PART I
This Annual Report on form 10-K is being amended to include the auditor's report from DeJoya Griffith & Company LLC dated April 3, 2013.
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.
Certificate of Amendment
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. Our new cusip number is 67011H108.
Therefore, as of the date of this Annual Report, our trading symbol is “NRBT”. Our management deemed it appropriate to change our name to Novus Robotics Inc. in furtherance of and to better reflect the nature of our new business operations.
SHARE EXCHANGE AGREEMENT
Ecoland International, Inc., now known as Novus Robotics Inc., a Nevada corporation, D&R Technology Inc., a private corporation (“D&R Technology”) and Beradino 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 shares of its 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. Our Board of Directors deemed it in the best interests of our shareholders to enter into the Share Exchange Agreement pursuant to which we 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 Bernardino Paolucci, 24% to Drasko Karanovic and 28% to various shareholders (which shares are currently being held by D Mecatronics on behalf of these shareholders). See "Item 1A - Risk Factors."
In accordance with further terms and provisions of the Share Exchange Agreement, that certain employment agreement dated June 1, 2009 (the “Employment Agreement”) between us and Wallace would be terminated and Wallace would waive any and all rights or claims to compensation due and owing under the terms of the Employment Agreement, including any liquidated damages due and owing Wallace under any currently existing severance pay plan for employees and any payments of benefits under any existing benefit coverages in which Wallace was participating in accordance with the terms of such benefit coverages (as that term is defined in the Employment Agreement). See "Item 11. Executive Compensation".
Lastly, we provided to D&R Technology the reviewed balance sheet and statements of operations, stockholders' equity and cash flows as of and for the quarter ended November 30, 2011 (the “Financial Statements”). We had three liabilities reflected on the balance sheet of the Financial Statements: (i) $359,477 in notes payable – related parties, which related party is Wallace (the “Related Party Debt”); (ii) $26,574 in accounts payable and accrued liabilities (“Accounts Payable”); and (iii) $250,622 in notes payable, which consist of those certain convertible notes as follows: (a) convertible promissory note dated April 15, 2008 in the principal amount of $40,000 issued to Donna Boyle, (b) convertible promissory note dated December 15, 2006 in the principal amount of $60,000 issued to Raymond Russell, and (c) convertible promissory note dated December 15, 2006 in the principal amount of $60,000 issued to Stephen Treanor (collectively, "the Convertible Promissory Notes"). On December 15, 2009, we entered into three separate settlement agreements with Raymond Russell, Donna Boyle and Stephen Treanor, respectively (collectively, the Settlement Agreements"), with regards to the aggregate amounts due and owing to each creditor under the respective Convertible Promissory Note. In accordance with the Settlement Agreement with Stephen Treanor: (i) an aggregate of $72,000 in principal and accrued interest was agreed as due and owing as of December 15, 2009; and (ii) we agreed to convert $36,000 of the Convertible Note into shares of our restricted common stock at the rate of $0.005 per share. In accordance with the Settlement Agreement with Raymond Russell: (i) an aggregate of $72,000 in principal and accrued interest was agreed as due and owing as of December 15, 2009; and (ii) we agreed to convert $36,000 of the Convertible Note into shares of our restricted common stock at the rate of $0.005 per share. In accordance with the Settlement Agreement with Donna Boyle: (i) an aggregate of $41,600 in principal and accrued interest was agreed as due and owing as of December 15, 2009; and (ii) we agreed to convert $41,600 of the Convertible Note into shares of our common stock at the rate of $0.005 per share. Thus, there is no remaining liability associated with Donna Boyle. The remaining liability associated with Stephen Treanor and Raymond Russell is $36,000 plus accrued interest, respectively. We are currently in default of the Convertible Promissory Note regarding the remaining aggregate $36,000 due and owing to each of Messrs. Treanor and Russell, which accrues interest at the rate of 8% per annum until paid in full. See "Item -- Material Commitments".
