff of mechanical, electrical and hydraulic designers, production engineering support staff in the
custom design, development, improvement and modification of machinery; (vi) direct the research and development effort leading
to new or improved products; and (vii) develop and maintain overall product development plan so that new or improved products
are timely delivered to market. The nature of the responsibilities discussed above, including the underlying requisite managerial
and administrative skills, establish Mr. Karanovic’s qualification as a member of the Corporation’s Board of Directors.
Mr. Karanovic was the engineering manager for over three years at Dieco Technology Inc. Dieco Technology Inc. was a Canadian based
company specializing in the production of tubular steel oriented components and assemblies for automotive industry. Mr. Karanovic
earned a Bachelor of Mechanical Engineer degree. Mr. Karanovic is also the President and a director of D&R Technology since
inception. He is also a member of the Board of Directors for D Mecatronics since inception.
H.
Beth Carey.
Ms. Carey has been a member of our Board of Directors since April 1, 2013. Ms. Carey has over thirty-five years
of experience as a senior accountant involving various industries, including construction, service and manufacturing and non-profit.
Ms. Carey was employed by Dieco Technologies from 2000 through 2003 as the assistant to the controller for the accounting department.
Her duties included accounts receivables/collections, accounts payable, payroll -salary (hourly and commissions), accruals, month
end journal entries, general ledger maintenance, costing spreadsheets for program engineers for all projects, sales support as
required by salesmen, accounts receivable and payables, government remittances, work in process and collections.
In
June 2005, Ms. Carey became employed by D&R Technology as the accountant. Ms. Carey was required to perform substantial number
of duties required to keep accounting, payroll and purchasing functioning at a high level. She provided support to executive officers
in sales and projects who needed financial information, such as job costing details. She further worked with executive officers
in purchasing obtaining quotes for products in order to provide cost savings and customer service contact for spare parts and
shipping. Ms. Carey also prepares all financial statements for our accountant and liasons with the accountant for the preparation
of the quarterly and annual financial statements. She further provides support to the auditors during the audit of our financials.
The nature of her responsibilities discussed above, including the underlying requisite financial and accounting skills, establish
Ms. Carey’s qualification as a member of our Board of Directors.
Ms.
Carey earned a college degree in finance and accounting from Sheridan College-Mississauga and achieved Level 3 in the Certified
General Accountants Course.
FAMILY
RELATIONSHIPS
There
are no family relationships among our directors or officers.
INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS
During
the past five years, none of our directors, executive officers or persons that may be deemed promoters is or have been involved
in any legal proceeding concerning: (i) any bankruptcy petition filed by or against any business of which such person was a general
partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) any conviction
in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(iii) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining, barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law (and the judgment has not been reversed,
suspended or vacated).
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Section
16(a) of the Exchange Act requires our directors and officers, and the persons who beneficially own more than ten percent of our
common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of all
filed reports are required to be furnished to us pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we believe that these persons filed their respective
reports late but subsequently complied with all applicable filing requirements during the fiscal year ended December 31, 2016.
CORPORATE
GOVERNANCE MATTERS
Audit
Committee
As
of the date of this Annual Report, we do not have an audit committee. We intend to establish an audit committee of the Board of
Directors, which will consist of independent directors, of which at least one director will qualify as a qualified financial expert
as defined in Item 407(d)(5)(ii) of Regulation S-K. The audit committee’s duties would be to recommend to the Board of Directors
the engagement of independent auditors to audit our financial statements and to review its accounting and auditing principles.
The audit committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed
by the internal auditors and independent public accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee would at all times be composed exclusively of directors who are, in the opinion of
the Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee
member and who possess an understanding of financial statements and generally accepted accounting principles.
Board
Independence
Mr.
Karanovic and Ms. Carey qualify as “independent” directors, as that term is defined by applicable listing standards
of The NASDAQ Stock Market and SEC rules, including the rules relating to the independence standards of an audit committee and
the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act. As a requirement to listing our common
stock on The Bulletin Board or the NASDAQ Capital Market or other exchange, we intend to retain independent directors. The Board
of Director’s composition (and that of our committees) will be subject to the corporate governance provisions of its primary
trading market, including the requirement for appointment of independent directors in accordance with the Sarbanes-Oxley Act of
2002, and regulations adopted by the SEC and NASD pursuant thereto.
