Nature and Continuance of Operations

6 Months Ended

Jun. 30, 2012

Nature and Continuance of Operations

Nature and Continuance of Operations

Note 1. Nature and Continuance of Operations

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

On March 30, 2004, the Company entered into a Share Exchange Agreement (the “Agreement”) with Rotoblock Inc., a Canadian corporation incorporated on September 2, 2003, 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 March 30, 2004, Rotoblock Inc. completed the reverse acquisition under the Agreement with the Company.

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.

On November 18, 2011, the Company completed its acquisition of daifuWaste Management Holding Ltd, (“daifu”), a Cayman Islands company, via Share Exchange Agreement (“Share Exchange Agreement”). Pursuant to the Share Exchange Agreement, the shareholders of daifu transferred all of the daifu ordinary shares outstanding to the Company in exchange for issuance of 73,801,525 common shares of the Company, par value $0.001 per share, to the daifu shareholders. As at the date of the Share Exchange Agreement, daifu had 106,356,423 ordinary shares outstanding.

As at November 18, 2011, the Company had an aggregate of 9,281,160 share purchase warrants and a convertible promissory note outstanding. Both instruments remained intact after the Share Exchange Agreement. As a result, daifu shareholders acquired approximately 81.28% of the Company’s issued and outstanding common stock and common stock equivalents.

Because the former owners of daifu obtained control of Rotoblock, the transaction was considered a purchase of Rotoblock’s operations by daifu, accordingly:

(a) daifu is deemed to be the acquirer for accounting purposes and, as such, its assets and liabilities are included in the consolidated financial statements of the combined entity at their historical carrying values.

(b) The consolidated financial statements of the combined entity are issued under the name of the legal parent, being Rotoblock, but are a continuation of the historical consolidated financial statements of daifu.

(c) The transaction shares were recorded at the fair value of the net assets of Rotoblock.

(d) The accumulated deficit of Rotoblock as at November 17, 2011 has been eliminated.

(e) The capital structure of the Company is that of Rotoblock, but the dollar amount of the issued share capital in the consolidated balance sheet immediately prior to the acquisition is that of daifu plus the value of shares issued by Rotoblock to acquire daifu.

At the date of acquisition, the determination and allocation of the purchase price is summarized below:

Purchase Price
Shares of daifu (i)		24,497,207
Fair value per share of daifu (ii)	$	0.0998
Total Purchase Price			$	2,445,796
Allocation of Purchase Price
Cash			$	76,182
Accounts receivable				217
Prepaid expenses				40,209
Accounts payable and accrued liabilities				(56,023)
Convertible promissory note				(2,211,726)
Available-for-sale investments				1,014,664
Property, plant and equipment				101,421
Goodwill				3,480,852
			$	2,445,796

(i) As the transaction is determined to be a purchase of Rotoblock’s operations by daifu, the consideration transferred by daifu for its interest in Rotoblock is based on the number of ordinary shares to be issued by daifu to give the original shareholders of Rotoblock an 18.72% (81.28% interest held by original daifu shareholders) interest in consolidated Rotoblock after the Acquisition.

(ii) Determined based on appraised fair value of daifu’s net assets of $10,618,613 and 106,356,423 ordinary shares outstanding on the date of Acquisition.

daifu (formerly named China Healthcare Holdings Limited), was incorporated in the Cayman Islands on August 1, 2000. 

On June 30, 2008, daifu underwent a reverse merger with its subsidiaries involving an exchange of shares (“Share Exchange”) between daifu and daifuWaste Management Holding Limited (Samoa) (“daifuWaste Samoa”), daifuWaste Solutions Inc. (“daifuWaste Solutions”), daifuWaste Investment Limited (“daifuWaste Investment”), Hydroclave China Inc. (“Hydroclave”) and daifuWaste Investment (Hong Kong) Limited (“daifuWaste HK”). For financial reporting purposes, this transaction was classified as a recapitalization of daifuWaste Samoa, daifuWaste Solutions, daifuWaste Investment, Hydroclave and daifuWaste HK. On January 13, 2009, daifuWaste HK acquired Puhua Kangjian Environment Technology (Shenzhen) Limited (“PHKJ”). 

On January 25, 2011, daifuWaste HK invested Renminbi (“RMB”) 1,960,000, 35% of the registered capital to incorporate a joint venture – Hainanzhou daifu-Luhuan Medical Waste Disposal Co., Ltd. – in the People’s Republic of China (“PRC”) (Note 8). 

daifu and its subsidiaries are principally engaged in holding medical waste technology, medical waste equipment trading and holding investments in medical waste treatment centres. 

 The Company’s interim consolidated financial statements as at June 30, 2012 and for the six month period then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a net loss of $771,730 for the six month period ended June 30, 2012 (June 30, 2011 – net income of $1,057,682) and has a working capital deficiency of $3,137,655 at June 30, 2012 (December 31, 2011 – $2,635,787).

Management cannot provide assurance that the Company will become operating 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 December 31, 2012. If the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. These interim consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.