We warranted and represented that based upon negotiations and discussions with Ms. Boyle and Messrs. Russell and Treanor, the Convertible Notes would be assigned and transferred at closing to certain individuals and in those denominations as specified by D&R Technology. Effective January 2, 2013, Ms. Boyle and Messrs. Russell and Treanor entered into assignments with Mr. Dino Paolucci, our current President/Chief Executive Officer, assigning to Mr. Paolucci all of their respective right, title and interest in and to the Convertible Notes and Settlement Agreements (collectively, the "Assignments"). Thus, in the event Mr. Paolucci converts the aggregate debt of $185,600 into shares of common stock at the conversion rate of $0.005, 37,120,000 shares will be issued to Mr. Paolucci. As of the date of this Annual Report, the debt has not been converted but could be converted at any time by Mr. Paolucci resulting in the further issuance of 37,120,000 shares of common stock to Mr. Paolucci. We further warranted and represented that Wallace waived payment of the Related Party Debt as reflected in the waiver and settlement agreement between us and Wallace dated January 27, 2012. We further warranted and represented that we had satisfied or will satisfy in full by closing all amounts due and owing under the Accounts Payable.
D&R Technology also had a payable balance as of December 31, 2011 due to us, which would be eliminated upon merger. The balance of the payable to us was $6,360 at December 31, 2011. The amount represented an advance by us to D&R Technology to satisfy legal and other closing costs associated with the transaction that were being paid directly by D&R Technology.
D&R Technology
D&R Technology was previously the wholly-owned subsidiary of D Mecatronics Inc., which is a publicly traded corporation trading under the symbol "DMEC" ("D Mecatronics") The controlling shareholders of D&R Technology, Beradino Paoluccis and Drasko Karanovic, are also affiliates of D Mecatronics. Mr. Paolucci is the President/Chief Exeutive Officer and a member of the Board of Directors of the Corporation and also the President/Chief Executive Officer and a member of the Board of Directors of D Mecatronics Inc. Mr. Karanovic is a member of the Board of Directors of the Corporation and also a member of the Board of Directors of D Mecatronics.
STOCK PURCHASE AGREEMENT
We previously announced that certain of our prior controlling shareholders, who were Capitalsense Ltd., Altimo Ltd., Cimarron Capital Ltd. and Wallace (the “Controlling Shareholders”), and D&R Technology entered into a stock purchase agreement dated November 7, 2011 (the “Stock Purchase Agreement”). In accordance with the terms and provisions of the Stock Purchase Agreement, the Controlling Shareholders were to transfer an aggregate of 59,000,000 shares of our restricted common stock held of record by the Controlling Shareholders to D&R Technology. The terms and provisions of the Stock Purchase Agreement and the subsequent Rescission Agreement required the payment of $262,000 by us to the Controlling Shareholders. However, the Controlling Shareholders agreed to forgo the required payment by us and no payment was made or will be made. There is no written agreement memoralizing this verbal agreement.
TERMINATION AGREEMENT
Subsequently, it was determined that the structure and transaction represented by the Stock Purchase Agreement did not reflect the intent and strategic goals of the parties in that we desired to make D&R Technology our wholly-owned subsidiary. It was determined that the Stock Purchase Agreement previously entered into did not result in D&R Technology becoming our wholly-owned subsidiary. Therefore, the Controlling Shareholders and D&R Technology entered into that certain termination agreement dated January 27, 2012 (the “Termination Agreement”), pursuant to which the parties rescinded the Stock Purchase Agreement and the Controlling Shareholders returned to us their respective share certificates evidencing the aggregate 59,000,000 shares of our common stock. The respective share certificates received from the Controlling Shareholders were cancelled and the 59,000,000 shares of common stock were returned to treasury. Thus, neither D&R Technology nor the Controlling Shareholders no longer retained the general respective rights attributable to our shareholders. Any differences between the parties concerning the nature of the structure of the transaction requiring a share exchange agreement and the return of the 59,000,000 shares of common stock for cancellation and return to treasury were resolved. The Controlling Shareholders returned their respective shares to us with the understanding that the shares were to be cancelled and returned to treasury as a condition precedent to consummation of the Share Exchange Agreement whereby 59,000,000 shares of our common stock were going to be issued in exchange for the total issued and outstanding shares of common stock of D&R Technology.
OUR BUSINESS
General
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.
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 ORM suppliers that produce the seats, front dashboards and other products for the big automakers.
