Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the year ended April 30, 2010
Nevada 20-08987999
(State or other jurisdiction of incorporaiton or organization) (I.R.S. Employer Employer Identification No.)
(707) 578-5220
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 is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [ X ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
We had no revenues for the fiscal year ended April 30, 2010.
Some exhibits required to be filed hereunder, are incorporated herein by reference to Issuer's original Form 10-SB Registration Statement, filed under CIK No. 0001295923 on July 6, 2004, on the SEC website at www.sec.gov.
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. We have not yet generated any revenues since inception and have incurred net operating losses of $7,324,239 since inception. We do not own any real estate. 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 or become cash flow positive, or be able to raise additional equity capital if and when needed; however, based on our prior demonstrated ability to raise capital, we believe that our capital resources will be adequate to continue operating maintaining our business operations for the fiscal year ending April 30, 2011. However, if we are unable to raise additional capital in the near future, due to our liquidity problems, we may have to curtail our operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.
We maintain our statutory registered agent's office in Carson City, Nevada and our business offices and testing laboratory in Santa Rosa, California.
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, valued at $0.001 per share. The terms of the Option are as follows:
We acquired all of the issued and outstanding shares of Rotoblock Inc. by issuing 300,000 shares of our common stock. Since the transaction resulted in the former shareholders of Rotoblock Inc. owning all of the issued shares of Rotoblock Corporation, the transaction has been treated for accounting purposes as an acquisition by Rotoblock Inc. of the net assets and liabilities of Rotoblock Corporation. Under this purchase method of accounting, the results of operations of Rotoblock Corporation are included in the consolidated financial statements.
For a consideration of $100,000, plus interest at the rate of 24% per annum calculated from January 31, 2004 to the date of payment, paid on May 31, 2004, the inventor and an unrelated third party, Dr. Monti Farrell granted us, through our wholly-owned subsidiary, Rotoblock, Inc., an option to acquire the patent rights to the engine technology. The option grants us the rights to further develop, market and sell the final engine product or to license the technology to third-party manufacturers. In addition, the option grants us the right and option to purchase the patents for $1,000,000, if purchased by December 2, 2005 (not paid), or for $1,500,000, if purchased within 36 months after payment of the initial deposit (June 2, 2007). On October 25, 2006, we negotiated an extension to exercise the Option by 37 months. Pursuant to the terms of the amended option agreement, we must pay a royalty of $50 per engine on the sale of up to 10,000 engines, a royalty of $20 per engine on the sale of up to 100,000 engines and a royalty of $2 per engine thereafter. At April 30, 2010, no engines have been sold.
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. Pursuant to the terms of the agreement, the option may also be assigned to a third party without consent of the Estate of the Optionor.
Rotoblock Corporation had a net asset deficiency at the acquisition date, therefore, the 300,000 common shares issued on acquisition were issued at a fair value of $Nil with the net asset deficiency of $138 charged to deficit. Rotoblock Inc. is deemed to be the purchaser for accounting purposes. Accordingly, its net assets are included in the consolidated balance sheet at their previously recorded amounts.
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 re-designed.
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.
The OPE patented internal combustion engine is different than conventional reciprocating engine technology in that the current oscillating piston design incorporates four pairs of pistons. Each of these eight pistons is alternately attached, through two oppositely rotating adjacent discs, to two coaxial drive shafts extending from the center of one face of the cylinder block. Each piston is attached to a single disc such that four non-adjacent pistons are rigidly affixed to the upper disc and the remaining four to the lower. Each concentric shaft is attached, respectively, to the connecting discs. The discs, in turn, couple the motion of the oscillating pistons to a single crankshaft, via a dual scotch yoke mechanism. Each piston is a segmented toroidal section traveling within the closed toroidal chamber of the cylinder block.
The round cylinder block containing the pistons, connecting discs and coaxial output shafts is free to continuously rotate in a counter clockwise direction. It is caused to revolve ninety degrees for every complete revolution of the rotating crankshaft. This action is accomplished by a four-to-one ratio gear reduction mechanism which couples the two components together.
Rotation of the cylinder block causes a pair of intake and exhaust ports, as well as two diametrically positioned spark plugs, to regularly appear in the intervening spaces formed between the faces of the pistons as they oscillate backwards and forwards between the limits of allowed travel within the toroidal cylinder. When in operation, the diametrically opposed inlet ports in the cylinder block are supplied with a combustible fuel/air mixture through an attached intake manifold, such that the separating opposing piston pairs each draws in a fresh charge mixture as the rotating cylinder block passes through the first of four combustion cycles.
The second cycle begins as the same piston pairs reach their limits of travel, reverse direction and proceed to compress the charge mixture captured between their faces. Compression continues until the approaching piston faces reach their closest point at the end of their range of travel.
The third cycle starts with the appearance of the spark plugs in the intervening space between the moving pistons just at the point in the cycle when they make their closest approach to each other. At this juncture, timed firing of the spark plugs ignites the compressed charge mixture confined between the faces of each of the two piston pairs. The exploding fuel/air mixture is rapidly heated and expands, thereby forcing the opposing piston pair faces apart and, by so doing, produces the power cycle. The force applied to the separating pistons by the expanding gas is coupled, through the two connecting discs, to the scotch yokes, which, in turn cause the continuous rotation of the crankshaft and output shaft.
As the cylinder block continues to rotate, the fourth cycle begins. Next, exhaust ports appear between the piston pairs coincident with their change of direction at the end of the power stroke. The approaching piston faces now expel the burnt exhaust gases through the exhaust ports. This brings to a close the final cycle of the four cycle sequence.
The endless repetition of these four combustion cycles produces sixteen power strokes for each revolution of the cylinder block. Momentum stored in the inertial mass of the rotating cylinder block substitutes for the action of the flywheel found in conventional reciprocating engine designs.
Simplicity of Design, Assembly and Repair
The OPE engine is comprised of four major mechanical sub-assemblies. Each sub-assembly can be easily removed from the engine, allowing for rapid factory assembly and easy replacement or field servicing. We believe this feature should permit the engine to be totally field maintainable, to the degree that a major overhaul should be able to be completed by a qualified mechanic using only conventional hand tools in just a few hours. The simple design of the engine should also help reduce the costs of manufacturing because of the reduced parts count. In addition, the elimination of a valve train and liquid cooling system components in the oscillating piston engine design should lessen the engine's complexity, which could further reduce costs to achieve overall engine efficiency. We are currently still in the testing and development stages of t he engine design and as a result, have not yet completed the final prototype for further testing.
Departure from conventional engine design, resulting in fewer moving parts, has allowed us to produce an engine with reduced frictional losses, which if proven in testing, could lead to increased reliability, improved performance and longer engine life. As is typical with mechanical systems, simplicity is the key to a successful design. In keeping with this philosophy, the OPE engine uses standardized components, common to the industry, wherever possible.
There is no certainty, however, that our research and development activities will result in a marketable engine that:
- can be assembled more quickly than a conventional engine;
- is easier to service in the field;
- is totally field maintainable; or
- will reduce the costs of manufacturing.
Versatility of Use
The OPE engine has been specifically designed to maximize versatility of use. The engine's extreme horsepower to weight ratio, when finally tested and proven, could lend itself useful to a wide variety of both industrial and consumer applications. The advantage of having high power-to-weight ratio and air-cooled design fits perfectly with the specialized requirements of many recreational vehicles and portable power tools. Here, engines in the range of several hundred to several thousand horsepower are employed to power electric generators, pumps and compressors, as well as a wide variety of other industrial and agricultural types of machinery. If we are successful in completing our proposed model and technology, it could be an ideal choice for applications such as these.
Environmental Impact
The OPE design is totally valve-less. As such, there are no moving intake or exhaust valves to limit combustion temperature, as with typical internal combustion engines. If we are successful in developing an operational engine on this basis, it would allow the engine to be operated with a leaner fuel/air mixture and a consequent higher combustion temperature. The result would be increased Carnot cycle efficiency when used with gasoline or similar hydrocarbon fuels. Carnot cycle efficiency is the ratio of the output work to the input heat. Leaner mixture and higher combustion temperature promotes more complete oxidation of the burning fuel, which would reduce carbon monoxide emission, while increasing efficiency and reducing fuel consumption for a given equivalent power output. While there is no guarantee we w ill be successful in developing an operational engine on this basis, we will attempt to make the engine's environmental impact minimal.
Research, Development and Testing Since Acquisition
We have conducted a number of test runs with the engine and are continuing to improve upon the technology. The milestones we have set for ourselves have been reached and we are in the process of discussing potential joint ventures and/or co-development arrangements with qualified manufacturers. We are researching technologies that could be used in conjunction with the OPE, therefore enhancing the uses for this unique engine. The market has a need for technologically advanced and efficient propulsion systems, be they straight mechanical or hybrid in nature. One of the greatest challenges when incorporating hybrid technology into a vehicle is space limitation. Due to the projected high power-to-weight ratio of the OPE, at a given horsepower output OPE technology will result in a smaller, more compact engine, hence being ideally suited for s uch applications. We have also been contacted by manufacturers in the following areas who feel that the OPE exhibits attributes and characteristics that would benefit their product lines:
| - High power marine outboard motors |
| - Auxiliary-power units for the trucking industry |
Patents and Trademarks
On March 30, 2004, we acquired Rotoblock, Inc., a privately-held Canadian corporation, which holds an option entitling it to acquire all of the rights, title and interest in and to the following patents:
| Name of Patent | Patent # | Issue Date | Expiration Date |
| | | | |
Oscillating Piston Engine - | 5,222,463 | 6/29/1993 | 6/28/2010 |
| This patent covers the basic Oscillating Piston Engine OPE, all of its parts | | | |
| and functionality | | | |
| | | | |
| Oscillating Piston Engine for Driving a Ducted Fan - | 5,303,546 | 4/19/1994 | 4/18/2011 |
This patent covers the application of the OPE as a means of driving a | | | |
| ducted fan (e.g., aircraft, boat, hovercraft, etc.) | | | |
| | | | |
| Oscillating Piston Engine for an Electrical Charging System | 5,323,737 | 6/28/1994 | 6/27/2011 |
| for Electrically Powered Vehicles - | | | |
| This patent covers any applications for an OPE powering an electric | | | |
| charging system for an electrically powered vehicle (e.g., a hybrid vehicle) | | | |
| | | | |
| Oscillating Piston Engine for Pumping System - | 5,324,176 | 6/28/1994 | 6/27/2011 |
| This patent covers applications for the OPE being used to power | | | |
| pumping systems. | | | |
| | | | |
| Oscillating Piston Engine for Helicopters - | 5,467,744 | 11/28/1995 | 11/20/2012 |
| This patent covers applications for the OPE as a power source to power | | | |
| helicopters | | | |
| | | | |
Competition
The industry in which we operate is intensely competitive with respect to new and evolving technologies on a continuous basis. In addition, there are many well-established competitors with substantially greater financial and other resources, including but not limited to established businesses with loyal customers. We will rely heavily on our new and developing engine technology to acquire a competitive edge. We have determined that some of our largest competitors will be Honda, Briggs & Stratton, Tecumseh, Kawasaki, Kohler and Stihl, the major producers of general purpose engines. Because of our intensive battle for market share among these companies, we will also be contacting these manufacturers anticipating that they will want to include our OPE technology in their product lines. There are always new and emerging techno logies in the industry in which we compete; however, we are unaware of any other new types of engines being developed with our OPE products and technology will compete at this time.
Marketing of Technology and/or Rights
Our marketing efforts will be focused on selling manufacturing licenses or rights to use the technology. Sale of the technology rights would be preferred, as the administration and enforcement of licensing agreements can be very complex and costly.
The combustion engines we see today have experienced years of relentless development. Manufacturers have aimed to make engines more efficient, more durable, and in some cases lighter. Also, recently, great efforts are being made in reducing environmentally damaging emissions.
We consider it important that a new engine concept be introduced in a low-key manner and in applications that are not mission-critical in order to build a reputation of reliability over time. We intend to pursue a marketing strategy that primarily targets manufacturers of general purpose engines and secondarily, manufacturers of engines used in recreational vehicles, such as outboard motors and other weight critical uses. A review of the general purpose engine market is presently underway. To date it has been determined that several large companies, such as Honda, Briggs & Stratton, Tecumseh, Kawasaki, Kohler and Stihl, dominate the industry. Initially, we intend to focus our marketing efforts on these 6 largest manufactures of general purpose engines. The manufacturers produce engines for a large variety of applications, including po rtable chain saws, weeding machines, portable turbo generators, portable crushers, portable arc welders and generators, snow blowers, lawn mowers and air and gas compressors, among others.
