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Prospectus
Supplement No. 4
(to
Prospectus dated October 22, 2021)
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Prospectus
Supplement No. 4
Filed
pursuant to Rule 424(b)(3)
Registration
No. 333- 260207
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Prospectus
Supplement No. 4
(To
Final Prospectus dated October 22, 2021)
This
Prospectus Supplement No. 4 supplements and amends the final
prospectus dated October 22, 2021, as previously supplemented (the
“Final Prospectus”), which forms a part of our registration
statement on Form S-1 (No. 333- 260207), relating to the sale from
time to time of up to 2,300,000 shares of our common stock, par
value $0.001 (the “Common Stock”) by Triton Funds, LP.
This
Prospectus Supplement No. 4 is being filed to update and supplement
the information in the Final Prospectus with the information
contained in our Annual Report on Form 10-K filed on July 15, 2022
(the “Annual Report”). Accordingly, we have attached the Annual
Report to this Prospectus Supplement No. 4.
This
Prospectus Supplement No. 4 should be read in conjunction with the
Final Prospectus and is qualified by reference to the Final
Prospectus except to the extent that the information in this
Prospectus Supplement No. 4 supersedes the information contained in
the Final Prospectus.
Our
Common Stock is currently quoted on the OTCQB Marketplace operated
by the OTC Markets Group, Inc. (the “OTCQB”) under the symbol
“RKFL.” On July 14, 2022, the last reported sale price of our
Common Stock was $0.17.
Investing
in our securities involves a high degree of risk. See “Risk
Factors” beginning on page 6 of the Final
Prospectus.
Neither
the Securities and Exchange Commission (the “SEC”) nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus supplement is July 15, 2022.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark
One)
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☒ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
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For
the annual period ended March 31, 2022 |
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☐ |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For
the transition period from to
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Commission
File No. 033-17773-NY |
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ROCKETFUEL
BLOCKCHAIN, INC. |
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(Name
of small business issuer in its charter) |
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Nevada |
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90-1188745 |
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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201
Spear Street, Suite 1100, San Francisco, CA |
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94105 |
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(Address
of principal executive offices) |
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(Zip
Code) |
Issuer’s
telephone number (424) 256-8560
Securities
registered under Section 12(b) of the Exchange Act:
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None |
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None |
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Title
of each class |
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Name
of each exchange on which registered |
Securities
registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒
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 ☒
No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
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☐ |
Large
Accelerated Filer |
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☐ |
Accelerated
Filer |
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☐ |
Non-accelerated
Filer |
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☒ |
Smaller
reporting company |
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☐ |
Emerging
growth company |
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|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☒
As of
July 14, 2022, the registrant had 28,364,689 shares
of its Common Stock outstanding. As of September 30, 2021, the
aggregate market value of the registrant’s Common Stock held by
non-affiliates of the registrant (without admitting that such
person whose shares are not included in such calculation is an
affiliate) was approximately $12,816,891 based
on the last sale price as quoted on the OTC Markets quoting system
on such date.
ROCKETFUEL
BLOCKCHAIN, INC.
FORM
10-K
FOR
THE YEAR ENDED MARCH 31, 2022
INDEX
PART I
Cautionary
Note Regarding Forward Looking Statements
This
Annual Report on Form 10-K (the “report”) contains forward-looking
statements in the sections captioned “Description of
Business,” “Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Plan of Operations” and
elsewhere. Any and all statements contained in this Report that are
not statements of historical fact may be deemed forward-looking
statements. Terms such as “may,” “might,” “would,” “should,”
“could,” “project,” “estimate,” “pro-forma,” “predict,”
“potential,” “strategy,” “anticipate,” “attempt,” “develop,”
“plan,” “help,” “believe,” “continue,” “intend,” “expect,”
“future,” and terms of similar import (including the negative of
any of these terms) may identify forward-looking statements.
However, not all forward-looking statements may contain one or more
of these identifying terms. Forward-looking statements in this
Report may include, without limitation, statements regarding the
plans and objectives of management for future operations,
projections of income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure or other financial
items, our future financial performance, including any such
statement contained in a discussion and analysis of financial
condition by management or in the results of operations included
pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”), and the assumptions underlying or
relating to any such statement.
The
forward-looking statements are not meant to predict or guarantee
actual results, performance, events or circumstances and may not be
realized because they are based upon our current projections,
plans, objectives, beliefs, expectations, estimates and assumptions
and are subject to a number of risks and uncertainties and other
influences, many of which we have no control over. Actual results
and the timing of certain events and circumstances may differ
materially from those described by the forward-looking statements
as a result of these risks and uncertainties. Factors that may
influence or contribute to the accuracy of the forward-looking
statements or cause actual results to differ materially from
expected or desired results may include, without
limitation:
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Market
acceptance of our products and services; |
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Competition
from existing products or new products that may emerge; |
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The
implementation of our business model and strategic plans for our
business and our products; |
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Estimates
of our future revenue, expenses, capital requirements and our need
for financing; |
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Our
financial performance; |
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Current
and future government regulations; |
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Developments
relating to our competitors; and |
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Other
risks and uncertainties, including those listed under the section
titled “Risk Factors.” |
Readers
are cautioned not to place undue reliance on forward-looking
statements because of the risks and uncertainties related to them
and to the risk factors. We disclaim any obligation to update the
forward-looking statements contained in this report to reflect any
new information or future events or circumstances or otherwise,
except as required by law. Readers should read this report in
conjunction with the discussion under the caption “Risk
Factors,” our financial statements and the related notes
thereto in this report, and other documents which we may file from
time to time with the SEC.
BUSINESS
We
provide payment and check-out systems enabling shoppers on
e-commerce sites to pay using cryptocurrencies and direct bank
transfers. Currently our payment and check-out systems focus on B2C
applications; we are currently developing B2B capabilities that
will among other things enable businesses to receive payments on
their invoices in cryptocurrencies. Our check-out systems are based
upon blockchain technology and are designed to reduce costs and
increase speed, security and ease of use. We believe that users of
our systems enjoy a seamless check-out experience compared to
current online shopping solutions, and that merchants will realize
cost savings and other advantages over credit-card based payment
systems.
We are developing versions of our payment systems for use for
in-store purchases and other applications. Our check-out and
payment systems securely automate and simplify the way online
payment and shipping information is received by merchants from
their customers. Our “one click” checkout solution is modeled on
the “buy now” button on leading eCommerce sites. Our check-out
systems are designed to enhance customers’ data protection,
enabling consumers to pay for goods and services using
cryptocurrencies or by direct transfers from their bank accounts
without exposing spending credentials such as credit card data. At
the same time, our check-out systems are designed to increase the
speed, security and ease of use for both customers and merchants
and include a merchant portal that provides detailed transaction
information, metrics and reports. Our systems also include a
customer portal where shoppers are able to track their payments,
configure payment defaults and connect with various cryptocurrency
exchanges and banks to facilitate payment to merchants. Merchants
are able to integrate a unique pop-up user interface that allows
customers to pay directly from their ecommerce checkout page with
no need to redirect to another website or web page.
Our
merchant portal is updated instantly when a payment transaction is
made on the merchant’s website. The merchant is notified of the
transaction and can see the transaction details, including the
customer that made the transaction, the transaction amount and the
items purchased. This information is available to the merchant on
its dashboard, where various metrics are tracked and displayed to
the merchant, including information about the various
cryptocurrencies that are used for payments to that merchant, the
different currencies received by the merchant as payment and
transaction details such as the transaction hash. In addition to
various metrics, merchants are able to generate a variety of
reports, and are able to configure various options, including
settlement options, from their portal.
Customers
of merchants that use the RocketFuel payment solution are able to
track their payments in their own online portal. They are also able
to track payments they made to all the merchants that are
integrated with the RocketFuel payment technology within a single
consolidated user portal. They are currently able to connect to
their accounts on Coinbase and in the future we plan to add
connectivity to Binance, Kraken, Gemini and other exchanges.
Customers can also pay from any cryptocurrency wallet, such as
Metamask and Electrum and are able to pay from their bank accounts
as well. These customers are able to make payment with any of these
payment options with 1, 2, or 3 clicks from the merchant checkout
page. By default, these customers can choose from over 100
cryptocurrencies with which to pay.
Our
payment user interface allows customers to easily onboard as well
as to pay for merchants’ products or services with a variety of
cryptocurrencies or via bank transfers. The user interface is
displayed as a stand-alone popup that allows the creation of new
accounts as well as payment directly from crypto exchanges, crypto
wallets, and bank accounts, with no redirects to browser tabs or
pages. This can be integrated as a plugin on the merchant checkout
page or as a browser extension. The plugin, which we are currently
developing, will come integrated with popular ecommerce platforms
including WooCommerce, Shopify, Prestashop and others. The browser
extension is integrated with popular browsers including Chrome,
Chromium, Opera, Firefox, and Edge. The payment interface is
designed for both web and mobile checkout experiences. Merchants
are able to integrate the RocketFuel payment interface to their
checkout page with software development kits (SDKs) that are
available via the merchant portal. Application programming
interfaces (APIs) are also available to the merchant for deeper
integration into backend systems, ERP platforms, and other
third-party platforms.
Our
solution is designed to be implemented on an eCommerce site’s
check-out page. The technology will also be used for different
scenarios, including paying for services, paying invoices, and
other payment strategies. In addition, we anticipate that a future
version of our payment system will allow for advertisements in
which the entire checkout process is embedded to be placed on third
party websites where sales may be completely finalized. Thus, our
technology will enable eCommerce strategies that can include
advertisements with a fully integrated check-out process. We
believe that this has never before been accomplished on any
eCommerce platform. We believe that such advertisements could
provide significant new sales channels to retailers that are simply
not possible with legacy check-out solutions. We also believe that
transactions costs on our system will be significantly less
expensive than the cost of credit-card transactions.
The
RocketFuel check-out solution is designed to operate identically
across merchant channels with all participating merchants.
eCommerce merchants are able to encode their check-out protocol to
support our technology and the merchants will no longer have to
administer complex check-out and payment gateways at their
eCommerce websites. At the same time, consumers are able to
experience enhanced data protection opportunities and significantly
improved convenience.
With
the RocketFuel check-out systems, consumers will no longer have to
enter credit card information or shipping details every time they
want to buy online. Payment and shipping information will be
handled automatically. Using the RocketFuel payment solution,
credit card data will no longer be shared or transmitted and
exposed online. Rather, payments will be made via 100% secure
cryptocurrency conveyance or direct bank transfer on the
blockchain.
Our
Process
The
RocketFuel payment system is integrated on merchant websites or
mobile apps. On the merchant’s checkout page, along with other
payment options, RocketFuel enabled merchants have a ‘Pay with
Crypto or Bank Transfer’ or similarly labeled button. Customers
that click this button see a pop-up that provides various payment
options. These payment options include private crypto wallets,
Coinbase accounts, and bank accounts, and in the future we plan to
add Kraken, Gemini, Binance, BitStamp and other exchanges. The
payment amount in USD (or other fiat currency) will also be
displayed along with the description of the product they are
purchasing. The customer is able to select the appropriate payment
option. Based on the selected option the customer will be presented
with a variety of cryptocurrencies that are supported by the
specific exchange or bank. Both the cryptocurrency and fiat
currency amounts will be displayed with each cryptocurrency listed.
The available balance of the cryptocurrency in the wallet is also
displayed. This gives clear visibility of the payment source, the
available cryptocurrencies, and the available balance for each
cryptocurrency currently available in the customer
wallet.
The
customer is able to select the payment method, such as Coinbase, to
make the payment. He/she can select the payment currency, such as
Bitcoin or Litecoin. The customer then clicks the Pay Now button in
the popup window and the payment is immediately sent to the
merchant for payment of the product or service with one click. If
the customer has two-factor authentication (2FA) enabled, they are
prompted for the 2FA code before the payment is sent.
Customers
have the exact same process to pay with bank accounts. They are
able to select a bank account that they have previously connected
to, such as Bank of America or Wells Fargo. They can select the
currency (currently only USD is supported). When they click Pay Now
the payment is sent to the merchant. If 2FA is enabled, they will
need to provide the 2FA code before the funds are sent.
When
funds are sent the merchant will receive an email notification. The
merchant can immediately see the transaction in its merchant portal
as well as related statistics about this and other payments.
Customers are also notified by email when a payment is sent. They
can also log into their portal to see the payment information and
status. Payment updates can also be integrated directly to the
merchant backend system with our APIs.
Customers
can also request refunds. The merchant is provided the tools to
accept and execute a refund in crypto or cash or to deny the
request.
Industry
Background and Trends
Industry
Background
A
blockchain, also known as a “distributed ledger technology,” is a
sequential, ever-growing, time-stamped set of records that are
grouped in blocks and maintained by disparate participants. Each
block is interdependent, making alterations of records economically
difficult if not outright impossible. A blockchain includes, but is
not limited to, the following features:
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The
blockchain is a decentralized and distributed digital ledger that
is used to record and secure transactions across multiple
computers. |
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The
transactions on the blockchain cannot be changed. |
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All
transactions on the blockchain can be verified and audited
inexpensively by anyone. |
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The
blockchain confirms that each unit of value was transferred only
once. |
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A
blockchain database consists of two kinds of records: transactions
and blocks. Blocks hold batches of valid transactions that are
hashed and encoded. |
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Each
block includes the hash of the prior block in the blockchain,
linking the two. |
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The
linked blocks form a virtual “chain.” |
The
blockchain, being a globally distributed ledger running on millions
of devices, is capable of recording transfers of anything of value.
Transactions in money, equities, bonds, titles, deeds, contracts,
and virtually all other kinds of assets can be implemented and
stored securely, privately, and from peer to peer, because trust is
established, not by powerful intermediaries like banks and
governments, but by network consensus, cryptography, collaboration,
and sophisticated code. For the first time in human history, two or
more parties, be they businesses or individuals who may not even
know each other, can forge agreements, make transactions, and build
value without relying on intermediaries (such as banks, payment
institutions, rating agencies and other third parties) to verify
their identities, establish trust, or perform the critical business
logic contracting, clearing, settling, and record-keeping tasks
that are foundational to all forms of commerce.
Given
the promise and risks associated of such a disruptive technology,
many firms in all kinds of industries, such as banks, insurers,
audit and other professional service firms, are investing in, and
implementing, blockchain solutions, often to take advantage of the
opportunities to reduce friction (which in the case of our user
interface means fewer clicks for the user) and costs.
Blockchain
Technologies for eCommerce Payments and Check-out
Solutions
RocketFuel
blockchain technologies are intended to solve many of the issues
with traditional payment methods. By utilizing blockchain
technology, our system is designed to credit payments faster, with
little or no transaction costs, and significantly more security
than current payment systems, while enabling consumers to retain
more control over their data.
Traditional
online and offline payment methods route transactions through
banks, card-schemes and expensive clearing houses before the money
is actually credited to the merchant’s account. In addition, the
consumers must send and expose sensitive data online, making it
vulnerable to hackers and fraudsters. The blockchain has the
ability to provide solutions that can remove the need for third
parties such as VISA, MasterCard, acquirers/banks and other
intermediaries and make the payments faster, cheaper and more
frictionless. Blockchain technologies enable the consumer to
control his or her personal, sensitive data without the need to
share payment credentials, personal information or other vulnerable
data. This could remove the need for expensive and complex
third-party anti-fraud tools, transaction monitoring software, and
the like, eliminating the possibility for consumers to have their
data stolen and mis-used.
We
believe implementing blockchain technologies in the eCommerce
industry will be game changing not only for the payment regimes but
also for the way consumers interact with merchants and each other
in a peer-to-peer environment, creating multiple benefits and
opportunities for both the merchants and the consumers; as
described below:
Cheaper
Transactions. No intermediaries such as digital wallets and
other traditional payment methods, card-schemes and acquirers, are
required. Instead, the system is based on self-executing contract
instructions with no complexity of transfers and
transactions.
Faster
Transactions. The merchants will no longer have to wait days
for the card-processors and acquirers to settle the transactions.
With the blockchain, the transactions, payments and shipping and
order details will be encoded in the data-load files encoded in the
transaction instant stored and logged on the blockchain.
Transparency.
The blockchain can store the entire owner history of a product, no
matter where the product goes and how many times it is
re-purchased. Thus, the blockchain can help eliminate fraud and
brings transparency to both consumers and merchant.