The automotive industry marketplace is the nation’s largest manufacturing industry. It is a marketplace with an estimated value in the hundreds of billions. The nation’s automotive manufacturing industry is tied to the U.S. automotive industry, which is considered one of the largest automotive retail marketplaces in the world. Management reviews marketplace press releases which state that economies are growing steadily from last year and that over the next five years, older automobiles will need to be replaced. India and China are cited as requiring more products for their growing population. Management believes that this demand will require more systems by the Tier 1 OEMs. See "Behind the Wheel" with Phil LeBeau, CNBC Correspondent, published March 15, 2012 and Edmunds.com May 2012 "Auto Sales Forecast: Steady Pace Continues as Summer Approaches".
Products
We provide special purpose machinery products and services to Automotive Tier I businesses and their suppliers. Our services include design and installation of retrofits to existing systems, spare parts, maintenance, repairs and production support. We build seat frame systems and tube processing lines. Each system consists of self contained tooling modules linked by a series of automated transfer or robots. Several modules will be integrated into a processing system by adding single or multi-axis transfer units. This approach allows uniformity of design, which provides ease of expansion, simplicity of operation, and excellent throughput rates.
At conception of the project, we review component designs and provide suggestions to our customers to reduce manufacturing costs. We work with customers to ensure that proposed systems strike the right balance of throughput, flexibility, automation and tooling/capital budgets. Throughout the project, our team managers work to keep the customer's team informed with progress updates, highlighting decision points and tracking component design changes. Our designs and technologist work to ensure that our production solutions are robust, reliable and maintainable. We collaborate with our technology partners to ensure that every aspect is leading edge and proven reliable. Ultimately, we work with our customers to ensure that our production solutions provide value to every level of their organization.
Our value propositions regarding our machinery products and services are: (i) delivery – providing on-time delivery thereby reducing customer inventory and providing them with overall cost reduction; (ii) quality – products and services that we deliver are of high quality and have attributes that enable customers to carry out their business functions; and (iii) price – products are competitively priced thus helping customers control their own overhead and expenses. We work with our customers on a one-to-one basis to the best of its ability to keep our prices competitive and within the customers' budgets. When our customers desire to bid on jobs, they contact and provide us with certain prerequisites. We then discuss their respective needs and start to compile all relevant information into a request for quote file. We then review all compiled information and submit to the customer its quotation regarding pricing. We have a very broad and diverse field that we have developed from which to obtain certain pricing. We would not receive purchase orders to provide our services to our respective customers if our prices were not competitive in the marketplace. Therefore, we believe we offer very competitive pricing based upon prior successful demand and awards for our products and services.
Our primary focus will be placed on product engineering and manufacturing processes to ensure the highest quality, high level of product features, and the most efficient manufacturing process possible. We will focus our market offerings on two major customer groups: (i) automobile seating manufacturers; and (ii) manufacturers of tubing products. Our products are listed below:
Seat Frame System is comprised of the following of which all components thereof are designed and manufactured by the Corporation:
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Unbundler, Weld seam station with Roland Seamfinder, CNC bending stations with barcode readers,
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Transfers, Reject Station, Vertical 4- post press module with tooling change options
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Material Handling Robots, Exit racks and Safety Fences.
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IP Tube System: Instrument Panel Tube machine makes the bent tube form that holds your steering wheel, gauges etc. All of these components are held on a tube form.
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IP Beam System: Instrument Panel Beam process line: the machine that produces the beams – which are made from larger diameter tubes for the front and car doors
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Integrated Bend-Weld System is a system that will transfer the formed tube to a welding station to be welded to the bottom of the seat frame.
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The automated tube bending machines that we build require spare parts that will replace the used and worn out components on various parts of the machines. We design and manufacture the machinery and replace them as required. We will provide all maintenance and repair to the machines as the wear and tear of running them over long periods of time becomes evident.
Services and Support
Our customer centric focus enables its customers to preserve and increase the value of existing processing equipment. We provide the following programs and services:
Maintenance and Repairs Programs: warranty support, after sales and emergency services, preventative maintenance programs, and spare parts and consumables solutions
Value Added Services: system upgrades and rebuilds, control system upgrades, tooling retrofits, pre-production and prototyping requirements, training, equipment relocation and redeployment, systems audit, manufacturing consulting and project management services.
