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RTBC > SEC Filings for RTBC > Form 10-Q on 14-May-2013All Recent SEC Filings

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Form 10-Q for ROTOBLOCK CORP


14-May-2013

Quarterly Report


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

This quarterly report of Form 10Q for the first quarter, 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 information 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 generally 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:

our limited operating history, particularly of Rotoblock and Daifu on a consolidated basis;

our ability to protect the patents on our proprietary technology;

our ability to fund our short-term and long-term financing needs;

changes in our business plan and corporate strategies; and
Other risks and uncertainties discussed in greater detail in various sections of this report, or set forth in part I, Item 1A of our Form 10K under the heading "Risk Factors".

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.

In this quarterly report on Form 10-Q the term refers to Rotoblock refers to Rotoblock, the term Daifu refers to daifuWaste Management Holdings , Ltd . Rotoblock acquired daifu Waste Management as a wholly owned subsidiary on November 18, 2011 on a consolidated basis, and "we," "us" and "our" refer to Rotoblock , as the context indicates.

Recent Developments

In the three months ended March 31, 2013, we recognized revenue on one complex installation. At the present time, there are two more installations that are under construction.

Results of Operations

The following table sets forth, as a percentage of net sales, certain items included in Rotoblock's Statements of Operations (see Financial Statements and Notes) for the periods indicated:

Note: In the first quarter of 2012, we were not able to recognize any revenues. In accordance with our policy of revenue recognition, we require the customer acceptance of the installation as operating satisfactorily.

                                     Three Months
                                    ended March 31
                                   2013        2012
Statements of Operations Data:
Net sales                           100.0 %     100.0 %
Cost of sales                      (59.6)          --
Operating expenses                 (32.8)          --
Income from operations                7.6          --
Net Income                            2.9          --

Quarter Ended March 31, 2013 Compared to Quarter Ended March 31, 2012

Note: In the first quarter of 2012, we were not able to recognize any revenues. In accordance with our policy of revenue recognition, we require the customer acceptance of the installation as operating satisfactorily.

Sales were $661,178 for the first quarter ended March 31, 2013 compared to nil in the first quarter ended March 31, 2012.

The increase was due to the revenue recognition of one complex installation.

Cost of sales were $394,078 for the first quarter ended March 31, 2013 compared to nil in the first quarter ended March 31, 2012. As a percentage of sales the cost of sales was 59%.

Gross profit was $267,100 for the first quarter ended March 31, 2013 compared to nil in the first quarter ended March 31, 2012. As a percentage of sales the gross profit was 41%. The profit margins have increased due to improvement in cost controls.

Selling and distribution expenses decreased by $18,467 from $91,026 for the quarter ended March 31, 2012 to $72,559 for the period ended March 31, 2013. The decrease was primarily due to better cost controls over technical and distribution expenditures. The sales staff was also reduced which resulted in lower salaries and business expenses.

Administrative and other operating costs decreased by $265,748 from 404,500 for the quarter ended March 31, 2012 to $138,752 for the period ended March 31, 2013. The decrease was primarily due to reductions in personnel and professional fees.

Depreciation and amortization decreased by $466 from $6,119 in 2012 to $5,653 in 2013. The reason for the small decrease was due to some assets fully depreciated with no additional expense recorded.

Other income decreased $22,837 from $32,044 for the quarter ended March 31, 2012 to $9,207 for the quarter ended March 31, 2013. The decrease was primarily due to less service and maintenance income for the medical waste equipment.

Financial expense increased by $2,138 from $37,673 for the quarter ended March 31, 2012 to $39,811 for the period ended March 31, 2013. The increase was due to additional related party loans during the three months ended March 31, 2013.

Interest income decreased by $82 from $172 for the quarter ended March 31, 2012 to $90 for the period ended March 31, 2013. The decrease was due to less overall average Company balances in bank savings accounts.

Net Income for the quarter ended March 31, 2013 was $19,624 compared to a net loss of $(507,009) for the period ended March 31, 2012.

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand, liquidation value of our investment in securities, and our operating and capital expenditure commitments. Our principal liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.

Our principal sources of liquidity consist of our existing cash on hand, loans from related parties and our investment in securities with Samyang Optics, Ltd of $514,633.