Audit
Committee Financial Expert
. Our board of directors has determined that we do not have an audit committee financial expert
within the meaning of Item 407(d)(5) of Regulation S-K. In general, an “audit committee financial expert” is an individual
member of the audit committee who (a) understands generally accepted accounting principles and financial statements, (b) is able
to assess the general application of such principles in connection with accounting for estimates, accruals and reserves, (c) has
experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial
statements, (d) understands internal controls over financial reporting and (e) understands audit committee functions.
Code
of Ethics
We
have not adopted a code of ethics for our executive officers, directors and employees. However, our management intends to promote
honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws
and regulations.
Nominating
Committee
We
have not yet established a nominating committee. Our board of directors, sitting as a board, performs the role of a nominating
committee. We are not currently subject to any law, rule or regulation requiring that we establish a nominating committee.
Compensation
Committee.
We intend to establish a compensation committee of the Board of Directors. The compensation committee would review
and approve our salary and benefits policies, including compensation of executive officers. The compensation committee would also
administer any stock option plans and recommend and approve grants of stock options under such plans.
ITEM
11. EXECUTIVE COMPENSATION.
During
fiscal year ended December 31, 2016 and 2015, our officers and directors earn certain salaries. Messrs. Paolucci and Karanovic
each earn an annual salary of $208,000 and Ms. Carey earns an annual salary of $47,500.
SUMMARY
COMPENSATION TABLE
The
table below summarizes all compensation awarded to, earned by, or paid to the executive officers by any person for all services
rendered in all capacities for the fiscal year ended December 31, 2016 and 2015.
SUMMARY
COMPENSATION TABLE
‡
|
Name
and Principal Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Nonequity
Incentive
Plan
Compen-
sation ($)
|
|
|
Non-
Qualified
Deferred
Compen-
sation
Earnings
($)
|
|
|
All
Other
Compen-
sation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernardino
Paolucci
|
|
|
2016
|
|
|
$
|
208,000
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
$
|
208,000
|
|
(Chief
Executive Officer,
President,Treasurer/Chief
Financial Officer and Director)
|
|
|
2015
|
|
|
$
|
208,000
|
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
208,000
|
|
DIRECTOR
COMPENSATION
We
do currently compensate our directors with cash for acting as such, although we may do so in the future. We reimburse our
directors for reasonable expenses incurred in connection with their service as directors.
|
Name
|
|
|
Salary
|
|
|
Position
|
|
|
|
|
|
|
|
|
|
Bernardino
Paolucci (1)
|
|
$
|
6,000
|
|
|
Chairman
of the Board, Director
|
|
|
|
|
|
|
|
|
|
Drasko
Karanovic (2)
|
|
$
|
6,000
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
Beth
Carey (3)
|
|
$
|
6,000
|
|
|
Director
|
(1)
Mr. Paolucci earns an executive salary of $208,000, which is more fully discussed above in the Summary Compensation Table. Mr.
Paolucci earned $208,000 for both fiscal years ended December 31, 2016 and December 31, 2015, respectively, in his executive capacity.
(2)
Mr. Karanovic earned a salary related to employment services of $208,000 during fiscal years ended December 31, 2016 and December
31, 2015, respectively.
(3)
Ms. Carey earned a salary related to employment services of $47,500 during fiscal years ended December 31, 2016 and December 31,
2015, respectively.
EMPLOYMENT
CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
None
of our executive officers or directors are parties to any employment contracts.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Under
Nevada law, a corporation may indemnify its directors, officers, employees and agents under certain circumstances, including indemnification
of such persons against liability under the Securities Act of 1933, as amended. In addition, a corporation may purchase or maintain
insurance on behalf of its directors, officers, employees or agents for any liability incurred by him in such capacity, whether
or not the corporation has the authority to indemnify such person.