Marketing
Our target customers are: (i) automotive seating manufacturers, who are customers requiring customized machine tools to better serve their clients; and (ii) manufacturers of tubing products, who are customers requiring a value adding process layout. We will continue to focus our market offerings to automobile seating manufacturers and manufacturers of tubing products. We do not have any contractual agreements in place with its customers and utilizes purchase orders with its customers. Our market research reflects that these customer segments are the most demanding in terms of the engineering, technical service support, and automated machinery design. We are particularly strong in these areas and will utilize our capacities to serve these clients. We will seek customers who require production of components used in upper-end product lines. This will provide a further possibility for us to offer our value-added engineering robotics services.
We have significant economic and commercial reliance and dependence on Johnson Controls Inc. ("JCI"). During the past two years, D&R Technology has received purchase orders from JCI in the amount of $293,468, $559,434, $311,000 and $1,856,500 respectively. Currently, JCI is one of our major customers after the recession of 2009 through 2010 in which some of our previous customers went into bankruptcy or were acquired by larger companies. Thus, we have significant economic and commercial dependence on JCI. As a result, we are subject to significant financial risk in the event of the financial distress of JCI. For the year ended December 31, 2012, more than 60% of all sales and 50% of all receivables were to JCI, and for the year ended December 31, 2011, 90% of sales and receivables were 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 produce a 420A system to produce new seat frames. The system is built for Toyota Boshoku Emire, Ontario, to produce the seat frame to be used in their plants for the Rav 4 production. During 2011, D&R Technology received purchase orders from Toyota Boshoku in the amounts of $116,277 and $125,882.
The material terms regarding the purchase orders are as follows: (i) progress payment terms consisting of $30% at award of purchase order, 30% at approximate eighty percent completion, 30% at acceptance, and 10% net thirty days' (ii) completion time for designing and building system is generally 23 to 26 weeks; (iii) if spare parts required to construct system, delivery is 3 to 10 weeks from receipt of purchase order and terms for spare parts are net 45 days; and (iv) orders cancellable but in the event engineering and purchase orders for items with a long delivery time are placed with our suppliers, the customer is liable for any time, material and costs incurred.
Our market strategy is to capitalize on its expertise by manufacturing high quality, durable machinery with a significant number of product features and options, which are extremely precise in control of motions. We will focus on a segment of the market and attempt to achieve the best reputation within that segment. Our goal in the next year is to secure more engineering and manufacturing positions. Our goal in the next five years is to continue with our “value added” scheme that will assist us in achieving a strong position within the marketplace.
Suppliers
The majority of raw materials required by us are readily available from a variety of suppliers. For certain specialty items related to controls, the Corporation has two principal suppliers: (i) Allen Bradly Controls; and (ii) Baldor Controls.
The products we require for the assembly of its systems come from electrical companies, hydraulic and pneumatic suppliers and control system from automation companies. We do not have exclusive contracts with these companies as we disseminate Requests for Quotations on Pricing and Delivery time in order for us to maximize savings in the production process. Examples include: motors from Rockwell Ind., electrical components from Gerrie Electric/Province Electrical hydraulics power unit from Hydrafab. We machine remaining parts as required.
Employees
We employ fourteen (14) full time employees and two (2) contract engineers. This fluctuates depending on our workload. We also uses temporary employees that have previously worked for us as required depending on the workload. We also have our President/Chief Executive Officer, 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.
Research and Development Activities
We have incurred approximately $746,000 during the past two fiscal years on research and development for products. None of these research or development costs are borne by the customer.
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 substantial number of other companies in the marketplace that offer the automated portion of the control system.
As of the date of this Annual Report, we have not filed patents on any of our systems. We do not release any drawings of our machines. The drawings are the property of D&R Technology. We may consider filing patent applications with respect to our system technologies and any novel aspects of our technology to protect our intellectual property. Future patents, if issued, may be challenged, invalidated or circumvented. Thus, any patent that we may own may not provide adequate protection against competitors. Any patent applications that we may file in the future may not result in issued patents. Also, patents may not provide us with adequate proprietary protection or advantages against competitors with similar or competing technologies. As a result of potential conflicts with the proprietary rights of others, we may in the future have to prove that it is not infringing the patent rights of others or be required to obtain a license to the patent.