We will require additional capital to expand our current operations. In particular, we require additional capital to expand our customer base by the addition of qualified sales and professional staff to execute on our business plan and pursue our efforts in the research and development.

We intend to fund our long term liquidity needs related to operations through the incurrence of indebtedness, equity financing or a combination of both. Although we believe that these sources will provide sufficient liquidity for us to meet our future liquidity and capital obligations, our ability to fund these needs will depend on our future performance, which will be subject in part to general economic, financial, regulatory and other factors beyond our control, including trends in our industry and technological developments. However, we may not be able to obtain this additional financing on terms acceptable to us or at all.

We used cash in operations of $208,467 and provided cash from operations of $ 116,614 during the first quarters ended March 31, 2013 and 2012 respectively. Cash used in operations during the first quarter ended March 31, 2013 was the result of the net income for the period of $19,624, offset by non-cash expenses of $45,307.

In the first quarter of 2013, non-cash expenses were due to depreciation and amortization and non-cash interest. For the first quarter ended March 31, 2013, the net change in operating assets and liabilities resulted in a cash decrease of $288,515. The change was primarily due to the following: a decrease of $214,126 in deferred revenue, a decrease of $49,376 in other payables and accrued liabilities mainly for payment in PRC VAT tax, and an increase of $224,912 in accounts receivable. These decreases were partially offset by an increase to the inventory of $200,305.

Cash provided from operations during the first quarter ended March 31, 2012 was the result of the net loss incurred for the periods of $507,099, offset by non-cash expenses of $144,404. In the first quarter of 2012, non-cash expenses were due to depreciation and amortization, non-cash interest, non-controlling interest, stock/warrants issued for compensation and consulting fees.

For the first quarter ended March 31, 2012, the net change in operating assets and liabilities resulted in a cash increase of $479,309. The change was primarily due to the following: a increase in other receivables and prepayments of $96,353 as result of payments to suppliers and a decrease in customer's deposits offset by an increase in other payables and accrued liabilities of $317,449 as a result of accruals of $106,000 for executive pay, loan from Pacific Medical Group Limited of $238,000 and Vat Taxes of $47,000.

Investing activities did not use or provide cash for the first quarters ended March 31, 2013 and 2012.

Financing activities provided cash of $218,871 for the first quarter ended March 31, 2013 and used cash of $99,589 for the first quarter ended March 31, 2012. In the first quarter ended March 31, 2013, we received cash of $218,871 advanced by related parties. In the prior year's quarter we received cash of $17,000 through the issuance of convertible debt and used $116,589 of cash to deposit in a restricted cash account to ensure certain project performances

We had cash and cash equivalents of $59,194 at March 31, 2013 as compared to $49,568 at December 31, 2012. We had working capital deficits of approximately $3.6 million at both March 31, 2013 and December 31, 2012.

We will need additional funding to sustain our operations at our current levels through the next twelve months. Our working capital deficit of $3.6 million at March 31, 2013 may affect the Company's ability to continue its operation as a going concern. The Company's shareholder has agreed to provide sufficient financial support to the Company so as to enable the Company to meet its liabilities as and when they fall due and to enable the Company to continue its business at least for the next twelve months. The execution of such financial support, in case of necessity, depends on the ability and capability of the shareholder in the next twelve months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in conformity with U.S. generally accepted accounting principles which requires our management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. The amounts estimated could differ from actual results.

Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.

Stock Based Compensation

The Company accounts for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation-Stock Compensation ("ASC 718"), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes-Merton option pricing model (the "Black-Scholes model"). The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. We estimate forfeitures at the time of grant and revise our estimate in subsequent periods if actual forfeitures differ from those estimates.

The Company accounts for stock-based compensation awards and warrants granted to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees ("ASC 505-50"). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The Company determined that no allowance was needed at March 31, 2013 and 2012.

Inventories

Inventories consist primarily of raw materials and are valued at the lower of cost or market value with cost determined on a specific identification basis. In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company's reserve requirements generally increase/decrease due to management's projected demand requirements, market conditions and product life cycle changes. During the first three months ended March 31, 2013 and 2012, the Company did not make any allowance for slow-moving or defective inventories.

Off-Balance Sheet Arrangements

None.

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