NRBT Novus Robotics Inc (PK)

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

GENERAL

We were formed in the State of Nevada on June 24, 2005 under the name Guano Distributors, Inc. Prior to our incorporation, on April 15, 2005, David Wallace, our then-chief executive officer, chief financial officer and sole director, formed Guano Distributors (Pty) Ltd., a South African registered company, for the purpose of selling Dry-Bar Cave bat guano. On May 15, 2005, Mr. Wallace transferred all of his ownership interest in Guano Distributors (Pty) Ltd. to us. On June 28, 2006, we amended our Articles of Incorporation to change our name to Ecoland International, Inc.

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

Share Exchange Agreement

Ecoland International, Inc., now known as Novus Robotics Inc., D&R Technology Inc., a private corporation (“D&R Technology”) and, Berardino Paolucci and Drasko Karanovic, the shareholders of D&R Technology Inc. (the “D&R Shareholders”) entered into that certain share exchange agreement dated January 27, 2012 (the “Share Exchange Agreement”). Our Board of Directors approved the execution and consummation of the transaction under the Share Exchange Agreement on February 1, 2012. In accordance with the terms and provisions of the Share Exchange Agreement, we issued an aggregate of 59,000,000 pre-Reverse Stock Split shares of our restricted common stock to the D&R Shareholders (which consisted of Messrs. Paolucci and Karanovic and D Mecatronics, which is holding the shares for the benefit of the remaining shareholders of D&R Technology) in exchange for 100% of the total issued and outstanding shares of D&R Technology, thus making D&R Technology its wholly-owned subsidiary. Our Board of Directors deemed it in the best interests of our shareholders to enter into the Share Exchange Agreement pursuant to which it would acquire all the technology and assets and assume all liabilities of D&R Technology. This resulted in a change in control and our overall business operations thus bringing potential value to our shareholders. D&R Technology was previously the wholly-owned subsidiary of D Mecatronics Inc., a Delaware corporation. On approximately November 10, 2011, D Mecatronics spun-off D&R Technology. D&R Technology subsequently issued shares of its restricted common stock to the shareholders of D Mecatronics on a pro-rata basis in accordance with their respective equity holdings in D Mecatronics. The equity percentages regarding the issuance of shares by D&R Technology were 48% to Berardino Paolucci, 24% to Drasko Karanovic and 28% to various shareholders (which shares were previously held by D Mecatronics on behalf of these shareholders).

Escrow Agreement. On June 4, 2013, our Board of Directors authorized the execution of that certain escrow agreement dated June 4, 2013 (the “Escrow Agreement”) with Manhattan Transfer Registrar Co., our transfer agent (“Manhattan Transfer”). As disclosed in previous filings with the Securities and Exchange Commission, on approximately November 10, 2011, D Mecatronics Inc. (“D Mecatronics”) spun-off our wholly-owned subsidiary, D&R Technology. D&R Technology subsequently issued shares of its restricted common stock to the shareholders of D Mecatronics on a pro-rata basis in accordance with their respective equity holdings in D Mecatronics. The equity percentages regarding the issuance of shares by D&R Technology were 48% to Berardino Paolucci, 24% to Drasko Karanovic and 28% to various shareholders (which shares were being held by D Mecatronics on behalf of these shareholders). The transfer agent for D Mecatronics at the time of the spin-off was Global Sentry Equity Transfer Inc. (“Global Sentry”). At the time of the spin-off, management of D Mecatronics had attempted on several occasions to contact Global Sentry with regards to its shareholder list and records. However, any and all attempts were to no avail. To date, D Mecatronics has not been able to obtain any of its records, including a shareholders list, from Global Sentry. Management has no knowledge or information as to the whereabouts of Global Sentry or its management nor of the location of its records and shareholders list. This has impeded the issuance of the shares of D&R Technology to the appropriate 28% minority shareholders of D Mecatronics and thus the reason why D Mecatronics was holding the shares in trust for the benefit of its shareholders.