We may consider filing a copyright application for the drawings of our machines. We will rely on trade secrets and unpatentable know-how that we seek to protect, in part, by confidentiality agreements. However, it is possible that parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible that its trade secrets or unpatentable know-how will otherwise become known or be independently developed by competitors. There can be no assurance that third parties will not assert infringement or other claims against us with respect to any existing or future systems or products. Litigation to protect our proprietary information or to determine the validity of any third-party claims could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful in such litigation.
COMPETITION
The markets for special purpose automotive machinery products and services is highly competitive. Competition is based on the quality and range of such products, market availability, pricing, promotion and customer service as well as the nature of the distribution channels. Our management believes that we have several highly significant competitive advantages: (i) engineering and technical support service; (ii) automated seat frame systems and IP beam process lines design and build expertise; (iii) vendors service and support; and (iv) current relationships with several major automotive companies. In the special purpose automotive machinery produces and services business, additional competitive factors include the demonstrated effectiveness of the products being offered, as well as available funding sources. We face competition from other technology-based companies providing the same products and services. Competition may increase to the extent that other entities enter the market and to the extent that current competitors or new competitors develop and introduce new products that compete directly with the products distributed by us or develop or expand competitive sales channels. Our management believes that our marketing position is unique to certain of the markets in which we compete.
ITEM 1A. RISK FACTORS.
You should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely affect our business, financial condition, operating results and prospects and could negatively affect the market price of our common stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not yet know of, or that we currently believe are immaterial, may also impair our business operations and financial results. Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
In assessing these risks you should also refer to the other information contained in or incorporated by reference to this Annual Report on Form 10-K, including our financial statements and the related notes.
RISKS RELATED TO BUSINESS
Our operating results are difficult to predict and fluctuations in them may cause volatility in the price of our shares.
Given the nature of the markets in which we compete, our revenues and profitability are difficult to predict for many reasons, including the following:
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Operating results are highly dependent on the volume and timing of orders received during the quarter, which are difficult to forecast. Customers generally order on an as-needed basis and we typically do not obtain firm, long-term purchase commitments from our customers. As a result, our revenues in any quarter depend primarily on orders shipped in that quarter.
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We must incur a large portion of our costs in advance of sales orders because we must plan research and production, order components and enter into development, sales and marketing, and other operating commitments prior to obtaining firm commitments from its customers. This makes it difficult for us to adjust our costs in response to a revenue shortfall, which could adversely affect our operating results.
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Engineering and production capacities that do not match demand for our products could result in lost sales or in a reduction in its gross margins.
Our industry is characterized by rapid technological change, frequent new product introductions, short-term customer commitments and rapid changes in demand. We determine capacities based on our forecasts of demand for our products. Actual demand for our products depends on many factors, which make it difficult to forecast. We have experienced differences between our actual and our forecasted demand in the past and expect differences to arise in the future. The following problems could occur as a result of these differences:
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If demand for our products is below our forecasts, we could produce excess personnel or have excess manufacturing capacity. Excess personnel could negatively impact our cash flows and could result in higher design costs. Excess manufacturing capacity could result in higher production costs per unit and lower margins.
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If demand for our products exceeds our forecasts, we could have to rapidly ramp up production. We depend on suppliers and manufacturers to provide components and sub-assemblies. As a result, we may not be able to increase our production levels to meet unexpected demand and could lose sales in the short term while we try to increase production. If customers turn to competitive sources of supply to meet their needs, our revenues could be adversely affected.
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Rapidly increasing our production levels to meet unanticipated customer demand could result in higher costs for components and sub-assemblies, increased expenditures for freight to expedite delivery of materials or finished goods, and higher overtime costs and other expenses. These higher expenditures could result in lower gross margins.
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If we do not timely introduce successful products, our business and operating results could suffer.
The market for our products is characterized by rapidly changing technology, evolving industry standards, short product life cycles and frequent new product introductions. As a result, we must continually introduce new products and technologies and enhance existing products in order to remain competitive. The success of our new products depends on several factors, including our ability to: (i) anticipate technology and market trends; (ii) timely develop innovative new products and enhancements; (iii) distinguish our products from those of our competitors; (iv) manufacture and deliver high-quality products; and (v) price our products competitively.
