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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

 

FORM 10-Q

 

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 31, 2011

 

Commission File Number:    000-51428

 

ROTOBLOCK CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

          Nevada                                                                    20-08987999

(State or Other Jurisdiction of Incorporation or Organization)         (I.R.S. Employer Employer Identification No.)

  

300 B Street, Santa Rosa, CA.                                95401

(Address of Principal Executive Offices)                 (Zip Code)

  

                                                        (707) 578-5220                                                       

(Registrant's Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes X      No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes  No  X

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer ____   Smaller Reporting Company   X

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes    No  X

 

At July 31, 2011, there were a total of 57,142,703 shares of our common stock issued and outstanding.  Of these shares, a total of 58,629,787 are restricted from trading, as defined under Rule 144 of the Securities Act of 1933, as amended.

 

1
 

 

 

TABLE OF CONTENTS

 

 

    Page
  PART I - FINANCIAL INFORMATION  
     
ITEM 1. Interim Consolidated Financial Statements 3
     
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 32
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 33
     
ITEM 4. Controls and Procedures 33
     
  PART II - OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 34
     
ITEM 1A. Risk Factors 34
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
     
ITEM 3. Defaults Upon Senior Securities 36
     
ITEM 5. Other Information 36
     
ITEM 6.   Exhibits 36

 

 

 

2
 

 

  

PART I - FINANCIAL INFORMATION

 

Item 1. Interim Consolidated Financial Statements

 

The interim consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the period presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended April 30, 2011, filed with the U.S. Securities and Exchange Commission on August 16, 2011, which can be found on the SEC website (www.sec.gov) under our name or SEC File Number 000-51428.

 

 

 

 

 

 

 

 

 

 

 

3
 

 

 

 

 

 

 

 

 

 

 

 

 

Rotoblock Corporation

(A Development Stage Company)

Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011

 

 

 

4
 
 

 

 

 

 

Rotoblock Corporation

(A Development Stage Company)

Interim Consolidated Balance Sheets

(Expressed in U.S. Dollars) 

(Unaudited) 


 

   

As at

31 July

2011

 

As at

30 April

2011

(Audited)

    $   $
Assets        
         
Current        
Cash and cash equivalents   229,811   340,892
Amounts receivable   233   233
Prepaid expenses   20,417   20,417
         
    250,461   361,542
         
Available-for-sale investments (Note 4)   914,939   887,915
         
Property and equipment (Note 5)   105,450   108,850
         
    1,270,850   1,358,307
Liabilities        
         
Current        
Accounts payable and accrued liabilities (Note 6)   61,468   45,847
Convertible promissory note (Notes 4 and 7)   2,175,890   2,145,644
Due to related party (Note 8)   699   702
         
    2,238,057   2,192,193
         
Stockholders’ (deficiency)        
Capital stock (Note 10)        
Authorized        
200,000,000 common shares, par value $0.001        
50,000,000 preferred shares, par value $0.001        
Issued and outstanding        
31 July 2011 – 58,629,787 common shares, par value $0.001        
30 April 2011 – 5,710,311 common shares, par value $0.001   5,703   5,706
Additional paid-in capital   5,965,378   5,966,209
Warrants (Note 10)   1,401,514   1,401,514
Accumulated other comprehensive loss   (89,329)   (116,356)
Deficit, accumulated during the development stage   (8,250,473)   (8,090,959)
         
    (967,207)   (833,886)
         
    1,270,850   1,358,307

 

Nature and Continuance of Operations (Note 1), Commitments and Contingency (Note 12) and Subsequent Events (Note 15)

 

On behalf of the Board: /s/ Chien Chih Liu, Director /s/ Andrew Chow, Director 

 

5
 

 

 

Rotoblock Corporation

(A Development Stage Company)

Interim Consolidated Statements of Operations

(Expressed in U.S. Dollars) 

(Unaudited) 


 

     

 

For the period from the date of inception on 2 September 2003 to

31 July

2011

For the

three

month period

ended

31 July

2011

For the

three

month period

ended

31 July

2010

      $ $ $
           
Expenses          
General and administrative (Schedule 1)     7,976,420 159,514 250,003
           
Net loss before other items     (7,976,420) (159,514) (250,003)
           
Other items          
Excess of consideration over net assets purchased from Rotoblock Inc. (Note 1) (138) - -
Other income     5,520 - 5,520
Forgiveness of debt   - - 29,918
Gain on disposal of property (Notes 5, 9, 10 and 13)   1,384 - -
Write-off of patents (Note 3)     (108,745) - -
Write-off of property and equipment     (9,870) - -
Write-off of related party receivable     (162,204) - -
           
Net loss for the period     (8,250,473) (159,514) (214,565)
           
Basic and diluted loss per common share       (0.03) (0.03)
           
Weighted average number of common shares used in per share calculations (Note 2)   5,710,311 6,186,796
           
Comprehensive loss          
Net loss for the period     (8,250,473) (159,514) (214,565)
Foreign currency translation adjustment     (4,268) 3 12
Unrealized gain (loss) on available-for-sale investments (Notes 4 and 14) (85,061) 27,024 164,655
           
Comprehensive loss for the period     (8,339,802) (132,487) (49,898)
           
Basic and diluted comprehensive loss per common share     (0.02) (0.01)

  

6
 

 

 

Rotoblock Corporation

(A Development Stage Company)

Interim Consolidated Statements of Cash Flows

(Expressed in U.S. Dollars)

(Unaudited)

 

 

     

For the period from the date of inception on 2 September 2003 to

31 July

2011

For the

three

month period

ended

31 July

2011

For the

three

month period

ended

31 July

2010

      $ $ $
Cash used in operating activities          
Net loss for the period     (8,250,473) (159,514) (214,565)
Adjustments to reconcile loss to net cash used by operating activities:        
Contributions to capital by related party – expenses (Notes 9 and 13)   300,000 - -
Depreciation (Note 5)     27,842 3,400 3,991
Forgiveness of debt   - - (29,918)
Gain on disposal of property (Notes 5, 9, 10 and 13)   (1,384) - -
Non-cash interest (Notes 7 and 13)     187,595 30,246 4,274
Shares issued for services (Notes 9 and 10)     2,197,653 - -
Stock-based compensation (Notes 9 and 10)     3,157,726 - -
Warrants issued for services (Note 10)     33,000 - -
Write-off of patents (Note 3)     108,745 - -
Write-off of property and equipment     9,870 - -
Write-off of related party receivable     177,204 - -
Changes in operating assets and liabilities:          
(Increase) decrease in amounts receivable   (233) - 5
Decrease in prepaid expenses (Note 10)   5,655 - 56,139
    Increase (decrease) in accounts payable and accrued liabilities (Notes 6, 10 and 16) 49,765 14,787 19,058
    Increase (decrease) in due to related party (Note 8)   699 (3) (17)
    (1,996,336) (111,084) (161,033)
Cash flows used in investing activities          
Purchase of equipment (Note 5)     (16,778) - -
Investment in Samyang Optics Co. Ltd. (Note 4)     (1,000,000) - -
Purchase of patents (Note 3)     (108,745) - -
      (1,125,523) - -
Cash flows from financing activities          
Common shares issued for cash (Note 10)     1,000,941 - -
Warrants granted for cash (Note 10)     72,164 - -
Warrants exercised (Note 10)     22,833 - 833
Convertible promissory note payable (Note 7)   2,010,000 - -
Share subscriptions received in advance (Note 10)   250,000 - -
      3,355,938 - 833
           