Subsequently, we entered into the Share Exchange Agreement. Our Board of Directors had approved the execution and consummation of the transaction under the Share Exchange Agreement on February 1, 2012. In accordance with the terms and provisions of the Share Exchange Agreement, we issued an aggregate of 59,000,000 pre-Reverse Stock Split shares of our restricted common stock to the D&R Shareholders (which consisted of Messrs. Paolucci and Karanovic and D Mecatronics, which held the shares for the benefit of the remaining shareholders of D&R Technology) in exchange for 100% of the total issued and outstanding shares of D&R Technology, thus making D&R Technology our wholly-owned subsidiary. The Board of Directors deemed it in the best interests of the shareholders to enter into the Share Exchange Agreement pursuant to which it would acquire all the technology and assets and assume all liabilities of D&R Technology.

The majority shareholders of D&R Technology approved the Share Exchange Agreement as did its Board of Directors. The Board of Directors of D&R Technology resolved in its board resolutions to issue to D Mecatronics the 16,520,000 pre-Reverse Stock Split shares to be issued to the missing 28% minority shareholders of D&R Technology (who are also the unknown shareholders of D Mecatronics). Therefore, D Mecatronics held in trust and for the benefit of its unknown shareholders (and as shareholders of D&R Technology) the shares to be issued to them by the Company. D Mecatronics is in the process of attempting to locate the transfer agent in order to obtain its records.

We are also in the process of locating the missing shareholders of D Mecatronics (and also as shareholders of D&R Technology) to whom our shares should be issued in accordance with the terms and provisions of the Share Exchange Agreement. Therefore, we entered into the Escrow Agreement. In accordance with the terms and provisions of the Escrow Agreement, D Mecatronics returned to Manhattan Transfer the share certificate evidencing the shares of our common stock issued to it as trustee. A new share certificate was issued to Manhattan Transfer as trustee in the aggregate denomination of 16,520,000 shares to be held in escrow. Together with Manhattan Transfer, we created a shareholders list (the “Shareholders List”) indicating each record owner of the shares. Subsequent to the date of the Escrow Agreement, Manhattan Transfer has released shares to certain of the persons indicated on the Shareholders List. As of the date of this Quarterly Report, Manhattan Transfer has issued approximately 5,331,641 of the 16,520,000 pre-Reverse Stock Split shares held in escrow to the shareholders listed on the Shareholder List.

We have placed on our website www.novusrobotics.com (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 Quarterly 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.

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

Six Month Period Ended June 30, 2017 Compared to Six Month Period Ended June 30, 2016.

We generated revenue during the six month period ended June 30, 2017 in the amount of $3,110,862 compared to $1,147,520 generated during the six month period ended June 30, 2016 (an increase of $1,963,342). Major components of the revenue mix for change from June 30, 2016 to June 30, 2017 are as follows:

Cost of sales: During the six month period ended June 30, 2017, cost of sales was $1,712,964 compared to $707,661 during the six month period ended June 30, 2016 (an increase of $1,005,303). The change in products sold in the six month period ended June 30, 2017 contributed to an increase in our gross margin over the six month period ended June 30, 2016. 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 six month period ended June 30, 2016.

Gross Profit. Thus, based on the above, our gross profit increased to $1,397,898 during the six month period ended June 30, 2017 from $439,859 during the six month period ended June 30, 2016.

Operating expenses: During the six month period ended June 30, 2017, we incurred operating expenses in the amount of $530,876 compared to operating expenses incurred during the six month period ended June 30, 2016 of $423,637 (an increase of $107,239). Operating expenses include: (i) compensation of $348,695 (2016: $250,188); (ii) occupancy costs of $35,348 (2016: $35,813); (iii) travel of $50,261 (2016: $18,474); (iv) professional fees of $55,066 (2016: $35,697); (v) communication of $4,319 (2016: $4,455); and (vi) office and general of $37,186 (2016: $79,010). In respect of compensation, more labor charges were capitalized to the work in process projects during the six month period ended June 30, 2017 compared to the six month period ended June 30, 2016 due to the timing and completion of specific projects resulting in an increase of $98,507 being charged in 2017. Travel increased by $31,787 as we focused on acquiring new customers and opportunities during the six month period ended June 30, 2017 as compared to the same period in 2016. Professional fees increased by $19,369 in the six-month period ended June 30, 2017 as the additional charges associated with our auditors were incurred during this time frame, which we did not incur in 2016. Office and general expenses decreased by $41,824 due to an increase in selling expenses during 2016 as we purchased brochures and other materials to assist in marketing our products in 2016.