Our failure to manage growth could harm us.
We will rapidly and significantly expand the number and types of products we sell and we will endeavor to further expand our product portfolio. This expansion places a significant strain on our management, operations and engineering resources. Specifically, the areas that are strained most by our growth include the following:
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New product launch. With the growth of our product portfolio, we will experience increased complexity in coordinating product development, manufacturing and commissioning. As this complexity increases, it places a strain on our ability to accurately coordinate the commercial launch of our products with adequate support to meeting anticipated customer demand. If we are unable to scale and improve our product launch coordination, we could frustrate our customers and lose earned space and product sales.
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Forecasting, planning and supply chain logistics. With the growth of our product portfolio, we will also experience increased complexity in forecasting customer demand and in planning for production and transportation and logistics management. If we are unable to scale and improve our forecasting, planning and logistics management, we could frustrate our customers, lose product sales or accumulate excess inventory.
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To manage the growth of our operations, we will need to continue to improve our transaction processing, operational and financial systems, and procedures and controls to effectively manage the increased complexity. If we are unable to scale and improve them, the consequences could include delays in shipment of product, degradation in levels of customer support, lost sales and increased inventory. These difficulties could harm or limit our ability to expand.
If we do not compete effectively, demand for our products could decline and our business and operating results could be adversely affected.
Our industry is intensely competitive. It is characterized by a trend of declining average selling prices in the market, and continual performance enhancements and new features, as well as rapid adoption of technological and product advancements by competitors in its market. Also, aggressive industry pricing practices and downward pressure on margins have resulted in increased price competition from both our primary competitors as well as from less established ones. If we do not continue to distinguish our products through distinctive, technologically advanced features, design and services, as well as continue to build and strengthen our brand recognition, our business could be harmed. If we do not otherwise compete effectively, demand for our products will decline, our gross margins could decrease, we would lose market share, and our revenues could decline.
We have significant economic and commercial reliance and dependence on Johnson Controls Inc. as a major customer.
We have significant economic and commercial reliance and dependence on Johnson Controls Inc. ("JCI"). During the past two years, D&R Technology has received purchase orders from JCI in the amount of $293,468, $559,434, $311,000 and $1,856,500 respectively. Currently, JCI is one of our major customers. Thus, we have significant economic and commercial dependence on JCI. As a result, we are subject to significant financial risk in the event of the financial distress of JCI. For the year ended December 31, 2012, more than 60% of all sales and 50% of all receivables were to JCI, and for the year ended December 31, 2011, 90% of sales and receivables were to JCI. We do not have an exclusive agreement with JCI and rely upon bids and subsequent purchase orders. Any decline or interruption in orders received from JCI may adversely affect our revenues and operating results.
We depend on OEMs (original equipment manufacturers) and contract manufacturers who may not have adequate capacity to fulfill our needs or may not meet our quality and delivery objectives.
Original component manufacturers and contractors produce key portions of our product lines. Our reliance on them involves significant risks, including reduced control over quality and logistics management, the potential lack of adequate capacity and discontinuance of the contractors’ assembly processes. Financial instability of our manufacturers or contractors could result in us having to find new suppliers, which could increase our costs and delay our product deliveries. These manufacturers and contractors may also choose to discontinue building our products for a variety of reasons. Consequently, we may experience delays in the timeliness, quality and adequacy in product deliveries, any of which could harm our business and operating results.
We purchase key components and products from single or limited sources, and our business and operating results could be harmed if supply were delayed or constrained or if there were shortages of required components.
Lead times for materials and components ordered by us or our contract manufacturers can vary significantly and depend on factors, such as the specific supplier, contract terms and demand for a component at a given time. We do not have any established contractual relations with our suppliers for key components. From time to time, we have experienced supply shortages and fluctuations in component prices. While we are trying to manage our component levels through the purchase of buffer stock, there is no guarantee that we will be able to maintain the inventory levels sufficient to meet our product demand. Currently, the shortages have not significantly impacted our product cost. In addition, we may be at risk for these components if our customers reject or cancel orders unexpectedly or with inadequate notice.