Limitation
of Liability for Officers and Directors.
A
director shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director
if he (i) is not liable under NRS 78.138; or (ii) acted in good faith and in a manner which he reasonably believed to be in or
not opposed to our best interests, and with respect to any criminal action or proceeding, had no reasonable cause to be believe
his conduct was unlawful. If the NRS, or any other applicable law, is amended to authorize corporation action further eliminating
or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest
extent permitted by the NRS, or any other applicable law, as so amended. Any repeal or modification of this Section (a) by our
stockholders shall not adversely affect any right or protection of our directors existing at the time of such repeal or modification.
Each
person who has or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (herein a “proceeding”), by reason of the fact that he or she or
a person of whom he or she is the legal representative is or was a director or officer or is or was serving at our request as
a director, officer or employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of such proceeding is an alleged action in an official
capacity as a director, officer, employee or agent, shall be indemnified and held harmless by us to the fullest extent authorized
by the NRS, or any other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits us to provide broader indemnification rights than said law permitted us to provide
prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in paragraph
(2) of this section (b) with respect to proceedings seeking to enforce rights to indemnification, we shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by our Board of Directors. The right to indemnification conferred in this Section (b) shall be
a contract right and shall include the right to be paid by us the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that if the NRS, or any other applicable law, requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director of officer (and not in any other capacity in which service
was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan)
in advance of the final disposition of a proceeding shall be made only upon delivery to us of an undertaking by or on behalf of
such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Section (b) or otherwise.
If
a claim under Paragraph (1) of this Section (b) is not paid in full by us within thirty days after a written claim has been received
by us, the claimant, may at any time thereafter bring suit against us to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense
to such any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is required, has been tendered to us) that the claimant
has not met the standard of conduct that makes it permissible under the NRS, or any other applicable law, for us to indemnify
the claimant for the amount claimed, but the burden of providing such defense shall be on us. Neither our failure (including our
Board of Directors, stockholders or independent legal counsel) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstance because he or she has met the applicable standard of
conduct set forth in the NRS, or any other applicable law, nor an actual determination by us (including the Board of Directors,
stockholders or independent legal counsel) that the claimant has not met such applicable standard of conduct shall be a defense
to the action or create a presumption that the claimant has not met the applicable standard of conduct.
The
right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred
in this Section (b) shall not be exclusive of any other right which any person may have or hereafter acquire under any statute,
provision of these Articles of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
We
may maintain insurance, at its expense, to protect itself and any of our directors, officers, employees or agents or another corporation,
partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not we would have the
power to indemnify such person against such expense, liability or loss under the NRS, or any other applicable law.
We
may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid
by us the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of us to
the fullest extent of the provisions of this Section (b) with respect to the indemnification and advancement of expenses of our
directors and officers.
Any
repeal or modification of this Section (b) by our stockholders shall not adversely affect any right or protection of our directors,
officers, employees or agents existing at the time of such repeal or modification.
The
By-Laws provide, among other things, that a director, officer, employee or agent of the corporation may be indemnified against
expenses (including attorneys’ fees inclusive of any appeal), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such claim, action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best of our interests, and with respect to any criminal action or proceeding,
he had no reasonable cause to believe that his conduct was unlawful.
The
effect of these provisions may be to eliminate our rights and our stockholders (through stockholder derivative suits on behalf
of us) to recover monetary damages against a director, officer, employee or agent for breach of fiduciary duty.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be provided for directors, officers,
employees, agents or persons controlling an issuer pursuant to the foregoing provisions, the opinion of the SEC is that such indemnification
is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following tables set forth information as of April 14, 2017 regarding the beneficial ownership of our common stock: (a) each stockholder
who is known by us to own beneficially in excess of 5% of our outstanding common stock; (b) each director known to hold common
or preferred stock; (c) our chief executive officer; and (d) the executive officers and directors as a group. Except as otherwise
indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of stock, except
to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect
to their shares of stock. The percentage of beneficial ownership of common stock is based upon 54,078,941 shares of common stock
and 1,000,000 shares of Series B preferred stock issued and outstanding as of April 14, 2017.