Foreign exchange effect on cash     (4,268) 3 12
           
Increase (decrease) in cash and cash equivalents 229,811 (111,081) (160,188)
           
Cash and cash equivalents, beginning of period     - 340,892 925,070
           
Cash and cash equivalents, end of period     229,811 229,811 764,882

 

Supplemental Disclosures with Respect to Cash Flows (Note 13)

 

7
 

 

Rotoblock Corporation

(A Development Stage Company)

Schedule 1 – Interim Consolidated General and Administrative Expenses

(Expressed in U.S. Dollars)

(Unaudited)

 
     

For the period from the date of inception on 2 September 2003 to

31 July

2011

For the

three

month

period

ended

31 July

2011

For the

three

month

period

ended

31 July

2010

      $ $ $
           
Consulting fees (Notes 9, 10 and 13 )     1,449,399 30,000 68,605
Depreciation (Note 5)     27,842 3,400 3,991
Foreign exchange loss     1,545 - -
Interest (Notes 7 and 13)     193,678 30,246 4,334
Investor relations (Notes 10 and 13)     389,878 - -
Listing, filing and transfer agent fees     63,317 2,501 170
Management fees (Notes 9 and 13)     300,000 - -
Office and sundry     74,295 644 1,116
Professional fees     585,544 27,295 8,160
Public relations and shareholder information   194,879 3,220 100,000
Rent     79,205 - -
Research and development     387,173 - -
Salaries and wages (Notes 9, 10, 12 and 13)   605,403 31,251 31,251
Stock-based compensation (Notes 10 and 13)   3,157,726 - -
Travel and entertainment   466,536 30,957 32,376
           
      7,976,420 159,514 250,003

 

 

8
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


 

1.            Nature and Continuance of Operations

 

Rotoblock Corporation (the “Company”) was incorporated under the laws of the State of Nevada on 22 March 2004.

 

The Company is a development stage enterprise, as defined in Accounting Standards Codification (the “Codification” or “ASC”) 915-10, “Development Stage Entities”. The Company is focused on the development and manufacturing of a new type of patented oscillating piston engine and other energy-efficient and environmental equipment in China for distribution worldwide. No revenue has been derived during the organization period and the Company’s planned principle operations have not commenced.

 

The Company’s interim consolidated financial statements as at 31 July 2011 and for the three month period then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a loss of $159,514 for the three month period ended 31 July 2011 (31 July 2010 – $214,565) and has a working capital deficiency of $1,987,596 at 31 July 2011 (30 April 2011 – $1,830,651).

 

On 30 March 2004, the Company entered into a Share Exchange Agreement (the “Agreement”) with Rotoblock Inc., a Canadian corporation, wherein the Company agreed to issue to the stockholders of Rotoblock Inc. 300,000 common shares in exchange for the 144,000 shares that constituted all the issued and outstanding shares of Rotoblock Inc. Effective 30 March 2004, Rotoblock Inc. completed the reverse acquisition under the Agreement with the Company.

 

Effective 3 February 2009, the Company effected a one (1) for fifty (50) reverse stock split (Note 10). All share and warrant amounts presented in the interim consolidated financial statements and in the notes thereto have been adjusted to reflect the reverse stock split. The effect of the reverse stock split on 2003 to 2007 disclosures is unaudited.

 

Immediately after the acquisition, the management of Rotoblock Inc. took control of the board and office positions of the Company, constituting a change of control. Because the former owners of Rotoblock Inc. gained control of the Company, the transaction would normally have been considered a purchase by Rotoblock Inc. However, since the Company was not a business, the transaction was not considered to be a business combination, and the transaction was accounted for as a recapitalization of Rotoblock Inc. and the issuance of stock by Rotoblock Inc. for the assets and liabilities of the Company. The value of the net assets of the Company acquired by Rotoblock Inc. was the same as their historical book value, being a deficiency of $138.

 

Rotoblock Inc. was incorporated on 2 September 2003, under the laws of Canada. The accompanying interim consolidated financial statements are the historical consolidated financial statements of Rotoblock Inc.

 

9
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


 

On 10 May 2011, the Company entered into a share exchange agreement (the “SEA”) with DaifuWaste Management Holding Limited (“Daifu”), a privately held medical waste treatment company incorporated with limited liability in the Cayman Islands, wherein the Company agreed to issue to the stockholders of Daifu 52,922,812 common shares in exchange for all of the issued and outstanding common shares of Daifu. Upon completion of the SEA, Daifu will become a wholly-owned subsidiary of the Company. The shares were issued on 10 May 2011 and are being held in treasury by the Company pending completion of the SEA (Notes 10, 12 and 13).

 

Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. However, based on its prior demonstrated ability to raise capital, management believes that the Company’s capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 2012. However, if the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. These interim consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

At 31 July 2011, the Company has suffered losses from development stage activities to date. Although management is currently attempting to implement its business plan, and is seeking additional sources of equity or debt financing, there is no assurance these activities will be successful. Accordingly, the Company must rely on its management to perform essential functions without compensation until a business operation can be commenced. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The interim consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

2.            Significant Accounting Policies

 

The following is a summary of significant accounting policies used in the preparation of these interim consolidated financial statements.

 

Basis of presentation

 

The interim consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP and are expressed in U.S. dollars.

 

Principles of consolidation

 

These interim consolidated financial statements include the accounts of the Company from the date of reverse acquisition on 30 March 2004, and its wholly owned Canadian subsidiary, Rotoblock Inc. since its date of incorporation on 2 September 2003. All inter-company balances and transactions have been eliminated on consolidation (Note 1).

 

Fiscal period

 

The Company’s fiscal year ends on 30 April.

10
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

Risks and uncertainties

 

The Company operates in an emerging industry that is subject to market acceptance and technological change. The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure.

 

Cash and cash equivalents

 

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

 

Property, equipment and depreciation

 

 

Property and equipment have been recorded at cost, net of accumulated depreciation (Note 5). Improvements are capitalized and maintenance, repairs and minor replacements are expensed as incurred. Depreciation is determined using a declining-balance basis over its estimated useful life of:

 

Equipment 5 years at 20%

Vehicles 12 years at 8%

 

Long lived assets

 

Long-term assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets”.

 

Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.

 

Basic and diluted net income (loss) per share

 

The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.

 

54,744,325 of the common shares outstanding as at 31 July 2011 are contingently cancellable and have been excluded from the weighted average number of common shares outstanding (Note 10).

 

11
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

Comprehensive loss

 

ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at 31 July 2011, the Company has items that represent a comprehensive loss and, therefore, has included a schedule of comprehensive loss in the interim consolidated financial statements.