Creating
Decentralized Blockchain-Based eCommerce Marketplaces. Because
of the security that both the network and the cryptography provide,
blockchain technology provides a secure system through which
individuals and businesses can directly interact and transact with
each other without the need for another intermediary. The only
minor fees that will be paid are for the network behind the
blockchain for validating transactions and securing the network.
Both buyer and seller pay no fees to a marketplace company, because
technically, there is no company. The platforms through which
e-commerce will be conducted in such eCommerce marketplaces are
blockchain applications. Because blockchains are decentralized,
there is no central party, or company, that sets the rules and
decides how users will transact with one another. The users, thus
individuals and businesses, determine how the platform will develop
and function.
Security
and Consumer Data Protection. Sending consumer data using the
blockchain instead of the traditional methods using third party
gateways eliminates the possibility for the hackers and fraudsters
to steal and mis-use the consumer’s sensitive data. Also, on the
database level, the blockchain provides remarkable attributes. For
example, it has previously been impossible to assure a database was
not manipulated by criminal actors. As the blockchain regime is
currently designed, data stored on a blockchain cannot be changed
by any means. Further, the blockchain is designed such that it is
with the highest certainty that only a possessor of a ‘private key’
can cause a transaction to occur. This assures security at a level
never before possible in any computing system. With these
properties, blockchain now enables improvement in known systems
whereby excellent performance never before possible is
realized.
Anti-Money
Laundering Features. Blockchain technologies can be used in
powerful anti-money laundering systems as every transaction is
‘laid open’ and available to all system users. Transactions on the
blockchain cannot be hidden from the public and they are forever
recorded in the ledger.
Our
Growth Strategy
The
first prototype of our blockchain based check-out solution was
developed from 2019 through 2021 and we launched our first product
in a live environment with an online travel agency and an
accounting software company in March 2021. As of July 14, 2022, we
had 28 merchants using our solutions, with another 14 in the
qualification process. In February 2022, we entered into a
strategic agreement with ACI Worldwide, a payments company with
over 80,000 merchant customers. ACI will be making our
cryptocurrency payment solution available to its customers through
their ACI portals.
We
have a development team of approximately 20 engineers and other
developers reporting to our CTO, to oversee the development of our
cryptocurrency and bank transfer check-out solution. We have
retained three full time sales personnel to approach new merchants
and partners.
Our
Sales and Marketing
We
believe that our business development team is highly experienced
within eCommerce and online marketplaces. With connections to
several larger eCommerce merchants, we believe that it will secure
our growth and bring us increasing revenue in the fiscal year
beginning April 1, 2022. Our sales and marketing efforts will focus
on a few larger eCommerce merchants and partnerships with payment
processors rather than many smaller merchants. We believe that a
strong proof-of-concept window with our technology functionally
displayed in scale will attract merchants to our technology, and we
intend to sell the technology both on a per transaction fee and on
a license fee basis.
Our
Revenue Model
We
anticipate that our revenues will be derived primarily from
transaction and commission fees from eCommerce merchants, from
exchange rate upcharges and from convivence fees and other charges
to the merchants’ customers. Appreciable revenue generation comes
with user adoption. User adoption is a difficult matter to predict
in the cryptocurrency community and many have set out with optimism
and failed to achieve good user adoption. In the future we have the
option to charge our merchant customers set-up fees and license
fees as well as fees for added merchant services that we may
develop, such as fulfilment and order processing services, a
loyalty program, credit offerings and fees for marketing programs
to our shoppers.
Our
Competition
While
there are small crypto payment providers currently in the market,
our primary competitor is Bitpay, which is already well established
as the leading crypto payment technology in the market. Compared
with Bitpay, we believe that RocketFuel offers a better user
experience for crypto payments, more choices to crypto holders
(including most of the most popular cryptocurrencies), and more
features and more value to merchants. While Bitpay allows payment
only with Bitcoin, RocketFuel allows payment with over 100
cryptocurrencies and will be adding more options for customers.
Unlike Bitpay, RocketFuel offers payments from any crypto wallet
and from multiple crypto exchanges. RocketFuel offers a user
experience that solve both the problem with complex onboarding and
complex crypto payment experiences, which we believe is less
complicated and more intuitive. RocketFuel also offers services
that Bitpay currently does not, such as providing merchants
immediate visibility of payment transactions, real time metrics of
transactions and customers, easy integration to ecommerce checkout
as well as deep integration to backend platforms.
We
also expect to have future competition from traditional payment
platforms including Paypal, Visa and Mastercard, but do not expect
these providers to have a competitive solution until at least
2023.
Our
technology is designed to be compliant with the European Union’s
new General Data Protection Regulation (GDPR) and other
governmental regulations and initiatives to protect the consumer’s
data.
Government
Regulation
Our
merchant clients are subject to federal, state and foreign laws
regarding privacy and the protection of user data. Foreign data
protection, privacy, consumer protection, content regulation and
other laws and regulations are often more restrictive than those in
the United States. As the blockchain industry is still relatively
new and in the midst of significant development, there are also
potential federal, state and foreign legislative proposals and
various state legislative bodies and foreign governments concerning
data protection, tracking, behavioral advertising and consumer
protection that could affect our clients.
As of
May 25, 2018, the European Union’s GDPR has been enforced for all
organizations doing business in Europe. GDPR aims to harmonize
European data privacy laws, protect and empower all EU citizens’
data privacy, and set the guidelines on how to embed data privacy
controls within participating organizations.
We
believe that our blockchain based check-out solution will help our
clients to be compliant with the enhanced privacy rules and
regulations as our technology will enable the consumers to pay for
goods online without exposing spending credentials (credit card
data) with the eCommerce merchants.
H.R.
3684, the infrastructure bill that passed the Senate in August
2021, contains a provision regarding reporting of cryptocurrency
transactions to the Internal Revenue Service. Under the Senate
version of the bill, brokers must report digital asset transactions
to the Internal Revenue Service. The Senate bill also expands the
definition of broker to include “any person who (for consideration)
is responsible for regularly providing any service effectuating
transfers of digital assets on behalf of another person.” The bill
is being considered by the House and it is unclear if the bill will
be passed by the House or otherwise signed into law. It is also
unclear if the cryptocurrency reporting provision passed in the
Senate bill would remain in the House bill or would be amended in
some way. Should the provision become law, it is possible that
RocketFuel may have obligations under the provision to report
digital asset transactions to the Internal Revenue
Service.
Employees
As of
March 31, 2022, we have seven employees in the U.S. and a technical
team in India and elsewhere of approximately twenty
developers.
The
following are risk factors that could affect our business,
financial condition, results of operations, and cash flows. These
risk factors should be considered in connection with evaluating the
forward-looking statements contained in this report because these
factors could cause actual results, performance, and achievements
to differ materially from those projected in forward-looking
statements. Before you invest in our publicly traded securities,
you should know that making such an investment involves some risks,
including the risks described below. Additional risks of which we
may not be aware or that we currently believe are immaterial may
also impair our business operations or our stock price. If any of
the risks occur, our business, financial condition, results of
operations or cash flow could be negatively affected. In that case,
the trading price of our common stock could decline, and you may
lose all or part of your investment. In assessing these risks,
investors should also refer to the other information contained or
incorporated by reference in this report, our quarterly reports on
Form 10-Q and other documents filed by us from time to
time.
Summary
of Risk Factors
The
following is a summary of the principal risks that could adversely
affect our business, operations and financial results.
Risks
Related to Our Business Operations and Financial
Results
|
|
● |
We
have a limited operating history and may not be able to operate our
business successfully or generate sufficient revenue to make or
sustain distributions to our shareholders. |
|
|
● |
Our
future capital needs are uncertain, and our independent registered
public accounting firm has expressed in its report on our audited
financial statements for the fiscal year ended March 31, 2022 a
substantial doubt about our ability to continue as a going
concern. |
|
|
● |
We
have limited capital resources, and we will need to raise
additional capital through additional funding raises. Such funding,
if obtained, could result in substantial dilution. |
|
|
● |
The
loss of key personnel or the inability of replacements to quickly
and successfully perform in their new roles could adversely affect
our business. |
|
|
● |
Our
financial statements may be materially affected if our estimates
prove to be inaccurate as a result of our limited experience in
making critical accounting estimates. |
|
|
● |
Our
blockchain-based payment solution is being developed by our key
technology employees or contractors, whose continued availability
cannot be assured. |
|
|
● |
If we
do not respond to technological changes or upgrade our
blockchain-based payment processing platform as markets require,
our growth prospects and results of operations could be adversely
affected. |
|
|
● |
Our
competitive edge depends on preserving consumer privacy and
identity in their purchasing activities. |
|
|
● |
Failure
of cryptocurrency exchanges or ACH bank transfers may prevent the
seamless operation of the blockchain payment platform. |
|
|
● |
We
may be unable to recover digital assets awaiting transmission into
or out of the cryptocurrency exchange or banking
institution. |
|
|
● |
If we
are unable to price our services appropriately, we may not be able
to recover the entire cost of our services. |
|
|
● |
We
may become reliant on Internet bandwidth and data center
providers. |
|
|
● |
We
are subject to income taxes and other tax liabilities. |
|
|
● |
We
face risks related to COVID-19. |
|
|
● |
We
may face risks related to the Russia/Ukraine crisis, including the
impact of sanctions or retributions thereto, which could adversely
affect the Company’s business. |
|
|
● |
We
could face substantial competition. |
|
|
● |
If we
fail to protect our intellectual property rights, competitors may
be able to use our technology. |
|
|
● |
The
slowing or stopping of the development or acceptance of blockchain
networks and blockchain assets could have an adverse effect on our
core blockchain-based payment solutions business |
|
|
● |
Risks
related to transaction authentication. |
|
|
● |
Risks
related to storage of private keys. |
|
|
● |
Excessive
price fluctuations may decrease adoption of cryptocurrencies and
adversely impact the demand for our payment solutions. |
|
|
● |
Litigation
may adversely affect our business, financial condition and results
of operations. |
|
|
● |
Use
of our payments services for illegal purposes could harm our
business. |
|
|
● |
Limitations
on director and officer liability and our indemnification of our
officers and directors may discourage stockholders from bringing
suit against a director. |
Risks
Related with Government Regulation
|
|
● |
Privacy
regulation is an evolving area and compliance with applicable
privacy regulations may increase our operating costs or adversely
impact our ability to service our clients. |
|
|
● |
Changes
in government regulation and industry standards applicable to the
Internet and our business could decrease demand for our
technologies and services or increase our costs. |
|
|
● |
The
applicability of government regulations of digital currencies is
uncertain and evolving. |
|
|
● |
It
may be illegal now, or in the future, to participate in blockchains
or utilize similar digital assets in one or more countries, the
ruling of which would adversely affect us. |
|
|
● |
We
have not obtained a money transmitter license in any U.S. State,
nor a BitLicense in the State of New York, and our business may be
adversely affected if we are required to do so. |
Risks
Related to an Investment in our Common Stock
|
|
● |
Sales
of substantial amounts of our Common Stock or the perception that
such sales may occur could cause the market price of our Common
Stock to drop significantly. |
|
|
● |
If we
sell additional equity or debt securities to fund our operations,
restrictions may be imposed on our business. |
|
|
● |
There
is no assurance of an active established public trading market,
which would adversely affect the ability of our investors to sell
their securities in the public market. |
|
|
● |
Shares
eligible for future sale may have adverse effects on our share
price. |
|
|
● |
Our
Common Stock is considered a “penny stock” and may be difficult to
sell. |
|
|
● |
The
Financial Industry Regulatory Authority, or FINRA, has adopted
sales practice requirements that may also limit a stockholder’s
ability to buy and sell our stock. |
|
|
● |
A
decline in the price of our Common Stock could affect our ability
to raise additional working capital. |
|
|
● |
If we
fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results. |
|
|
● |
A
significant majority of the outstanding shares of our Common Stock
is held by a small number of shareholders. |
|
|
● |
We
are subject to the periodic reporting requirements of the Exchange
Act that will require us to incur audit fees and legal fees in
connection with the preparation of such reports. |
|
|
● |
We do
not have any independent directors and may be unable to appoint any
qualified independent directors. |
|
|
● |
The
capital markets may experience periods of disruption and
instability. |
|
|
● |
We do
not anticipate paying any cash dividends on our capital stock in
the foreseeable future. |
|
|
● |
If
securities or industry analysts do not publish research or publish
inaccurate or unfavorable research about our business, our stock
price and trading volume could decline. |
|
|
● |
We
are a “smaller reporting company” and, as a result of the reduced
disclosure and governance requirements applicable to smaller
reporting companies, our Common Stock may be less attractive to
investors. |
|
|
● |
Stockholders
who hold unregistered shares of our common stock are subject to
resale restrictions pursuant to Rule 144 due to our former status
as a “shell company.” |
General
Risk Factors
|
|
● |
Our
business is subject to the risks of earthquakes, fire, power
outages, floods, epidemics and other catastrophic events, and to
interruption by man-made problems such as strikes and
terrorism. |
|
|
● |
Prolonged
economic downturn, particularly in light of the COVID-19 pandemic,
could adversely affect our business. |
|
|
● |
Unfavorable
general economic conditions may materially adversely affect our
business. |
Risks
Related to Our Business Operations and Financial
Results
We have a limited operating history and may not be able to operate
our business successfully or generate sufficient revenue to make or
sustain distributions to our shareholders.
We
became a public company in July of 2018, following the Business
Combination (as defined above) and our business has a relatively
limited operating history. We cannot assure you that we will be
able to operate our business successfully or implement our
operating policies and strategies. The results of our operations
depend on several factors, including our success in attracting and
retaining motivated and qualified personnel, the availability of
adequate short and long-term financing, conditions in the financial
markets, and general economic conditions.
Our future capital needs are uncertain, and our independent
registered public accounting firm has expressed in its report on
our audited financial statements for the fiscal year ended March
31, 2022 a substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is
dependent on our ability to raise additional capital and our
operations could be curtailed if we are unable to obtain the
required additional funding when needed. We may not be able to do
so when necessary, and/or the terms of any financings may not be
advantageous to us.
Our
financial statements for the fiscal years ended March 31, 2022 and
2021 included in this report have been prepared assuming we will
continue to operate as a going concern. However, due to our
recurring losses from operations, and working capital deficiency,
there is substantial doubt about our ability to continue as a going
concern. Because we expect to continue to experience negative cash
flow, our ability to continue as a going concern is subject to our
ability to obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities,
grants or other forms of financing. Our continued negative cash
flow increases the difficulty in completing such sales or securing
alternative sources of funding, and there can be no assurances that
we will be able to obtain such funding on favorable terms or at
all. If we are unable to obtain sufficient financing from the sale
of our securities or from alternative sources, we may be required
to reduce, defer or discontinue certain of our research and
development and operating activities or we may not be able to
continue as a going concern. As a result, our independent
registered public accounting firm has expressed in its auditors’
report on the financial statements included in this report a
substantial doubt regarding our ability to continue as a going
concern. Our financial statements do not include any adjustments
that might result from the outcome of the uncertainty regarding our
ability to continue as a going concern. If we cannot continue as a
going concern, our shareholders may lose their entire investment in
our Common Stock. Future reports from our independent registered
public accounting firm may also contain statements expressing doubt
about our ability to continue as a going concern.
We have limited capital resources, and we will need to raise
additional capital through additional funding raises. Such funding,
if obtained, could result in substantial
dilution.
We
have limited capital resources. We currently are not eligible to
access funds from draws under the Stock Purchase Agreement (as
defined below) with Triton Funds LP to continue our business.
Furthermore, even if we substantially increase revenue and reduce
operating expenses, we will need to raise additional capital. In
order to continue operating, we may need to obtain additional
financing, either through private offerings, public offerings or
token-based financings, and there can be no assurance that we will
be successful in such pursuits. We may be unable to acquire the
additional funding necessary to continue operating.
If we
are able to raise additional capital, we do not know what the terms
of any such capital raising would be. In addition, any future sale
of our equity securities would dilute the ownership and control of
your shares and could be at prices substantially below prices at
which our shares currently trade. We may seek to increase our cash
reserves through the sale of additional equity or debt securities.
The sale of convertible debt securities or additional equity
securities could result in additional and potentially substantial
dilution to our shareholders. The incurrence of indebtedness would
result in increased debt service obligations and could result in
operating and financing covenants that would restrict our
operations and liquidity and ability to pay dividends. In addition,
our ability to obtain additional capital on acceptable terms is
subject to a variety of uncertainties. We cannot assure you that
financing will be available in amounts or on terms acceptable to
us, if at all. Any failure to raise additional funds on favorable
terms could have a material adverse effect on our business,
operating results, liquidity and financial condition.