|
|
|
|
|
NUMBER
OF SHARES
|
|
|
PERCENT
OF SHARES
|
|
|
NAME
AND ADDRESS OF
|
|
TITLE
|
|
BENEFICIALLY
|
|
|
BENEFICIALLY
|
|
|
BENEFICIAL
OWNER
|
|
OF
CLASS
|
|
OWNED
|
|
|
OWNED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernardino
Paolucci
|
|
Common
|
|
|
25,094,400
|
(1)
|
|
|
46.4
|
%
|
|
7669
Kimbal Street
|
|
Preferred
|
|
|
500,000
|
|
|
|
50
|
%
|
|
Mississauga,
Ontario Canada L5S 1A7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drasko
Karanovic
|
|
Common
|
|
|
25,047,200
|
(1)
|
|
|
46.3
|
%
|
|
7669
Kimbal Street
|
|
Preferred
|
|
|
500,000
|
|
|
|
50
|
%
|
|
Mississauga,
Ontario Canada L5S 1A7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beth
Carey 7669 Kimbal Street Mississauga, Ontario
|
|
Common
|
|
|
4
|
|
|
|
0
|
%
|
|
Canada
L5S 1A7
|
|
Preferred
|
|
|
-0-
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and
|
|
Common
|
|
|
50,141,604
|
|
|
|
92.7
|
%
|
|
directors
as a group (3 person)
|
|
Preferred
|
|
|
1,000,000
|
|
|
|
100
|
%
|
|
(1)
|
Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct
the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares.
Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to
vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information
is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the
amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s
actual ownership or voting power with respect to the number of shares of common stock actually outstanding as of the date
of this Annual Report. Figure takes into consideration the Reverse Stock Split of 300 to 1.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
We
do not have a specific policy or procedure for the review, approval, or ratification of any transaction involving related persons.
We historically have sought and obtained funding from officers, directors, and family members as these categories of persons are
familiar with our management and often provide better terms and conditions than we can obtain from unassociated sources.
With
the exception of the below, there were no transactions with any related persons (as that term is defined in Item 404 in Regulation
SK) since the beginning of our last two fiscal years, or any currently proposed transaction, in which we were or were to be a
participant and the amount involved which the amount exceeds the lesser of $120,000 or one percent of the average of our assets
at year end for the last two completed fiscal years, and in which any related person had a direct or indirect material interest.
EXECUTIVE
COMPENSATION
During
fiscal year ended December 31, 2016 and December 31, 2015, our officers and directors earned certain salaries. Messrs. Paolucci
and Karanovic each earned an annual salary of $208,000 during both fiscal years ended December 31, 2016 and December 31, 2015.
Ms. Carey earned an annual salary of $47,500 during both fiscal years ended December 31, 2016 and December 31, 2015. The officers
and directors are salaried employees with salaries paid weekly.
SHAREHOLDER
LOAN
After
consummation of the Share Exchange Agreement, Mr. Paolucci loaned us an aggregate $490,650 for working capital purposes. The loan
is payable upon demand with no interest The loan was paid in full during fiscal year ended December 31, 2012.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The
following table shows the fees paid or accrued for the audit and other services provided by our principal accountant.
|
|
|
2016
|
|
|
2015
|
|
|
Audit
fees
|
|
$
|
42,250
|
|
|
$
|
81,844
|
|
|
Audit
related fees
|
|
|
-0-
|
|
|
|
-0-
|
|
|
Tax
fees
|
|
|
-0-
|
|
|
|
-0-
|
|
|
All
other fees
|
|
|
-0-
|
|
|
|
-0-
|
|
Audit
Fees
Audit
fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial
statements included in quarterly reports, along with services normally provided by the accountant in connection with statutory
and regulatory filings or engagements.
Audit
Related Fees
Audit-related
fees represent professional services rendered for assurance and related services by the principal accountant that are reasonably
related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax
Fees
Tax
fees represent professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
All
Other Fees
All
other fees represent fees billed for products and services provided by the principal accountant, other than the services reported
for the other categories.