Because of the anticipated high power to weight ratio and the intensive battle for market share, we are hopeful that we will be successful in convincing one or more of these and other not so well known small engine manufacturers to include our OPE technology in their product offerings.
Articles in appropriate trade journals, prominent newspapers and direct marketing campaigns will be used to promote the OPE technology. We will also send out special invitations, solicit inquiries and encourage visits to our laboratory and testing facilities for the purpose of demonstrating the engine and its technology to potential customers to demonstrate the engine and its unique technology, educate the potential buyer/licensee and establish essential relationships.
We intend to expand our marketing efforts to the marine outboard motor industry, as well as other small engine applications used in the recreational and other markets, such as snowmobiles, small water craft such as Seadoos and all-terrain vehicles. We are confident that a high power to weight ratio engine, similar to our proposed product design will fit into a large area of applications.
With the successful test run of the OPE, we have conclusively proven the viability of the engine concept. Current events and the needs of international markets to capitalize on technological advances in propulsion technology immediately have necessitated an expansion of our mission. Global supply issues of conventional fuels and rapid advances of software and electric control, measurement and communication techniques have changed the competitive environment. Thus, we are concentrating on licensing the OPE technology to all available markets. Concurrently we are inviting new technologies that may be used in conjunction with the OPE in order to be able to eventually offer complete propulsion and/or power generating systems to the market.
Government and Industry Regulation
Since it our intention to develop the engine to a point where the technology can be sublicensed to a third party manufacturer for production, we don't anticipate being subject to any government or industry regulations in our testing and development processes. We have not yet been required to obtain any licenses and/or permits and are not aware of any health or environmental rules and/or regulations that apply to our development activities. However, new laws, rules and/or regulations may be implemented in the future that we are currently unaware of and we may be required to comply with such laws, rules and/or regulations. Difficulties in obtaining or failure to obtain required licenses and approvals could result in delays in the development of our final pro totypes in each phase.
Employees and Employment Agreements
At present, we have 3 full time employees, which include all of our officers and directors, who work on a full time or as-needed basis. We presently do not have pension, health, annuity, insurance, profit sharing or similar benefit plans; however, we may adopt such plans in the future. There are presently no personal benefits available to any officers, directors or key employees. However, the Company has issued stock and share purchase warrants to directors and officers for their services.
Our securities are highly speculative and involve a high degree of risk, including among other items the risk factors described below. You should carefully consider the following risk factors and other information in this 10-K before deciding to invest in our securities.
RISKS RELATED TO OUR BUSINESS:
Due to Our History of Operating Losses, We are Uncertain That We Will Be Able to Maintain Sufficient Cash to Accomplish Our Business Objectives.
The consolidated financial statements included herein have been prepared assuming that we will continue as a going concern. During the fiscal year ended April 30, 2010, we suffered net losses of $1,911,942, or $1.04 per share. There is no assurance that we can successfully complete our prototype OPE engine or that we will ever generate revenues. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unsuccessful in implementing our plans.
The small engine industry is highly competitive and our technology may not be well received or successful.
The small engine industry is highly competitive with respect to technology, performance, quality and availability of service/parts. There are numerous well-established competitors, including national, regional and local small engine manufacturers and distributors who have substantially greater financial, marketing, personnel and other resources than our company. There can be no assurance that we will be able to respond to various competitive factors affecting our industry and technology. The need for small engine equipment is also generally affected by changes in consumer preferences, national, regional and local economic and environmental regulations and demographic trends. Prior to our acquisition of the engine and technology, it experienced a critical mechanical failure and was disassembled to investigate the cause of the p roblem. Failure analyses showed metal fatigue to be the cause of the critical component having failed. It was subsequently determined that choice of materials specified in the original design was ultimately the cause of the failure. A replacement component was re-specified and fabricated from a more suitable material. There can be no assurance that we will be able to successfully develop our proposed technology sufficient to create our planned model or, that if developed, it will suitably pass future testing and not fail again. If we are unable to successfully compete in the development and marketing of our finished product, we may be unable to generate any revenues and you could suffer a total loss of any investment you make in our securities.
We may be unable to protect the proprietary rights to the technologies, patents and intellectual property, which may hamper our ability to license and/or sell the manufacturing rights to the technology, thereby impacting our ability to earn revenues and become profitable.
Our success and ability to compete depend in part on the protection of the patents to the technology. We rely on patent and copyright laws to protect the intellectual property that was developed and have an option to acquire several patents on the technology. However, such laws may provide insufficient protection. Moreover, other companies may develop products that are similar or superior to our prototype engine, or may copy or otherwise obtain and use proprietary information we develop or use without our authorization. If a third party were to violate one or more of the patents or the new technology we develop, we may not have the resources to bring suit or protect the intellectual property underlying the patents. In the event of such a violation or if a third party appropriated any of our unpatented technology, such party may develop and market technology and/or products which we intend to develop and/or market. We would lose any revenues, which we would otherwise have received from the sale or licensing of that technology or those products. This could prevent our ever making a profit on any licensing and/or sale of any technology or products we develop.
We do not currently own the intellectual property underlying the engine's technology, but rather, have an option agreement to use the technology. Our business plans are to develop the technology and build a prototype engine that can be sublicensed to third party manufacturers for amounts sufficient to generate the funds to purchase the patent rights subject of the option agreement; however, if we are unable to do so prior to the expiration date of the option, we would need to raise additional capital through loans or equity sales. We cannot guarantee that we will ever develop a successful prototype or that, if successfully developed, we will be able to sublicense the rights to any manufacturer for production and sale. As a result, we may never have the funds to purchase the patents, which would result in a total failure of our busin ess and a complete loss of any investment you make in our securities.
Policing unauthorized use of the patents, proprietary and other intellectual property rights could entail significant expense and could be difficult or impossible. In addition, third parties may bring claims of copyright or trademark infringement against us or claim that certain of our processes or features violate a patent, that we have misappropriated their technology, or formats or otherwise infringed upon their proprietary rights. Any claims of infringement, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention and/or require us to enter into costly royalty and/or licensing arrangements to prevent further infringement on the technology we develop or use, any of which could increase our operating expenses and thus prevent us from becoming profitable.
Our competitive position also depends upon unpatented trade secrets. Trade secrets are difficult to protect. Our competitors may independently develop proprietary information and techniques that are substantially equivalent to the technology we use, or otherwise gain access to trade secrets we develop surrounding the engine development, such as through unauthorized or inadvertent disclosure of our trade secrets. If this occurs, our competitors may use our processes or techniques to develop competing products and bring them to market ahead of us. This could prevent us from becoming profitable. As a result of any of the aforementioned circumstances, you could suffer a total loss of any investment you make in our securities.
We may not be able to successfully develop a marketable product.
We cannot guarantee that we will be able to successfully complete an engine that meets the specifications we have set forth and are attempting to develop. Our final product may not function as we believe it will; its projected potential applications may be limited; and it may never be a viable product. If we are unable to successfully develop the engine technology as planned and it is not functional or commercially attractive to third parties, we may never be able to license the technology or sell the rights to manufacture our products. In such event, we would not be able to generate any revenues and any investment you made in our securities would be a total loss.
The loss of our current management would make it very difficult for us to continue our proposed business plans.
Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of our management and directors. Our success is highly dependent on our current management, key personnel and key consultants. The unexpected loss or departure of any of these parties could be detrimental to our future success. We do not maintain key man insurance on our management.
RISKS RELATING TO OUR COMMON STOCK:
We have numerous outstanding warrants which may adversely affect the price of our common stock.
We have reserved 9,361,694 shares of our common stock for issuance upon exercise of outstanding warrants at prices between $0.25 and $12.50 per share. Any sale into the public market of our common stock purchased privately at prices below the current market price could be expected to have a depressive effect on the market price of our common stock.
Future sales of our common stock may cause our stock price to decline.
Our stock price may decline by future sales of our shares or the perception that such sales may occur. If we issue additional shares of common stock in private financings under an exemption from the registration laws, then those shares will constitute "restricted shares", as defined in Rule 144 under the Securities Act of 1933 (the "Act"). The restricted shares may only be sold if they are registered under the Act, or sold under Rule 144, or another exemption from registration under the Act.
Some of our outstanding restricted shares of common stock are either eligible for sale pursuant to Rule 144 or have been registered under the Act for resale by the holders. We are unable to estimate the amount, timing or nature of future sales of outstanding common stock. Sales of substantial amounts of our common stock in the public market may cause the stock's market price to decline.
We do not expect to pay dividends.
We have not paid dividends since inception on our common stock and we do not contemplate paying dividends in the foreseeable future in order to use all of our earnings, if any, to finance expansion of our business plans.
Lack of trading market may make it difficult to sell our common stock.
Our common stock is only traded on the NASD OTC Bulletin Board and is defined as a "penny stock" by rules adopted by the U.S. Securities and Exchange Commission. As such, brokers and dealers effecting transactions in our common stock with or for the account of a customer must obtain the written consent of the customer prior to purchasing the common stock, must obtain certain information from the customer, and must provide certain disclosures to such customer. These requirements may have the effect of reducing the level of trading in the secondary market, if any, of our common stock and reducing the liquidity of the common stock.
Our stock price can be extremely volatile.
Since our common stock is only traded on the NASD OTC Bulletin Board, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the common stock. There can be no assurance that an active public market will continue for our common stock, or that the market price for our common stock will not further decline below its current price. Such price may be influenced by many factors, including, but not limited to, investor perception of us and our industry and general economic and market conditions. The trading price of our common stock could be subject to wide fluctuations in response to announcements of our business developments or those of our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced ext reme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
On November 28, 2008, we entered into an Asset Purchase and Balance Sheet Enhancement Agreement with a related party to acquire an undivided 25% tenancy-in-common interest in a properly 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. On July 29, 2009, we disposed of the land and building back to the related party for proceeds of $250,000 and return of the 200,000 shares of common stock, which were canceled.
We do not currently own any other property.
We currently are using office space located at 300 B Street in Santa Rosa, California. The space consists of approximately 1,000 sq ft. We currently have a lease agreement with Schellinger Brothers, an unrelated third party, for corporate office space. The lease term is renewable annually. We believe that this arrangement is suitable given the nature of our current operations, and also believe that we will not need to lease additional space for at least the next 12 months.
Item 3. Legal Proceedings
We are currently in a dispute with a former director for services previously rendered. In the opinion of management, this claim is without merit and we will be successful in our defense of this claim. We continue to defend our position to the fullest extent possible.
We are not currently a party to any other pending legal proceeding.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on the NASD OTC Bulletin Board under the symbol RTBC. The following table sets forth the high and low closing prices of the common stock during the periods indicated for the fiscal years ended April 30, 2010 and 2009, as reported by Nasdaq. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| | | | | | | |
| RTBC, formerly ROTB - | | | | | | |
| ROTOBLOCK CORP | | | | | | |
| | | | | | | |
| | | | | PRICE | | |
| END DATE | | | HIGH | LOW | CLOSE | VOLUME |
| | | | | | | |
| 4/30/2010 | | | $1.36 | $0.78 | $0.78 | 1,500 |
| | | | | | | |
| 1/30/2010 | | | - | - | $1.44 | - |
| | | | | | | |
| 10/31/2009 | | | $1.60 | $1.60 | $1.60 | 1,000 |
| | | | | | | |
| 7/31/2009 | | | $3.30 | $3.00 | $3.00 | 20,430 |
| | | | | | | |
| 4/30/2009 | | | $1.00 | $1.00 | $1.00 | 204 |
| | | | | | | |
| 1/31/2009 | | | - | - | $1.00 | - |
| | | | | | | |
| 10/31/2008 | | | $2.50 | $2.50 | $2.50 | 165 |
| | | | | | | |
| 7/31/2008 | | | $5.00 | $4.00 | $4.25 | 256 |
| | | | | | | |
The closing price of our common stock as reported by the OTCBB on July 23, 2010 was $2.30 per share.
Common Stock and Preferred Stock
Common Stock
On February 3, 2009, we effected a 1:50 reverse split. We amended our Articles of Incorporation by increasing the authorized capital stock of the Company to 200,000,000 shares of common stock, par value $0.001 per share and 50,000,000 preferred shares, par value $0.001 per share. Information regarding the reverse stock split and the increase in authorized capital stock was disclosed previously in the Company’s Proxy Statement dated April 16, 2009.