 

Income taxes

 

Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

 

Segments of an enterprise and related information

 

ASC 280, “Segment Reportingestablishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company has evaluated this Codification and does not believe it is applicable at this time.

 

Stock-based compensation

 

Effective 1 January 2006, the Company adopted the provisions of ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  The adoption of ASC 718 did not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.

 

12
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

Foreign currency translation

 

The Company’s functional and reporting currency is U.S. dollars. The interim consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

Derivative financial instruments

 

The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

Research and development

 

Research and development costs are expensed as incurred.

 

Patents

 

The Company accounts for patent costs in accordance with ASC 350, “Intangibles - Goodwill and Other”. In accordance with that statement, intangible assets with estimable lives, such as a patent, are amortized on a straight-line basis over the estimated useful lives and are reviewed for impairment in accordance with ASC 350-35-14, “Recognition and Impairment of an Impairment Loss”.

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from these estimates.

 

 

 

 

 

 

 

13
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

Comparative figures

 

Certain comparative figures have been adjusted to conform to the current period’s presentation.

 

Recent Accounting Pronouncements

 

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income”. This ASU presents an entity with the option to present the total of comprehensive income, the components of net income, and the component of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity/deficit. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 should be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after 15 December 2011. As ASU No. 2011-05 relates only to the presentation of Comprehensive Income, the Company does not expect the adoption of this update will have a material effect on its interim consolidated financial statements.

 

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement” to amend the accounting and disclosure requirements on fair value measurements. This ASU limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, this update expands the disclosure on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. ASU No. 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after 15 December 2011. The Company does not expect the adoption of this update will have a material effect on its interim consolidated financial statements.

 

3.            Patents

 

On 15 September 2003, the Company entered into an option agreement (the “Option”) to purchase certain patents related to the Oscillating Piston Engine (the “OPE Patents”). Under the terms of the Option, the Company is required to pay $100,000 in cash by 31 May 2004 (paid) plus interest at the rate of 24% per annum calculated from 31 January 2004 until the $100,000 cash was paid (total interest paid - $8,745), and $1,500,000 in cash by 2 June 2007.

 

On 25 October 2006, the Company negotiated an extension to exercise the Option by thirty seven months. Pursuant to the amended option agreement the Company must pay a royalty of $50 per engine on the sale of up to 10,000 oscillating piston engines (“OPE”), a royalty of $20 per engine on the sale of up to 100,000 OPE, and a royalty of $2 per engine thereafter. As at 31 July 2011, no engines have been sold.

 

During the year ended 30 April 2010, the Company recorded a provision for a write-down in the amount of $108,745 related to the OPE Patents.

 

14
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

4.            Available-for-Sale Investments

 

          Unrealized loss   Fair value
      Adjusted cost    

31 July

2011

 

30 April 2011

(Audited)

      $   $   $   $
                   
  977,966 common shares of Samyang Optics Co., Ltd.  

 

1,000,000

 

 

(85,061)

 

 

914,939

 

 

887,915

 

On 11 February 2010, the Company entered into an Investment Agreement with Samyang Optics Co., Ltd. (“Samyang”), a South Korean Corporation listed on the Korea Exchange, whereby Samyang loaned the Company $2,000,000 in the form of a convertible promissory note (Note 7). In turn, the Company acquired 977,966 common shares of Samyang valued at $1,000,000.

 

Available-for-sale investments are carried at fair value, with unrealized gains and losses recorded as other comprehensive income and other than temporary losses recognized in net income (Note 14). As of 31 July 2011, the shares of Samyang were measured at a fair value of $914,939 (30 April 2011 - $887,915) and resulted in an unrealized gain of $27,024 during the three month period ended 31 July 2011 (31 July 2010 –$164,655).

 

5.            Property and Equipment

 

 

         

Accumulated

depreciation

  Net book value
      Cost    

31 July

2011

 

30 April 2011

(Audited)

      $   $   $   $
                   
  Equipment   52,940   15,100   37,840   39,850
  Vehicles   75,000   7,390   67,610   69,000
                   
      127,940   22,490   105,450   108,850

 

During the three month period ended 31 July 2011, total additions to property and equipment were $Nil (30 April 2011 – $Nil).  During the three month period ended 31 July 2011, total dispositions of property and equipment were $Nil (30 April 2011 - $Nil).

 

15
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

On 24 November 2008, the Company entered into an Asset Purchase and Balance Sheet Enhancement Agreement with a related party (the “Related Party”) to acquire an undivided 25% tenancy-in-common interest in a property located in Merced, California (the “Property Agreement”).  The purchase price of the land and building was $250,000 and was paid for by the issuance of 200,000 shares of common stock of the Company valued at $250,000.  On 29 July 2009, the Company disposed of the land and building back to the Related Party for proceeds of $250,000 resulting in a gain of $1,384.  As consideration, the Related Party returned the 200,000 shares of common stock of the Company valued at $250,000 and these shares were cancelled on 29 July 2009 (Notes 9, 10 and 13).

 

On 8 February 2010, the Company entered into an Asset Purchase Agreement with a non-related individual to acquire security and computer equipment valued at $50,000. The purchase price of the equipment was paid for by the issuance of 50,000 shares of common stock of the Company valued at $50,000 (Notes 10 and 13).

 

On 10 February 2010, the Company entered into an Asset Purchase Agreement with a non-related company to acquire a number of vehicles valued at $75,000. The purchase price of the vehicles was paid for by the issuance of 75,000 shares of common stock of the Company valued at $75,000 (Notes 10 and 13).

 

6.            Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.

 

7.            Convertible Promissory Note

 

On 11 February 2010, the Company entered into a Convertible Promissory Note Agreement (the “Convertible Promissory Note Agreement”) with Samyang for $2,000,000 cash (Note 4). The principal balance bears interest at a rate of 6% per annum. All unpaid principal, together with any unpaid and accrued interest will be due and payable on the earlier of 11 February 2012 or when such amounts are declared due and payable by Samyang (the “Promissory Note”).

 

All principal, together with all accrued and unpaid interest, shall automatically convert into common shares of the Company at a price of $1.10 per share on 11 February 2012 or such other date designated by Samyang at its discretion.

 

On 13 May 2010, the Company issued 1,818,181 common shares valued at $1.10 per share in error in contemplation of the conversion of the Promissory Note by Samyang. These shares have been returned to treasury and the Company is currently in the process of cancelling the 1,818,181 common shares issued in error (Notes 10, 12, 13 and 15).

 

During the three month period ended 31 July 2011, the Company accrued $30,246 (31 July 2010 - $4,274) in interest related to the Promissory Note (Note 13). The balance of the Promissory Note as at 31 July 2011 consists of principal and accrued interest of $2,000,000 (30 April 2011 - $2,000,000) and $175,890 (30 April 2011 - $145,644), respectively.

 

16
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

8.            Due to Related Party

 

As at 31 July 2011, the amount due to a related party is $699 (30 April 2011 - $702), which is payable to a former director and stockholder of the Company. This balance is non-interest bearing, unsecured and has no fixed terms of repayment.