The loss of key personnel or the inability of replacements to
quickly and successfully perform in their new roles could adversely
affect our business.
We
depend on the leadership and experience of our relatively small
number of key executive management personnel, particularly our
Chairman of the Board, Chief Executive Officer, Chief Technology
Officer, Chief Financial Officer, and our Product Manager. The loss
of the services of any of these key executives or any of our
executive management members could have a material adverse effect
on our business and prospects, as we may not be able to find
suitable individuals to replace such personnel on a timely basis or
without incurring increased costs, or at all. Furthermore, if we
lose or terminate the services of one or more of our key employees
or if one or more of our current or former executives or key
employees joins a competitor or otherwise competes with us, it
could impair our business and our ability to successfully implement
our business plan. Additionally, if we are unable to hire qualified
replacements for our executive and other key positions in a timely
fashion, our ability to execute our business plan would be harmed.
Even if we can quickly hire qualified replacements, we would expect
to experience operational disruptions and inefficiencies during any
transition. We believe that our future success will depend on our
continued ability to attract and retain highly skilled and
qualified personnel. There is a high level of competition for
experienced, successful personnel in our industry. Our inability to
meet our executive staffing requirements in the future could impair
our growth and harm our business.
Our financial statements may be materially affected if our
estimates prove to be inaccurate as a result of our limited
experience in making critical accounting
estimates.
Financial
statements prepared in accordance with generally accepted
accounting principles in the U.S. (“GAAP”) require the use of
estimates, judgments, and assumptions that affect the reported
amounts. Actual results may differ materially from these estimates
under different assumptions or conditions. These estimates,
judgments, and assumptions are inherently uncertain, and, if they
prove to be wrong, then we face the risk that charges to income
will be required. In addition, because we have limited to no
operating history and limited experience in making these estimates,
judgments, and assumptions, the risk of future charges to income
may be greater than if we had more experience in these areas. Any
such charges could significantly harm our business, financial
condition, results of operations, and the price of our
securities.
We may require additional financing to sustain or grow our
operations.
Our
growth will be dependent on our ability to access additional equity
and debt capital. Moreover, part of our business strategy may
involve the use of debt financing to increase potential revenues.
Our inability in the future to conduct a successful cryptocurrency
token sale, obtain additional equity capital or a corporate credit
facility on attractive terms, or at all, could adversely impact our
ability to execute our business strategy, which could adversely
affect our growth prospects and future shareholder
returns.
Our payment solutions are being developed by our key technology
employees or contractors, whose continued availability cannot be
assured.
Our
blockchain e-commerce payment platform and the related features
that may be developed in the future have been and will be further
developed by, among others, contracted developers who we have
engaged to work on finalizing our back-office and other
functionalities. If we were to lose the services of any of these
key employees or hired contractors, it could be difficult or
impossible to replace them. The loss of the services of any of
these key employees or contractors could have an adverse effect on
our ability to further develop, operate or maintain features of our
blockchain e-commerce payment platform.
Our blockchain payment solution might never attain optimal levels
of functionality and dependability
Our
e-commerce payment solution did not become fully functional until
March 2021. While our software is currently being used “live” with
several customers, no guarantee can be given that a unique
combination of input conditions experienced when running the system
“live” and which has not been encountered during development, will
not cause the system to fail, or perform aberrantly.
If we do not respond to technological changes or upgrade our
blockchain-based payment processing platform as markets require,
our growth prospects and results of operations could be adversely
affected
To
remain competitive, we must continue to enhance and improve the
functionality and features of our blockchain-based technology
platform infrastructure. As a result, we will need to continue to
improve and expand our infrastructure and software capabilities.
These improvements may require us to commit substantial financial,
operational and technical resources, with no assurance that our
business will improve. Without such improvements, our operations
might suffer from unanticipated system disruptions, slow
performance or unreliable service levels, any of which could
negatively affect our reputation and ability to attract and retain
merchant clients. We may face significant delays in introducing new
products, services, and enhancements. If competitors introduce new
payment processing solutions and services using new technologies or
if new industry standards and practices emerge, our existing
technology platform and systems may become obsolete or less
competitive, and our business may be harmed.
Our competitive edge depends on preserving consumer privacy and
identity in their purchasing activities. In today’s climate,
potential cyberattacks, security problems, or other disruptions and
expanding social media vehicles present new
risks.
We
may purchase some of our information technology from vendors, on
whom our systems will depend, and we rely on commercially available
systems, software, tools, and monitoring to provide security for
processing, transmission, and storage of confidential information
and other customer information. We depend upon the secure
transmission of this information over public networks. Our networks
and storage applications could be subject to unauthorized access by
hackers or others through cyberattacks, which are rapidly evolving
and becoming increasingly sophisticated, or by other means, or may
be breached due to operator error, malfeasance or other system
disruptions. In some cases, it will be difficult to anticipate or
immediately detect such incidents and the damage they cause. Any
significant breakdown, invasion, destruction, interruption, or
leakage of information from our systems could harm our reputation
and business.
In
addition, the use of social media could cause us to suffer brand
damage or information leakage. Negative posts or comments about us
on any social networking website could damage us or our brand’s
reputation. Employees, consultants, contractors or others might
disclose non-public sensitive information relating to our business
through external media channels, including through the use of
social media.
Further,
in the normal course of our business, we collect, store and
transmit proprietary and confidential information regarding our
customers, employees, suppliers and others, including personally
identifiable information. An operational failure or breach of
security from increasingly sophisticated cyber threats could lead
to loss, misuse or unauthorized disclosure of this information
about our employees or customers, which may result in regulatory or
other legal proceedings, and have a material adverse effect on our
business and reputation. We also may not have the resources or
technical sophistication to anticipate or prevent rapidly evolving
types of cyber-attacks. Any such attacks or precautionary measures
taken to prevent anticipated attacks may result in increasing
costs, including costs for additional technologies, training and
third-party consultants. The losses incurred from a breach of data
security and operational failures as well as the precautionary
measures required to address this evolving risk may adversely
impact our financial condition, results of operations and cash
flows.
Failure of cryptocurrency exchanges or ACH bank transfers may
prevent the seamless operation of the blockchain payment
platform.
Our
payment platform interacts with cryptocurrency exchanges to
facilitate the conversion of customer’s cryptocurrency payments to
fiat currency. We will take on credit risk every time our platform
facilitates a buyer’s purchase using cryptocurrency. Although our
transfers of cryptocurrencies or fiat currency will be made to or
from a counterparty, including leading cryptocurrency exchanges and
FDIC banks (through ACH transfers), which management believes are
trustworthy, it is possible that, through computer or human error,
or through theft or criminal action, the buyer’s cryptocurrency or
fiat currency could be transferred in incorrect amounts or to
unauthorized third parties. To the extent that we are unable to
seek a corrective transaction with such third party or are
incapable of identifying the third party which has received the
cryptocurrency or fiat currency (through error or theft), we will
be unable to recover incorrectly transferred cryptocurrency or fiat
currency, and such losses will negatively impact us, our merchant
accounts and consumers.
Digital
asset exchanges may impose daily, weekly, monthly or
customer-specific transaction or distribution limits or suspend
withdrawals entirely, rendering the exchange of fiat currency for
digital assets difficult or impossible. Additionally, digital asset
prices and valuations on cryptocurrency exchanges have been
volatile and subject to influence by many factors, including the
levels of liquidity on exchanges and operational interruptions and
disruptions. The prices and valuation of digital assets remain
subject to any volatility experienced by digital asset exchanges,
and any such volatility can adversely affect our ability to
facilitate the conversion of the cryptocurrency payment funds to
fiat currency at the intended cash purchase price.
Digital
asset exchanges are appealing targets for cybercrime, hackers and
malware. It is possible that while engaging in transactions with
various digital asset exchanges located throughout the world, any
such exchange may cease operations due to theft, fraud, security
breach, liquidity issues, or government investigation. In addition,
banks may refuse to process wire transfers to or from exchanges. An
exchange may be unable to replace missing digital assets or seek
reimbursement for any theft of digital assets, adversely affecting
our ability to offer payment solutions in a secure and dependable
manner.
We may be unable to recover digital assets awaiting transmission
into or out of the cryptocurrency exchange or banking institution,
all of which could adversely affect our platform’s
operations.
We
may be unable to recover digital assets awaiting transmission into
or out of the cryptocurrency exchange or banking institution, all
of which could adversely affect our platform’s operations.
Additionally, digital asset exchanges may operate outside of the
United States. We may have difficulty in successfully pursuing
claims in the courts of such countries or enforcing in the courts
of such countries a judgment obtained by us in another country. In
general, certain less developed countries lack fully developed
legal systems and bodies of commercial law and practices normally
found in countries with more developed market economies. These
legal and regulatory risks may adversely affect us and our
operations and investments.
If we are unable to price our services appropriately, we may not be
able to recover the entire cost of our services
Our
clients purchase our services according to a variety of pricing
formula. Sometimes these include formula based on pay for
performance, meaning clients pay only after we have delivered the
desired result to them. Regardless of how a given client pays us,
we ordinarily pay the vast majority of the costs associated with
delivering our services to our clients according to contracts and
other arrangements that do not always condition our obligation to
pay vendors on the receipt of payments from our clients. This means
we typically pay for the costs of providing our services before we
receive payment from clients. Additionally, certain of our services
costs are highly variable and may fluctuate significantly during
each calendar month. Accordingly, we run the risk of not being able
to recover the entire cost of our services from clients if pricing
or other terms negotiated prior to the performance of services
prove less than the cost of performing such services.
We may become reliant on Internet bandwidth and data center
providers and other third parties for key aspects of the process of
providing services to our clients, and any failure or interruption
in the services and products provided by these third parties could
harm our business.
We
rely on third-party vendors, including data center and Internet
bandwidth providers. Any disruption in the network access or
colocation services provided by these third-party providers or any
failure of these third-party providers to handle current or higher
volumes of use could significantly harm our business. Any financial
or other difficulties our providers face may have negative effects
on our business, the nature and extent of which we cannot predict.
We exercise little control over these third-party vendors, which
increases our vulnerability to problems with the services they
provide. We license technology and related databases from third
parties to facilitate analysis and storage of data and delivery of
offerings. Any errors, failures, interruptions or delays
experienced in connection with these third-party technologies and
services could adversely affect our business and could expose us to
liabilities to third parties.
We are subject to income taxes and other tax
liabilities.
Significant
judgment is required in determining our provision for income taxes
and other tax liabilities. In the ordinary course of our business,
there are many transactions and calculations where the ultimate tax
determination is uncertain. Although we believe that our tax
estimates are reasonable: (i) there is no assurance that the final
determination of tax audits or tax disputes will not be different
from what is reflected in our income tax provisions, expense
amounts for non-income-based taxes and accruals and (ii) any
material differences could have an adverse effect on our financial
position and results of operations in the period or periods for
which determination is made.
We face risks related to COVID-19 which could significantly disrupt
our research and development, operations, sales, and financial
results.
Our
business has been and continues to be adversely impacted by the
effects of the COVID-19. Our third-party vendors, third-party
distributors, and our customers have been and will be disrupted by
worker absenteeism, quarantines and restrictions on employees’
ability to work, office and factory closures, disruptions to ports
and other shipping infrastructure, border closures, or other travel
or health-related restrictions. In addition, the COVID-19 will in
the short-run and may over the longer term adversely affect the
economies and financial markets of many countries, resulting in an
economic downturn that may affect demand for our technology
platform and services and impact our operating results. Although
the magnitude of the impact of the COVID-19 outbreak on our
business and operations remains uncertain, the continued spread of
the COVID-19, the Delta variant or other variants and the
imposition of related public health measures may adversely impact
our business, financial condition, operating results and
revenues.
We may face risks related to the Russia/Ukraine crisis, including
the impact of sanctions or retributions thereto, which could
adversely affect the Company’s business.
The
Company’s operations could be adversely affected by the effects of
the escalating Russia/Ukraine crisis and the effects of sanctions
imposed against Russia or that country’s retributions against those
sanctions, embargos or further-reaching impacts upon energy prices,
food prices and market disruptions. The Company cannot accurately
predict the impact the crisis will have on its operations and the
ability of contractors to meet their obligations with the Company,
including uncertainties relating the severity of its effects, the
duration of the conflict, and the length and magnitude of energy
bans, embargos and restrictions imposed by governments. In
addition, the crisis could adversely affect the economies and
financial markets of the United States in general, resulting in an
economic downturn that could further affect the Company’s
operations and ability to finance its operations.
We could face substantial competition, which could reduce our
market share and negatively impact our net
revenue.
There
are an increasing number of companies entering the payment
facilitator industry using, as we are, blockchain infrastructure
and cryptocurrency. Notable companies in the payment facilitator
industry include Bitpay, Coinify, PayPal, Stripe, Greenbox,
MasterCard and Visa. Many of our payment facilitator competitors
are significantly larger than we are and have considerably greater
financial, technical, marketing, and other resources than we do.
Some competitors may have a lower cost of funds and access to
funding sources that are not available to us. We cannot assure you
that the competitive pressures we face will not have a material
adverse effect on our business, financial condition, and results of
operations.
If we fail to protect our intellectual property rights, competitors
may be able to use our technology, which could weaken our
competitive position, reduce our net revenue, and increase our
costs.
Our
long-term success will depend to some degree on our ability to
protect the proprietary technology that we have developed or may
develop or acquire in the future, including our ability to obtain
and maintain patent protection. Patent applications can take many
years to issue, and we can provide no assurance that our current
pending patent application, or any future patent applications, will
be granted. If we are unable to obtain a patent for our current or
future applications, we may not be able to successfully prevent our
competitors from imitating or copying our payment processing
platform. Even if our pending application was granted, our
intellectual property rights may not be sufficiently comprehensive
to prevent our competitors from developing similar competitive
payment processing platforms.
There
are multiple risks inherent in patent litigation. In patent
litigation in the U.S., defendant counterclaims alleging invalidity
and/or unenforceability are commonplace, as are validity challenges
by the defendant against the subject patent or other patents before
the United States Patent and Trademark Office (USPTO). Grounds for
a validity challenge could be an alleged failure to meet any of
several statutory requirements, including lack of novelty,
obviousness or non-enablement, failure to meet the written
description requirement, indefiniteness, and/or failure to claim
patent eligible subject matter. Grounds for an unenforceability
assertion could be an allegation that someone connected with
prosecution of the patent intentionally withheld material
information from the USPTO, or made a misleading statement, during
prosecution. Third parties may also raise similar claims before the
USPTO even outside the context of litigation, in for example,
post-grant review proceedings and inter-parties review proceedings.
The outcome is unpredictable following any legal assertions of
invalidity and unenforceability. With respect to the validity
question, for example, we cannot be certain that no invalidating
prior art existed of which we and the patent examiner were unaware
during prosecution. These assertions may also be based on
information known to us or the USPTO. If a defendant or third party
were to prevail on a legal assertion of invalidity and/or
unenforceability, we would lose at least part, and perhaps all, of
the claims of the challenged patent. Such a loss of patent
protection would or could have a material adverse impact on our
business.
Even
if the validity of our patent rights is upheld by a court, a court
may not prevent the alleged infringement of our patent rights on
the grounds that such activity is not covered by our patent claims.
Although we may aggressively pursue anyone whom we reasonably
believe is infringing upon our intellectual property rights,
initiating and maintaining suits against third parties that may
infringe upon our intellectual property rights will require
substantial financial resources. We may not have the financial
resources to bring such suits, and if we do bring such suits, we
may not prevail. Regardless of our success in any such actions, we
could incur significant expenses in connection with such
suits.
In
2019, following the resignation of Joseph Page, our former chief
technology officer, we retained independent patent counsel to
review our patent applications. In connection with this review, we
discovered certain deficiencies in some of the applications and in
their assignments to us. We determined that all of the applications
had been abandoned. Based on this review, we decided to refile
three of our applications with the U.S. Patent and Trademark
Office, which we did in May 2020. It is our belief that the three
newly filed patent applications cover and/or disclose the same
subject matter as we disclosed in the five original patent
applications. In this case, our rights may be subject to any
intervening patent applications made after the date of the original
applications.
The slowing or stopping of the development or acceptance of
blockchain networks and blockchain assets could have an adverse
effect on our core blockchain-based payment solutions business.