The holders of our common stock (i) have equal ratable rights to dividends from funds legally available therefor, when, as and if declared by our Board of Directors; (ii) are entitled to share ratably in all of our assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of our affairs; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights; and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.
Non-cumulative Voting
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in such event, the holders of the remaining shares will not be able to elect any of our directors.
Supermajority Quorum
Section 3.8 of our Bylaws allow our Board of Directors to establish supermajority voting provisions. A supermajority quorum is a requirement that more than a majority of the directors in office constitute a quorum; and a voting requirement is one which requires the vote of more than a majority of those directors present at a meeting at which a quorum is present to be the act of the directors. As a result, because our current affiliates control the Board and have a majority of the voting power of the securities outstanding, those affiliates could amend our Bylaws to make it more difficult for other stockholders to assert influence over corporate decision making.
Dividends
We have not declared or paid cash or other dividends on our common stock since inception. We currently have no plans to pay any dividends, although we may do so if our financial position changes.
On July 15, 2009, we filed a Form S-8 Registration Statement with the SEC to register 100,000 shares of our common stock for future issuances to consultants, employees, attorneys, officers and directors at a proposed maximum offering price of $7.50 per common share; a complete copy of the S-8 can be found on the SEC website at www.sec.gov under our SEC File Number 333-116324.
Appropriate adjustments were made to the outstanding, unexercised warrants, exercise prices and in the number of shares subject to each outstanding warrant as a result of our reverse stock split (1:50) effective February 3, 2009.
The following share purchase warrants were outstanding at April 30, 2010:
| | | Exercise price | | Number of warrants | | Remaining contractual life (years) |
| | | $ | | | | |
| | | | | | | |
| Warrants | | 12.50 | | 59,200 | | 0.70 |
| Warrants | | 7.50 | | 50,000 | | 1.61 |
| Warrants | | 12.50 | | 7,600 | | 2.36 |
| Warrants | | 12.50 | | 6,667 | | 2.73 |
| Warrants | | 7.50 | | 20,000 | | 2.92 |
| Warrants | | 12.50 | | 6,667 | | 2.94 |
| Warrants | | 7.50 | | 16,000 | | 3.03 |
| Warrants | | 12.50 | | 3,333 | | 3.18 |
| Warrants | | 0.25 | | 25,000 | | 4.21 |
| Warrants | | 0.25 | | 25,000 | | 4.23 |
| Warrants | | 0.50 | | 200,000 | | 4.23 |
| Warrants | | 2.50 | | 57,144 | | 4.23 |
| Warrants | | 0.25 | | 2,201,750 | | 4.79 |
| Warrants | | 1.00 | | 50,000 | | 4.79 |
| Warrants | | 0.25 | | 333,333 | | 4.83 |
| Warrants | | 1.00 | | 300,000 | | 4.88 |
| Warrants | | 0.25 | | 6,000,000 | | 9.89 |
| | | | | | | |
| | | | | 9,361,694 | | |
The following is a summary of warrant activities for the fiscal years ended April 30, 2010 and 2009:
| | | Number of warrants | | Weighted average exercise price |
| | | | | $ |
| | | | | |
| Outstanding and exercisable at May 1, 2008 | | 150,134 | | 16.93 |
| Granted | | 19,333 | | 8.50 |
| Exercised | | - | | - |
| Expired | | - | | - |
| | | | | |
| Outstanding and exercisable at April 30, 2009 | | 169,467 | | 15.97 |
| | | | | |
| Weighted average fair value of warrants granted during the year | | 8.58 |
| | | | | |
| Outstanding and exercisable at May 1, 2009 | | 169,467 | | 15.97 |
| Granted | | 9,192,227 | | 0.30 |
| Exercised | | - | | - |
| Expired | | - | | - |
| | | | | |
| Outstanding and exercisable at April 30, 2010 | | 9,361,694 | | 0.58 |
| | | | | |
| Weighted average fair value of warrants granted during the year | | 0.12 |
The weighted average grant date fair value of warrants issued during the year ended April 30, 2010 amounted to $0.12 per warrant (April 30, 2009 - $8.58 per warrant), The fair value of each warrant granted was determined using the Black-Scholes warrant pricing model and the following assumptions:
| | As at April 30, 2010 | | As at April 30, 2009 | As at April 30, 2008 |
| | | | | |
| Risk free interest rate | 1.49% - 2.36% | | 3.02 % - 3.28% | 2.65 % - 3.72% |
| Expected life | 5.0 - 10.0 years | | 5.0 years | 5.0 years |
| Annualized volatility | 580% - 596% | | 153% - 158% | 119% - 150% |
| Expected dividends | - | | - | - |
Recent Sales of Unregistered Securities
Following are descriptions of all unregistered equity securities canceled, issued and/or sold during the fiscal year ended April 30, 2010:
| 1) | During the year ended April 30, 2010, a related party returned to treasury 200,000 shares of common stock, valued at $1.25 per share, for a total value of $250,000, related to the disposal of land and building acquired from the related party pursuant to an Agreement entered into on November 24, 2008. These shares were cancelled on July 29, 2009. |
| 2) | During the year ended April 30, 2010, we issued 6,552 shares of common stock, valued at $0.61 per share, for cash of $4,000. These shares are restricted from trading for a period of one year, as defined by Rule 144 of the United States Securities Act of 1933. |
| 3) | During the year ended April 30, 2010, we issued 13,333 shares of common stock, valued at $0.75 per share, for cash of $10,000. These shares are restricted from trading for a period of one year, as defined by Rule 144 of the United States Securities Act of 1933. |
| 4) | During the year ended April 30, 2010, we issued 3,500,083 shares of common stock, valued at prices ranging between $0.15 to $1.00 per share, for $676,675 in consulting expense and salaries and wages. |
| 5) | During the year ended April 30, 2010, we issued 550,000 common stock purchase warrants, valued at a total of $633,728, for stock-based compensation. Each common stock purchase warrant entitles the holder to purchase one share of our common stock at prices ranging between $0.25 and $1.00 per share, for a period of five years from the date of the warrant. At April 30, 2010, all of these warrants are outstanding. |
| 6) | During the year ended April 30, 2010, we issued 8,585,083 common stock purchase warrants, valued at $469,113, for consulting services. Each common stock purchase warrant entitles the holder to purchase one share of our common stock at priced ranging between $0.25 and $1.00 per share, for a period of five or ten years from the date of the warrant. At April 30, 2010, all of these warrants are outstanding. |
| 7) | During the year ended April 30, 2010, we issued 28,572 units, valued at $1.75 per unit, for total cash proceeds of $50,000. Each unit consists of one share of common stock and two common stock purchase warrants. Each whole common stock purchase warrant entitles the holder to purchase one additional share of common stock at a price of $2.50 per share for a period of five years up to July 22, 2014. These shares are restricted from trading for a period of one year, as defined by Rule 144 of the United States Securities Act of 1933. At April 30, 2010, all of these warrants are outstanding. |
| 8) | During the year ended April 30, 2010, we issued 28,572 shares of common stock, valued at $1.75 per share, for total cash proceeds of $50,000. These shares are restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. |
| 9) | During the year ended April 30, 2010, we entered into an Asset Purchase Agreement with an unrelated 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 our common stock, valued at $50,000. |
| 10) | During the year ended April 30, 2010, we entered into an Asset Purchase Agreement with a unrelated 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 of our common stock, valued at $75,000. |
| 11) | During the year ended April 30, 2010, we issued 2,000 shares of common stock, valued at $5.00 per share, for $10,000 in convertible promissory notes. |
Subsequent to the fiscal year ended April 30, 2010, the following securities were issued:
In February 2010, we entered into a Convertible Promissory Note Agreement with Samyang Optics Co., Ltd., a South Korean Company and unrelated third party, for $2,000,000 in cash. The principal balance bears interest at a rate of 6% per annum. All unpaid principal, together with any unpaid and accrued interest were due and payable on the earlier of February 11, 2012 or when such amounts were declared due and payable by the investor. During the year ended April 30, 2010, $25,644 in interest was accrued and was also payable to Samyang. In turn, we acquired 977,966 shares of Samyang for $1,000,000. Subsequent to the year ended April 30, 2010, on May 13, 2010, Samyang exercised its option to convert the debt into 1,818,181 shares of our restricted common stock.
These recent sales of unregistered securities are considered exempt from registration pursuant to the exemption for transactions not involving a public offering at Section 4(2) of the Securities Act of 1933, as amended.
Share Subscriptions Received in Advance
During the year ended April 30, 2010, we received $250,000 from a non-related company for the purchase of shares. As of the date of the filing of this annual report, these shares have not yet been issued.
There were no stock options issued or outstanding at April 30, 2010; however, on July 13, 2009, we entered into an Employment Agreement with Chien Chih Liu, our Chief Executive Officer, whereby he is to receive a stock option grant for 1,000,000 shares. The effective date of the Agreement was July 1, 2009. The option will be exercisable for a period of 10 years from the date of grant and the exercise price will be set by the Board of Directors at the time of issuance of the option. We are currently working with our legal counsel on a draft of the Employee Stock Option Plan and will disclose further details when the Plan is finalized and available.
Stockholders
As of April 30, 2010, there were 128 holders of record of our issued and outstanding common stock.
Item 6. Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. Please see our audited consolidated financial statements included in this annual report on Form 10-K for detailed financial information.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
THIS ANNUAL REPORT, INCLUDING THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS") CONTAIN FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS. THESE FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS ASSUMPTIONS AND ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS PLAN AND NFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE AND PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE CIRCUMSTANCES. YOU CAN GENE RALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH WORDS AND PHRASES SUCH AS "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT", "INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY RESULT", AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT YOU SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS, UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND RESULTS OF OPERATIONS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING FACTORS:
o WHETHER THE ALTERNATIVE ENERGY FOR OUR PRODUCTS CONTINUES TO GROW AND, IF IT DOES, THE PACE AT WHICH IT MAY GROW;
o OUR ABILITY TO ATTRACT AND RETAIN THE PERSONNEL QUALIFIED TO IMPLEMENT OUR GROWTH STRATEGIES,
o OUR ABILITY TO OBTAIN APPROVAL FROM GOVERNMENT AUTHORITIES FOR OUR PRODUCTS;
o OUR ABILITY TO PROTECT THE PATENTS ON OUR PROPRIETARY TECHNOLOGY;
o OUR ABILITY TO FUND OUR SHORT-TERM AND LONG-TERM FINANCING NEEDS;
o OUR ABILITY TO COMPETE AGAINST LARGE COMPETITORS IN A RAPIDLY CHANGING MARKET;
o CHANGES IN OUR BUSINESS PLAN AND CORPORATE STRATEGIES; AND
o OTHER RISKS AND UNCERTAINTIES DISCUSSED IN GREATER DETAIL IN VARIOUS SECTIONS OF THIS REPORT.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED. EACH FORWARD-LOOKING STATEMENT SHOULD BE READ IN CONTEXT WITH, AND WITH AN UNDERSTANDING OF, THE VARIOUS OTHER DISCLOSURES CONCERNING OUR COMPANY AND OUR BUSINESS MADE IN OUR FILINGS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENT AS A PREDICTION OF ACTUAL RESULTS OR DEVELOPMENTS. WE ARE NOT OBLIGATED TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT CONTAINED IN THIS REPORT TO REFLECT NEW EVENTS OR CIRCUMSTANCES UNLESS AND TO THE EXTENT REQUIRED BY APPLICABLE LAW.
Results of Operations
Fiscal year ended April 30, 2010 compared to the fiscal year ended April 30, 2009
For the fiscal year ended April 30, 2010, we incurred a net operating loss of $1,911,942, or $1.04 per share, as compared to a net loss of $790,591, or $0.90 per share, for the fiscal year ended April 30, 2009.