 

9.            Related Party Transactions

 

During the three month period ended 31 July 2011, officers and directors of the Company made contributions to capital for management fees of $Nil (31 July 2010 - $Nil, cumulative - $300,000). These amounts have been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 13).

 

During the three month period ended 31 July 2011, the Company paid/accrued $31,251 (31 July 2010 – $31,251) to related parties for salaries and wages.

 

On 24 November 2008, the Company entered into a Property Agreement with a Related Party to acquire an undivided 25% tenancy-in-common interest in a property located in Merced, California.  The purchase price of the land and building was $250,000 and was paid for by the issuance of 200,000 shares of common stock of the Company valued at $250,000.  On 29 July 2009, the Company disposed of the land and building back to the Related Party for proceeds of $250,000 resulting in a gain of $1,384.  As consideration, the Related Party returned the 200,000 shares of common stock of the Company valued at $250,000 and these shares were cancelled on 29 July 2009 (Notes 5, 10 and 13).

 

10.        Capital Stock

 

Effective 3 February 2009, the Company effected a one (1) for fifty (50) reverse stock split (Note 1). All share and warrant amounts presented in the interim consolidated financial statements and in the notes thereto have been adjusted to reflect the reverse stock split. The effect of the reverse stock split on 2003 to 2007 disclosures is unaudited.

 

Authorized capital stock consists of 200,000,000 common shares with par value of $0.001 per share and 50,000,000 preferred shares with par value of $0.001 per share.

 

i.                    During the year ended 30 April 2009, the Company issued 1,000 common shares valued at $4.00 per common share for $4,000 in consulting services (Note 13).

 

ii.                  During the year ended 30 April 2009, the Company issued 6,400 common shares valued at $15.00 per common share for $96,000 in investor relations (Note 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

 

17
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

iii.                During the year ended 30 April 2009, the Company issued 16,000 units valued at $4.00 per common share each for $64,000 as compensation to the chief executive officer of the company. Each unit consists of one restricted common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company at a cost of $7.50 expiring 12 May 2013 with a fair value of $147,446. As at 31 July 2011, 16,000 of the share purchase warrants in this series remain outstanding. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933 (Note 13).

 

iv.                During the year ended 30 April 2009, the Company issued 1,333 common shares valued at $7.50 per common share each for $10,000 for legal services (Note 13).

 

v.                  During the year ended 30 April 2009, the Company issued 1,000 common shares valued at $7.50 per common share for $7,500 in public relations (Note 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

vi.                During the year ended 30 April 2009, the Company issued 3,200 common shares valued at $7.50 per common share for $24,000 in consulting expense to a related party (Note 13).

 

vii.              During the year ended 30 April 2009, the Company issued 5,000 common shares valued at $5.50 per common share for $27,500 in consulting to a related party (Note 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

viii.            During the year ended 30 April 2009, the Company issued 3,333 units valued at $7.50 per unit for total cash proceeds of $25,000. Each unit consists of one restricted common share and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase an additional common share at a price of $12.50 per share for a period of five years from the date of offering with a fair value of $18,525. As at 31 July 2011, 3,333 of the share purchase warrants in this series remain outstanding. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

ix.                During the year ended 30 April 2009, the Company issued 2,000 common shares valued at $5.00 per common share for $10,000 in repayment for a convertible promissory note (Note 13).

 

x.                  During the year ended 30 April 2009, the Company issued 2,000 common shares valued at $3.00 per common share for $6,000 in consulting expense (Note 13).

 

xi.                During the year ended 30 April 2009, the Company issued 200,000 shares of common stock valued at $1.25 per share purchase for land and building from a Related Party valued at $250,000 (Notes 5, 9 and 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xii.              During the year ended 30 April 2009, the Company issued 5,000 common shares valued at $1.00 per common share for $5,000 in legal services (Note 13).

18
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

xiii.            During the year ended 30 April 2009, the Company issued 150,000 common shares valued $1.00 per common share at $150,000 in retainer for consulting expenses to two related parties (Note 13). This amount, has been expensed during the years ended 30 April 2010 and 2009. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xiv.            During the year ended 30 April 2010, the Related Party returned to treasury 200,000 shares of common stock of the Company valued at $1.25 per common share for a total value of $250,000, related to the disposal of land and building acquired from a Related Party pursuant to the Property Agreement entered into on 24 November 2008.  These shares were cancelled on 29 July 2009 (Notes 5, 9 and 13).

 

xv.              During the year ended 30 April 2010, the Company issued 6,552 common shares valued at $0.61 per common share for cash of $4,000. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xvi.            During the year ended 30 April 2010, the Company issued 13,333 common shares valued at $0.75 per common share for cash of $10,000. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xvii.          During the year ended 30 April 2010, the Company issued 3,500,083 common shares valued at prices from $0.15 to $1.00 per common share for $676,675 in consulting expense and salaries and wages (Note 13).

 

xviii.        During the year ended 30 April 2010, the Company issued 550,000 common share purchase warrants valued at $633,728 for stock-based compensation. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.25 to $1.00 for a period of five years from the date of offering. As at 31 July 2011, 550,000 of the share purchase warrants in these series remain outstanding (Note 13).

 

xix.            During the year ended 30 April 2010, the Company issued 8,585,083 common share purchase warrants valued at $469,113 for consulting services. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.25 to $1.00 for a period of five or ten years from the date of offering. As at 31 July 2011, 8,565,083 of the share purchase warrants in these series remain outstanding (Notes 9 and 13).

 

xx.              During the year ended 30 April 2010, the Company issued 28,572 units valued at $1.75 consisting of one share and two warrants for total cash proceeds of $50,000. Each whole common share purchase warrant entitles the holder to purchase an additional common share at a price of $2.50 per share for a period of five years up to 22 July 2014. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. As at 31 July 2011, 57,144 share purchase warrants in this series remain outstanding.

 

xxi.            During the year ended 30 April 2010, the Company issued 28,572 shares valued at $1.75 for total cash proceeds of $50,000. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

19
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

xxii.          During the year ended 30 April 2010, the Company entered into an Asset Purchase Agreement with a non-related individual to acquire security and computer equipment valued at $50,000. The purchase price of the equipment was paid for by the issuance of 50,000 shares of common stock of the Company valued at $50,000 (Notes 5 and 13).

 

xxiii.        During the year ended 30 April 2010, the Company entered into an Asset Purchase Agreement with a non-related company to acquire a number of vehicles valued at $75,000. The purchase price of the vehicles was paid for by the issuance of 75,000 shares of common stock of the Company valued at $75,000 (Notes 5 and 13).

 

xxiv.        During the year ended 30 April 2011, the Company issued 30,000 warrants valued at $33,000 for services rendered. Each whole common share purchase warrant entitles the holder to purchase a common share at a price of $0.25 per share for a period of five years. During the year ended 30 April 2011, the Company issued 18,000 common shares valued at $0.25 per common share for cash of $4,500 upon exercise of the share purchase warrants. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. As at 31 July 2011, 12,000 warrants in this series remain outstanding.