However, whether such development will take place is subject to a
high degree of uncertainty.
Factors
affecting the further development of blockchain networks include,
without limitation:
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worldwide
growth in the adoption and use of digital assets and other
blockchain technologies; |
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the
maintenance and development of the open-source software protocols
of blockchain networks; |
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changes
in consumer demographics and public tastes and
preferences; |
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the
availability and popularity of new forms or methods of buying and
selling goods and services, or trading assets, including new means
of using existing networks; |
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general
economic conditions in the United States and the world; |
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the
impacts of major events such as pandemics and climate
change; |
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the
regulatory environment relating to blockchains; and |
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declines
in the popularity or acceptance of blockchain-based
assets. |
The
slowing or stopping of the development, general acceptance,
adoption, and usage of blockchain networks and blockchain assets
may deter or delay the acceptance and adoption of cryptocurrencies,
and thus demand for our blockchain-based payment
solutions.
Risks related to transaction authentication.
As of
the date of this report, the transfer of digital currency assets
from one party to another currently typically relies on an
authentication process by an outside party known as a miner. In
exchange for compensation, the miner will authenticate the transfer
of the currency through the solving of a complex algorithm known as
a proof of work, or will vouch for the transfer through other
means, such as a proof of stake. Effective transfers of and
therefore realization of cryptocurrency is dependent on
interactions from these miners. In the event that there were a
shortage of miners to perform this function, that shortage could
have an adverse effect on either the fair value or realization of
the cryptocurrency assets. In such event, the adoption of
cryptocurrency as a form a payment can be severely impacted, and
this would decrease the demand of our cryptocurrency-based payment
facilitator platform, and thus affect our results of
operations.
Risks related to storage of private keys.
In
some cases, we may provide technology to facilitate the secure
storage of user API keys from cryptocurrency exchanges. This is
done to facilitate payment by the user to the merchant for product
or services. At all times, these keys are encrypted, controlled by
the owner of the keys, and are not available to us, our staff, or
our partners. When this feature is used, the keys are stored by a
third-party using hardware security modules (HSMs) that have been
validated under FIPS 140-2 to protect the confidentiality and
integrity of the keys.
Excessive price fluctuations may decrease adoption of
cryptocurrencies and adversely impact the demand for our payment
solutions, and we are exposed to fluctuations in cryptocurrency
exchange rates.
To
the extent the public demand for digital assets were to decrease,
the price of digital assets could fluctuate rapidly. Further, if
the supply of digital assets available to the public were to
increase or decrease suddenly due to, for example, a change in a
digital asset’s source code, the dissolution of a digital asset
exchange, or seizure of digital assets by government authorities,
the price of digital assets could fluctuate rapidly. Such changes
in demand and supply of digital asset could adversely affect
digital asset usage among consumers. In addition, governments may
intervene, directly and by regulation, in the digital asset market,
with the specific effect, or intention, of influencing digital
asset prices and valuation (e.g., releasing previously
seized digital asset). Similarly, any government action or
regulation may indirectly affect the digital asset market or
blockchain network, influencing cryptocurrency usage or
prices.
Currently,
there is relatively modest use of digital assets in the retail and
commercial marketplace compared to its use by speculators, thus
contributing to price volatility that could adversely affect the
consumer usage. If future regulatory actions or policies limit the
ability to own or exchange digital assets in the retail and
commercial marketplace, or use them for payments, or own them
generally, the price and demand for digital assets may decrease.
Such decrease in demand may result in a drop in demand for our
blockchain payment platform or a decrease the market price of our
shares.
Litigation may adversely affect our business, financial condition
and results of operations.
From
time to time in the normal course of our business operations, we
may become subject to litigation involving intellectual property,
data privacy and security and other matters that may negatively
affect our operating results if changes to our business operation
are required. The cost to defend such litigation may be significant
and may require a diversion of our resources. There also may be
adverse publicity associated with litigation that could negatively
affect customer perception of our business, regardless of whether
the allegations are valid or whether we are ultimately found
liable. As a result, litigation may adversely affect our business,
financial condition and results of operations. In addition,
insurance may not cover existing or future claims, be sufficient to
fully compensate us for one or more of such claims or continue to
be available on terms acceptable to us. A claim brought against us
that is uninsured or underinsured could result in unanticipated
costs, thereby adversely affecting our results of operations and
resulting in a reduction in the market price of our stock. See
“Business—Legal Proceedings” in this report for a summary of our
material pending legal proceedings.
Use of our payments services for illegal purposes could harm our
business.
Our
payment system is susceptible to potentially illegal or improper
uses, including money laundering, terrorist financing, illegal
online gambling, fraudulent sales of goods or services, illicit
sales of prescription medications or controlled substances, piracy
of software, movies, music, and other copyrighted or trademarked
goods (in particular, digital goods), money laundering, bank fraud,
child pornography trafficking, prohibited sales of alcoholic
beverages or tobacco products, online securities fraud, or to
facilitate other illegal activity. Certain activity that may be
legal in one country may be illegal in another country, and a
merchant may intentionally or inadvertently be found responsible
for importing illegal goods, creating liability to us. Changes in
law have increased the penalties for intermediaries providing
payment services for certain illegal activities and additional
payments-related proposals are under active consideration by
government authorities. Intellectual property rights owners or
government authorities may seek to bring legal action against
providers of payments solutions, including us, that are
peripherally involved in the sale of infringing items. Any
resulting claims could result in reputational harm and any
resulting liabilities, loss of transaction volume or increased
costs could harm our business.
Limitations on director and officer liability and our
indemnification of our officers and directors may discourage
stockholders from bringing suit against a
director.
Our
articles of incorporation and bylaws provide, as permitted by
Nevada corporation law, that a director or officer shall not be
personally liable to us or our stockholders for breach of fiduciary
duty as a director or officer, except for acts or omissions which
involve intentional misconduct, fraud or knowing violation of law.
These provisions may discourage stockholders from bringing suit
against a director for breach of fiduciary duty and may reduce the
likelihood of derivative litigation brought by stockholders on our
behalf against a director. In addition, our amended and restated
articles of incorporation and bylaws require indemnification of
directors and officers to the fullest extent permitted by Nevada
law, and we have entered into indemnification agreements with our
Board members.
Risks
Associated with Government Regulation
Privacy regulation is an evolving area and compliance with
applicable privacy regulations may increase our operating costs or
adversely impact our ability to service our
clients.
Because
we store, process and use data, some of which contains personal
information, we are subject to complex and evolving federal, state,
and foreign laws and regulations regarding privacy, data
protection, and other matters. While we believe we are currently in
compliance with applicable laws and regulations, many of these laws
and regulations are subject to change and uncertain interpretation,
and could result in investigations, claims, changes to our business
practices, increased cost of operations, and declines in user
growth, retention, or engagement, any of which could seriously harm
our business.
Changes in government regulation and industry standards applicable
to the Internet and our business could decrease demand for our
technologies and services or increase our costs.
Laws
and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could
increase the costs of conducting business on the Internet and could
decrease demand for our technologies and services. In the United
States, federal and state laws have been enacted regarding
copyrights, sending of unsolicited commercial email, user privacy,
search engines, Internet tracking technologies, direct marketing,
data security, children’s privacy, pricing, sweepstakes,
promotions, intellectual property ownership and infringement, trade
secrets, export of encryption technology, taxation and acceptable
content and quality of goods. Other laws and regulations may be
adopted in the future. Laws and regulations, including those
related to privacy and use of personal information, are changing
rapidly outside the United States as well, which may make
compliance with such laws and regulations difficult, and which may
negatively affect our ability to expand internationally. This
legislation could: (i) hinder growth in the use of the Internet
generally; (ii) decrease the acceptance of the Internet as a
communications, commercial and advertising medium; (iii) reduce our
revenue; (iv) increase our operating expenses; or (v) expose us to
significant liabilities.
H.R.
3684, the infrastructure bill that passed the Senate in August
2021, contains a provision regarding reporting of cryptocurrency
transactions to the Internal Revenue Service. Under the Senate
version of the bill, brokers must report digital asset transactions
to the Internal Revenue Service. The Senate bill also expands the
definition of broker to include “any person who (for consideration)
is responsible for regularly providing any service effectuating
transfers of digital assets on behalf of another person.” The bill
is being considered by the House and it is unclear if the bill will
be passed by the House or otherwise signed into law. It is also
unclear if the cryptocurrency reporting provision passed in the
Senate bill would remain in the House bill or would be amended in
some way. Should the provision become law, it is possible that
RocketFuel may have obligations under the provision to report
digital asset transactions to the Internal Revenue
Service.
The
laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. While we actively
monitor this changing legal and regulatory landscape to stay
abreast of changes in the laws and regulations applicable to our
business, we are not certain how our business might be affected by
the application of existing laws governing issues such as property
ownership, copyrights, encryption and other intellectual property
issues, libel, obscenity and export or import matters to the
Internet advertising industry. The vast majority of such laws were
adopted prior to the advent of the Internet. As a result, they do
not contemplate or address the unique issues of the Internet and
related technologies. Changes in laws intended to address such
issues could create uncertainty in the Internet market. It may take
years to determine how existing laws apply to the Internet and
Internet marketing. Such uncertainty makes it difficult to predict
costs and could reduce demand for our services or increase the cost
of doing business as a result of litigation costs or increased
service delivery costs.
The applicability of government regulations of digital currencies
is uncertain and evolving.
There
are uncertainties related to the regulatory regimes governing
blockchain technologies, cryptocurrencies, digital assets,
cryptocurrency exchanges, and any digital tokens that we may issue,
and new international, federal, state and local regulations or
policies may materially adversely affect us and the market price
for our shares.
Various
legislative and executive bodies in the United States and in other
countries may, in the future, adopt laws, regulations, or guidance,
or take other actions that could severely impact the permissibility
of any tokens that we may issue in the future, our blockchain and
the network or cryptocurrency generally and, in each case, the
technology behind them or the means of transacting in or
transferring them. It is difficult to predict how or whether
regulatory agencies may apply existing or new regulation with
respect to this technology and its applications, including our
blockchain and the network. In addition, self-regulatory bodies may
be established that set guidelines regarding cryptocurrencies, and
our network, which could have similar effects to new policies
adopted by government bodies.
It may be illegal now, or in the future, to participate in
blockchains or utilize similar digital assets in one or more
countries, the ruling of which would adversely affect
us.
Cryptocurrency
networks, blockchain technologies and cryptocurrencies also face an
uncertain regulatory landscape in many foreign jurisdictions,
including (among others) the European Union, China and Russia.
Various foreign jurisdictions may, in the future, adopt laws,
regulations or directives that affect us. These laws, regulations
or directives may conflict with those of the United States or may
directly and negatively impact results of operations. The effect of
any future regulatory change is impossible to predict, but any
change could be substantial and materially adverse to us, our
results of operations and adoption of our payment solutions
platform.
We have not obtained a money transmitter license in any U.S. State,
nor a BitLicense in the State of New York, and our business may be
adversely affected if we are required to do so.
We do
not believe that we are a money transmitter, because we do not
hold, possess or control payment funds on behalf of a consumer or
merchant. If we were deemed to be a money transmitter, we would be
subject to significant additional regulation. This could increase
our costs in operating our business. In addition, a regulator could
take action against us if it views our payment solution platform as
a violation of existing law. Any of these outcomes would negatively
affect the market price for our shares and could cause us to cease
operations in certain U.S. States.
Additionally,
we are not licensed to conduct a virtual currency business in New
York and do not intend to become licensed in any other state that
may require licensing in the future. We have taken the position
that New York’s BitLicense Regulatory Framework does not apply to
our platform business. It is possible, however, that the New York
State Department of Financial Services could disagree with our
position. If we were deemed to be conducting an unlicensed virtual
currency business in New York, we could be subject to significant
additional regulation and/or regulatory consequences.
Risks
Related to an Investment in our Common Stock
Sales of substantial amounts of our Common Stock or the perception
that such sales may occur could cause the market price of our
Common Stock to drop significantly.
Future
sales of substantial amounts of our Common Stock, or securities
convertible into or exercisable or exchangeable for shares of our
Common Stock, into the public market, including shares of our
Common Stock issued upon exercise of options and warrants, or the
perception that those sales could occur, could adversely affect the
prevailing market price of our Common Stock and our ability to
raise capital in the future. Additionally, the market price of our
Common Stock could decline as a result of sales by, or the
perceived possibility of sales by, our existing stockholders of
shares of our Common Stock in the market after this
offering.
If we sell additional equity or debt securities to fund our
operations, restrictions may be imposed on our
business.
In
order to raise additional funds to support our operations, we may
sell additional equity or debt securities, which may impose
restrictive covenants that adversely impact our business. The
incurrence of indebtedness would result in increased fixed payment
obligations and could also result in restrictive covenants, such as
limitations on our ability to incur additional debt, limitations on
our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact
our ability to conduct our business. If we are unable to expand our
operations or otherwise capitalize on our business opportunities as
a result of such restrictions, our business, financial condition
and results of operations could be materially adversely
affected.
There is no assurance of an active established public trading
market, which would adversely affect the ability of our investors
to sell their securities in the public market.
Although
our Common Stock is registered under the Exchange Act and is traded
on the OTCQB, trading of our Common Stock on the OTCQB may be
limited, and an active trading market for the securities (to the
extent one exists) may not be sustained in the future. The OTCQB is
an over-the-counter market that provides significantly less
liquidity than the NASDAQ Stock Market. Prices for securities
traded solely on the OTCQB may be difficult to obtain and holders
of Common Stock may be unable to resell their securities at or near
their original offering price or at any price. Market prices for
our Common Stock will be influenced by a number of factors,
including:
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Our
ability to obtain additional financing and the terms
thereof; |
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Our
financial position and results of operations; |
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Any
litigation against us; |
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Possible
regulatory requirements on our business; |
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The
issuance of new debt or equity securities pursuant to a future
offering; |
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Competitive
developments; |
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Variations
and fluctuations in our operating results; |
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Change
in financial estimates by securities analysts; |
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The
depth and liquidity of the market for our Common Stock; |
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Investor
perceptions of us; and |
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General
economic and business conditions. |
Shares eligible for future sale may have adverse effects on our
share price.
Approximately
31 percent of the shares of Common Stock issued and outstanding are
owned by 6 stockholders who will be eligible to sell some of their
shares of Common Stock by means of ordinary brokerage transactions
in the open market pursuant to Rule 144 promulgated under the
Securities Act (“Rule 144”), subject to certain limitations. Rule
144 also permits the sale of securities, without any limitations,
by a nonaffiliate that has satisfied a six-month holding period.
Any substantial sale of Common Stock pursuant to Rule 144 may have
an adverse effect on the market price of our Common Stock by
creating an excessive supply.
Sales
of substantial amounts of shares or the perception that such sales
could occur may adversely affect the prevailing market price for
our shares. We may issue additional shares in subsequent public
offerings or private placements to make new investments or for
other purposes. We are not required to offer any such shares to
existing shareholders on a preemptive basis. Therefore, it may not
be possible for existing shareholders to participate in such future
share issuances, which may dilute the existing shareholders’
interests in us.
Our Common Stock is considered a “penny stock” and may be difficult
to sell.
Our
Common Stock is considered to be a “penny stock” since it meets one
or more of the definitions in Rules 15g-2 through 15g-6 promulgated
under Section 15(g) of the Exchange Act. These include but are not
limited to the following: (i) the stock trades at a price less than
$5.00 per share; (ii) it is not traded on a “recognized” national
exchange; (iii) it is not quoted on the NASDAQ Stock Market, or
even if so, has a price less than $5.00 per share; or (iv) it is
issued by a company with net tangible assets less than $2.0
million, if in business more than a continuous three years, or with
average revenues of less than $6.0 million for the past three
years. The principal result or effect of being designated a “penny
stock” is that securities broker-dealers cannot recommend the stock
but must trade in it on an unsolicited basis.
Additionally,
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated
thereunder by the SEC require broker-dealers dealing in penny
stocks to provide potential investors with a document disclosing
the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in
a penny stock for the investor’s account.
Holders
of our Common Stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny
stock.” Moreover, Rule 15g-9 requires broker-dealers in penny
stocks to approve the account of any investor for transactions in
such stocks before selling any penny stock to that investor. This
procedure requires the broker-dealer to: (i) obtain from the
investor information concerning its financial situation, investment
experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are
suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating
the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv)
receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s
financial situation, investment experience and investment
objectives. Compliance with these requirements may make it more
difficult for holders of our Common Stock to resell their shares to
third parties or to otherwise dispose of them in the market or
otherwise.