Income from Operations. Thus, this resulted in a profit before other income of $867,022 during the six month period ended June 30, 2017 compared to a profit before other income of $16,222 during the six month period ended June 30, 2016.

Other Income (Expense). During the six month period ended June 30, 2017, we recorded $56,945 in other income as compared to other income of $341,764 in the six month period ended June 30, 2016. The continued weakening Canadian dollar in 2017 against the United States dollar resulted during the six month period ended June 30, 2017 in a foreign exchange loss of ($2,888) compared to a foreign exchange gain of $341,764 during the six month period ended June 30, 2016 on denominations transacted and settled in foreign currencies, primarily being sales to the United States from which the monies are being converted and used to satisfy Canadian dollar operational requirements. We recovered $59,833 in expenses associated with recovery of scientific research and development expenditures during the six month period ended June 30, 2017 compared to $-0- during the six month period ended June 30, 2016.

Net income (loss) before income taxes. Thus, during the six month period ended June 30, 2017, this resulted in net income before income taxes of $923,967 compared to $357,986 during the six month period ended June 30, 2016.

Provision for Income taxes. During the six month period ended June 30, 2017, we incurred $226,890 in income taxes compared to $-0- during the six month period ended June 30, 2016.

Net Income. Thus, this resulted in net income of $697,077 during the six month period ended June 30, 2017 as compared to net income of $357,986 incurred during the six month period ended June 30, 2016.

Other Comprehensive Gain (Loss). During the six month period ended June 30, 2017, we recorded a foreign exchange adjustment of $4,000 as compared to ($386,533) during the six month period ended June 30, 2016.

Comprehensive Income (Loss). Thus, during the six month period ended June 30, 2017, our comprehensive income was $701,077 or $0.01 per share compared to a comprehensive loss of ($28,547) or ($0.01) for the six month period ended June 30, 2016. The weighted average number of shares outstanding was 54,296,541 for the six month period ended June 30, 2017 compared to 34,218,577 for the six month period ended June 30, 2016.

Three Month Period Ended June 30, 2017 Compared to Three Month Period Ended June 30, 2016.

We generated revenue during the three month period ended June 30, 2017 in the amount of $1,022,570 compared to $810,030 generated during the three month period ended June 30, 2016 (an increase of $212,540).

Cost of sales: During the three month period ended June 30, 2017, cost of sales was $612,766 compared to $393,092 during the three month period ended June 30, 2016 (an increase of $219,674). The change in products sold in the three month period ended June 30, 2017 contributed to an increase in our gross margin over the three month period ended June 30, 2016. 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 three month period ended June 30, 2016.

Gross Profit. Thus, based on the above, our gross profit increased to $409,804 during the three month period ended June 30, 2017 from $416,938 during the three month period ended June 30, 2016.

Operating expenses: During the three month period ended June 30, 2017, we incurred operating expenses in the amount of $240,026 compared to operating expenses incurred during the three month period ended June 30, 2016 of $231,207 (an increase of $8,819). Operating expenses include: (i) compensation of $152,510 (2016: $127,962); (ii) occupancy costs of $16,681 (2016: $17,496); (iii) travel of $12,113 (2016: $13,143); (iv) professional fees of $37,113 (2016: $21,547); (v) communication of $2,084 (2016: $2,137); and (vi) office and general of $19,524 (2016: $48,922). In respect of compensation, more labor charges were capitalized to the work in process projects during the three month period ended June 30, 2017 compared to the three month period ended June 30, 2016 due to the timing and completion of specific projects resulting in an increase of $24,548 being charged in 2017. Travel decreased by $1,030 as compared to the same period in 2016. Professional fees increased by $15,556 in the three month period ended June 30, 2017 as the additional charges associated with our auditors were incurred during this time frame, which we did not incur in 2016. Office and general expenses decreased by $29,398 due to an increase in selling expenses during 2016 as we purchased brochures and other materials to assist in marketing our products in 2016.