 

xxv.          During the year ended 30 April 2011, the Company issued 13,336 common shares valued at $0.25 per common share for proceeds of $3,333 upon exercise of warrants. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xxvi.        During the year ended 30 April 2011, the Company issued 1,818,181 common shares valued at $1.10 per common share in error in contemplation of the conversion of the Promissory Note by Samyang. These shares have been returned to treasury and the Company is currently in the process of cancelling these 1,818,181 common shares issued in error (Notes 7, 12, 13 and 15).

 

xxvii.      During the year ended 30 April 2011, the Company issued 1,000,000 common shares valued at $0.25 per common share related to share subscriptions received in advance in the prior year in the amount of $250,000 (Note 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xxviii.    During the year ended 30 April 2011, the Company issued 30,000 common shares valued at $1.02 per common share for $30,600 in consulting fees (Note 13). These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xxix.        During the year ended 30 April 2011, a total of 59,200 previously outstanding share purchase warrants expired.

 

xxx.          During the year ended 30 April 2011, the Company issued 3,334 common shares valued at $0.25 per common share in error. As at 30 April 2011, the Company is in the process of obtaining the 3,334 common shares to be returned to treasury for cancellation. On 14 July 2011, the Company cancelled these 3,334 common shares issued in error (Notes 12 and 13).

20
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

xxxi.        During the year ended 30 April 2011, the Company issued 3,334 common shares valued at $Nil per common share in error. As at 31 July 2011, the Company is in the process of obtaining the 3,334 common shares to be returned to treasury for cancellation (Notes 12, 13 and 15).

 

xxxii.      During the year ended 30 April 2011, the Company issued 20,000 common shares valued at $0.25 per common share for proceeds of $5,000 upon exercise of warrants. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933.

 

xxxiii.    During the three month period ended 31 July 2011, the Company issued 52,922,810 common shares valued at $1.58 to the shareholders of Daifu in contemplation of the completion of the terms of the SEA. These shares are being held in treasury pending the completion of the SEA. These shares were restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933 (Notes 1, 12 and 13).

 

Share Purchase Warrants

 

The following share purchase warrants were outstanding at 31 July 2011:

 

      Exercise price  

Number

of warrants

 

Remaining

contractual life (years)

      $        
               
  Warrants   7.50   50,000   0.36
  Warrants   12.50   7,600   1.11
  Warrants   7.50   20,000   1.67
  Warrants   7.50   16,000   1.78
  Warrants   12.50   3,333   1.93
  Warrants   0.25   25,000   2.96
  Warrants   0.25   25,000   2.98
  Warrants   0.50   200,000   2.98
  Warrants   2.50   57,144   2.98
  Warrants   0.25   2,181,750   3.54
  Warrants   1.00   50,000   3.54
  Warrants   0.25   333,333   3.58
  Warrants   1.00   300,000   3.63
  Warrants   0.25   12,000   3.71
  Warrants   0.25   6,000,000   8.64
               
          9,281,160    

 

21
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

The following is a summary of warrant activities during the three month period ended 31 July 2011 and during the year ended 30 April 2011:

 

      Number of warrants   Weighted average exercise price
          $
           
  Outstanding and exercisable at 1 May 2010   9,361,694   0.58
       Granted   30,000   0.25
       Exercised   (51,334)   0.25
       Expired   (59,200)   12.50
           
  Outstanding and exercisable at 30 April 2011   9,281,160   0.38
           
  Weighted average fair value of warrants granted during the year   1.10
       
  Outstanding and exercisable 1 May 2011   9,281,160   0.38
      Granted   -   -
      Exercised   -   -
      Expired   -   -
           
  Outstanding and exercisable 31 July 2011   9,281,160   0.38
           
  Weighted average fair value of warrants granted during the period   -

 

The weighted average grant date fair value of warrants issued during the three month period ended 31 July 2011 amounted to $Nil per warrant (30 April 2011 - $1.10 per warrant). The fair value of each warrant granted was determined using the Black-Scholes Option Pricing Model and the following assumptions:

 

       

As at

31 July

2011

As at

30 April

2011

(Audited)

           
  Risk free interest rate     - 2.47%
  Expected life     - 5.0 years
  Annualized volatility     - 603%
  Expected dividends     - -

 

Restricted Common Shares

 

As at 31 July 2011, a total of 58,629,787 common shares are outstanding. Of these, 57,142,703 were restricted from trading as defined under Rule 144 of the United States Securities Act of 1933.

 

22
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

During the year ended 30 April 2011, the Company issued 1,818,181 common shares valued at $1.10 per common share in error in contemplation of the conversion of the Promissory Note by Samyang. These shares have been returned to treasury and the Company is currently in the process of cancelling these 1,818,181 common shares issued in error (Notes 7, 12 and 15).

 

During the year ended 30 April 2011, the Company issued 3,334 common shares valued at $0.25 per common share and 3,334 common shares valued at $Nil per common share in error. On 14 July 2011, the Company cancelled these 3,334 common shares issued in error. As at 31 July 2011, the Company is in the process of obtaining another 3,334 common shares to be returned to treasury for cancellation (Notes 6, 12 and 15).

 

During the three month period ended 31 July 2011, the Company issued 52,922,810 common shares valued at $1.58 to the shareholders of Daifu in contemplation of the completion of the terms of the SEA. These shares are being held in treasury pending the completion of the SEA (Notes 1, 12 and 13).

 

11.        Income Taxes

 

The Company has losses carried forward for income tax purposes to 31 July 2011. There are no current or deferred tax expenses for the three month period ended 31 July 2011 due to the Company’s loss position. The Company has not reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carry forward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.

 

The provision for refundable federal income tax consists of the following:

 

     

For the

three month

period ended

31 July

2011

 

For the

three month

period ended

31 July

2010

      $   $
           
  Deferred tax asset attributable to:        
  Current operations   55,830   75,098
  Change in valuation allowance   (54,356)   (72,729)
  Foreign exchange   (1,474)   (2,369)
           
  Net refundable amount   -   -

 

23
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

The composition of the Company’s deferred tax asset as at 31 July 2011 and 30 April 2011 is as follows:

 

     

As at

31 July

2011

 

As at

30 April

2011 (Audited)

      $   $
           
  Net operating loss carry forward   4,607,901   4,454,281
           
  Statutory federal income tax rate   25% - 35%   25% - 35%
  Effective income tax rate   0%   0%
           
  Deferred tax asset   1,553,610   1,499,254
  Less: Valuation allowance   (1,553,610)   (1,499,254)
  Other        
      -   -

 

The potential income tax benefit of these losses has been offset by a full valuation allowance.

 

As at 31 July 2011, the Company has unused non-capital losses for Canadian tax purposes of approximately $591,553 that are available to offset future taxable income. This unused non-capital loss carry forward balance for income tax purposes expires between the years 2014 and 2032.

 

As at 31 July 2011, the Company has unused net operating losses for U.S. federal income tax purposes of approximately $4,016,348 that are available to offset future taxable income. This unused net operating loss carry forward balance for income tax purposes expires between the years 2025 and 2032.

 

12. Commitments and Contingency

 

                    i.      On 15 November 2007, the Company filed its intention to register 100,000 common shares of the Company to be covered under S8 Registration for future issuances to any and all consultants, employees, attorneys, officers and directors of the Company at a proposed maximum offering price of $4.50 per common share.