The Financial Industry Regulatory Authority, or FINRA, has adopted
sales practice requirements that may also limit a stockholder’s
ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, FINRA has
adopted rules that require that, in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior
to recommending speculative low-priced securities to their
noninstitutional customers, broker-dealers must make reasonable
efforts to obtain information about the customer’s financial
status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is
a high probability that speculative low-priced securities will not
be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers
buy our Common Stock, which may limit your ability to buy and sell
our stock and have an adverse effect on the market for our
shares.
A decline in the price of our Common Stock could affect our ability
to raise additional working capital, it may adversely impact our
ability to continue operations and we may go out of
business.
A
prolonged decline in the price of our Common Stock could result in
a reduction in the liquidity of our Common Stock and a reduction in
our ability to raise capital. Because we may attempt to acquire a
significant portion of the funds we need in order to conduct our
planned operations through the sale and issuance of equity
securities, a decline in the price of our Common Stock could be
detrimental to our liquidity and our operations because the decline
may cause investors not to choose to invest in our stock. If we are
unable to raise the funds we require for all our planned
operations, we may be forced to reallocate funds from other planned
uses and we may suffer a significant negative effect on our
business plan and operations, including our ability to develop new
products and continue our current operations. As a result, our
business may suffer, and not be successful and we may go out of
business. We also might not be able to meet our financial
obligations if we cannot raise enough funds through the sale and
issuance of our Common Stock and we may be forced to go out of
business.
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results. As a result, current and potential shareholders
could lose confidence in our financial reporting, which would harm
our business and the trading price of our stock.
We
are a development stage company with limited resources. Therefore,
we cannot assure investors that we will be able to maintain
effective internal controls over financial reporting based on
criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”) in Internal Control Integrated
Framework. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement
of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. We are considering the
costs and benefits associated with improving and documenting our
disclosure controls and procedures and internal controls and
procedures, which includes (i) hiring additional personnel with
sufficient U.S. GAAP experience and (ii) implementing ongoing
training in U.S. GAAP requirements for our CFO and accounting and
other finance personnel. If the results of these efforts are not
successful, or if material weaknesses are identified in our
internal control over financial reporting, our management will be
unable to report favorably as to the effectiveness of our internal
control over financial reporting and/or our disclosure controls and
procedures, and we could be required to further implement expensive
and time-consuming remedial measures and potentially lose investor
confidence in the accuracy and completeness of our financial
reports which could have an adverse effect on our stock price and
potentially subject us to litigation.
A significant majority of the outstanding shares of our Common
Stock is held by a small number of shareholders, which may have
significantly greater influence on us due to the size of their
shareholdings relative to other shareholders.
As of
the date of this report, 11 persons beneficially own approximately
68 percent of the outstanding shares of our Common Stock. These
major shareholders have significant influence in determining the
outcome of any corporate transactions or other matters submitted to
our shareholders for approval, including mergers, consolidations
and schemes of arrangement, election and removal of directors and
other significant corporate actions. They may not act in our best
interests or our minority shareholders’ interests. In addition,
without the consent of these major shareholders, we could be
prevented from entering into transactions that could be beneficial
to us. This concentration of ownership may also discourage, delay
or prevent a change in control, which could deprive our
shareholders of an opportunity to receive a premium for their
shares as part of a sale of our company and might reduce the price
of our Common Stock. These actions may be taken even if they are
opposed by our other shareholders.
We are subject to the periodic reporting requirements of the
Exchange Act that require us to incur audit fees and legal fees in
connection with the preparation of such reports. These additional
costs could reduce or eliminate our ability to earn a
profit.
We
are required to file periodic reports with the SEC pursuant to the
Exchange Act and the rules and regulations promulgated thereunder.
In order to comply with these requirements, our independent
registered public accounting firm will have to review our financial
statements on a quarterly basis and audit our financial statements
on an annual basis. Moreover, our legal counsel will have to review
and assist in the preparation of such reports. The costs charged by
these professionals for such services cannot be accurately
predicted at this time because factors such as the number and type
of transactions that we engage in and the complexity of our reports
cannot be determined at this time and will have a major effect on
the amount of time to be spent by our auditors and attorneys.
However, the incurrence of such costs will obviously be an expense
to our operations and thus have a negative effect on our ability to
meet our overhead requirements and earn a profit. We may be exposed
to potential risks resulting from any new requirements under
Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide
reliable financial reports or prevent fraud, our business and
operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our
Common Stock, if a market ever develops, could drop
significantly.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, as amended by SEC
Release 338889, we are required to include in our annual report our
assessment of the effectiveness of our internal control over
financial reporting. Furthermore, if we cease to be a smaller
reporting company, our independent registered public accounting
firm will be required to report separately on whether it believes
that we have maintained, in all material respects, effective
internal control over financial reporting. We have not yet
commenced any assessment of the effectiveness of our internal
control over financial reporting. We expect to incur additional
expenses and diversion of management’s time as a result of
performing the system and process evaluation, testing and
remediation required in order to comply with the management
certification and auditor attestation requirements.
We do
not have a sufficient number of employees to segregate
responsibilities and may be unable to afford increasing our staff
or engaging outside consultants or professionals to overcome our
lack of employees. During the course of our testing, we may
identify other deficiencies that we may not be able to remediate in
time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we
fail to achieve and maintain the adequacy of our internal controls,
as such standards are modified, supplemented or amended from time
to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary
for us to produce reliable financial reports and are important to
help prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating
results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our Common
Stock, if a market ever develops, could drop
significantly.
We do not have any independent directors and may be unable to
appoint any qualified independent directors.
Currently,
the members of the Board of Directors are Gert Funk, Bennett
Yankowitz and Peter Jensen, none of whom are “independent” as
defined under national stock exchange rules. Therefore, all
decisions of the Board of Directors will be made by persons who are
not considered independent directors. If we seek to list our common
stock on a national securities exchange, we will need to have a
majority of the members of our board of directors be independent,
but we may not be able to identify independent directors qualified
to be on our board who are willing to serve. We do not currently
have an audit committee and have not established independent
oversight over our management and internal controls. Therefore, we
are exposed to the risk that material misstatements or omissions
caused by errors or fraud with respect to our financial statements
or other disclosures may occur and not be detected in a timely
manner or at all. In the event there are deficiencies or weaknesses
in our internal controls, we may misreport our financial results or
lose significant amounts due to misstatements caused by errors or
fraud. These misstatements or acts of fraud could also cause our
company to lose value and investors to lose confidence in
us.
The capital markets may experience periods of disruption and
instability. Such market conditions may materially and adversely
affect debt and equity capital markets, which may have a negative
impact on our business and operations.
Volatility
and dislocation in the capital markets can also create a
challenging environment in which to raise or access debt capital.
The reappearance of market conditions similar to those experienced
from 2008 through 2009 for any substantial length of time could
make it difficult to obtain debt capital, extend the maturity of or
refinance existing indebtedness or obtain new indebtedness with
similar terms and any failure to do so could have a material
adverse effect on our business. The debt capital that will be
available to us in the future, if at all, may be at a higher cost
and on less favorable terms and conditions than what is currently
available including being at a higher cost due to a rising rate
environment. If we are unable to raise or refinance debt, then our
equity investors may not benefit from the potential for increased
returns on equity resulting from leverage and we may be limited in
our ability to make new commitments or to fund existing commitments
to our portfolio companies.
Significant
changes or volatility in the capital markets may also have a
negative effect on the valuations of our investments. An inability
to raise or access capital could have a material adverse effect on
our business, financial condition or results of operations. In
addition, in the past, class action litigation has often been
instituted against companies whose securities have experienced
periods of volatility in market prices. Securities litigation
brought against us following volatility in our stock price,
regardless of the merit or ultimate results of such litigation,
could result in substantial costs, which would hurt our financial
condition and operating results and divert management’s attention
and resources from our business.
We do not anticipate paying any cash dividends on our capital stock
in the foreseeable future.
We
currently intend to retain all of our future earnings to finance
the growth and development of our business, and therefore, we do
not anticipate paying any cash dividends on our capital stock in
the foreseeable future. We believe it is likely that our board of
directors will continue to conclude that it is in the best
interests of us and our shareholders to retain all earnings (if
any) for the development of our business. In addition, the terms of
any future debt agreements may preclude us from paying dividends.
As a result, capital appreciation, if any, of our Common Stock will
be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
The
trading market for our Common Stock will depend in part on the
research and reports that securities or industry analysts publish
about us or our business. Few securities and industry analysts
currently publish research on our company. If additional securities
or industry analysts do not commence coverage of our company, the
trading price for our stock would likely be negatively impacted. In
the event that additional securities or industry analysts initiate
coverage, or if one or more of the analysts who covers us
downgrades our stock or publishes inaccurate or unfavorable
research about our business, our stock price may decline. If one or
more of these analysts ceases coverage of our company or fails to
publish reports on us regularly, demand for our stock could
decrease, which might cause our stock price and trading volume to
decline.
We are a “smaller reporting company” and, as a result of the
reduced disclosure and governance requirements applicable to
smaller reporting companies, our Common Stock may be less
attractive to investors.
We
qualify as a “smaller reporting company,” which allows us to take
advantage of certain reduced disclosure obligations, including
those regarding executive compensation, in our periodic reports and
proxy statements. We cannot predict if investors will find our
Common Stock less attractive because we will rely on these reduced
disclosure standards. If some investors find our Common Stock less
attractive as a result, there may be a less active trading market
for our Common Stock and our stock price may be more volatile. We
may take advantage of these reduced disclosure requirements until
we are no longer a smaller reporting company. We will remain a
smaller reporting company until (i) our public float exceeds
$250,000,000 or (ii) we no longer have less than $100,000,000 in
revenues and public float of less than $700,000,000.
Stockholders who hold unregistered shares of our common stock are
subject to resale restrictions pursuant to Rule 144 due to our
former status as a “shell company.”
We
previously were a “shell company” pursuant to Rule 144, promulgated
under the Securities Act, or Rule 144, and, as such, sales of our
securities pursuant to Rule 144 cannot be made unless, among other
things, we continue to remain subject to Section 13 or 15(d) of the
Exchange Act, and we file all of our required periodic reports with
the SEC under the Exchange Act. Because our unregistered securities
cannot be sold pursuant to Rule 144 unless we continue to meet such
requirements, any unregistered securities we sell in the future or
issue to consultants or employees, in consideration for services
rendered or for any other purpose, will have no liquidity unless we
continue to comply with such requirements. As a result, it may be
more difficult for us to obtain financing to fund our operations
and pay our consultants and employees with our securities instead
of cash.
General
Risk Factors
Our business is subject to the risks of earthquakes, fire, power
outages, floods, epidemics and other catastrophic events, and to
interruption by man-made problems such as strikes and
terrorism.
A
significant natural disaster, such as an earthquake, fire, power
outage, flood, epidemic or other catastrophic event, or
interruptions by strikes, terrorism or other man-made problems,
could have an adverse effect on our business, operating results and
financial condition. Despite any precautions we may take, the
occurrence of a natural disaster or other unanticipated problems
could result in lengthy interruptions in our services. The risks of
such an event may be further increased if our disaster recovery
plans prove to be inadequate. We do not currently maintain business
interruption insurance to compensate us for potentially significant
losses, including potential harm to our business resulting from
interruptions in our ability to provide products or services. Any
significant natural disaster or man-made business interruption
could have an adverse effect on our financial condition or results
of operations.
Prolonged economic downturn, particularly in light of the COVID-19
pandemic, could adversely affect our business.
Uncertain
global economic conditions, in particular in light of the COVID-19
pandemic, could adversely affect our business. Negative global and
national economic trends, such as decreased consumer and business
spending, high unemployment levels and declining consumer and
business confidence, pose challenges to our business and could
result in declining revenues, profitability and cash flow.
Particularly, worsening economic conditions in our target markets
could lead to merchants lowering their budgets and decreasing
ability and demand to purchase our payment solutions.
Unfavorable general economic conditions may materially adversely
affect our business.
While
it is difficult for us to predict the impact of general economic
conditions on our business, these conditions could reduce customer
demand for some of our products or services which could cause our
revenue to decline. Also, our customers that are especially reliant
on the credit and capital markets being liquid, retail investors
having investment capital and other factors which could affect
their ability to host successful capital raises and continue as a
going concern. Moreover, we rely on obtaining additional capital
and/or additional funding to provide working capital to support our
operations. We regularly evaluate alternative financing sources.
Further changes in the commercial capital markets or in the
financial stability of our investors and creditors may impact the
ability of our investors and creditors to provide additional
financing. For these reasons, among others, if the economic
conditions stagnate or decline, our operating results and financial
condition could be adversely affected.
|
Item
1B. |
Unresolved Staff Comments |
None.
We do
not own any properties. We lease offices in San Francisco,
California on a month-to-month basis.
|
Item
3. |
Legal Proceedings |
Other
than as set forth below, we are not the subject of any pending
legal proceedings; and to the knowledge of management, no
proceedings are presently contemplated against us by any federal,
state or local governmental agency. Further, to the knowledge of
management, no director or executive officer is party to any action
in which any has an interest adverse to us.
On
October 8, 2020, we filed a lawsuit in the U.S. District Court for
the Central District of California against Joseph Page, our former
director and chief technology officer. On January 13, 2021, the
case was transferred to the U.S. District Court for the District of
Nevada, Las Vegas Division. The causes of action include securities
fraud under Federal and California law; fraud, breach of fiduciary
duty, negligent misrepresentation and unjust enrichment under
California law; and violation of California Business and
Professions Code §17200 et seq.
We
were seeking injunctive and declaratory relief as well as damages
of at least $5.1 million. On May 29, 2019, Mr. Page resigned from
our board. After his resignation, we retained independent patent
counsel to review our patent applications. In connection with this
review, we discovered certain deficiencies in some of the
applications and in their assignments to us. We determined that all
of the applications had been abandoned. Based on this review, we
decided to refile three of our applications with the U.S. Patent
and Trademark Office, which we did in May 2020. It is our belief
that the three newly filed patent applications cover and/or
disclose the same subject matter as we disclosed in the five
original patent applications. In this case, our rights may be
subject to any intervening patent applications made after the dates
of the original applications. In the lawsuit, we were alleging that
Mr. Page was aware of the abandonments when he assigned the patents
to RocketFuel Blockchain Company (“RBC”), a private corporation
that he controlled, and that he failed to disclose to us the
abandonments when the Company acquired RBC in exchange for shares
of the Company’s Common Stock. Mr. Page filed an answer denying the
Company’s claims and asserted cross- and counterclaims against the
Company and several of the Company’s shareholders alleging breach
of contract and fraud. In September 2021, Mr. Page voluntarily
dismissed all of the counterclaims against the
shareholders.
On
March 2, 2021, we filed a lawsuit in the U.S. District Court for
the Southern District of New York against Ellenoff Grossman &
Schole LLP (“EGS”) for negligence and legal malpractice, breach of
contract and breach of fiduciary duty. EGS had represented RBC
prior to the Business Combination and represented us after the
closing of the Business Combination through August 2019. In the
litigation against Mr. Page, he has alleged that he provided
information to an EGS partner that the patent applications had been
abandoned and that EGS failed to inform RBC and us of the fact. We
are seeking damages and the return of legal fees previously
paid.
On June 7, 2022, RBC entered into a settlement agreement in the
legal proceedings between the Company as plaintiff, and Joseph Page
as defendant, whereunder Page surrendered 3,600,394 shares of the
Company’s common stock, and kept 1,500,000 shares. Mr. Page
represents and warrants that he has not filed or assisted anyone
else in filing any patent applications that would preempt or
infringe upon the Company’s patent applications. Plaintiff and
defendant have each released their claims against each other and
covenanted not to sue the other, including related parties and
stakeholders, with the exclusion of current or future claims
against EGS. The parties agreed to a Stipulated Dismissal of the
Action with Prejudice filed with the court.
At
the date of this report, the Company is unable to estimate the
probability success or dollar amount of rulings in the March 2,
2021 case against EGS, and as a result, has not accrued any
potential benefit to the Company’s balance sheet. Attorney fees
related to these proceedings are expensed as incurred.
|
Item
4. |
Mine Safety Disclosures |
Not
applicable.
PART II
|
Item
5. |
Market Information for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our
common stock was quoted on the OTC Market under the symbol “BFMC”
until July 12, 2018 at which time the symbol was changed to “RKFL.”