We incurred total expenses of $1,876,581 for the fiscal year ended April 30, 2010, as compared to total expenses of $718,591 for the fiscal year ended April 30, 2009. The majority of these expenses was attributed to $633,728, the estimated fair value of stock-based compensation paid to our directors, officers and employees for services rendered during the fiscal year ended April 30, 2010 (2009 - $147,446, cumulative - $3,157,726). Our other expenses included $574,007 for salaries and wages (2009 - $Nil, cumulative - $574,007); $72,917 in research and development (2009 - $Nil, cumulative - $387,173); $9,409 in public relations and shareholder services for the preparation and dissemination of shareholder information (2009 - $37,033 , cumulative - $190,846); $78,877 in professional fees (2008 - $76,935 , cumulative - $486,150), generally consisting of fees for legal, accounting and outside services paid in connection with the preparation and filing of our periodic reports with the SEC; $262,768 for consulting fees (2009 - $197,905 , cumulative $1,128,445); $50,000 for investor relations (2009 - $96,000, cumulative - $289,878); $7,581 for listing, filing and transfer agent fees (2009 - $11,465 , cumulative $55,494); $149,253 for travel and entertainment expense (2009 - $38,419, cumulative - $273,530); $26,624 for interest expense (2009 - $265, cumulative - $43,347); $8,319 in miscellaneous office/sundry expenses (2009 - $11,709 , cumulative - $68,840); and $3,098 in depreciation expense (2009 - $1,414 , cumulative - $8,480).
Our expenses increased during the fiscal year ended April 30, 2010 primarily due to payment of wages and salaries and an increase in stock-based compensation expense.
Liquidity and Capital Resources
We currently have $925,070 in cash in the bank. It is expected we will continue to need further funding until we complete a final prototype to bring to market for sale and generate revenues 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. 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. However, 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 c ontinue as a going concern.
As of the date of this annual report, we have not yet generated any revenues.
We do not intend to purchase any significant property or equipment, nor incur any significant changes in employees during the next 12 months.
Cash provided by financing activities for the fiscal year ended April 30, 2010 was $2,364,000, attributed to $114,000 from private sales of our common stock; $250,000 in cash received in advance from a private sale of our common stock; and $2,000,000 in cash received from a convertible promissory note repaid with the issuance of shares of our common stock subsequent to the fiscal year ended April 30, 2010.
Cash flows provided by or used in investing activities for the fiscal year ended April 30, 2010 were ($1,000,000) attributed to an Investment Agreement entered into with Samyang Optics Co., Ltd., a South Korean corporaiton, whereby Samyang loaned us $2,000,000 in the form of a convertible promissory note. In turn, we acquired 977, 966 shares of Samyang for $1,000,000. Subsequent to the year ended April 30, 2010, on May 13, 2010, Samyang exercised its option to convert the debt into 1,818,181 shares of our common stock, valued at $727,272.
At April 30, 2010, the amount in due to a related party was $663, payable to a former director and stockholder of the Company. This balance is non-interest bearing, unsecured, and has no fixed terms of repayment.
Commitments and Contingencies
We are committed to issuing 25,000 shares of our common stock, valued at $3,750, pursuant to a one-year consulting agreement for consulting services entered into with an unrelated third party.
We entered into an agreement with our corporate secretary for payment of a salary of $50,000 per year, beginning July 1, 2009. No salaries have been paid to date; however, they are being accrued.
On July 1, 2009, we entered into an Employment Agreement with Chien Chih Liu, our Chief Executive Officer, whereby he is to receive a salary of $125,000 per year, beginning July 1, 2009, a one-time signing bonus of $75,000 and a stock option grant for 1,000,000 shares. The option will be exercisable for a period of 10 years from the date of grant and the exercise price will be set by the Board of Directors at the time of issuance of the option.
We anticipate no material commitments for capital expenditures in the near term.
We are engaged in a dispute with a former director of the Company for services previously rendered and a related provision of $72,000 was accrued in the consolidated financial statements for the year ended April 30, 2009. We continue to defend our position to the fullest extent possible and reversed the provision for loss of $72,000 during the year ended April 30, 2010.
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 7A. 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 8. Financial Statements
See our audited consolidated financial statements immediately following the signature page of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
There have been no disagreements with our accountants on accounting or other financial disclosures since inception.
Item 9A. 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 Chief 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 annual 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) infor mation 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. We have conducted a review of the effectiveness of our internal controls over financial reporting as disclosed herein.
We also maintain a system of internal controls designed to provide reasonable assurance that (i) transactions are executed in accordance with management's general and specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with the United States generally accepted accounting principles and to maintain accountability for assets; (ii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. We believe that our internal controls are effective to provide reasonable assurance that our financial statements are fairly presen ted in conformity with generally accepted accounting principals. Since our most recent evaluation, there have been no changes in our internal controls or in other factors that could significantly affect our internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses. Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement and/or instance of fraud. Controls are susceptible to manipulation, especially in instances of fraud caused by the collusion of two or more people, including our senior management. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our Certifying Officers, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of April 30, 2010. Since our most recent evaluation, there have been no changes in our internal control of financial re porting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This report does not include an attestation report of our registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
Management
The following table sets forth the names, positions and ages of the executive officers and directors. Directors are elected at the annual meeting of stockholders and serve for one year or until their successors are elected and qualify. Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board of Directors.
| Name of Director or Officer and Position in the Company | Officer or Director Since | | | Age | | Office(s) Held and Other Business Experience |
| | | | | | | |
| Chien Chih Liu, Principal Executive Officer and Director (1) | November 1, 2007 to present | | | 39 | | Mr. Liu has over 15 years of experience in international trade and project management. From 2002 to 2007, he was Vice President of Tianyi Group, a company engagd in the business of international trade and project management in California. Prior to Tianyi Group, he was in the real estate investment business in both the US and China. Mr. Liu received a BS in Chemical Engineering from the University of California-Berkeley. He devotes his time as required to the business of our company. |
| | | | | | | |
| Richard Di Sfefano, Principal Financial Officer | June 5, 2008 to present | | | 34 | | Mr. DiStefano is a business strategist with over 13 years experience managing multiple product lines in both the corporate and entrepeneurial environments. From 2004 to the present, he has been the owner/operator of Premier Wireless, a retail multi-carrier phone sales and service outlet business. He grew the company from one outlet to 12 in 36 months in premium mall locations and formed dealer relationships with Sprint, Verizon, Cingular, T-Mobile and Metro PCS. In addition, from 2004 to the present, Mr. DiStefano is a Director of Produt Mobile for Match.com, where he has developed and launched SMS alerts, an integrated WAP site and Brew downloadable client applications with AT&T, Sprint, Virgin, Alltel and Telefonica in Spain. He has led the global on-deck expansion of Match.com into the UK and Spain with Vodafone and Oran ge, and created and launched the model for Match and MSN dating and personals in the US and 14 other countries, including contract negotiations. He received a BS Degree in Rhetoric and Communications from the University of California-Davis in 1998 and a Law Degree from Lincoln Law School in Sacramento, CA. in 2004. Mr. DiStefano devotes his time as required to the business of our company. |
| | | | | | | |
| Mariya Petrovska, Secretary and Director | April 18, 2007 to Present | | | 26 | | Ms. Petrovska was appointed a director and corporate secretary of the company in April 2007. She graduated from Sonoma State University in May 2006 with a Bachelors Degree in Communications and has worked as an intern for the Comunications and Public Relations Firm in San Francisco, CA, where she assisted with various marketing and promotions campaigns. After graduation, Ms. Petrovska joined ZAP, a publicly-traded company, where she worked as a Marketing and Event Coordinator. Ms. Petrovska has travelled extensively throughout Europe, living in the Middle East and completing a year at St. Louis University in Madrid, Spain. Ms. Petrovska devotes her time as required to the business of our company. |
| | | | | | | |
| Ching Chuen Chan, Director | September 26, 2005 to Present | 52 | | Professor at the University of Hong Kong and one of China's foremost authorities on drive train design and engineering. He has been called the "Father of Asian Electric Vehicles" by Global View Magazine 2003 and has been actively involved in electric vehicle (EV) projects in China, India, Japan, United States and Europe. In 2001, Asiaweek selected Chan as "Asia's Best Technology Pioneer". He has authored and co-authored eight books and over 220 technical papers and holds eight patents. His 2001 book "Modern Electric Vehicle Technology" is considered a comprehensive reference book on the subject. Professor Chan is a member of the National Committee of the Chinese People's Political Consultative Conference and Chief Panelist for the Ministry of Science and Technology. He is the Science & Technology advisor for Shandong Province, as well as Chief Advisor on EVs for the Mayor of Wuhan. He founded the International Research Centre for EVs at the University of Hong Kong, hosted the 10th International EV Symposium in Hong Kong and co-founded the World EV Association. He has also served as the President of EV Association of Asia Pacific, President of the Hong Kong Institution of Engineers, and is now Vice President of the Hong Kong Academy of Engineering Sciences and President of the Asian EV Society. Professor Chan was born to a Chinese entrepreneurial family in Indonesia. He obtained his academic credentials from Tsinghua University and the University of Hong Kong and holds honorary degrees from universities in Russia, Ukraine and the United Kingdom. He worked for 11 years in the research and development of electric machines and power systems; and for 29 years in polytechnic and universities devoted to teaching and research in electrical engineering. He has also served as a guest lecturer in the U.S. at UC Berkeley, MIT and UC Davis. Mr Chan d evotes his time as required to the business of our company. |
| | | | | | | |
During the fiscal year ended April 30, 2010, the Company accepted the resignation of Steven M. Schneider as a Director and appointed Chien Chih Liu to fill the vacancy, until the next annual election of directors at the annual stockholders meeting, and also accepted the resignation of Tony R. Collins as VP of Corporate Development and Technology.
The persons named as officers and directors in the table above are expected to hold their offices/positions until the next annual meeting of our stockholders. The officers and directors are our only officers, directors, promoters and control persons.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of our common stock. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with. In making these disclosures, we have relied solely on a review of the copies of such reports furnished to us and written representations by our directors, executive officers and greater than ten percent stockholders.
Code of Ethics
At this time, we have not adopted a formal Code of Ethics that applies to the Chief Financial Officer. We have, however, followed an informal Code of Ethics requiring Board of Director approval of any material transaction involving our Chief Financial Officer. We believe this procedure reasonably deters material wrongdoing and promotes honest and ethical conduct from our executive officers.
Item 11. Executive Compensation
The following table sets out the compensation received for the fiscal years ended April 30, 2010 and 2009 with respect to each of the individuals who were our principal executive officers at any time during the last fiscal year and the most highly compensated executive officers whose total salary and bonus exceeded $100,000.
| SUMMARY COMPENSATION TABLE |
| | | | | | | | | | Change in Pension Value | | |
| | | | | | | | | Non-Equity Incentive | and Nonqualified Deferred | All Other | |
| Name and Principal Position | | Year | Salary | | Bonus | Stock Awards | Option Awards | Plan Compensation | Compensation Earnings | Compensation | Total |
| | | | ($) | | ($) | ($) | ($) | ($) | ($) | ($) | ($) |
| | | | | | | | | | | | |
| Chien Chih Liu, Principal Executive Officer | | 2010 | 125,000 (1) | | 75,000 (1) | | (1) | 0 | 0 | 0 | |
| | | 2009 | 0 | | 0 | | | 0 | | 0 | 164,000 |
| | | | | | | | | | | | |
| Richard Di Stefano,Principal Financial Officer | 2010 | 0 | | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | 2009 | 0 | | 0 | 0 | 0 | 0 | 0 | 0 | |
| | | | | | | | | | | | |
| Mariya Petrovska, Secretary | | 2010 | 50,000 | | 0 | 50,000 (5) | 0 | 0 | | 0 | 100,000 |
| | | 2009 | 0 | | 0 | | 0 | 0 | 0 | 0 | 50,000 |
| | | | | | | | | | | | |
(1) During the fiscal year ended April 30, 2010, on July 1, 2009, we entered into an Employment Agreement with Mr. Chien Chih Liu. The terms of the agreement provide that Mr. Liu will receive an annual base salary of $125,000 per year, as well as a one-time bonus of $75,000 in restricted common stock. In addition, we are currently in the process of preparing an Employee Stock Option Plan with our legal counsel and, once completed, the Employment Areement also provides for the grant of a stock option in the amount of 1,000,000 shares, with the the exercise price and terms to be set and approved by the Board of Directors upon grant. The term of the Employment Agreement is for 36 months, beginning July 1, 2009.
(2) During the fiscal year ended April 30, 2010, 507,500 units were issued to Chien Chih Liu for consulting services, valued at $76,125. Each unit consists of one share of restricted common stock and one common stock purchase warrant. Each warrant entitles the holder to purchase one additional share of common stock at a price of $0.25 per share for a period of 5 years, expiring on February 12, 2015.
Also, during the fiscal year ended April 30, 2010, 250,000 shares of restricted common stock and 3,000,000 common stock purchase warrants were issued to Chien Chih Liu for consulting services, valued at $62,500. Each warrant entitles the holder to purchase one additional share of common stock at a price of $0.25 per share for a period of 10 years, expiring on March 17, 2020.