Income from Operations. Thus, this resulted in a profit before other income of $169,778 during the three month period ended June 30, 2017 compared to a profit before other income of $185,731 during the three month period ended June 30, 2016.

Other Income (Expense). During the three month period ended June 30, 2017, we recorded $5,165 in other income as compared to other income of $27,056 in the three month period ended June 30, 2016. The continued weakening Canadian dollar in 2017 against the United States dollar resulted during the three month period ended June 30, 2017 in a foreign exchange gain of $5,165 compared to a foreign exchange gain of $27,056 during the three month period ended June 30, 2016 on denominations transacted and settled in foreign currencies, primarily being sales to the United States from which the monies are being converted and used to satisfy Canadian dollar operational requirements.

Net income (loss) before income taxes. Thus, during the three month period ended June 30, 2017, this resulted in net income before income taxes of $174,943 compared to $212,787 during the three month period ended June 30, 2016.

Provision for Income taxes. During the three month period ended June 30, 2017, we incurred $28,266 in income taxes compared to $-0- during the three month period ended June 30, 2016.

Net Income. Thus, this resulted in net income of $146,678 during the three month period ended June 30, 2017 as compared to net income of $212,787 incurred during the three month period ended June 30, 2016.

Other Comprehensive Gain (Loss). During the three month period ended June 30, 2017, we recorded a foreign exchange adjustment of ($10,168) as compared to ($71,825) during the three month period ended June 30, 2016.

Comprehensive Income (Loss). Thus, during the three month period ended June 30, 2017, our comprehensive income was $136,510 or $0.00 per share compared to a comprehensive income of $140,962 or $0.00 for the three month period ended June 30, 2016. The weighted average number of shares outstanding was 54,296,541 for the three month period ended June 30, 2017 compared to 49,295,500 for the three month period ended June 30, 2016.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2017

As of June 30, 2017, our current assets were $1,733,318 and our current liabilities were $957,740, which resulted in a working capital surplus of $775,576. As of June 30, 2017, current assets were comprised of: (i) $879,710 in cash; (ii) $511,239 in amounts receivable, net; (iii) $292,275 in inventory; (iv) $26,141 in sales tax recoverable; (v) $10,168 in security deposits; and (vi) $13,785 in prepaid expenses. As of June 30, 2017, current liabilities were comprised of: (i) $201,776 in accounts payable and accrued expenses; (ii) $506,845 in customer deposits; (iii-v) $13,824 in warranty provision; (iv) $226,890 in incomes taxes payable; and (v) $8,405 in current portion of obligation under capital lease.

As of June 30, 2017, our total assets were $1,869,307 comprised of: (i) $1,733,318 in current assets; and (ii) $135,989 in fixed assets, net of depreciation. The decrease of total assets during the six month period ended June 30, 2017 from December 31, 2016 was primarily due a decrease in inventory of $1,197,680, $ and $66,966 in sales tax recoverable.

As of June 30, 2017, our total liabilities were $968,254 comprised of: (i) $957,740 in current liabilities; and (ii) $10,514 in obligation under capital lease. The decrease in liabilities during the six month period ended June 30, 2017 from December 31, 2016 was primarily due to a decrease in customer deposits of $1,328,946, notes payable of $100,000 and accounts payable and accrued expenses of $139,402.

Total stockholders’ equity increased from $199,975 as of December 31, 2016 to $901,053 as of June 30, 2017.

Cash Flows from Operating Activities

For the six month period ended June 30, 2017, net cash flows provided by operating activities was $516,281 consisting primarily of net income of $697,077. Net cash flows provided by operating activities was adjusted by $13,357 in depreciation. Net cash flow from operating activities was further changed by: (i) an increase of $218,831 in accounts receivable; (ii) a decrease of $1,197,680 in inventory; (iii) an increase of $3,109 in prepaid expenses; (iv) an increase of $340 in security deposit; (v) a decrease of $139,403 in accounts payable and accrued expense; (vi) a decrease of $1,328,946 in customer deposits; (vii) an increase of $4,939 in warranty payable; and (viii) an increase of $293,856 in taxes recoverable/payable.