There is limited trading of our common stock. Quotations from the
OTC Market reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions. The stock market in general has experienced extreme
stock price fluctuations in the past few years. In some cases,
these fluctuations have been unrelated to the operating performance
of the affected companies. Many companies have experienced dramatic
volatility in the market prices of their common stock. We believe
that a number of factors, both within and outside our control,
could cause the price of our common stock to fluctuate, perhaps
substantially. Factors such as the following could have a
significant adverse impact on the market price of our common
stock:
|
|
● |
Our
ability to obtain additional financing and the terms
thereof; |
| |
● |
Our
financial position and results of operations; |
| |
● |
Any
litigation to which we are a party; |
| |
● |
Possible
regulatory requirements on our business; |
| |
● |
The
issuance of new debt or equity securities pursuant to a future
offering; |
| |
● |
Our
ability to obtain additional financing and the terms
thereof; |
| |
● |
Changes
in interest rates; |
| |
● |
Competitive
developments; |
| |
● |
Variations
and fluctuations in our operating results; |
| |
● |
Change
in financial estimates by securities analysts; |
| |
● |
The
depth and liquidity of the market for our common stock; |
| |
● |
Investor
perceptions of us; and |
| |
● |
General
economic and business conditions. |
As of
July 8, 2022, there were 1,062 stockholders of record. The last
sale price as quoted by the OTCQB tier of The OTC Markets on July
12, 2022, was $0.13 per share.
Recent
Sales of Unregistered Securities
We
claimed exemption from registration under the Securities Act for
the sales and issuances of securities in the following transactions
under Section 4(a)(2) of the Securities Act and/or Regulations D
and S promulgated thereunder, in that such sales and issuances (i)
did not involve a public offering, or (ii) were made to non-U.S.
Persons and otherwise complied with Rule 903 promulgated under the
Securities Act, or (iii) were made pursuant to Rule 701 promulgated
under the Securities Act, in that they were offered and sold either
pursuant to written compensatory plans or pursuant to a written
contract relating to compensation, as provided by Rule 701. All of
the purchasers of unregistered securities for which we relied on
Section 4(a)(2) and/or Regulation D represented that they were
accredited investors as defined under the Securities Act. We
claimed such exemption on the basis that (a) the purchasers in each
case represented that they intended to acquire the securities for
investment only and not with a view to the distribution thereof and
that they either received adequate information about the registrant
or had access, through employment or other relationships, to such
information and (b) appropriate legends were affixed to the stock
certificates issued in such transactions.
On
March 31, 2021, we entered into a contract with one customer having
a one-year term from the date of execution that provided for (1)
the payment of $10,000 in connection with the implementation of our
blockchain technology and (2) the issuance of 10,000 shares of our
common stock valued at $1.00 per share in consideration of being an
early adopter of our blockchain technology. On August 4, 2021, we
issued such 10,000 shares of our common stock to the customer. On
October 6, 2021, we issued 10,000 shares of our common stock to
another customer.
On
May 1, 2020, we issued a warrant to purchase 1,500,000 shares of
common stock at $1.00 per share (the “First Warrant”). The warrant
was to expire on April 30, 2021. We also agreed that upon the full
and timely exercise of the First Warrant, it would issue a second
warrant for an additional 1,500,000 shares of common stock at a
purchase price of $1.50 per share having a term of 12 months from
the date of issue (the “Second Warrant”). The First Warrant was
transferred to an affiliate of the original holder in November
2020. During the year ended March 31, 2021, the warrant holder
exercised warrants from the First Warrant to purchase 1,100,000
shares of our common stock of which (i) 1,000,000 shares of our
common stock were issued in consideration of gross proceeds of
$1,000,000 prior to March 31, 2021; and (ii) 100,000 shares of our
common stock, for which we received notice of exercise on March 31,
2021, were issued in April 2021 in consideration of gross proceeds
of $100,000. Additionally, the warrant holder exercised the First
Warrant for the remaining 400,000 shares of our common stock in
April 2021 in consideration of gross proceeds of $400,000. On April
26, 2021, we issued the Second Warrant to the holder. On August 6,
2021, we agreed to amend the terms of the Second Warrant to
increase the number of shares purchasable to 2,250,000 and to
reduce the exercise price to $1.00 per share. In the year ended
March 31, 2022, the warrant holder exercised warrants from the
Second Warrant to purchase 300,000 shares of our common stock at an
exercise price of $1.00 per share. At March 31, 2022, there are
1,950,000 Second Warrants outstanding and exercisable.
On
October 11, 2021, we and Triton Funds, LP, a Delaware limited
partnership (“Triton”), an unrelated third party, entered into an
amendment to the Common Stock Purchase Agreement (the “CSPA”) dated
February 25, 2021. Under the CSPA, Triton agreed to invest up to
$1,000,000 in the Company through purchases of common stock during
the commitment period (which runs through December 31, 2022).
During the commitment period, the Company may, in its sole
discretion, deliver purchase notices to Triton stating the dollar
amount of shares which the Company intends to sell to Triton, not
to exceed $500,000 per purchase notice. The amount to be funded
under a purchase notice under the CSPA, as amended, is the number
of shares of common stock to be purchased multiplied by the greater
of (i) $1.00 (changed from $1.65) or (ii) eighty percent (80%) of
the lowest closing price of the common stock within fifteen
business days prior to the closing date for the purchase. The
closing date for each purchase is five business days following the
date of the corresponding purchase notice. In connection with the
amendment to the CSPA, the Company also amended the warrants issued
to Triton. As amended the warrants are to purchase, in one or more
instalments, 1,300,000 shares (increased from 800,000 under the
CSPA) of the Company’s common stock (the “Warrants”) at an exercise
price equal to the greater of (i) $1.00 per share (changed from
$1.65) and (ii) eighty percent (80%) of the average closing price
of the common stock over the 90-calendar day period preceding the
Warrant exercise date, subject to adjustments. The Warrants
terminate on February 25, 2026. On May 5, 2021, Triton exercised
50,000 Warrants for an aggregate purchase price of $82,500 ($1.65
per share). After the amendment, 1,250,000 Warrants remain
unexercised.
On
November 4, 2021, we completed a public offering (the “Offering”)
of 6,666,667 shares of its common stock, par value $0.001 per share
(the “Common Stock”) and warrants to purchase 6,666,667 shares of
Common Stock (the “Common Warrants”). The combined purchase price
of one share of Common Stock and accompanying Common Warrant was
$0.75. The Common Warrants are immediately exercisable at an
exercise price equal to $0.75 per share of Common Stock (the
“Exercise Price”), subject to adjustments as provided under the
terms of the Common Warrants. The Warrants are exercisable for five
and one-half years from the initial exercise date.
On
November 1, 2021, in connection with the Offering, we entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with
certain institutional investors. The Purchase Agreement sets forth
the economic terms set forth above and contains customary
representations and warranties of the Company, as well as certain
indemnification obligations of the Company and ongoing covenants
for the Company. In addition, under the Purchase Agreement, the
Company has agreed not to issue, enter into any agreement to issue
or announce the issuance or proposed issuance of any shares of the
Company’s (or its subsidiaries’) Common Stock or common stock
equivalents for a period of 90 days from the closing of the
Offering, other than certain exempt issuances. Additionally, the
Company has also agreed for a period of two years following the
closing date of the Offering not to (i) issue or agree to issue
equity or debt securities convertible into, or exercisable or
exchangeable for, Common Stock at a conversion price, exercise
price or exchange price which floats with the trading price of our
Common Stock or which may be adjusted after issuance upon the
occurrence of certain events or (ii) enter into any agreement,
including an equity line of credit, whereby the Company may issue
securities at a future-determined price. This agreement does not
apply to the offer, issuance or sale by the Company of Common Stock
pursuant to an at-the-market offering facility the Company may
enter with the placement agent of the Offering following expiration
of the 90-day lock-up period.
The
net proceeds to the Company from the Offering, after deducting
placement agent’s fees and other Offering expenses, and excluding
the proceeds, if any, from the exercise of the Common Warrants, are
approximately $4.37 million.
In
connection with the Offering, pursuant to an engagement letter (the
“Engagement Letter”) dated as of July 9, 2021, as amended on
September 20, 2021 and on October 28, 2021 between the Company and
H.C. Wainwright & Co., LLC (“Wainwright”), the Company paid
Wainwright (i) a total cash fee equal to 8.0% of the aggregate
gross proceeds received by the Company from the sale of the
securities in the transaction, and (ii) a non-accountable expense
allowance of $75,000. Pursuant to the Engagement Letter, the
Company also issued to Wainwright or its designees warrants to
purchase up to an aggregate of 533,333 shares of Common Stock (8.0%
of the aggregate number of shares of Common Stock sold in the
Offering) (the “Placement Agent Warrants”). The Placement Agent
Warrants have substantially the same terms as the Warrants, except
that the Placement Agent Warrants are exercisable for five years
from the date of the Purchase Agreement and have an exercise price
equal to 125% of the purchase price per share of Common Stock in
the Offering, or $0.9375 per share.
Dividend
Policy
Our
dividend policy is determined by our Board of Directors and depends
upon a number of factors, including our financial condition and
performance, our cash needs and expansion plans, income tax
consequences, and the restrictions that applicable laws and any
credit or other contractual arrangements may then impose. We have
not paid any cash dividends on the common stock. We do not
anticipate paying a cash dividend on our common stock in the
foreseeable future.
|
Item
7. |
Management’s Discussion and Analysis or Plan of
Operation |
Overview
Our
Business
We
(or the “Company”) provide cryptocurrency and other check-out and
payment systems that securely automate and simplify the way online
payment and shipping information is received by merchants from
their customers. Our “one click” checkout solution is modeled on
the “buy now” button on leading eCommerce sites. Our check-out
systems are designed to enhance customers’ data protection,
enabling consumers to pay for goods and services using
cryptocurrencies or by direct transfers from their bank accounts
without exposing spending credentials such as credit card data. At
the same time, our check-out systems are designed to increase the
speed, security and ease of use for both customers and merchants
and include a merchant portal that provides detailed transactions
and metrics about payments received by the merchant. Our system
also includes a customer portal where shoppers are able to track
their payments, configure payment defaults and connect with various
cryptocurrency exchanges and banks to facilitate payment to
merchants. Merchants are able to integrate a unique pop-up user
interface that allows customers to pay directly from their
eCommerce checkout page with no need to redirect to another website
or web page.
Our
corporate headquarters are located in San Francisco,
California.
Critical
Accounting Policies
Our
significant accounting policies are summarized in Note 2 to our
financial statements. Certain of our accounting policies require
the application of significant judgment by our management, and such
judgments are reflected in the amounts reported in our financial
statements. In applying these policies, our management uses its
judgment to determine the appropriate assumptions to be used in the
determination of estimates. Those estimates are based on our
historical experience, terms of existing contracts, our observance
of market trends, information provided by our strategic partners
and information available from other outside sources, as
appropriate. Actual results may differ significantly from the
estimates contained in our financial statements.
Results
of Operations
Fiscal Years Ended March 31, 2022 vs. March 31,
2021
Revenues
During
March 2021, we commenced commercial operations and executed several
contracts with customers. In accordance with the terms of the
contracts, we received the payment in connection with the
implementation of our remittance technologies. We record the
implementation fees as deferred revenue which is amortized ratably
over the contract term. During the fiscal year ended March 31,
2022, we generated $30,504 primarily from the recognized
implementation fees. During the fiscal year ended March 31, 2021,
we did not generate any revenue. We anticipate that future revenues
will be generated from (i) fees charged in connection with the
implementation of our remittance technologies; and (ii) ongoing
daily transactional fees derived as a negotiated percentage of the
transactional revenues earned by our merchant customers.
Research
and Development Expenses
Research and development expenses for the fiscal year ended March
31, 2022 were $897,277 as compared to $163,405 for the comparable
prior year period, an increase of $733,872. The increase is due
primarily to hiring of contractors in India and applying additional
resources in connection with continued development of our
technology for payment processing. Costs associated with adding new
features to our software platform are capitalized and amortized
over a 2-year expected life.
General
and Administrative Expenses
General
and administrative expenses for the fiscal year ended March 31,
2022 were $3,763,179 as compared to $2,200,177 for the comparable
prior year period, an increase of $1,563,002. The increase is
primarily a result of legal fees incurred in connection with
certain litigation costs and payroll expenses incurred in
connection with the hiring of our full-time executive officers,
which was somewhat offset by a decrease in stock-based
compensation.
Stock-based
compensation for the fiscal year ended March 31, 2022 of $1,380,642
was composed of (i) the $20,000 value of 20,000 shares of our
common stock issued to two customers in lieu of cash consideration;
(ii) stock options granted to employees which were valued at
$1,326,177; and the (iii) repricing of certain stock options
granted to employees which resulted in additional stock-based
compensation of $34,465.
Stock-based
compensation for the fiscal year ended March 31, 2021 of $1,622,335
was composed of (i) the $162,000 value of 150,000 shares of our
common stock issued to an independent consultant for services in
lieu of cash consideration; (ii) stock options granted to employees
which were valued at $601,140; (iii) the issuance of a warrant to
our chief executive officer that is exercisable into 265,982 shares
of our common stock and valued at $370,131; and the (iv) repricing
of certain stock options granted to our chief financial officer in
August 2018 which were re-priced resulting in additional
stock-based compensation of $489,064.
Liquidity
and Capital Resources
As of
March 31, 2022, we had cash of $2,634,794, an increase of
$1,834,463 as compared to a cash balance of $800,331 as of March
31, 2021. Our current cash requirements are approximately $350,000
per month.
During
the fiscal year ended March 31, 2022, net cash of $2,776,911 was
used in operating activities. Net cash used in operating activities
was primarily composed of our net loss of $4,662,924 and offset by
(i) $1,360,642 of non-cash stock-based compensation in connection
with the grant of employee stock options and; (ii) $20,000 of
non-cash stock-based compensation in connection with the issuance
of 20,000 shares of our common stock to two customers in lieu of
cash consideration; (iii) increase in depreciation and amortization
of $149,919 and (iv) increase in accounts payable and accrued
expenses payable of $262,352 in the aggregate.
During
the fiscal year ended March 31, 2021, net cash of $636,257 was used
in operating activities. Net cash used in operating activities was
primarily composed of our net loss of $2,363,582 and offset by (i)
$1,460,335 of non-cash stock-based compensation in connection with
the grant of employee stock options and issuance of a common stock
purchase warrant to our chief executive officer; (ii) $162,000 of
non-cash stock-based compensation in connection with the issuance
of 150,000 shares of our common stock to a consultant for services
in lieu of cash consideration; and (iii) increase in accounts
payable, accrued expenses and related party payable of $109,990 in
the aggregate.
During the fiscal year ended March 31, 2022, net cash of $610,095
was used in investing activities, primarily from (i) the
acquisition of computer equipment for $23,395 and the
capitalization of software development costs of $586,700, There
were no such investments in the fiscal year ended March 31,
2021.
During
the fiscal year ended March 31, 2022, net cash of $5,221,469 was
provided by financing activities, primarily from (i) the issuance
of 6,666,667 shares of our common stock and warrants to purchase
6,666,667 shares of common stock in exchange for net cash proceeds
(after net of issuance costs) of $4,375,001 in a public offering
and; (ii) the issuance of 850,000 shares of our common stock in
connection with exercise of common stock purchase warrants in
consideration of $882,500 in gross cash proceeds. Additionally, we
received proceeds from a convertible note payable of $126,250, net
of finance costs, and repaid $159,282 for this same convertible
note payable.
During
the fiscal year ended March 31, 2021, net cash of $1,428,750 was
provided by financing activities from the issuance of 1,478,750
shares of our common stock to two investors. During the fiscal year
ended March 31, 2021, one investor exercised warrants to purchase
1,100,000 shares of our common stock of which (i) 1,000,000 shares
of our common stock were issued in consideration of gross proceeds
of $1,000,000 prior to March 31, 2021; and (ii) 100,000 shares of
our common stock, for which we received notice of exercise on March
31, 2021, were issued subsequent to March 31, 2021 in consideration
of gross proceeds of $100,000. There were no options exercised
during the fiscal years ended March 31, 2022 and 2021.
Our
financial statements have been presented on the basis that we are a
going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business.
During the fiscal year ended March 31, 2022, we reported a net loss
of $4,662,924, which included non-cash stock-based compensation of
$1,380,642, and cash flows used in operating activities of
$2,776,911. As a result, management believes that there is
substantial doubt about our ability to continue as a going
concern.