(3) During the fiscal year ended April 30, 2009, 16,000 units were issued to Chien Chih Liu as stock-based compensation, valued at $64,000. Each unit consists of one share of restricted common stock and one common stock purchase warrant. Each warrant entitles the holder to purchase one additional share of common stock at a price of $7.50 per share for a period of 5 years, expiring on May 12, 2013.
(4) During the fiscal year ended April 30, 2009, Chien Chih Liu received 100,000 shares of restricted common stock, valued at $100,000, in lieu of compensation and Mariya Petrovska received 50,000 shares of restricted common stock, valued at $50,000 in lieu of compensation.
(5) During the fiscal year ended April 30, 2010, 333,333 units were issued to Mariya Petrovska for consulting services, valued at $50,000. Each unit consists of one share of restricted common stock and one common stock purchase warrant. Each warrant entitles the holder to purchase one additional share of common stock at a price of $0.25 per share for a period of 5 years, expiring on February 25, 2015.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| | | Option Awards | | | | Stock Awards | |
| Name | Number of | Number of | Equity Incentive | Option Exercise | Option Expiration | Number of Shares | Market Value of | Equity Incentive | Equity Incentive |
| | Securities | Securities | Plan | Price | Date | or Units | Shares or | Plan | Plan |
| | Underlying Unexercised | Underlying Unexercised | Awards: Number | ($) | | of Stock That Have | Units of Stock | Awards: Number | Awards: Market or |
| | Options (#) | Options (#) | of Securities | | | Not Vested | That Have Not | of Unearned | Payout Value |
| | Exercisable | Unexercisable | Underlying Unexercised | | | (#) | Vested ($) | Shares, Units or | of Unearned |
| | | | Unearned | | | | | Other | Shares, Units |
| | | | Options (#) | | | | | Rights That Have Not | or Other Rights |
| | | | | | | | | Vested | That Have |
| | | | | | | | | (#) | Not Vested |
| | | | | | | | | | ($) |
| | | | | | | | | | |
| Chien Chih Liu | (1) | 1,000,000 (1) | (1) | (1) | (1) | | | | |
| | | | | | | | | | |
(1) On July 1, 2009, we entered into an Employment Areement with Mr. Liu, our Principal Executive Officer, which provides for the grant of a stock option in the amount of 1,000,000 shares, with the the exercise price and terms to be set and approved by the Board of Directors upon grant; however, the stock option has not been finalized or granted as of the date of the filing of this annual report. Therefore, no values have been assigned to the underlying securities.
None of our officers or directors exercised any warrants during the fiscal year ended April 30, 2010.
No pension or retirement benefit plan has been adopted and none is proposed at this time. There is no arrangement for compensation with respect to termination of the directors in the event of change of control of the Company.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding common stock beneficially owned on the date of this filing for (i) each shareholder known by us to be the beneficial owner of five (5%) percent or more of our issued and outstanding common stock, (ii) each executive officers and directors, and (iii) all executive officers and directors as a group. As of the date of the filing of this annual report, there were 4,622,307 shares of common stock issued and outstanding.
| Name and Address of Beneficial Owner | Position(s) Held | Nature and Amount of Beneficial Ownership (1) | Percent of Outstanding Common Stock |
| | | | |
| | | | |
| Chien Chih Liu | Chief Executive Officer and Director | 933,498 | 20% |
| 300 B Street | | Direct | |
| Santa Rosa, CA. 95401 | | | |
| | | | |
| Ching Chuen Chan | Director | 3,000 | |
| 399 B Street | | Direct | <1% |
| Santa Rosa, CA. 95401 | | | |
| | | | |
| Richard Di Stefano | Chief Financial Officer | 5,000 | <1% |
| 300 B Street | | Direct | |
| Santa Rose, CA. 95401 | | | |
| | | | |
| Mariya Petrovska | Secretary and Director | 385,333 | 8% |
| 300 B Street | | Direct | |
| Santa Rosa, CA. 95401 | | | |
| | | | |
| All Officers and Directors as a group | | 1,326,831 | 28% |
(1) In general, a person is considered a beneficial owner of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose of such security. A person is also considered to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within (60) days.
Changes in Control
There are no arrangements known to us, the operation of which may at a subsequent date result in a change of control of our company.
Item 13. Certain Relationships and Related Transactions
At April 30, 2010, a total of $663 was due and payable to a former director and stockholder of the Company. This balance is non-interest bearing, unsecured and has no fixed terms of repayment.
During the year ended April 30, 2010, we issued 1,115,833 shares of our restricted common stock, valued at $192,375, to related parties who are officers and directors for consulting services and salaries.
During the year ended April 30, 2010, we granted 3,840,833 warrants to related parties who are our officers and directors.
On November 28, 2008, we entered into an Asset Purchase and Balance Sheet Enhancement Agreement with a related party to acquire an undivided 25% tenancy-in-common interest in a properly 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, valued at $1.25 per share. On July 29, 2009, we disposed of the land and building back to the related party for proceeds of $250,000 and the 200,000 shares were canceled and returned to treasury.
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements for the fiscal year ended April 30, 2010 were $9,881.88. The reviews for the financial statements included in our quarterly reports on Form 10-Q during the fiscal year ended April 30, 2010 were $7,508.25
Audit Related Fees
We incurred no fees for the fiscal year ended April 30, 2010 for assurance and related services by our principal accountant that were reasonably related to the performance of the audit or review of our financial statements, and not reported under Audit Fees above.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice, preparation and filing of tax returns and tax planning for the fiscal year ended April 30, 2010 were $Nil.
All Other Fees
We also incurred $688.33 in other fees during the fiscal year ended April 30, 2010 for products and services rendered by our principal accountants.
Audit Committee Requirements
Section 10A(i) of the Exchange Act prohibits our auditors from performing audit services for us, as well as any services not considered to be "audit services", unless such services are pre-approved by the audit committee of the Board of Directors, or unless the services meet certain de minimis standards. Because we are still in the development stage and have not yet completed our business plans and/or generated any revenues, we have not yet appointed an audit committee. Our Board of Directors ensure that:
| | · | All audit services that the auditor may provide to us or any subsidiary (including, without limitation, providing comfort letters in connection with securities underwritings or statutory audits) as required by §10A(i)(1)(A) of the Exchange Act (as amended by the Sarbanes-Oxley Act of 2002) are preapproved by the Board. |
| | · | All non-audit services (other than certain de minimis services described in §10A(i)(1)(B) of the Exchange Act (as amended by the Sarbanes-Oxley Act of 2002)) that the auditors propose to provide to us or any of our subsidiaries are preapproved by the Board. |
All audit fees were approved by the Board of Directors.
Item 15. 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 6/7/04 under our SEC File Number 333-116324 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 7/31/06. These exhibits are incorporated herein by this reference.
Exhibit No. Description
* 3(i) Articles of Incorporation
* 3(ii) Bylaws
23.1 Consent of Accountants
23.2 Consent of Former Accountants
31.1 Sec. 302 Certification of Principal Executive Officer/CEO
31.2 Sec. 302 Certification of Principal Accounting Officer/CFO
32.1 Sec. 906 Certification of Principal Executive Officer/CEO
32.2 Sec. 906 Certification of Principal Accounting Officer/CFO
*99 Agreement with Obvio! Automotoveiculos S.A.
SIGNATURES
Pursuant to the requirements of Section 13(a) or 15(d) 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: July 29, 2010
/s/ Richard Di Stefano
By: Richard Di Stefano, Chief Financial Officer
Dated: July 29, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the dates indicated:
Dated: July 29, 2010
/s/ Mariya Petrovska
By: Mariya Petrovska, Secretary and Director
Dated: July 29, 2010
/s/ Ching Chen Chan
By: Ching Chen Chan, Director
Rotoblock Corporation
(A Development Stage Company)
Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
Chartered Accountants
Suite 350 - 1111 Melville Street
Vancouver, British Columbia
Canada V6E 3V6
Telephone +1 604 669 0711
Facsimile +1 604 669 0754
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Rotoblock Corporation
(A Development Stage Company)
We have audited the consolidated balance sheets of Rotoblock Corporation (A Development Stage Company) (the "Company”) as of 30 April 2010 and 2009 and the related consolidated statements of operations, cash flows and changes in stockholders’ equity for each of the years in the three-year period ended 30 April 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 30 April 2010 and 2009, and the results of its operations, its cash flows and its changes in stockholders’ equity for each of the years in the three-year period ended 30 April 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ James Stafford
Chartered Accountants
Vancouver, Canada
12 July 2010, except for Note 15, as to which the date is 28 July 2010
Rotoblock Corporation
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
| | | As at 30 April 2010 | | As at 30 April 2009 |
| | | $ | | $ |
| Assets | | | | |
| | | | | |
| Current | | | | |
| Cash and cash equivalents | | 925,070 | | 4,786 |
| Accounts receivable | | 220 | | 183 |
| Prepaid expenses (Note 10) | | 158,998 | | 78,345 |
| | | | | |
| | | 1,084,288 | | 83,314 |
| | | | | |
Patents (Note 3) | | - | | 108,745 |
Available-for-sale investment (Note 4) | | 1,231,929 | | - |
Property and equipment (Note 5) | | 124,812 | | 251,526 |
| | | | | |
| | | 2,441,029 | | 443,585 |
| Liabilities | | | | |
| | | | | |
| Current | | | | |
| Accounts payable and accrued liabilities (Note 6) | | 215,115 | | 40,770 |
| Due to related party (Note 8) | | 663 | | 551 |
| Provision for legal dispute (Note 12 ii) | | - | | 72,000 |
Convertible promissory note (Notes 4 and 7) | | 2,025,644 | | - |
| | | | | |
| | | 2,241,422 | | 113,321 |
| | | | | |
| Stockholders’ equity | | | | |
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 | | | | |
| 30 April 2010 – 4,622,307 common shares, par value $0.001 | | | | |
| 30 April 2009 – 1,120,195 common shares, par value $0.001 | | 4,622 | | 1,120 |
| Additional paid-in capital | | 5,620,014 | | 5,465,365 |
| Warrants | | 1,421,526 | | 280,274 |
Share subscriptions received in advance (Note 10) | | 250,000 | | - |
| Accumulated other comprehensive income (loss) | | 227,684 | | (4,198) |
| Deficit, accumulated during the development stage | | (7,324,239) | | (5,412,297) |
| | | | | |
| | | 199,607 | | 330,264 |
| | | | | |
| | | 2,441,029 | | 443,585 |
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/ Richard Di Stefano, Chief Financial Officer
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
| | | | For the period from the date of inception on 2 September 2003 to 30 April 2010 (Unaudited) | For the year ended 30 April 2010 | For the year ended 30 April 2009 | For the year ended 30 April 2008 |
| | | | $ | $ | $ | $ |
| | | | | | | |
| Expenses | | | | | | |
| General and administrative (Schedule 1) | | | 7,044,666 | 1,876,581 | 718,591 | 576,091 |
| | | | | | | |
| Net loss before other items | | | (7,044,666) | (1,876,581) | (718,591) | (576,091) |
| | | | | | | |
| Other items | | | | | | |
| Excess of consideration over net assets purchased from Rotoblock Inc. (Note 1) | | | (138) | - | - | - |
| Gain on disposal of property (Notes 5, 9, 10 and 13) | 1,384 | 1,384 | - | - |
| Provision for legal dispute (Note 12 ii) | | | - | 72,000 | (72,000) | - |
| Write-off of patents (Note 3) | | | (108,745) | (108,745) | - | - |
| Write-off of property and equipment | | | (9,870) | - | - | - |
| Write-off of related party receivable | | | (162,204) | - | - | - |
| | | | | | | |
| Loss for the period | | | (7,324,239) | (1,911,942) | (790,591) | (576,091) |
| | | | | | | |
| Basic and diluted loss per common share | | | | (1.04) | (0.90) | (0.88) |
| | | | | | | |
| Weighted average number of common shares used in per share calculations | 1,841,638 | 881,986 | 651,111 |
| | | | | | | |
| Comprehensive loss | | | | | | |
| Loss for the period | | | (7,324,239) | (1,911,942) | (790,591) | (576,091) |
| Foreign currency translation adjustment | | | (4,245) | (47) | 70 | (10) |