 

                  ii.      The Company is committed to issuing 25,000 shares valued at $3,750 pursuant to the one-year consulting agreement for consulting services.

 

                iii.      During the year ended 30 April 2011, the Company issued 3,334 common shares valued at $0.25 per common share and 3,334 common shares valued at $Nil per common share in error. On 14 July 2011, the Company cancelled these 3,334 common shares issued in error. As at 31 July 2011, the Company is in the process of obtaining another 3,334 common shares to be returned to treasury for cancellation (Notes 10, 13 and 15).

24
 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


 

                iv.      During the year ended 30 April 2011, the Company issued 1,818,181 common shares valued at $1.10 per common share in error in contemplation of the conversion of the Promissory Note by Samyang. These shares have been returned to treasury and the Company is currently in the process of cancelling these 1,818,181 common shares issued in error (Notes 7, 10 and 15).

 

                  v.      During the three month period ended 31 July 2011, the Company issued 52,922,810 common shares valued at $1.58 to the shareholders of Daifu in contemplation of the completion of the terms of the SEA. These shares are being held in treasury pending the completion of the SEA (Notes 1, 10 and 13).

 

13. Supplemental Disclosures with Respect to Cash Flows

     

 

For the period from the date of inception on

2 September

2003 to

31 July

2011

For the

three month

period

ended

31 July

2011

For the

three month

period

ended

31 July

2010

      $ $ $
           
  Cash paid during the period for interest   11,362 - -
  Cash paid during the period for income taxes   - - -

 

 

 

 

 

 

During the three month period ended 31 July 2011, the Company accrued $30,246 (31 July 2010 - $4,274) in interest related to the Promissory Note (Note 7).

 

During the year ended 30 April 2011, the Company issued 30,000 common shares valued at $1.02 per common share for $30,600 in consulting fees (Note 10).

 

During the year ended 30 April 2011, the Company issued 30,000 warrants valued at $33,000 for services rendered. Each whole common share purchase warrant entitles the holder to purchase a common share at a price of $0.25 per share for a period of five years (Note 10).

 

During the year ended 30 April 2011, the Company issued 1,818,181 common shares valued at $1.10 per common share in error in contemplation of the conversion of the Promissory Note by Samyang. These shares have been returned to treasury and the Company is currently in the process of cancelling these 1,818,181 common shares issued in error (Notes 7, 10, 12 and 15).

 

25
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

During the year ended 30 April 2011, the Company issued 3,334 common shares valued at $0.25 per common share and 3,334 common shares valued at $Nil per common share in error. On 14 July 2011, the Company cancelled these 3,334 common shares issued in error. As at 31 July 2011, the Company is in the process of obtaining another 3,334 common shares to be returned to treasury for cancellation (Notes 10, 12 and 15).

 

During the year ended 30 April 2010, the Company issued 3,500,083 common shares valued at prices from $0.15 to $1.00 per common share for $676,675 in consulting expense and salaries and wages (Notes 9 and 10).

 

During the year ended 30 April 2010, the Company issued 550,000 common share purchase warrants valued at $633,728 as stock-based compensation. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.25 to $1.00 for a period of five years from the date of offering (Note 10).

 

During the year ended 30 April 2010, the Company issued 8,585,083 common share purchase warrants valued at $469,113 for consulting services. Each common share purchase warrant entitles the holder to purchase one common share at a price of $0.25 to $1.00 for a period of five or ten years from the date of offering (Notes 9 and 10).

 

During the year ended 30 April 2010, the Company rescinded the 200,000 common shares valued at $1.25 per share for a total value of $250,000 which had been issued to acquire an undivided 25% tenancy-in-common interest in land and buildings located in Merced, California from a Related Party (Notes 5, 9 and 10).

 

During the year ended 30 April 2010, the Company entered into an Asset Purchase Agreement with a non-related individual to acquire security and computer equipment valued at $50,000. The purchase price of the equipment was paid for by the issuance of 50,000 shares of common stock of the Company valued at $50,000 (Notes 5 and 10).

 

During the year ended 30 April 2010, the Company entered into an Asset Purchase Agreement with a non-related company to acquire a number of vehicles valued at $75,000. The purchase price of the vehicles was paid for by the issuance of 75,000 shares of common stock of the Company valued at $75,000 (Notes 5 and 10).

 

During the year ended 30 April 2010, the Company entered into the Convertible Promissory Note Agreement with Samyang for $2,000,000 cash. The principal balance bears interest at a rate of 6% per annum. All unpaid principal, together with any unpaid and accrued interest is due and payable on the earlier of 11 February 2012 or when such amounts are declared due and payable by the investor (Notes 4, 7 and 10).

 

During the year ended 30 April 2009, the Company issued 2,000 common shares valued at $5.00 per share for $10,000 in convertible promissory notes (Note 10).

 

26
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


  

During the year ended 30 April 2009, the Company issued a total of 190,933 common shares and 16,000 common share purchase warrants valued at $394,000 for consulting, investor relations services, compensation, legal services and public relation services (Note 10).

 

14.         Financial Instruments

              

The carrying value of cash and cash equivalents, amounts receivable, accounts payable, due to related party and convertible promissory note approximates fair value due to the short term maturity of these financial instruments.

 

Credit Risk

 

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and amounts receivable. The Company deposits cash and cash equivalents with high credit quality financial institutions as determined by rating agencies and amounts receivable consist of Goods and Services Tax receivable of $233 (30 April 2011 - $233).


Currency Risk

 

The Company’s functional and reporting currency is the U.S. dollar. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

If the Canadian dollar had weakened (strengthened) against the U.S. dollar, with all other variables held constant, by 100 basis points (1%) at year end, the impact on net loss and other comprehensive loss would have been $47 higher ($47 lower).

 

The Company has not, to the date of these interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

Interest Rate Risk

 

The Company has cash balances and an interest-bearing debt.  It is management’s opinion that the Company is not exposed to significant interest risk arising from these financial instruments. 

 

Liquidity Risk

 

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The Company is reliant upon successful financing as its sole source of cash. The Company has received financing from private placements in the past; however, there is no assurance that it will be able to do so in the future.

 

27
 

 

Rotoblock Corporation

(A Development Stage Company)

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. Dollars)

(Unaudited)

31 July 2011


 

15.         Subsequent Events

 

a.            The Company is in the process of obtaining 3,334 common shares issued in error to be returned to treasury for cancellation (Notes 10, 12 and 13).

 

b.            On 4 August 2011, the Company cancelled a total of 1,818,181 common shares previously issued in error (Notes 7, 10, 12 and 13).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28
 

  

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations of Registrant should be read in conjunction with our unaudited interim consolidated financial statements included elsewhere in this report. Certain statements we make in this section may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. You should carefully consider these forward-looking statements in light of our unaudited condensed consolidated financial statements, related notes and other financial information appearing elsewhere in this report and our other filings with the Commission.

 

Overview of our Business Operations

 

Rotoblock Corporation was incorporated in the State of Nevada on March 22, 2004. We were formed to engage in the development and licensing of an Oscillating Piston Engine (OPE) and are still in the development stage.