We
will require additional financing in order to continue to develop
our product and execute on our business plan. However, there can be
no assurances that we will be successful in raising the additional
capital necessary to continue operations and execute on our
business plan. Any potential future sale of equity or debt
securities may result in dilution to our stockholders, and we
cannot be certain that additional public or private financing will
be available in amounts or on terms acceptable to us, or at all. If
we are required to raise additional financing, but are unable to
obtain such financing, we may be required to delay, reduce the
scope of, or eliminate one or more aspects of our operations or
business development activities.
Off-Balance
Sheet Arrangements
As of
March 31, 2022, we did not have any off-balance sheet arrangements
that have, or are reasonably likely to have, a current or future
material effect on our financial condition, results of operations,
liquidity, capital expenditures or capital resources.
|
Item
7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
Not
Applicable.
|
Item
8. |
Financial Statements and Supplementary Data |
The
following documents are filed as part of this report on Form
10-K:
|
Item
9. |
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure |
None.
|
Item
9A. |
Controls and Procedures |
The
certificates of our principal executive officer and principal
financial and accounting officer attached as Exhibits 31.1 and 31.2
to this Annual Report on Form 10-K include, in paragraph 4 of such
certifications, information concerning our disclosure controls and
procedures, and internal control over financial reporting. Such
certifications should be read in conjunction with the information
contained in this Item 9A for a more complete understanding of the
matters covered by such certifications.
Management’s
Annual Report on Internal Control Over Financial
Reporting
As
required by the SEC rules and regulations for the implementation of
Section 404 of the Sarbanes-Oxley Act, our management is
responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of our consolidated financial statements for external
reporting purposes in accordance with GAAP. Our internal control
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of our company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the consolidated
financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect errors or misstatements in our
consolidated financial statements. 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 or compliance with the policies or
procedures may deteriorate. Management assessed the effectiveness
of our internal control over financial reporting at March 31, 2022.
In making these assessments, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework) (COSO).
Based
on our assessments and those criteria and on an evaluation under
the supervision and with the participation of our management, our
principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not
effective as of March 31, 2022 to ensure that information required
to be disclosed by us in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms and
(ii) accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Based
on this evaluation, our management concluded that, as of March 31,
2022, our internal control over financial reporting was not
effective due to (i) insufficient segregation of duties in the
finance and accounting functions due to limited personnel; and (ii)
inadequate corporate governance policies. In the future, subject to
working capital limitations, we intend to take appropriate and
reasonable steps to make improvements to remediate these
deficiencies.
This
annual report on Form 10-K does not include an attestation report
of our registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
Securities and Exchange Commission rules that permit us to provide
only management’s report in this annual report.
Changes
in Internal Control Over Financial Reporting
During
the fourth quarter of the fiscal year ended March 31, 2022, we made
the following change in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) under the
Exchange Act) during the fiscal period to which this report relates
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting:
We
engaged an independent consulting firm to provide financial
oversight and reporting assistance services to the Company. The
engaged consultants consist of staff that are trained and
experienced in financial, accounting, generally accepted accounting
principles, SEC reporting and internal control requirements, which
are beginning to be applied to our company to improve the internal
control environment.
|
Item
9B. |
Other Information |
None.
|
Item
9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections |
Not
Applicable.
PART III
|
Item
10. |
Directors, Executive Officers and Corporate
Governance |
Directors
and Named Executive Officers
Our
board of directors is currently comprised of three directors. Our
directors and named executive officers, their ages and positions,
as well as certain biographical information of these individuals,
are set forth below.
|
Name |
|
Age |
|
Positions
Held with the Registrant |
|
Gert
Funk |
|
55 |
|
Executive
Chairman of the Board |
|
Peter
M. Jensen |
|
55 |
|
Chief
Executive Officer and Director |
|
Bennett
J. Yankowitz |
|
67 |
|
Chief
Financial Officer, Secretary and Director |
Biographies
of Directors and Executive Officers
Gert
Funk has been our Chairman since 2018 and was appointed as our
Executive Chairman in March 2021. Mr. Funk has been a serial
entrepreneur since 1990 with considerable experience and specialty
in banking and payments processing. He has more than 14 years as
director in various companies within banking and payments. Mr. Funk
has since 2005 been CEO of CNG PRO ApS in Denmark and CNG PRO SARL
in Monaco. CNG PRO is a European Payment Service Provider for
International eCommerce merchants especially within travel and
retail. From 2005 until 2013, Mr. Funk has also been CEO of
BigeFinancials A/S, a fully EMI licensed company operating under
the European Payment Directive and monitored by the Danish
Financial Supervisory Authority, as well as a Principal Member of
MasterCard. Mr. Funk has been approved as “Fit and Proper” and
“Qualified CEO and owner” by the Danish Financial Supervisory
Authority. Mr. Funk is currently also President of the Monaco
Blockchain Association. Mr. Funk received a Masters degree in
economics in Denmark.
Our
Board has concluded that Mr. Funk is an appropriate person to
represent management on our Board of Directors given his position
as our Chairman, his professional credentials, and his experience
in the banking and payments processing industry.
Peter
M. Jensen has been our Chief Executive Officer since 2020. Mr.
Jensen is an experienced IT executive with extensive global
experience within enterprise software. From 2019 to 2020 he was
chief executive officer of Spanugo, a provider of security
assurance applications, which was sold to IBM. From 2016 to 2017 he
was chief executive officer of Presidiohealth, a provider of
software and services to health care providers to manage the
patient experience. From 2014 to 2016 he was chief executive
officer of ParStream, which created the first analytics database
for the Internet of Things (IoT); this company was acquired by
CISCO in 2016. From 2011 to 2014 he was chief executive officer of
Stopthehacker.com, a provider of website security and privacy
services. Previously, he held sales and marketing positions with
several other technology companies including Symantec, Oracle and
VMWare. Mr. Jensen holds an MBA from the Copenhagen Business
School.
Our
Board has concluded that Mr. Jensen is an appropriate person to
represent management on our Board of Directors given his position
as our Chief Executive Officer, his professional credentials, and
his experience as a chief executive officer in the technology
industry.
Bennett
J. Yankowitz has been our Chief Financial Officer since 2015.
Mr. Yankowitz has more than 30 years of experience as a corporate
attorney with leading law firms, specializing in securities,
financial and merger and acquisition transactions, and has a
background in financial analysis and real estate investment and
development. He is of counsel to the law firm Shumaker Mallory LLP,
and was previously of counsel to its predecessor firm Parker
Shumaker Mills LLP. He was previously counsel to Kaye Scholer LLP
and a partner of Heenan Blaikie and of Stroock & Stroock &
Lavan LLP. From 2002 to 2014, he was a director of Proteus Energy
Corporation, a California-based private oil and gas production and
development company and was its Chief Executive Officer from 2008
to 2014. Mr. Yankowitz earned his B.A. degree in Mathematics from
the University of California, Berkeley (1977), his J.D. degree from
the University of Southern California (1980), where he was an
editor of the Southern California Law Review, and his LL.M.
degree (First Class Honours) from the University of Cambridge
(1981), where he was an Evan Lewis-Thomas Scholar at Sidney Sussex
College. He is a member of the California and New York
bars.
Our
Board has concluded that Mr. Yankowitz is an appropriate person to
represent management on our Board of Directors given his position
as our Chief Financial Officer, his professional credentials, and
his experience as a corporate attorney with leading law firms,
specializing in securities, financial and merger and acquisition
transactions.
Stockholder
Communications with the Board of Directors
Pursuant
to procedures set forth in our bylaws, our Board of Directors will
consider stockholder nominations for directors if we receive timely
written notice, in proper form, of the intent to make a nomination
at a meeting of stockholders. To be timely, the notice must be
received within the time frame identified in our bylaws. To be in
proper form, the notice must, among other matters, include each
nominee’s written consent to serve as a director if elected, a
description of all arrangements or understandings between the
nominating stockholder and each nominee and information about the
nominating stockholder and each nominee. These requirements are
detailed in our bylaws, which were included in our previous filings
with the SEC on Form 10-K and 8-K. A copy of our bylaws will be
provided upon written request to the Chief Financial Officer at
RocketFuel Blockchain, Inc., 201 Spear Street, Suite 1100, San
Francisco, CA 94105.
Code
of Ethics
We
have adopted a Code of Ethics that allows for us to ensure that our
disclosure controls and procedures remain effective. Our Code also
defines the standard of conduct expected by our officers, directors
and key employees. A copy of our Code of Ethics will be furnished
without charge to any person upon written request. Requests should
be sent to: Secretary, RocketFuel Blockchain, Inc., 201 Spear
Street, Suite 1100, San Francisco, CA 94105.
Delinquent
Section 16(a) Beneficial Ownership Reports
Section
16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors and persons who beneficially own more than 10%
of a registered class of our securities to file reports of
ownership and changes in ownership with the SEC. Based solely on a
review of copies of such forms submitted to us, we believe that all
persons subject to the requirements of Section 16(a) filed such
reports on a timely basis in fiscal 2022.
Corporate
Governance and Guidelines
Our
Board of Directors has long believed that good corporate governance
is important to ensure that we manage our company for the long-term
benefit of stockholders. During the past year, our Board of
Directors has continued to review our governance practices in light
of the Sarbanes-Oxley Act of 2002 and recently revised SEC rules
and regulations. We intend to implement internal corporate
governance guidelines and practices and will make such guidelines
and practices available on its website at
www.rocketfuelblockchain.com, when implemented.
|
Item
11. |
Executive Compensation |
Summary
Compensation Table
This
section discusses the material components of the executive
compensation program for our named executive officers. This
discussion may contain forward-looking statements that are based on
our current plans, considerations, expectations and determinations
regarding future compensation programs.
The
following table provides information regarding the compensation
awarded to, or earned by, our current and former named executive
officers for the fiscal years ended March 31, 2022 and
2021.
|
Named
Executive Officer |
|
Fiscal
Period |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards ($) |
|
|
Option
Awards ($) |
|
|
All
Other Compensation
($)
|
|
|
Total
($)
|
|
|
Gert
Funk (1) |
|
|
2022 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
173,908 |
|
|
$ |
- |
|
|
$ |
173,908 |
|
| Chairman |
|
|
2021 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Peter
M. Jensen (2) |
|
|
2022 |
|
|
$ |
240,000 |
|
|
$ |
75,000 |
|
|
$ |
- |
|
|
$ |
694,975 |
|
|
$ |
- |
|
|
$ |
1,009,975 |
|
| Chief
Executive Officer |
|
|
2021 |
|
|
$ |
88,461 |
|
|
$ |
12,500 |
|
|
$ |
- |
|
|
$ |
231,658 |
|
|
$ |
370,131 |
|
|
$ |
702,750 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bennett
J. Yankowitz (3) |
|
|
2022 |
|
|
$ |
69,998 |
|
|
$ |
22,500 |
|
|
$ |
- |
|
|
$ |
173,908 |
|
|
$ |
- |
|
|
$ |
266,406 |
|
| Chief
Financial Officer |
|
|
2021 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
489,064 |
|
|
$ |
- |
|
|
$ |
489,064 |
|
|
(1) |
On
March 15, 2021, our Board of Directors approved the grant of
options to purchase 500,000 shares of our common stock to Mr. Funk
pursuant to our 2018 Stock Option Plan. We determined the fair
value of the stock option using the Black-Scholes pricing model
which resulted in a total value of the stock options granted of
$695,610. During the fiscal years ended March 31, 2022, we
amortized $130,431 of the total to stock-based compensation. On
January 11, 2022, our Board of Directors approved the re-pricing of
the exercise price of these shares from $1.08 per share to $0.33
per share. Accordingly, we recorded an additional $43,477 of
stock-based compensation during the fiscal year ended March 31,
2022. A total of $521,702 of stock-based compensation remains to be
recognized in future periods. |
|
(2) |
On
September 15, 2020, our Board of Directors approved the grant of
options to purchase 2,393,842 shares of our common stock to Mr.
Jensen pursuant to our 2018 Stock Option Plan. We determined the
fair value of the stock option using the Black-Scholes pricing
model which resulted in a total value of the stock options granted
of $1,853,256. During the fiscal year ended March 31, 2022, we
amortized $579,146 of the total as stock-based compensation. On
January 11, 2022, our Board of Directors approved the re-pricing of
the exercise price of these shares from $1.08 per share to $0.33
per share. Accordingly, we recorded an additional $115,829 of
stock-based compensation during the fiscal year ended March 31,
2022. A total of $1,158,281 of stock-based compensation remains to
be recognized in future periods. During the year ended March 31,
2021, we amortized $231,658 of the total as stock-based
compensation. We also issued to Mr. Jensen a warrant to purchase
265,982 shares of our common stock at an exercise price of $1.00
per share. Pursuant to the terms of the agreement, this warrant was
exercisable immediately on the date of issuance. We determined the
fair value of the stock option using the Black-Scholes pricing
model which resulted in the recording of stock-based compensation
of $370,131 during the fiscal year ended March 31,
2021. |
|
|
|
|
(3) |
On
March 15, 2021, our Board of Directors approved the grant of
options to purchase 500,000 shares of our common stock to Mr.
Yankowitz pursuant to our 2018 Stock Option Plan. We determined the
fair value of the stock option using the Black-Scholes pricing
model which resulted in a total value of the stock options granted
of $695,610. During the fiscal year ended March 31, 2022, we
amortized $130,431 of the total to stock-based compensation. On
January 11, 2022, our Board of Directors approved the re-pricing of
the exercise price of these shares from $1.08 per share to $0.33
per share. Accordingly, we recorded an additional $43,477 of
stock-based compensation during the fiscal year ended March 31,
2022. A total of $521,702 of stock-based compensation remains to be
recognized in future periods.
On
August 8, 2018, our Board of Directors approved the grant of
options to purchase 500,000 shares of our common stock to Mr.
Yankowitz pursuant to our 2018 Stock Option Plan. We determined the
fair value of the stock option using the Black-Scholes pricing
model which resulted in the recording of stock-based compensation
of $1,100,350 during the fiscal year ended March 31, 2019. On March
18, 2021, our Board of Directors approved the re-pricing of the
exercise price of these shares from $3.00 per share to $1.08 per
share. Accordingly, we recorded an additional $489,064 of
stock-based compensation during the fiscal year ended March 31,
2021. As of March 31, 2021, total stock-based compensation in
connection with this stock option was $1,589,414 which is recorded
as additional paid-in capital.
|
Employment
Agreements and Other Arrangements with Named Executive
Officers
Gert
Funk
Mr.
Funk has received a grant of options to purchase 500,000 shares of
our Common Stock. The options will be issued under our 2018 Plan.
The options will (i) be incentive stock options, (ii) have an
exercise price equal to $1.08 per share (subsequently reduced to
$0.33 per share), which is the fair market value per share of our
Common Stock on March 15, 2021 (January 11, 2022 for the
reduction), as determined by an independent valuation by a
qualified appraiser, (iii) have a term of 10 years, (iv) vest and
become exercisable as to 1/48th of the shares subject to the
options on the 15th day of each calendar month during the term of
his employment agreement, commencing on April 15, 2021, (v) be
subject to the exercise, forfeiture and termination provisions set
forth in the Plan and (vi) otherwise be evidenced by and subject to
the terms of our standard form of stock option agreement. Vesting
of the options will be accelerated upon a change of
control.
He
will also receive a cash bonus equal to 2.5% of the net proceeds
(i.e., adjusted for our costs) of any initial exchange offering
(IEO), token generation event (TGE) or similar financing (a “Token
Transaction”) completed on or before the date that is 12 months
after the formal acceptance by the Board of a proposal for a Token
Transaction (start date, milestones, responsibilities). In the
event the Board decides to cancel the Token Transaction, Mr. Funk
and the Board shall agree upon a mutually acceptable bonus
structure in lieu of the foregoing.
Peter
M. Jensen
Mr.
Jensen’s employment agreement initially provided for a base salary
of $7,500 per month, which was to increase to $20,000 per month
once we had received gross proceeds of at least $2,000,000 in
subsequent equity round financings. Our Board determined that the
conditions for the salary increase occurred on February 1, 2021. He
is also entitled to a performance bonus of $25,000 per calendar
quarter based on his achieving quarterly financial and business
objectives and milestones to be determined by our board of
directors.
Mr.