Shortages or interruptions in the supply of components or subcontracted products, or our inability to procure these components or products from alternate sources at acceptable prices in a timely manner could delay shipment of our products or increase our production costs, which could harm our business, financial condition and operating results.
We purchase some products and some key components used in our products from single or limited sources. In particular, a significant portion of our controls systems is single-sourced and the Controls Unit in our products is provided by a single supplier. If the supply of these products or key components were to be delayed or constrained, we may be unable to find a new supplier on acceptable terms or at all or its new and existing product shipment could be delayed. Any of this could harm our business, financial condition and operating results.
If we do not successfully coordinate the worldwide manufacturing and distribution of our product key components, we could lose sales.
Our business requires us to coordinate the manufacture and distribution of our product components over much of the world. We increasingly rely on third parties to manufacture our components and transport our products. On a worldwide basis, we will continue to evaluate and consider changes in both our international and domestic suppliers. If we do not successfully coordinate these changes and the timely manufacture and distribution of our components, we may have insufficient supply of products to meet customer demand and could lose sales, or we may experience a build-up in inventory.
Our introduction of new product lines may consume significant resources and not result in significant future revenues.
We will continue to expand our product offerings with new product lines, such as Weld-Bend Systems and other products that are outside of our traditional areas of expertise. To accomplish this, we have committed resources to develop, sell and market these new products. With limited experience in these product lines and because these products may be based on technologies that are new to us, it may be difficult for us to accurately anticipate and forecast revenues, manufacturing costs, customer support costs and product returns. In addition, because the technologies may be new to us, we may have a greater risk of unknowingly infringing on proprietary technology. Our ongoing investments in the development and marketing of new lines of products could produce higher costs without a proportional increase in revenues.
We may be unable to protect our proprietary rights. Unauthorized use of our technology may result in the development of products that compete with our products.
Our future success depends in part on our proprietary technology, technical know-how and other intellectual property. We rely on intellectual property laws, confidentiality procedures and contractual provisions, such as nondisclosure terms, to protect our intellectual property. Others may independently develop similar technology, duplicate our products, or design around our intellectual property rights. In addition, unauthorized parties may attempt to copy aspects of our product or to obtain and use information that we regard as proprietary. Any of these events could significantly harm our business, financial condition and operating results.
We are also increasing our reliance on technologies that we acquire from others. We rely on third parties for the automated control portion of the system. We purchase the computers' logic component from Rockwell Automation and pay an annual fee to enable us to get updates/upgrades and technical support to the logic portion of the system. We may find it necessary or desirable in the future to obtain licenses or other rights relating to one or more of our products or to current or future technologies. These licenses or other rights may not be available on commercially reasonable terms or at all. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or the need to engage in litigation regarding these matters, could have a material adverse effect on our business, financial condition and operating results. Moreover, the use of intellectual property licensed from third parties may limit our ability to protect the proprietary rights in our products.
We may encounter difficulties with future acquisitions, which could adversely affect our business and operating results.
We have acquired and may continue to acquire companies that have products, personnel and technologies that complement our strategic direction and roadmap. Our acquisitions involve risks and uncertainties including: (i) difficulties in integrating the acquired company and its operations; (ii) diversion of management’s attention from the normal operations of business; (iii) potential loss of key employees and customers of the acquired company; (iv) insufficient future revenues and profitability of the acquired company that could negatively impact our consolidated results; and (v) exposure to potential product quality issues, which could result in unanticipated contingent liabilities of the acquired company. Any of these and other factors could prevent us from realizing the anticipated benefits of the acquisition and could adversely affect our business and operating results. Acquisitions are inherently risky and no assurance can be given.
RISKS ASSOCIATED WITH OUR SECURITIES
Because we have yet to comply with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters
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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 Bernardino 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. Bernardino Paolucci and Drakso Karanovic. The other minority shareholders represented only approximately 28% of the total shares issued and, thus, our management made a decision to proceed with the Share Exchange Agreement since it would be in the best interests of both our shareholders, then known as Ecoland International Inc., and the shareholders of D&R Technology. In accordance with the terms and provisions of the Share Exchange Agreement, we issued an aggregate of 59,000,000 shares of our restricted common stock to the D&R Shareholders (which consisted of Messrs. Paolucci and Karanovic and D Mecatronics (which is holding the shares for the benefit of the remaining shareholders of D&R Technology) in exchange for 100% of the total issued and outstanding shares of D&R Technology, thus making D&R Technology our wholly-owned subsidiary.