 

On March 30, 2004, we acquired Rotoblock, Inc., a privately-held Canadian corporation (the Subsidiary), which holds an option entitling it to acquire all of the  rights, title and interest in and to a patented technology and prototype engine in exchange for shares of our restricted common stock. We currently do not own the patents or rights underlying the patents, but rather, have been granted the use thereof and an option to purchase the rights.

 

All of our operations relating to the development and marketing of the OPE technology are conducted by Rotoblock, Inc., incorporated on September 2, 2003 under the laws of Canada.  We are currently in the process of improving on the technology to make the engine more efficient, economical and environmentally friendly in an effort to make it attractive to engine manufacturers to either acquire the technology or negotiate license agreements to use the technology. We have made several changes to the prototype engine.  All parts except the crankshaft and engine block have been redesigned. We are continuing our research, development and testing efforts until we are certain we have completed the best, most efficient model.  This goal will be considered to be reached when the engine demonstrates a power to weight ratio of 2:1. As of July 31, 2011 and the date of filing of this report, no engines have been sold. 

 

We are still in the development stages of our business and have generated no revenues since inception and have incurred total net losses since inception of $8,250,473. Our auditors have raised substantial doubt about our ability to continue as a going concern. We cannot provide assurance that we will ultimately achieve profitable operations and become cash flow positive, or that we will be able to continue to raise additional equity capital if and when needed to continue our business operations; however, based on our prior demonstrated ability to raise capital, we believe that our current capital resources will be adequate to continue operating our business for at least the remainder of our fiscal year ending April 2012. 

 

Recent Developments

 

On May 10, 2011, we entered into a share exchange agreement with daifuWaste Management Holding Limited (“daifuWaste”), a privately held medical waste treatment company headquartered in Beijing, China.

 

Upon completion of the transaction, which will be disclosed in a future 8-K filing, daifuWaste will assume a majority ownership interest in Rotoblock Corporation.  

 

29
 

 

daifuWaste is a leading provider of medical waste disposal management in China, supplying advanced medical waste equipment, systems, disposal and management.  Founded in 2003 by Dr. Michael Choy with offices in Beijing, Shanghai, Shenzhen and Hong Kong, daifuWaste operates through its direct Chinese subsidiaries marketing Daifu brand medical waste treatment systems, with ten systems currently in operation throughout China. Daifu’s client base consists of hospitals and non-hospital medical establishments, including Hospital No. 302 in Beijing, a major medical institution in China.  In 2008, Daifu donated a mobile medical waste treatment system to aid Sichuan province after the area suffered a massive earthquake. Daifu’s medical waste treatment non-incinerated systems offer a safer and more efficient alternative to managing medical waste. Unlike incinerators, which can release dangerous substances into the air, Daifu’s system eliminates the risk of dioxins and consumes less energy.  The equipment works under high-pressure and high-temperature and uses recycled steam to sterilize and disinfect the medical waste. After treatment, the medical waste is non-recognizable and harmless, ready for landfill.  The technology is also more efficient and environmentally-friendly with lower maintenance costs and fully compliant with international health standards. 

 

Results of Operations 

 

Three month period ended July 31, 2011 as compared to the three month period ended July 31, 2010

 

For the three month period ended July 31, 2011, we incurred net operating losses of $159,514, or $0.03 per share, as compared to net operating losses of $214,565, or $0.03 per share, for the three month period ended July 31, 2010. 

 

Our total operating expenses were all general and administrative expenses incurred in the normal day-to-day operations of our business as follows:

 

    Cumulative For the  For the    
from the date of three  three   
inception on month  month   
 September 2 period period  
 2003 to ended ended  
 31-Jul 31-Jul 31-Jul Increase 
 2011 2011 2010 (Decrease) 
    $ $ $
           
Consulting fees   1,449,399 30,000 68,605        (38,605)
Depreciation   27,842 3,400 3,991             (591)
Foreign exchange loss   1,545 - - -
Interest   193,678 30,246 4,334          25,912
Investor relations   389,878 - - -
Listing, filing and transfer agent fees   63,317 2,501 170            2,331
Management fees   300,000 - - -
Office and sundry   74,295 644 1,116             (472)
Professional fees   585,544 27,295 8,160          19,135
Public relations and shareholder information   194,879 3,220 100,000        (96,780)
Rent   79,205 - - -
Research and development   387,173 - - -
Salaries and wages   605,403 31,251 31,251 -
Stock-based compensation   3,157,726 - - -
Travel and entertainment   466,536 30,957 32,376          (1,419)
    7,976,420 159,514 250,003        (90,489)

 

Our total operating expenses decreased by $90,489 during the three month period ended July 31, 2011, as compared to the three month period ended July 31, 2010, primarily due to the large decrease in public relations and shareholder information expense ($96,780 decrease) and consulting fees ($38,605 decrease).

 

 

30
 

 

Liquidity, Capital Resources and Cash Flows

 

We currently have $229,811 in cash in the bank and are continuing to seek sources of funding to continue our business operations. It is expected we will continue to need further funding until we complete the final prototype of our product to bring to market for sale or enter into an agreement with a joint venture partner to complete our plans. We are currently researching both options; however, no definitive agreements have yet been entered into successfully. We currently plan to fund future operations by public offerings or private placement of equity and/or debt securities as we have done in the past. There can be no assurance that debt or equity financing will be available to us on acceptable terms to meet these requirements, as and when needed. Our auditors have expressed substantial doubt about our ability to continue as a going concern. 

 

We do not own any real estate and do not  intend to purchase any significant property or equipment, nor incur any significant changes in employees during the next 12 months.

 

There was no cash provided by investing or financing activities for the three  month period ended July 31, 2011.

 

At July 31, 2011, we have an amount due to a related party for $699, payable to a former director and stockholder of the company.  This balance is non-interest bearing, unsecured, and has no fixed terms of repayment.

 

Available-for-Sale Investments

On February 11, 2010, we entered into an Investment Agreement with Samyang Optics Co., Ltd. (“Samyang”), a South Korean Corporation listed on the Korea Exchange, whereby Samyang loaned us $2,000,000 in the form of a convertible promissory note. The principal balance of the note bears interest at the rate of 6% per annum. All unpaid principal, together with any unpaid and accrued interest is due and payable on the earlier of February 11, 2012 or when demand is made by Samyang. All principal, together with all accrued and unpaid interest, shall automatically convert into shares of our common stock, valued at a price of $1.10 per share, on February 11, 2012 or on demand by Samyang. At July 31, 2011, the total amount of principal and accrued interest due and payable on the note was $2,175,890. In turn, under the terms of the Investment Agreement, we acquired 977,966 common shares of Samyang, valued at $1,000,000. Available-for-sale investments are carried at fair value, with unrealized gains and losses recorded as other comprehensive income and other than temporary losses recognized in net income. As of July 31, 2011, the fair value of the shares of Samyang were as follows: 

 

        Unrealized loss   Fair value
    Adjusted cost    

31 July

2011

 

30 April 2011

(Audited)

    $   $   $   $
                 
977,966 common shares of Samyang Optics Co., Ltd.  