| Unrealized gain on available-for-sale investment (Note 4) | 231,929 | 231,929 | - | - |
| | | | | | | |
| Comprehensive loss for the period | | | (7,096,555) | (1,680,060) | (790,521) | (576,101) |
| | | | | | | |
| Comprehensive loss per common share | | | | (0.91) | (0.90) | (0.88) |
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
| | | | | For the period from the date of inception on 2 September 2003 to 30 April 2010 (Unaudited) | For the year ended 30 April 2010 | For the year ended 30 April 2009 | For the year ended 30 April 2008 |
| | | | | $ | $ | $ | $ |
| | | | | | | | |
| | Cash used in operating activities | | | | |
| | Loss for the period | | | (7,324,239) | (1,911,942) | (790,591) | (576,091) |
| | Adjustments to reconcile loss to net cash used by operating activities: | | | | | | |
| | Contributions to capital by related party – expenses (Notes 9 and 13) | | | 300,000 | - | 100,000 | 100,000 |
| | Depreciation (Note 5) | | | 8,480 | 3,098 | 1,414 | - |
| | Gain on disposal of property (Notes 5, 9, 10 and 13) | (1,384) | (1,384) | - | - |
| | Non-cash interest (Note 7) | | | 37,349 | 25,644 | - | - |
| | Shares issued for services (Notes 9, 10 and 13) | | | 2,167,053 | 676,675 | 394,000 | 300,256 |
| | Stock-based compensation (Notes 9, 10 and 13) | | | 3,157,726 | 633,728 | 147,446 | 60,664 |
| | Write-off of patents (Note 3) | | | 108,745 | 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 accounts receivable | | | (220) | (37) | 36 | (20) |
| | Increase in prepaid expenses | | | (132,926) | (80,653) | (52,273) | - |
| | Increase (decrease) in accounts payable and accrued liabilities | 203,412 | 174,345 | 18,784 | (22,394) |
| | Increase (decrease) in provision for legal dispute (Note 12 ii) | - | (72,000) | 72,000 | - |
| | Increase (decrease) in due to related party (Note 8) | 663 | 112 | (107) | 60 |
| | | (1,288,267) | (443,669) | (109,291) | (137,525) |
| | Cash flows used in investing activities | | | | | | |
| | Purchase of equipment (Note 5) | | | (16,778) | - | (2,940) | - |
| | Investment in Samyang Optics Co. Ltd. (Note 4) | | | (1,000,000) | (1,000,000) | - | - |
| | Purchase of patents (Note 3) | | | (108,745) | - | - | - |
| | | | | (1,125,523) | (1,000,000) | (2,940) | - |
| | Cash flows from financing activities | | | | | | |
| | Common shares issued for cash (Note 10) | | | 1,000,941 | 114,000 | 6,475 | 174,361 |
| | Warrants granted for cash (Note 10) | | | 72,164 | - | 18,525 | 53,639 |
| | Warrants exercised | | | 10,000 | - | - | - |
| | Convertible promissory note payable (Note 7) | | | 2,010,000 | 2,000,000 | - | - |
| | Share subscriptions received in advance (Note 10) | | 250,000 | 250,000 | - | - |
| | | | | 3,343,105 | 2,364,000 | 25,000 | 228,000 |
| | | | | | | | |
| | Foreign exchange effect on cash | | | (4,245) | (47) | 70 | (10) |
| | | | | | | | |
| | Increase (decrease) in cash and cash equivalents | | | 925,070 | 920,284 | (87,161) | 90,465 |
| | | | | | | | |
| | Cash and cash equivalents, beginning of period | | | - | 4,786 | 91,947 | 1,482 |
| | | | | | | | |
| | Cash and cash equivalents, end of period | | | 925,070 | 925,070 | 4,786 | 91,947 |
Supplemental Disclosures with Respect to Cash Flows (Note 13)
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders’ Equity
(Expressed in U.S. Dollars)
| | | Number of shares issued | Capital stock | Additional paid-in capital | Warrants | Accumulated other comprehensive income (loss) | Deficit accumulated during the development stage | Stockholders’ equity |
| | | | | | | | | | | | | | | | |
| | | | | | $ | | $ | | $ | | $ | | $ | | $ |
| | | | | | | | | | | | | | | | |
| Balance at 2 September 2003 (inception) | | - | | - | | - | | - | | - | | - | | - |
| | Shares issued for cash | | 140,000 | | - | | 534 | | - | | - | | - | | 534 |
| | Shares issued for cash | | 4,000 | | - | | 38,130 | | - | | - | | - | | 38,130 |
| | Adjustment to number of shares issued as a result of the acquisition of net assets of Rotoblock Inc. (Note 1) | (144,000) | | - | | - | | - | | - | | - | | - |
| | Shares issued in connection with the acquisition of net assets of Rotoblock Inc. (Note 1) | 300,000 | | 300 | | (300) | | - | | - | | - | | - |
| | Excess of consideration over net assets | | - | | - | | - | | - | | - | | (138) | | (138) |
| | purchased from Rotoblock Inc. (Note 1) | | | | | | | | | | | | | | |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | (1,918) | | - | | (1,918) |
| | Net loss for the period | | - | | - | | - | | - | | - | | (108,443) | | (108,443) |
| | | | | | | | | | | | | | | | |
| Balance at 30 April 2004 (Unaudited) | | 300,000 | | 300 | | 38,364 | | - | | (1,918) | | (108,581) | | (71,835) |
| | Shares issued for cash ($2.50 per share) | | 200,000 | | 200 | | 499,800 | | - | | - | | - | | 500,000 |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | (1,385) | | - | | (1,385) |
| | Net loss for the year | | - | | - | | - | | - | | - | | (306,193) | | (306,193) |
| | | | | | | | | | | | | | | | |
| Balance at 30 April 2005 (Unaudited) | | 500,000 | | 500 | | 538,164 | | - | | (3,303) | | (414,774) | | 120,587 |
| | Shares issued for cash ($13.08 per share) | | 10,963 | | 11 | | 143,430 | | - | | - | | - | | 143,441 |
| | Shares issued for services rendered ($15.59 per share) | | 48,363 | | 48 | | 753,829 | | - | | - | | - | | 753,877 |
| | Shares issued for inventory ($14.50 per share) | | 12,221 | | 12 | | 177,192 | | - | | - | | - | | 177,204 |
| | Warrants exercised ($12.50 per share) | | 800 | | 1 | | 9,999 | | - | | - | | - | | 10,000 |
| | Stock-based compensation | | - | | - | | 1,901,177 | | - | | - | | - | | 1,901,177 |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | (950) | | - | | (950) |
| | Net loss for the year | | - | | - | | - | | - | | - | | (2,767,259) | | (2,767,259) |
| | | | | | | | | | | | | | | | |
| Balance at 30 April 2006 (Unaudited) | | 572,347 | | 572 | | 3,523,791 | | - | | (4,253) | | (3,182,033) | | 338,077 |
| | Shares issued for cash ($10.50 per share) | | 2,286 | | 2 | | 23,998 | | - | | - | | - | | 24,000 |
| | Shares issued for services rendered ($5.62 per share) | | 34,185 | | 34 | | 192,031 | | - | | - | | - | | 192,065 |
| | Contribution to capital by related parties – services | | - | | - | | 100,000 | | - | | - | | - | | 100,000 |
| | Stock-based compensation | | - | | - | | 414,711 | | - | | - | | - | | 414,711 |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | (5) | | - | | (5) |
| | Net loss for the year | | - | | - | | - | | - | | - | | (863,582) | | (863,582) |
| | | | | | | | | | | | | | | | |
| Balance at 30 April 2007 | | 608,818 | | 608 | | 4,254,531 | | - | | (4,258) | | (4,045,615) | | 205,266 |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders’ Equity - Cont’d
(Expressed in U.S. Dollars)
| | | | Number of shares issued | Capital stock | | Additional paid-in capital | | | Subscriptions received in advance | | Accumulated other comprehensive income (loss) | | Deficit accumulated during the development stage | | Stockholders’ equity |
| | | | | | | | | | | | | | | | | | |
| | | | | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
| | | | | | | | | | | | | | | | | | |
| Balance at 30 April 2007 | | 608,818 | | 608 | | 4,254,531 | | - | | - | | (4,258) | | (4,045,615) | | 205,266 |
| | Shares issued for cash ($3.38 per share) (Note 10) | | 51,600 | | 52 | | 174,309 | | - | | - | | - | | - | | 174,361 |
| | Warrants granted | | - | | - | | - | | 53,639 | | - | | - | | - | | 53,639 |
| | Shares issued for services rendered ($2.78 per share) (Notes 10 and 13) | | 63,511 | | 64 | | 176,446 | | - | | - | | - | | - | | 176,510 |
| | Contribution to capital by related parties – services (Notes 9 and 13) | | - | | - | | | | - | | - | | - | | - | | |
| | Stock-based compensation (Notes 10 and 13) | | - | | - | | - | | | | - | | - | | - | | |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | - | | | | - | | |
| | Net loss for the year | | - | | - | | - | | - | | - | | - | | (576,091) | | (576,091) |
| | | | | | | | | | | | | | | | | | |
| Balance at 30 April 2008 | | 723,929 | | 724 | | 4,705,286 | | 114,303 | | - | | (4,268) | | (4,621,706) | | 194,339 |
| | Shares issued for cash ($1.94 per share) (Note 10) | | 3,333 | | 3 | | 6,472 | | - | | - | | - | | - | | 6,475 |
| | Warrants granted for cash (Note 10) | | - | | - | | - | | 18,525 | | - | | - | | - | | 18,525 |
| | Shares issued for services rendered ($1.87 per share) (Notes 10 and 13) | | 190,933 | | 191 | | 393,809 | | - | | - | | - | | - | | 394,000 |
| | Shares issued for property ($1.25 per share) (Notes 5, 9, 10, and 13) | | 200,000 | | 200 | | 249,800 | | - | | - | | - | | - | | 250,000 |
| | Shares issued for debt ($5.00 per share) (Note 10 and 13) | | 2,000 | | 2 | | 9,998 | | - | | - | | - | | - | | 10,000 |
| | Contribution to capital by related parties – services (Notes 9 and 13) | | - | | - | | 100,000 | | - | | - | | - | | - | | 100,000 |
| | Stock-based compensation (Notes 9, 10 and 13) | | - | | - | | - | | 147,446 | | - | | - | | - | | 147,446 |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | - | | 70 | | - | | 70 |
| | | | - | | - | | - | | - | | - | | - | | (790,591) | | (790,591) |
| | | | | | | | | | | | | | | | | | |
| Balance at 30 April 2009 | | 1,120,195 | | 1,120 | | 5,465,365 | | 280,274 | | - | | (4,198) | | (5,412,297) | | 330,264 |
| | | | | | | | | | | | | | | | |
| | Shares issued for property rescinded ($1.25 per share) (Notes 5, 9, 10 and 13) | | (200,000) | | (200) | | (249,800) | | - | | - | | - | | - | | (250,000) |
| | Shares issued for cash ($0.61 per share) (Note 10) | | 6,552 | | 6 | | 3,994 | | - | | - | | - | | - | | 4,000 |
| | Shares issued for cash ($0.75 per share) (Note 10) | | 13,333 | | 13 | | 9,987 | | - | | - | | - | | - | | 10,000 |
| | Shares issued for cash ($1.75 per share) (Note 10) | | 28,572 | | 29 | | 49,971 | | - | | - | | - | | - | | 50,000 |
| | Shares issued for cash ($1.75 per share) (Note 10) | | 28,572 | | 29 | | 49,971 | | - | | - | | - | | - | | 50,000 |
| | Shares issued for services rendered (Notes 10 and 13) | | 3,500,083 | | 3,500 | | 673,175 | | - | | - | | - | | - | | 676,675 |
| | Shares issued for property and equipment (Notes 5, 10 and 13) | | 125,000 | | 125 | | 124,875 | | - | | - | | - | | - | | 125,000 |
| | Fair value of warrants issued | | - | | - | | (507,524) | | 507,524 | | - | | - | | - | | - |
| | Stock-based compensation (Notes 9, 10 and 13) | | - | | - | | - | | 633,728 | | - | | - | | - | | 633,728 |
| | Unrealized gain on available-for-sale investment (Note 4) | | - | | - | | - | | - | | - | | 231,929 | | - | | 231,929 |
| | Share subscriptions received in advance (Note 10) | | - | | - | | - | | - | | 250,000 | | - | | - | | 250,000 |
| | Foreign currency translation adjustment | | - | | - | | - | | - | | - | | (47) | | - | | (47) |
| | Net loss for the year | | - | | - | | - | | - | | - | | - | | (1,911,942) | | (1,911,942) |
| | | | | | | | | | | | | | | | | | |
| Balance at 30 April 2010 | | 4,622,307 | | 4,622 | | 5,620,014 | | 1,421,526 | | 250,000 | | 227,684 | | (7,324,239) | | 199,607 |
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Schedule 1 – Consolidated General and Administrative Expenses
(Expressed in U.S. Dollars)
| | | | For the period from the date of inception on 2 September 2003 to 30 April 2010 (Unaudited) | For the year ended 30 April 2010 | For the year ended 30 April 2009 | For the year ended 30 April 2008 |
| | | | $ | $ | $ | $ |
| | | | | | | |
| Consulting fees (Notes 9,10 and 13) | | | 1,128,445 | 262,768 | 197,905 | 207,320 |
| Depreciation (Note 5) | | | 8,480 | 3,098 | 1,414 | - |
| Foreign exchange loss | | | 1,545 | - | - | - |
| Interest | | | 43,347 | 26,624 | 265 | 714 |
| Investor relations (Notes 10 and 13) | | | 289,878 | 50,000 | 96,000 | - |
| Listing, filing and transfer agent fees | | | 55,494 | 7,581 | 11,465 | 7,865 |
| Management fees (Notes 9 and 13) | | | 300,000 | - | 100,000 | 100,000 |
| Office and sundry | | | 68,840 | 8,319 | 11,709 | 6,425 |
| Professional fees | | | 486,150 | 78,877 | 76,935 | 143,908 |
| Public relations and shareholder information | 190,846 | 9,409 | 37,033 | 3,495 |
| Rent | | | 79,205 | - | - | - |
| Research and development | | | 387,173 | 72,917 | - | - |
| Salaries and wages (Notes 9, 10, 12 and 13) | | | 574,007 | 574,007 | - | - |
| Stock-based compensation (Notes 9, 10 and 13) | 3,157,726 | 633,728 | 147,446 | 60,664 |
| Travel and entertainment | 273,530 | 149,253 | 38,419 | 45,700 |
| | | | | | | |
| | | | 7,044,666 | 1,876,581 | 718,591 | 576,091 |
The accompanying notes are an integral part of these consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
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 consolidated financial statements as at 30 April 2010 and for year 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 $1,911,942 for the year ended 30 April 2010 (30 April 2009 - $790,591; 30 April 2008 - $576,091, cumulative - $7,324,239) and has working capital deficit of $1,157,134 at 30 April 2010 (30 April 2009 - $30,007).
