| Significant Accounting Policies | 2. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These interim consolidated financial
statements and related notes are presented in accordance with accounting principles generally accepted in the United States and
are expressed in US dollars. The functional currency of Novus is the Canadian Dollar. The interim consolidated financial
information furnished herein reflects all adjustments, which, in the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair statement of results in accordance with General Accepted Accounting Principles
in the United States (“U.S. GAAP”), have been included and properly prepared within reasonable limits of materiality
and within the framework of the significant accounting policies summarized below. The interim consolidated financial information
should be read in conjunction with the Company’s latest quarterly report on Form 10-Q. Principles of Consolidation The interim consolidated financial
statements include the accounts and operations of Novus and its wholly owned subsidiaries D&R Technologies Inc. and D&R
Tools Inc. All inter-company accounts and transactions have been eliminated on consolidation. Use of Estimates The preparation of interim consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Financial statement items subject to
significant judgment include expense accruals, as well as income taxes and loss contingencies. Actual results could differ from
those estimates. The areas which require management
to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to: Assets’ carrying values
and impairment charges Assets, including property and equipment
and inventory, are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount exceeds
their recoverable amounts. In the determination of carrying values and impairment charges, management looks at the higher of recoverable
amount or fair value less costs to sell in the case of assets and at objective evidence, significant or prolonged decline of fair
value on financial assets indicating impairment. These determinations and their individual assumptions require that management
make a decision based on the best available information at each reporting period. Income taxes and recoverability
of potential deferred tax assets In assessing the probability of
realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, applicable
tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood that tax positions
taken will be sustained upon examination by applicable tax authorities. In making its assessments, management gives additional
weight to positive and negative evidence that can be objectively verified. Estimates of future taxable income are based on forecasted
cash flows from operations and the application of existing tax laws in each jurisdiction. The Company considers whether relevant
tax planning opportunities are within the Company’s control, are feasible, and are within management’s ability to implement.
Examination by applicable tax authorities is supported based on individual facts and circumstances of the relevant tax position
examined in light of all available evidence. Where applicable tax laws and regulations are either unclear or subject to ongoing
varying interpretations, it is reasonably possible that changes in these estimates can occur that materially affect the amounts
of income tax assets recognized. Also, future changes in tax laws could limit the Company from realizing the tax benefits from
the deferred tax assets. The Company reassesses unrecognized income tax assets at each reporting period. Warranty provision In assessing the warranty provision,
management makes estimates related to expectations of future repair cost needed to service new seat frame sales under its two year
warranty terms. These determinations and their individual assumptions require that management make a decision based on the best
available information at each reporting period Long-lived Assets In accordance with the Financial
Accounting Standards Board (“FASB”) ASC No. 360, “Property, Plant and Equipment” the carrying value of
intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may
suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than
the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over
its estimated fair value. Regulatory Matters The Company is subject to a variety
of federal, provincial and state regulations governing land use, health, safety and environmental matters. The Company’s
management believes it has been in substantial compliance with all such regulations. Cash and Cash Equivalents The Company considers all highly
liquid instruments with maturities of three months or less at the time of issuance to be cash equivalents. At March 31, 2019, the
Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which may exceed federally insured limits.
As of March 31, 2019, the Company’s accounts are insured for $100,000 CDN by Canadian Deposit Insurance Corporation for Canadian
bank deposits and are insured for $250,000 by FDIC for US bank deposits. Factoring
Agreement and Accounts Receivable The Company
has a financing agreement that included a non-recourse factoring arrangement that provides nonrecourse factoring on the Company’s
receivable from its primary customer Johnson Controls, Inc. to assist in its operational cash flow requirements. The factor is
based on credit approved orders, assumes the accounts receivable risk of the Company’s customer in the event of insolvency
or non-payment. The Company assumes the risk on accounts receivable not factored to which is shown as accounts receivable on the
accompanying balance sheets. As of March 31,2019 and December 31, 2018, the Company had no factored receivables. Finance charges
associated with the sale of factored receivable for the quarter ended March 31, 2019 and March 31, 2018 were $Nil and $1,268 and
are included in office and general expense. Allowance for Doubtful Accounts The Company extends credit to customers
in the normal course of business. The allowance for doubtful accounts represents the Company’s best estimate of the amount
of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on specific
customer information, historical write-off experience and current industry and economic data. Account balances are charged off
against the allowance when the Company believes it is probable the receivable will not be recovered. Management believes that there
are no concentrations of credit risk for which an allowance has not been established. Although management believes that the allowance
is adequate, it is possible that the estimated amount of cash collections with respect to accounts receivable could change. As
of March 31, 2019, the Company has not deemed any accounts uncollectible. Inventory Inventory is stated at the lower
of cost or market using the first-in, first-out (“FIFO”) method. Cost of work in progress and finished goods includes
raw materials, direct labor and indirect manufacturing costs. The Company’s inventory balance at December 31, 2018 was comprised
of work-in-progress. The company’s inventory balance at March 31, 2019 was comprised of direct labor and raw materials. This
policy requires D&R to make estimates regarding the market value of our inventory, including an assessment of excess or obsolete
inventory. The Company determines excess and obsolete inventory based on an estimate of the future demand and estimated selling
prices for its products. Fixed Assets Fixed
assets are stated at cost. Depreciation is recorded on a declining basis reflective of the useful lives of the assets .