Section 12(a)(1) of the Securities Act imposes liability on persons who offer or sell securities in violation of the Securities Act's registration requirements.
Section 12(a)(1)
allows purchasers to sue sellers for offering or selling a non-exempt security without registering it. D&R Technology, our wholly-owned subsidiary, could face civil liability from a shareholder for offering its shares of common stock to the shareholders of D Mecatronics without registering those shares in a registration statement under the Securities Act of 1933. Moreover, Section 12(a)(1) further provides that as long as the shareholder can prove a direct link between the shareholder and D&R Technology, and the suit is within the statute of limitations, the shareholder may obtain rescission, interest or damages if the shareholder sells his securities for less than he purchased them.
Our management is currently attempting to solve the issue regarding the transfer agency records relating to D Mecatronics so that it can proceed with the issuances of our shares to the shareholders of D&R Technology in connection with the Share Exchange Agreement. The shares are currently being held by D Mecatronics in trust for the benefit of those shareholders.
New rules, including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or maintain listing of our common stock
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We may be unable to attract and retain those qualified officers, directors and members of board of directors committees required to provide for our effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The perceived personal risk associated with the Sarbanes-Oxley Act may deter qualified individuals from accepting roles as directors and executive officers.
Further, some of these recent changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or maintain the listing of our common stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
Our common stock price is subject to significant volatility, which could result in substantial losses for investors.
Prices for our shares are determined in the marketplace and may accordingly be influenced by many factors, including, but not limited to:
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limited “public float” in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our common stock
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technological innovations or new products and services by us or our competitors;
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intellectual property disputes;
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additions or departures of key personnel;
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the depth and liquidity of the market for the shares;
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quarter-to-quarter variations in our operating results;
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announcements about our performance as well as the announcements of our competitors about the performance of their businesses;
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changes in earnings estimates by, or failure to meet the expectations of, securities analysts;
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our dividend policy; and
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general economic and market conditions.
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Additionally, the stock market often experiences significant price and volume fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. These market fluctuations could adversely affect our share trading price. The price at which investors purchase shares of our common stock may not be indicative of the price that will prevail in the trading market. Investors may be unable to sell their shares of common stock at or above their purchase price, which may result in substantial losses.
Future sales of shares of our common stock by our shareholders could cause our stock price to decline.
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price prevailing from time to time. If our shareholders sell substantial amounts of our common stock in the public market upon the effectiveness of a registration statement, or upon the expiration of any holding period under Rule 144, such sales could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for the Corporation to raise additional financing through the sale of equity or equity-related securities in the future at a time or price that we deem reasonable or appropriate. The shares of common stock issued in the Share Exchange Agreement will be freely tradable upon the earlier of (i) effectiveness of a registration statement covering the resale of such shares; or (ii) the date on which such shares may be sold without registration pursuant to Rule 144 under the Securities Act and the sale of such shares could have a negative impact on the price of its common stock.
We may issue additional shares of our capital stock or debt securities to raise capital or complete acquisitions, which could dilute the equity interest of our stockholders.
After giving effect to the Share Exchange Agreement, there are approximately 411,350,000 authorized and unissued shares of our common stock which have not been reserved and are available for future issuance. Although we have no 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
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As of the date of this Annual Report, the Board of Directors has created Series A and Series B preferred shares. The Board of Directors is authorized by our articles of incorporation to create and issue preferred stock. Certain of the rights of holders of preferred stock will take precedence over the rights of holders of common stock and may be entitled to a preference upon liquidation, dissolution or winding up. The shares could be convertible voluntarily at the election of the holder. We may issue shares of preferred stock in the future. 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 66.56% of the total issued and outstanding shares of our common stock, and may 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 66.56% of the total issued and outstanding shares of our common stock and may 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.
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
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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 are currently responding to a comment letter received from the Securities and Exchange Commission regarding our Current Report on Form 8-K filed on February 3, 2012 and subsequently amended.
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 sq feet. The lease expires August 1, 2013. 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 $13,050 per month.
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.