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 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 consolidated financial statements are the historical consolidated financial statements of Rotoblock Inc.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
0;
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 2011. 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 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 30 April 2010, 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 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 consolidated financial statements.
The Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principle – a replacement of FASB Statement No. 162". The Codification reorganized existing U.S. accounting and reporting standards issued by the FASB and other related private sector standard setters into a single source of authoritative accounting principles arranged by topic. The Codification supersedes all existing U.S. accounting standards; all other accounting literature not included in the Codification (other than Securities and Exchange Commission guidance for publicly-traded companies) is considered non-authoritative. The Codification was effective on a prospec tive basis for interim and annual reporting periods ending after 15 September 2009. The adoption of the Codification changed the Company’s references to accounting principles generally accepted in the United States of America ("U.S. GAAP") but did not impact the Company’s results of operations, financial position or liquidity.
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed in U.S. dollars.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
0;
Principles of consolidation
These 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.
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.
Financial instruments
Fair Value
The carrying values of cash and cash equivalents, accounts receivable, due to related party and accounts payable approximate their fair values because of the short-term maturity of these financial instruments.
Interest Rate Risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities.
Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and accounts receivable. The Company places its cash with financial institutions of high credit worthiness. At times, its cash with a particular financial institution may exceed any applicable government insurance limits. The Company’s existence and survival presently depends on its acquisition of certain patents (Note 3).
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
Currency Risk
The Company’s functional and reporting currency is the U.S. dollar. 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. 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.
Derivative financial instruments
The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the consolidated financial statements and those reported for income tax purposes in accordance with SC 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.
Basic and diluted net 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 shareholders (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 excl udes all dilutive potential shares if their effect is anti-dilutive.
Comprehensive loss
ASC 220, "Comprehensive Income", establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
Property, plant, equipment and depreciation
Property and equipment has 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:
Property 30 years at 3%
Equipment 5 years at 20%
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.
Segments of an enterprise and related information
ASC 280, "Segments Reporting", establishes standards 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.
Foreign currency translation
The Company’s functional and reporting currency is the U.S. dollar. The 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 consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
0;
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 th e 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 ofASC 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."
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 estimatable 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." The patent costs will be amortized over their estimated useful lives upon exercise of the option (Note 3).
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.
Changes in accounting policies
In December 2007, the FASB issued new guidance for accounting for noncontrolling interests. The new guidance, which is now part of ASC 810, "Consolidation" establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The new guidance also establishes disclosure requirements that clearly identify and distinguishes between the interests of the parent and the interests of the noncontrolling owners. The new guidance was effective fo r fiscal years beginning after 15 December 2008. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or cash flows.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
In December 2007, the FASB issued revised guidance for accounting for business combinations. The revised guidance, which is now part of ASC 805, "Business Combination" requires the fair value measurement of assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, at the acquisition date with limited exceptions. Previously, a cost allocation approach was used to allocate the cost of the acquisition based on the estimated fair value of the individual assets acquired and liabilities assumed. The cost allocation approach treated acquisition-related costs and restructuring costs that the acquirer expected to incur as a liability on the acquisition date, as part of the cost of the acquisition. Under the revised guidance, those costs are recognized in the consolidated statement of income separately from the business combination. The revised guidance applies to business combina tions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 15 December 2008. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855, "Subsequent Events" is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. The new guidance was effective on a prospective basis for interim or annual reporting periods ending after 15 June 2009. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued new guidance on the disclosure of derivative instruments and hedging activities. The new guidance, which is now part of ASC 815, "Derivatives and Hedging Activities" requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The new guidance was effective prospectively for financial statements issued for fiscal years beginning after 15 November 2008, with early ap plication encouraged. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
Recent accounting pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)". SFAS No. 167 is intended to establish general standards of financial reporting for companies with variable interest entities. It requires timely and useful disclosure of information related to the Company’s involvement with variable interest entities. This disclosure should al ert all users to the effects on specific provisions of FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", related to the changes to the special-purpose entity proposal in FASB Statement No. 166, "Accounting for Transfers of Financial Assets", and the treatment of specific provisions of Interpretation 46(R). SFAS No. 167 is effective for financial statements issued for fiscal years and interim periods beginning after 15 November 2009. The Company has determined that the adoption of SFAS No. 167 will have no impact will have on its consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets—an amendment of FASB Statement". SFAS No. 166 is intended to establish standards of financial reporting for the transfer of assets and transferred assets to improve the relevance, representational faithfulness, and comparability. SFAS No. 166 was established to clarify derecognition of assets under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SF AS No. 166 is effective for financial statements issued for fiscal years and interim periods beginning after 15 November 2009. The Company has determined that the adoption of SFAS No. 166 will have no impact will have on its consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures about Fair Value Measurements." This update requires additional disclosure within the roll forward of activity for assets and liabilities measured at fair value on a recurring basis, including transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy and the separate presentation of purchases, sales, issuances and settlements of assets and liabilities within Level 3 of the fair value hierarchy. In addition, the update requires enhanced disclosures of the valuation techniques and inputs used in the fair value measurements within Le vels 2 and 3. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosure of purchases, sales, issuances and settlements of Level 3 measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010. As ASU 2010-06 only requires enhanced disclosures, the Company does not expect that the adoption of this update will have a material effect on its consolidated financial statements.
In February 2010, the FASB issued ASC No. 2010-09, "Amendments to Certain Recognition and Disclosure Requirements", which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. ASC No. 2010-09 is effective for its fiscal quarter beginning after December 15, 2010. The adoption of ASC No. 2010-06 will not have a material impact on the Company’s consolidated financial statements
In February 2010, the FASB issued ASU No. 2010-11, "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives". ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the e mbedded credit derivative feature. The amendments in ASU No. 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after March 5, 2010. The adoption of ASC No. 2010-11 is not expected to have a material impact on the Company’s consolidated financial statements.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
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 30 April 2010, 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.
| | | | Balance at 30 April 2010 | | Balance at 30 April 2009 |
| | | | $ | | $ |
| | | | | | |
| | Patent costs to date | | 108,745 | | 108,745 |
| | Provision for write-down | | (108,745) | | - |
| | Accumulated depreciation | | - | | - |
| | | | | | |
| | | | - | | 108,745 |
| 4. | Available-for-sale investment |
| | | | | | Unrealized gain/loss | | Fair value |
| | | | Adjusted cost | | | 30 April 2010 | | 30 April 2009 |
| | | | $ | | $ | | $ | | $ |
| | | | | | | | | | |
| | 977,966 common shares of Samyang Optics Co., Ltd. | | 1,000,000 | | 231,929 | | 1,231,929 | | - |
| | | | | | | | | | |
| | | | 1,000,000 | | 231,929 | | 1,231,929 | | - |
On 11 February 2010, the Company entered into an Investment Agreement with Samyang Optics Co., Ltd., ("Samyang"), a South Korean Corporation, 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 shares of Samyang for the amount of $1,000,000. Subsequent to the year end, Samyang exercised its option to convert the debt into 1,818,181 shares of the Company (Note 15).
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
| 5. | Property, plant and equipment |
| | | | | Accumulated depreciation | | Net book value |
| | | Cost | | | 30 April 2010 | | 30 April 2009 |
| | | $ | | $ | | $ | | $ |
| | | | | | | | | |
Equipment | | 127,940 | | 3,128 | | 124,812 | | 2,402 |
Property | | - | | - | | - | | 67,874 |
Land | | - | | - | | - | | 181,250 |
| | | | | | | | | |
| | | 127,940 | | 3,128 | | 124,812 | | 251,526 |
During the year ended 30 April 2010, total additions to property and equipment were $125,000 (30 April 2009 – $252,940). During the year ended 30 April 2010, total dispositions of property and equipment were $248,618 (30 April 2009 - $Nil).
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 "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.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
| 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 is due and payable on the earlier of 11 February 2012 or when such amounts are declared due and payable by the investor.
As at 30 April 2010, the balance of the convertible promissory note of $2,025,644 consists of principal and accrued interest of $2,000,000 (30 April 2009 - $Nil) and $25,644 (30 April 2009 - $Nil), respectively.
Subsequent to the year ended 30 April 2010, Samyang exercised its option to convert the debt into 1,818,181 shares of the Company valued at $1.10 per common share for $2,000,000 (Note 15).As at 30 April 2010, the amount due to a related party is $663 (30 April 2009 - $551), 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.
As at 30 April 2010, the amount due to a related party is $663 (30 April 2009 - $551), 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 year ended 30 April 2010, officers and directors of the Company made contributions to capital for management fees of $Nil (30 April 2009 - $100,000, 30 April 2008 - $100,000, 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 year ended 30 April 2010, the Company issued 1,115,833 shares (30 April 2009 - 174,200) with a fair value of $192,375 (30 April 2009 - $265,500) to related parties for consulting services and salaries. Of this amount, $191,630 was expensed during the year ended 30 April 2010 (30 April 2009 - $189,884) and the remaining $745 (30 April 2009 - $75,616) was classified as prepaid expense which will be expensed as consulting services and salaries in subsequent periods (Notes 10 and 13).
During the year ended 30 April 2010, the Company granted 3,840,833 (30 April 2009 – 16,000) warrants to related parties. Using the Black-Scholes warrant pricing model, the aggregate value of these warrants was determined to be $169,248 (30 April 2009 - $147,446) (Notes 10 and 13).
On 24 November 2008, the Company entered into an 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).