Expenditures for maintenance and repairs are charged to operations when incurred, while additions and betterments are capitalized.
When assets are retired or disposed, the asset’s original cost and related accumulated depreciation are eliminated from accounts
and any gain or loss is reflected in income.
Estimated
Useful Life
Office equipment 5 years
Computer equipment 5 years
Delivery trucks 5 years
Shop and Machinery equipment 5 to 10 years Foreign Currency Translation Gains and losses arising upon settlement
of foreign currency denominated transactions or balances are included in the determination of income. The Company’s functional
currency is the Canadian dollar. Transactions in foreign currency are translated into Canadian dollars then translated into U.S.
dollars for reporting in accordance with the ASC 830-30 as follows:
● For assets and liabilities, the exchange rate at the balance sheet date shall be used.
● For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used. Translation adjustments are included
in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Financial Instruments The carrying values of the Company’s
financial instruments, which comprise cash, accounts receivable, accounts payable, payroll liabilities, loan payable, taxes payable
and due to officers/shareholders, approximate their fair values due to the immediate or short-term maturity of these instruments.
Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Fair Value Measurements The authoritative guidance for fair
values establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Level 1, defined
as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions. Income Taxes Potential benefits of income tax
losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, “Accounting
for Income Taxes,” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net
operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements
because the Company cannot be assured it is more likely than not it will be able to utilize the net operating losses carried forward
in future years. Recorded in other (income) and expenses
are monies recovered relating to non-refundable, federal government Scientific Research & Experimental Development (“SR&ED”)
tax credits. Due to the uncertain nature of these expenditures, the Company does not record any amount until such time as the deduction
is approved by Canadian provincial and federal governments. Advertising Costs Advertising costs are expensed as
incurred. No advertising costs have been incurred by the Company to date. Revenue Recognition The Company recognizes revenue in
accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). In accordance with ASC 606,
Novus applies the following methodology to recognize revenue:
i. Identify the contract with a customer.
ii. Identify the performance obligations in the contract.
iii. Determine the transaction price.
iv. Allocate the transaction price to the performance obligations in the contract.
v. Recognize revenue when (or as) the entity satisfies a performance obligation. Accordingly, the Company recognizes
specific components of revenue as described below:
1. Seat Frames and tooling
2. Spare parts
3. Service Disclosure
of Changes in Contract Assets/Liabilities Accounts
Receivables for March 31, 2019 and December 31, 2018 were $308,431 and $499,842. Payments were received and final progress invoicing
was done for Machine #4. Customer deposit decreased as Revenue for the System 4 was recognized upon installation - March 31, 2019
$14,943 vs December 31, 2018 $587,276. All liabilities for the system were also recognized from Inventory – March 31, 2019
$8,467 from December 31, 2018 $422,111. All performance obligations were satisfied with the Customer. We have
one contract as of March 31, 2019 in the amount of US$42,693. The performance obligation will be completed by June 2019. D&R
provides standard warranties for its product from the date of shipment. Estimated warranty obligations are recorded at the time
of sale. Estimated warranty obligations are recorded at the time of sale and amortized over the two year warranty period. As of
March 31, 2019 and December 31, 2018, warranty liability was $40,949 and $27,222. Earnings
per Common Share Net income per share is provided
in accordance with ASC 260-10, “Earnings per Share”. We present basic income per share (“EPS”) and diluted
EPS the face of the statement of operations. Basic EPS is computed by dividing reported net income (loss) applicable to common
shareholders by the weighted average number of common shares outstanding during the period. Except where the result would be anti-diluted
to income from continuing operations, diluted earnings per share would be computed assuming the conversion of the convertible long-term
debt and the elimination of the related interest expense, and the exercise of stock warrants. Income per common share has been
computed using the weighted average number of common shares outstanding during the year. No dilutive instruments were outstanding
as of March 31, 2019 or December 31, 2018. Comprehensive Income The Company has adopted ASC 220,
“Comprehensive Income,” which establishes standards for reporting and the display of comprehensive income, its components
and accumulated balances. Comprehensive income (loss) is defined to include all changes in equity except those resulting from
investments by owners or distributions to owners. Among other disclosures, ASC 220 requires that all items that are required to
be recognized under the current accounting standards as a component of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements. Comprehensive income (loss) is displayed in the balance
sheet as a component of shareholders’ equity. |