 

1,000,000

 

 

(85,061)

 

 

914,939

 

 

887,915

 

 

Commitments/Contingencies

 

We are committed to issuing 25,000 shares valued at $3,750 under a one-year consulting agreement for consulting services.

 

On May 10, 2011, we entered into a share exchange agreement with daifuWaste Management Holding Limited (“daifuWaste”), a privately held medical waste treatment company headquartered in Beijing, China. During the three month period ended July 31, 2011, we issued 52,922,810 shares of our common stock, valued at $1.58 per share, to the shareholders of daifuWaste in contemplation of the completion of the terms of the share exchange agreement. These shares are being held in treasury pending the completion of the transaction and agreement.

 

31
 

 

We are committed to issuing shares of our common stock to Samyang Optics Co., Ltd. (Samyang) under the terms of an Investment Agreement entered into on February 11, 2010. At that time, or on demand by Samyang, the principal amount due of $2,000,000, together with all accrued and unpaid interest, will automatically convert into shares of our common stock, valued at $1.10 per share. At July 31, 2011, the total amount of principal and accrued interest due and payable on the note was $2,175,890.

 

We anticipate no material commitments for capital expenditures in the near term.  Management is not aware of any trend in its industry or capital resources, which may have an impact on its income, revenue or income from operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements or contractual or commercial commitments.

 

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting issuer (as defined in Item 10(f)(1) of Regulation S-K), we are not required to report quantitative and qualitative disclosures about market risk specified in Item 305 of Regulation S-K.

 

Item 4. Controls and Procedures

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 ("Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Principal Executive Officer and our Principal Financial Officer (collectively, the "Certifying Officers”) are responsible for maintaining our disclosure controls and procedures.  Prior to the filing of this quarterly report, our Certifying Officers evaluated the effectiveness of our disclosure controls and procedures for the period covered by this report. Based on the evaluation, our Certifying Officers concluded that our disclosure controls and procedures were effective to provide reasonable assurance that (a) information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and (b) that the information is accumulated and communicated to our management, including the Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure. 

 

There have been no changes in our internal controls over financial reporting.

 

 

 

32
 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding.
 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three month period ended July 31, 2011, we issued 52,922,810 shares of our common stock, valued at $1.58 per share, to the shareholders of daifuWaste Management Holding Limited, a privately held medical waste treatment company headquartered in Beijing, China (“daifuWaste”), pursuant to the terms of a share exchange agreement we entered into with daifuWaste on May 10, 2011. The shares are being held in treasury pending the completion of the transaction and agreement. 

 

At July 31, 2011, a total of 58,629,787 shares of common stock were issued and outstanding.  Of these shares, 57,142,703 are considered "restricted securities" under the Securities Act of 1933, as amended. 

 

Following are details of the common stock purchase warrants outstanding at July 31, 2011:

 

    Exercise price  

Number

of warrants

 

Remaining

contractual life (years)

    $        
             
Warrants   7.50   50,000   0.36
Warrants   12.50   7,600   1.11
Warrants   7.50   20,000   1.67
Warrants   7.50   16,000   1.78
Warrants   12.50   3,333   1.93
Warrants   0.25   25,000   2.96
Warrants   0.25   25,000   2.98
Warrants   0.50   200,000   2.98
Warrants   2.50   57,144   2.98
Warrants   0.25   2,181,750   3.54
Warrants   1.00   50,000   3.54
Warrants   0.25   333,333   3.58
Warrants   1.00   300,000   3.63
Warrants   0.25   12,000   3.71
Warrants   0.25   6,000,000   8.64
             
        9,281,160    

 

33
 

 


Following is a summary of warrant activities during the three month period ended July 31, 2011 and the fiscal year ended April 30, 2011: 

 

    Number of warrants   Weighted average exercise price
        $
         
Outstanding and exercisable at 1 May 2010   9,361,694   0.58
     Granted   30,000   0.25
     Exercised   (51,334)   0.25
     Expired   (59,200)   12.50
         
Outstanding and exercisable at 30 April 2011   9,281,160   0.38
         
Weighted average fair value of warrants granted during the year   1.10
     
Outstanding and exercisable 1 May 2011   9,281,160   0.38
    Granted   -   -
    Exercised   -   -
    Expired   -   -
         
Outstanding and exercisable 31 July 2011   9,281,160   0.38
         
Weighted average fair value of warrants granted during the period   -

 

The weighted average grant date fair value of warrants issued during the three month period ended July 31,

2011 amounted to $Nil per warrant (30 April 2011 - $1.10 per warrant). The fair value of each warrant

granted was determined using the Black-Scholes Option Pricing Model and the following assumptions:

 

     

As at

31 July

2011

As at

30 April

2011

(Audited)

         
Risk free interest rate     - 2.47%
Expected life     - 5.0 years
Annualized volatility     - 603%
Expected dividends     - -

 

  

Item 3.  Default Upon Senior Securities

 

None.

 

Item 5. Other Information

 

Nominating Committee

At the present time, we do not have a standing nominating committee or a committee performing similar functions. At the present stage of our business development, it is the view of our Board of Directors that such a committee would be of little assistance in recommending nominations for director-nominees. In addition, at the present time we do not have a defined policy or procedure for shareholders to submit recommendations or nominations for directors. The Board of Directors believes that, given the current stage of our development, a specific nominating policy would be premature and of little assistance until the Company’s operations develop to a more advanced level. We do not currently have any specific or minimum criteria for the selection of nominees to the Board of Directors and the Board does not have any specific process or procedure for evaluating such nominees. The Board of Directors assesses all candidates, whether submitted by management or shareholders and makes recommendations for election or appointment.

 

34
 

 

 

Item 6.  Exhibits

 

The following Exhibits 3(i) and 3 (ii), marked with an asterisk and required to be filed hereunder, are incorporated herein by reference and can be found in their entirety in our original Form  SB-2 Registration Statement, filed on June 7, 2004 on the SEC website at www.sec.gov. Exhibit 99.1 can be found in its entirety in our Form 10K-SB for the fiscal year ended April 30, 2006, filed on July 31, 2006. These exhibits are incorporated herein by this reference.

 

Exhibit No.                                                     Description      
   
 3(i)  *                            Articles of Incorporation
 3(ii) *                           Bylaws
31.1                               Sec. 302 Certification of Principal Executive Officer/PEO
31.2                               Sec. 302 Certification of Principal Accounting Officer/PFO
32.1                               Sec. 906 Certification of Principal Executive Officer/PEO
32.2                               Sec. 906 Certification of Principal Accounting Officer/PFO
99  *                          Agreement with Obvio! Automotoveiculos S.A
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

                    

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

ROTOBLOCK CORPORATION, Registrant

 

                      

/s/ Chien Chih Liu                                                             

By: Chien Chih Liu, Chief Executive Officer

 

Dated: September 14, 2011

 

/s/  Richard Di Stefano                                                    

By: Richard Di Stefano, Principal Accounting Officer

 

Dated: September 14, 2011

 

 

35