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
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 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 2008, the Company issued 31,600 private placement restricted common shares at a price of $2.50 per share for total cash proceeds of $78,000. 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. |
| ii. | During the year ended 30 April 2008, the Company issued 4,000 common shares valued at $1.00 per share for $4,000 in consulting services (Note 13). |
| iii. | During the year ended 30 April 2008, the Company issued 20,000 common shares valued at $2.50 per share for $50,000 in consulting services (Note 13). |
| iv. | During the year ended 30 April 2008, the Company issued 6,000 common shares valued at $2.50 per share for $15,000 in public relations services (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. |
| v. | During the year ended 30 April 2008, the Company issued 4,000 common shares valued at $1.00 per share for $4,000 in consulting services (Note 13). |
| vi. | During the year ended 30 April 2008, the Company issued 7,600 share purchase warrants with a fair value of $5,383. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $12.50 up to 6 September 2012. As at 30 April 2010, 7,600 of these share purchase warrants in this series remain outstanding. |
| vii. | During the year ended 30 April 2008, the Company issued 2,571 common shares valued at $6.50 per share for $16,710 for consulting services (Note 13). |
| viii. | During the year ended 30 April 2008, the Company issued 1,684 common shares valued at $4.50 per share for $8,000 for consulting services (Note 13). |
| ix. | During the year ended 30 April 2008, the Company issued 589 common shares valued at $4.50 per share for $2,800 for consulting services (Note 13). |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
| x. | During the year ended 30 April 2008, the Company issued 13,333 units at a price of $7.50 per unit for total cash proceeds of $100,000. Each unit consists of one restricted common share and one-half 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 $25,793. As at 30 April 2010, 6,667 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. |
| xi. | During the year ended 30 April 2008, the Company issued 6,667 units at a price of $7.50 per unit for total cash proceeds of $50,000. 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 $22,463. As at 30 April 2010, 6,667 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. |
| xii. | During the year ended 30 April 2008, the Company issued 2,000 common shares valued at $4.00 per share for $8,000 for consulting services (Note 13). |
| xiii. | During the year ended 30 April 2008, the Company issued 2,667 common shares valued at $3.00 per share for $8,000 for consulting services (Note 13). |
| xiv. | During the year ended 30 April 2008, the Company issued 20,000 units valued at $3.00 per unit for consulting services (Note 13). 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 $7.50 per share for a period of five years from the date of offering with a fair value of $60,664. As at 31 April 2010, 20,000 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. |
| xiv. | 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). |
| xivi. | 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. |
| xivii. . | 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 30 April 2010, 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 (Notes 9 and 13). |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
| xviii. | 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). |
| xix. | 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. |
| xx. | During the year ended 30 April 2009, the Company issued 3,200 common shares valued at $7.50 per common share $24,000 in consulting expense to a related party (Notes 9 and 13). |
| xxi. | 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 (Notes 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. |
| xxii. | 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 30 April 2010, 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. |
| xxiii. | 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). |
| xxiv. | 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). Of this amount, $2,729 was expensed during the year ended 30 April 2010 (30 April 2009 - $3,271, cumulative - $6,000). |
| xxv. | 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. |
| xxxvi. | 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). |
| xxvii. | 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 (Notes 9 and 13). Of this amount, $75,616 was expensed during the year ended 30 April 2010 (30 April 2009 - $74,384, cumulative - $150,000). 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. |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
| xxviii. | 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 Agreement entered into on 24 November 2008. These shares were cancelled on 29 July 2009 (Notes 5, 9 and 13). |
| xxix. | 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 are restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. |
| xxx. | 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 are restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. |
| xxxi. | 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. Of this amount, $517,677 was expensed during the period and the remaining $158,998 was classified as prepaid expense which will be expensed as consulting services and salaries and wages in subsequent periods (Notes 9 and 13). |
| xxii. | 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 30 April 2010, 550,000 of the share purchase warrants in these series remain outstanding (Note 13). |
| xxxiii. | 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 30 April 2010, 8,585,083 of the share purchase warrants in these series remain outstanding (Notes 9 and 13). |
| xxxiv. | 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 are restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. As at 30 April 2010, 57,144 warrants in this series remain outstanding. |
| xxxv. | 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 are restricted from trading for a period of one year as defined by Rule 144 of the United States Securities Act of 1933. |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
| xxxvi. | 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). |
| xxxvii. | 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). |
Share Subscriptions Received in Advance
During the year ended 30 April 2010, the Company received $250,000 from a non-related company for the purchase of shares in the Company. As of 28 July 2010 these shares have not yet been issued.
Share Purchase Warrants
The following share purchase warrants were outstanding at 30 April 2010:
| | | | Exercise price | | Number of warrants | | Remaining contractual life (years) |
| | | | $ | | | | |
| | | | | | | | |
| | Warrants | | 12.50 | | 59,200 | | 0.70 |
| | Warrants | | 7.50 | | 50,000 | | 1.61 |
| | Warrants | | 12.50 | | 7,600 | | 2.36 |
| | Warrants | | 12.50 | | 6,667 | | 2.73 |
| | Warrants | | 7.50 | | 20,000 | | 2.92 |
| | Warrants | | 12.50 | | 6,667 | | 2.94 |
| | Warrants | | 7.50 | | 16,000 | | 3.03 |
| | Warrants | | 12.50 | | 3,333 | | 3.18 |
| | Warrants | | 0.25 | | 25,000 | | 4.21 |
| | Warrants | | 0.25 | | 25,000 | | 4.23 |
| | Warrants | | 0.50 | | 200,000 | | 4.23 |
| | Warrants | | 2.50 | | 57,144 | | 4.23 |
| | Warrants | | 0.25 | | 2,201,750 | | 4.79 |
| | Warrants | | 1.00 | | 50,000 | | 4.79 |
| | Warrants | | 0.25 | | 333,333 | | 4.83 |
| | Warrants | | 1.00 | | 300,000 | | 4.88 |
| | Warrants | | 0.25 | | 6,000,000 | | 9.89 |
| | | | | | | | |
| | | | | | 9,361,694 | | |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
The following is a summary of warrant activities during the years ended 30 April 2010 and 2009:
| | | | Number of warrants | | Weighted average exercise price |
| | | | | | $ |
| | | | | | |
| | Outstanding and exercisable at 1 May 2008 | | 150,134 | | 16.93 |
| | Granted | | 19,333 | | 8.50 |
| | Exercised | | - | | - |
| | Expired | | - | | - |
| | | | | | |
| | Outstanding and exercisable at 30 April 2009 | | 169,467 | | 15.97 |
| | | | | | |
| | Weighted average fair value of warrants granted during the year | | 8.58 |
| | | | | | |
| | Outstanding and exercisable at 1 May 2009 | | 169,467 | | 15.97 |
| | Granted | | 9,192,227 | | 0.30 |
| | Exercised | | - | | - |
| | Expired | | - | | - |
| | | | | | |
| | Outstanding and exercisable at 30 April 2010 | | 9,361,694 | | 0.58 |
| | | | | | |
| | Weighted average fair value of warrants granted during the year | | 0.12 |
The weighted average grant date fair value of warrants issued during the year ended 30 April 2010 amounted to $0.12 per warrant (30 April 2009 - $8.58 per warrant). The fair value of each warrant granted was determined using the Black-Scholes warrant pricing model and the following assumptions:
| | | As at 30 April 2010 | | As at 30 April 2009 | As at 30 April 2008 |
| | | | | | |
| | Risk free interest rate | 1.49% - 2.36% | | 3.02 % - 3.28% | 2.65 % - 3.72% |
| | Expected life | 5.0 - 10.0 years | | 5.0 years | 5.0 years |
| | Annualized volatility | 580% - 596% | | 153% - 158% | 119% - 150% |
| | Expected dividends | - | | - | - |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
Restricted Common Shares
During the year ended 30 April 2010, the Company issued 3,702,112 common shares and cancelled 200,000 common shares (30 April 2009 – issued 396,266 common shares and cancelled Nil common shares). Of the issued shares, 3,237,112 common shares (30 April 2009 – 381,733 common shares) were restricted from trading and the 200,000 rescinded shares (30 April 2009 – Nil common shares) were restricted from trading as defined under Rule 144 of the United States Securities Act of 1933.
As at 30 April 2010, a total of 4,622,307 common shares are outstanding. Of these, 3,421,347 were restricted from trading as defined under Rule 144 of the United States Securities Act of 1933.
The Company has losses carried forward for income tax purposes to 30 April 2010. There are no current or deferred tax expenses for the year ended 30 April 2010 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, includi ng 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 year ended 30 April 2010 | | For the year ended 30 April 2009 |
| | | $ | | $ |
| Deferred tax asset attributable to: | | | | |
| Current operations | | 666,119 | | 251,507 |
| Permanent differences | | (257,686) | | (157,606) |
| Change in valuation allowance | | (384,575) | | (65,025) |
| Change in long-term tax rates | | - | | (4,683) |
| Foreign exchange | | (23,858) | | (24,193) |
| | | | | |
| Net refundable amount | | - | | - |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
The composition of the Company’s deferred tax asset as at 30 April 2010 and 2009 is as follows:
| | | As at 30 April 2010 | | As at 30 April 2009 |
| | | $ | | $ |
| | | | | |
| Net operating loss carry forward | | 3,503,823 | | 2,244,976 |
| | | | | |
| Statutory federal income tax rate | | 25% - 35% | | 25% - 35% |
| Effective income tax rate | | 0% | | 0% |
| | | | | |
| Deferred tax asset | | 1,170,317 | | 785,742 |
| Less: Valuation allowance | | (1,170,317) | | (785,742) |
| | | | | |
| Net deferred tax asset | | - | | - |
The potential income tax benefit of these losses has been offset by a full valuation allowance.
As at 30 April 2010, the Company has unused non-capital losses for Canadian tax purposes of approximately $560,213 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 2030.
As at 30 April 2010, the Company has unused net operating losses for U.S. federal income tax purposes of approximately $2,953,660 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 2030.
13. 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 engaged in a dispute with a former director of the Company for services previously rendered and a related provision of $72,000 was accrued in the consolidated financial statements for the year ended 30 April 2009. The Company continues to defend its position to the fullest extent possible and reversed its provision for loss of $72,000 during the year ended 30 April 2010. |
| iii. | The Company is committed to issuing 25,000 shares valued at $3,750 pursuant to the one-year consulting agreement for consulting services. |
| iv. | The Company entered into an agreement with the corporate secretary for a salary of $50,000 per annum beginning 1 July 2009. No salaries have been paid and $41,644 has been recorded in accrued liabilities as at 30 April 2010. |
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
| v. | The Company entered into an employment agreement with the chief executive officer for a salary of $125,000 per annum and one time signing bonus of $75,000 beginning 1 July 2009. As of 30 April 2010, $41,251 in salaries has been paid and $137,859 has been recorded in accrued liabilities. |
13. Supplemental Disclosures with Respect to Cash Flows
| | | | For the period from the date of inception on 2 September 2003 to 30 April 2010 (Unaudited) | For the year ended 30 April 2010 | For the year ended 30 April 2009 | For the year ended 30 April 2008 |
| | | | | | | |
| | | | $ | $ | $ | $ |
| | Cash paid during the year for interest | 11,362 | - | - | - |
| | Cash paid during the year for income taxes | - | - | - | - |
During the year ended 30 April 2010, officers and directors of the Company made contributions to capital for management fees of $Nil (30 April 2009 - $100,000; 30 April 2008 - $100,000; cumulative - $300,000) (Note 9).
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. Of this amount, $517,677 was expensed during the period and the remaining $158,998 was classified as prepaid expense which will be expensed as consulting services in subsequent periods (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 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).
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
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 (Note 4). 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. During the year ended 30 April 2010, $25,644 in interest was accrued and is payable to Samyang (Note 7).
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).
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).
During the year ended 30 April 2008, the Company issued a total of 63,511 common shares and 20,000 common share purchase warrants valued at $176,510 for consulting and public relations services (Note 10).
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 (Note 12i).
| 14. | Fair Value Measurements |
| | The Company measures its available-for-sale investment at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: |
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace; or
Level 3 - Unobservable inputs which are supported by little or no market activities.
Rotoblock Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
30 April 2010
The Company classifies its available-for-sale investment within Level 1 as the securities are valued using quoted market prices.
Assets measured at fair value on a recurring basis are summarized below:
| | | | Fair value measurement at reporting date using |
| | | Balance at 30 April 2010 | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) | |
| | | $ | | $ | | $ | | $ | |
| | | | | | | | | | |
| Available-for-sale investment (Note 4) | 1,231,929 | | 1,231,929 | | - | | - | |
| | | | | | | | | | |
| Total | | 1,231,929 | | 1,231,929 | | - | | - | |
15. Subsequent Events
The following events occurred during the period from the year ended 30 April 2010 to the date the consolidated financial statements were available to be issued on 28 July 2010:
| i. | On 22 April 2010, the Company received $834 for the exercise of 3,334 warrants at a price of $0.25 per share. |
| ii. | On 13 May 2010, Samyang exercised its option to convert its $2,000,000 loan into equity of the Company, receiving 1,818,181 shares valued at $727,272 (Notes 4 and 7). |