For the six month period ended June 30, 2016, net cash flows provided by operating activities was $680,897 consisting primarily of net income of $357,986. Net cash flows provided by operating activities was adjusted by $9,609 in depreciation. Net cash flow from operating activities was further changed by: (i) an increase of $380,213 in accounts receivable; (ii) an increase of $280,572 in inventory; (iii) a decrease of $3 in prepaid expenses; (iv) a decrease of $795 in security deposit; (v) an increase of $199,114 in accounts payable and accrued expense; (vi) an increase of $789,065 in deferred revenue; (vii) an increase of $5,934 in warranty payable; and (viii) a decrease of $20,824 in taxes recoverable/payable.

Cash Flows from Investing Activities

For the six month period ended June 30, 2017, net cash flows used in investing activity was $-0- compared to net cash flows used in investing activity of $6,051 during the six month period ended June 30, 2016.

Cash Flows from Financing Activities

For the six month period ended June 30, 2017, net cash flow used in financing activity was $103,282 consisting of $3,282 in obligation under capital lease, net of repayments, and $100,000 in repayment of notes payable compared to net cash flow used in financing activity of $1,814 during the six month period ended June 30, 2016 consisting of $1,814 in obligation under capital lease, net of repayments.

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

PLAN OF OPERATION

Our principal demands for liquidity are to increase capacity, inventory purchase, sales distribution, and general corporate purposes. We are in the process of being accepted as a global prototype supplier by Johnson Controls compared to our prior role as a supplier for North America. We had been involved in discussions with Johnson Controls regarding prototypes and parts production. Johnson Controls visited our facility during early 2012 to conduct an audit for global recommendation. Their goal was to understand the processes we use to run the business and the controls that we have in place so that we were assured to have utmost control over the quality of work. The audit was based on our employees and their qualifications, data management, processes, tooling and equipment and parts and material management. Johnson Controls conducted a tour of our facility, which was followed up with a final review on May 3, 2012. Subsequently we received a call from Johnson Controls stating that we had been accepted and recommended for their global work. Therefore, we have been accepted for global work and thus provided the basis for previously disclosed projections. We may achieve those revenue projections during fiscal year 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

Other than the lease obligation and note referenced below, we have no other reportable material commitments for the six month period ended June 30, 2017.

Settlement Agreement/Convertible Note

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 Quarterly 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.

Lease

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 $210,000 CDN are required to the lease expiration date, which is July 31, 2019.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

Uses of Estimates

The preparation of interim consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Financial statement items subject to significant judgment include expense accruals, as well as income taxes and loss contingencies. Actual results could differ from those estimates.

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

Assets’ carrying values and impairment charges

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

Income taxes and recoverability of potential deferred tax assets

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

Cash and Cash Equivalents

We consider all highly liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents. At June 30, 2017, we had no cash equivalents. We maintain our cash in bank deposit accounts which may exceed federally insured limits. As of June 30, 2017, our accounts are insured for $100,000 CDN by Canadian Deposit Insurance Corporation for Canadian bank deposits and are insured for $250,000 by FDIC for US bank deposits. The entirety of our US bank deposits are insured at June 30, 2017.

Inventory

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

Allowance for Doubtful Accounts

We extend credit to our customers in the normal course of business. The allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on specific customer information, historical write-off experience and current industry and economic data. Account balances are charged-off against the allowance when we believe it is probable the receivable will not be recovered. Management believes that there are no concentrations of credit risk for which an allowance should be established. Although management believes that no allowance is needed, it is possible that the estimated amount of cash collections with respect to accounts receivable could change. As of June 30, 2017, we have not deemed any accounts uncollectible.

Revenue Recognition

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

D&R provides standard warranties for its product from the date of shipment. Estimated warranty obligations are recorded at the time of sale and amortized over the two year warranty period as of June 30, 2017, warranty liability was $13,824.