Jensen also received a grant of options to purchase 2,393,842
shares of our Common Stock. The options were issued under our 2018
Plan. The options (i) are incentive stock options, (ii) have an
exercise price equal to $1.08 per share (subsequently reduced to
$0.33 per share), which is the fair market value per share of our
Common Stock on September 15, 2020 (January 11, 2022 for the
reduction), as determined by an independent valuation by a
qualified appraiser, (iii) have a term of 10 years, (iv) vest and
become exercisable as to 1/48th of the shares subject to the
options on the 15th day of each calendar month during the term of
his employment agreement, commencing on October 15, 2020, (v) be
subject to the exercise, forfeiture and termination provisions set
forth in the Plan and (vi) otherwise be evidenced by and subject to
the terms of our standard form of stock option agreement. Vesting
of the options will be accelerated upon a change of
control.
Under
the employment agreement, upon our closing of an equity funding, in
one or more rounds prior to April 30, 2021, resulting in aggregate
gross proceeds to us of $2,000,000 or more, Mr. Jensen is to
receive warrants to purchase 265,982 shares of our Common Stock.
Our Board determined that the conditions for the warrant grant
occurred on February 1, 2021. The warrants have a term of 10 years,
be fully vested on the date of issuance, and have an exercise price
equal to $1.00 per share (subsequently reduced to $0.33 per share),
the weighted average price per share paid by the investors in such
equity funding rounds.
Mr.
Jensen’s employment agreement renews on a month-to-month basis. If
Mr. Jensen should voluntarily terminate his agreement, or if we
terminate his agreement other than for cause (as defined in the
2018 Plan), then he will be entitled to 12 months of accelerated
vesting of his stock options.
Bennett
J. Yankowitz
Mr.
Yankowitz’s employment agreement provides for a base salary of
$5,833 per month on the basis of a commitment of 20 hours per week.
He is also entitled to a performance bonus of $7,500 per calendar
quarter based on his achieving quarterly business objectives and
milestones. In March 2021, he also received a grant of options to
purchase 500,000 shares of our Common Stock. The options were
issued under our 2018 Plan. The options (i) are incentive stock
options, (ii) have an exercise price equal $1.08 per share
(subsequently reduced to $0.33 per share), which is the fair market
value per share of our Common Stock on March 1, 2021 (January 11,
2022 for the reduction), as determined by an independent valuation
by a qualified appraiser, (iii) have a term of 10 years, (iv) vest
and become exercisable as to 1/48th of the shares subject to the
options on the 1st day of each calendar month during the term of
his employment agreement, commencing on April 1, 2021, (v) be
subject to the exercise, forfeiture and termination provisions set
forth in the Plan and (vi) otherwise be evidenced by and subject to
the terms of our standard form of stock option agreement. 250,000
of the options will become fully vested and exercisable upon the
achievement of business objectives and milestones. In addition,
vesting of the options will be accelerated upon a change of
control.
Outstanding
Equity Awards During Fiscal 2022
| |
|
Option Awards |
| |
|
Number of securities underlying unexercised options (#) |
|
|
Equity incentive plan awards: Number of securities underlying
unexercised unearned options |
|
|
Option exercise price |
|
|
Option expiration |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
(#) |
|
|
($) |
|
|
Date |
| Gert Funk |
|
|
125,004 |
|
|
|
- |
|
|
|
374,996 |
|
|
$ |
0.33 |
|
|
3/15/2031 |
| Peter M. Jensen |
|
|
897,696 |
|
|
|
- |
|
|
|
1,496,146 |
|
|
$ |
0.33 |
|
|
9/15/2030 |
| Bennett J. Yankowitz (1) |
|
|
500,000 |
|
|
|
- |
|
|
|
- |
|
|
$ |
0.33 |
|
|
8/8/2028 |
| Bennett J. Yankowitz |
|
|
125,004 |
|
|
|
- |
|
|
|
374,996 |
|
|
$ |
0.33 |
|
|
3/15/2031 |
(1).
Represents options issued on August 8, 2018. The exercise price of
these options was adjusted as of March 15, 2021 and January 11,
2022.
Option
Exercises and Stock Vested During Fiscal 2022
There
were no options exercised during the fiscal year ended March 31,
2022.
|
Item
12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The
following table sets forth the beneficial ownership of shares of
our common stock, as of July 14, 2022, of (i) each
person known by us to beneficially own five percent (5%) or more of
such shares; (ii) each of our directors and current executive
officers named in the Summary Compensation Table; and (iii) our
current executive officers and directors as a group. Except as
otherwise indicated, all shares are beneficially owned, and the
persons named as owners hold investment and voting
power.
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities. In accordance with SEC rules, shares of our Common
Stock which may be acquired upon exercise of stock options or
warrants which are currently exercisable or which become
exercisable within 60 days of the date of the applicable table
below are deemed beneficially owned by the holders of such options
and warrants and are deemed outstanding for the purpose of
computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
of ownership of any other person. Subject to community property
laws, where applicable, the persons or entities named in the tables
below have sole voting and investment power with respect to all
shares of our Common Stock indicated as beneficially owned by
them.
The
business address of each person listed below, unless otherwise
specified, is RocketFuel Blockchain, Inc., 201 Spear Street, Suite
1100, San Francisco, CA 94105.
|
Name and Address of Beneficial Owner (1) |
|
Amount
and
Nature
of
Beneficial
Ownership
|
|
|
Percent
of
Class
(1)
|
|
| Gert Funk (2) |
|
|
5,184,317 |
|
|
|
18.2 |
% |
| Peter Jensen (3) |
|
|
1,577,776 |
|
|
|
5.3 |
% |
| Bennett J. Yankowitz (4) |
|
|
1,516,922 |
|
|
|
5.2 |
% |
| All officers and directors as a group
(three persons) |
|
|
8,279,016 |
|
|
|
28.7 |
% |
| |
|
|
|
|
|
|
|
|
Joseph Page
Domaine de la Brague
Route de Biot 289
F-06560 Valbonne
France |
|
|
1,500,000 |
|
|
|
5.3 |
% |
| |
|
|
|
|
|
|
|
|
Carsten Mark (5)
15 Ovington Street
London SW3 2JA
United Kingdom |
|
|
2,472,908 |
|
|
|
8.7 |
% |
|
(1) |
Based
on 28,364,689 outstanding shares as of July 14, 2022. |
|
|
|
|
(2) |
Includes
the vested portion of an option to purchase 500,000 shares of
Common Stock at $1.08 per share (subsequently reduced to $0.33 per
share), expiring March 14, 2031. |
|
|
|
|
(3) |
Includes
a warrant to purchase 265,982 shares of Common Stock at $1.00 per
share (subsequently reduced to $0.33 per share), expiring February
15, 2031, and the vested portion of an option to purchase 2,393,842
shares of Common Stock at $1.08 per share (subsequently reduced to
$0.33 per share), expiring September 15, 2030. |
|
|
|
|
(4) |
Includes
an option to purchase 500,000 shares of Common Stock at $1.08 per
share (subsequently reduced to $0.33 per share), expiring August 8,
2028, and the vested portion of an option to purchase 500,000
shares of Common Stock at $1.08 per share (subsequently reduced to
$0.33 per share), expiring March 15, 2031. |
|
|
|
|
(5) |
Includes
1,672,908 shares held by Saxton Capital Ltd. Also includes 300,000
shares owned by SCSE Investments ApS, and 200,000 shares owned by
SCSE Equities ApS, entities controlled by Mr. Mark’s daughters and
over which he disclaims beneficial ownership. |
Securities
Authorized for Issuance under Equity Compensation Plans as of the
End of Fiscal 2022 Equity Compensation Plan
Information
|
Plan Category |
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights |
|
|
Weighted
average
exercise price of outstanding options,
warrants
and rights
|
|
|
Number of securities remaining available for future issuance |
|
|
Equity compensation plans approved by stockholders |
|
|
5,606,013 |
(1) |
|
$ |
0.33 |
|
|
|
393,987 |
|
| |
|
|
5,606,013 |
|
|
|
|
|
|
|
393,987 |
|
|
|
(1) |
This
total represents shares to be issued upon exercise of outstanding
options granted under the RocketFuel Blockchain, Inc. 2018 Stock
Incentive Plan (the “2018 Plan”) that was approved by our
stockholders on August 8, 2018. Under the 2018 Plan, 2,000,000
shares of our common stock were initially reserved for grant. On
March 18, 2021, our Board of Directors approved the increase of
shares reserved for issuance under the 2018 Plan to 6,000,000
shares of our common stock, subject to shareholder approval. There
were no stock options exercised under the 2018 Plan during the
fiscal year ended March 31, 2022. There were 600,000
performance-based options that were issued outside the 2018 Plan
and not included in the table above. |
|
Item
13. |
Certain Relationships and Related Transactions, and Director
Independence |
Related
Party Transactions
During
the years ended March 31, 2022 and 2021, our chief financial
officer was affiliated with legal counsel who provided us with
general legal services (the “Affiliate”). We recorded legal fees
paid to the affiliate of $126,850 and $100,349 for the years ended
March 31, 2022 and 2021, respectively. As of March 31, 2022 and
2021, we had $11,277 and $35,475, respectively, payable to the
affiliate.
During
the year ended March 31, 2022, we recognized a total of $97,500
bonus expense for officers of the Company, of which $65,000 was
payable at March 31,2022.
Independence
of the Board of Directors
We
are not currently subject to listing requirements of any national
securities exchange or inter-dealer quotation system which has
requirements that a majority of the Board be “independent” and, as
a result, we are not at this time required to have our Board
comprised of a majority of “Independent Directors.” Our Board is
currently composed of one named executive chairman and two named
executive officers.
Board
Attendance
Our
Board is comprised of three directors of which two members are also
our chief executive and chief financial officers, respectively.
During the fiscal year ended March 31, 2022 we convened one (1)
formal meeting of the Board.
Committees
of the Board of Directors
We
currently have no separate audit, compensation, or nominating
committees. The entire Board oversees our (i) audits and auditing
procedures; (ii) compensation philosophies and objectives,
establishment of remuneration levels for our executive officers,
and implementation of our incentive programs; and (iii)
identification of individuals qualified to become Board members and
recommendation to our shareholders of persons to be nominated for
election as directors.
Director’s
Compensation
None.
|
Item
14. |
Principal Accounting Fees and Services |
The
following is a summary of (i) the fees billed and billable to us by
Prager Metis CPAs LLC, our independent registered public accounting
firm, for professional services rendered in connection with (i)
annual audits and quarterly review fees for the fiscal years ended
March 31, 2022 and 2021; and (ii) other audit related fees and tax
preparation fees incurred during the fiscal years ended March 31,
2022 and 2021.
| Fee Category |
|
|
|
| |
|
Fiscal Year Ended
March 31, 2022 |
|
|
Fiscal Year Ended
March 31, 2021 |
|
| Prager Metis CPAs LLC
Audit fees |
|
$ |
77,000 |
|
|
$ |
26,000 |
|
| Other audit related fees |
|
|
9,500 |
|
|
|
2,800 |
|
| Tax fees |
|
|
- |
|
|
|
- |
|
| Total
fees |
|
$ |
86,500 |
|
|
$ |
28,800 |
|
Audit
Fees. This category consists of fees billed for professional
services rendered for the audit of our annual financial statements
and review of financial statements included in our quarterly
reports and other professional services provided in connection with
regulatory filings.
Other
Audit Related Fees. This category consists of fees billed for
professional services rendered for services other than those
described herein as Audit Fees or Tax Fees, including preparation
of our tax returns.
Tax
Fees. This category consists of fees billed for professional
services for tax compliance, tax advice and tax planning. These
services include assistance regarding federal and state tax
compliance and acquisitions.
Pre-Approval
Policies and Procedures. The Board of Directors has the
authority to approve all audit and non-audit services that are to
be performed by our independent registered public accounting firm.
Generally, we may not engage our independent registered public
accounting firm to render audit or non-audit services unless the
service is specifically approved in advance by the Board of
Directors.
PART IV
|
Item
15. |
Exhibits, Financial Statement Schedules |
The
following are filed as part of this Form 10-K:
|
|
(1) |
Financial
Statements: For a list of financial statements which are filed as
part of this Form 10-K, See Item 8, page 33. |
| |
|
|
| |
(2) |
Exhibits |
|
Exhibit |
|
|
|
|
|
|
|
Filed
or Furnished |
|
Number |
|
Exhibit
Description |
|
Form |
|
Exhibit |
|
Filing
Date |
|
Herewith |
|
2.1 |
|
Contribution
Agreement, dated June 27, 2018, by and among the Company,
RocketFuel Blockchain Company, Joseph Page, Gert Funk, PacificWave
Partners Limited, PacificWave Partners UK Ltd. And Saxton Capital
Ltd. |
|
8-K |
|
2.1 |
|
6/29/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Articles
of Incorporation |
|
S-1 |
|
3.1 |
|
9/8/87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
Amended
and Restated Bylaws |
|
8-K |
|
3.1 |
|
6/29/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.3 |
|
Certificates
of Amendment to Articles of Incorporation through December 31,
2017 |
|
S-1 |
|
3.3 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
Certificate
of Amendment, dated September 25, 2018, as filed with the Secretary
of State of the State of Nevada |
|
S-1 |
|
3.4 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Indemnification
Agreement dated as of January 19, 2016, between Bennett Yankowitz
and the Company |
|
8-K |
|
10.2 |
|
1/22/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
Indemnification
Agreement dated as of January 19, 2016, between Henrik Rouf and the
Company |
|
8-K |
|
10.3 |
|
1/22/16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3 |
|
2018
Stock Incentive Plan |
|
14-C |
|
Annex
B |
|
8/28/18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Subscription
Agreement, dated April 29, 2020, between the Company and
Investorlisten ApS |
|
S-1 |
|
10.4 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5 |
|
Warrant
Agreement, dated May 1, 2020, between the Company and
Investorlisten ApS |
|
S-1 |
|
10.5 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6 |
|
Agreement
with Investorlisten ApS |
|
S-1 |
|
10.6 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7 |
|
Executive
Employment Agreement, dated as of September 15, 2020, between the
registrant and Peter M. Jensen |
|
8-K |
|
10.1 |
|
9/21/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8 |
|
Indemnification
Agreement dated as of September 15, 2020, between Peter M. Jensen
and the Company |
|
S-1 |
|
10.8 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9 |
|
Amendment
No. 1 to 2018 Stock Option Plan |
|
8-K |
|
10.2 |
|
9/21/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.10 |
|
Executive
Employment Agreement, dated as of September 14, 2020, between the
registrant and Rohan Hall |
|
8-K |
|
10.1 |
|
10/8/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11 |
|
Indemnification
Agreement dated as of September 14, between Rohan Hall and the
Company |
|
S-1 |
|
10.11 |
|
3/30/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12 |
|
Common
Stock Purchase Agreement dated as of February 25, 2021 between
Triton Funds LP and RocketFuel Blockchain, Inc. |
|
8-K |
|
10.1 |
|
3/3/21 |
|
|
|
10.17 |
|
Executive
Employment Agreement, dated as of February 15, 2021, between the
registrant and Bennett J. Yankowitz |
|
S-1 |
|
10.17 |
|
3/30/21 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 10.18 |
|
Executive
Employment Agreement, dated as of February 15, 2021, between the
registrant and Gert Funk |
|
S-1 |
|
10.18 |
|
3/30/21 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 10.19 |
|
Warrant
dated February 15, 2021, from the Company to Peter M.
Jensen |
|
S-1 |
|
10.19 |
|
3/30/21 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 10.20 |
|
Settlement
Agreement and Mutual Release, dated June 8, 2022, between
RocketFuel Blockchain, Inc., RocketFuel Blockchain Company and
Joseph Page |
|
8-K |
|
10.1 |
|
6/13/22 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 14.1 |
|
Code
of Ethics |
|
10-KSB |
|
14.1 |
|
3/30/04 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 14.2 |
|
Amended
and Restated Code of Ethics |
|
S-1 |
|
14.2 |
|
3/30/21 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 21.1 |
|
Subsidiaries
of the registrant |
|
S-1 |
|
21.1 |
|
3/30/21 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| 31.1 |
|
Certification
of Principal Executive Officer pursuant to Section 302
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 31.2 |
|
Certification
of Principal Financial and Accounting Officer pursuant to Section
302 Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 32.1 |
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 32.2 |
|
Certification
of Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.INS |
|
Inline
XBRL Instance Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.SCH |
|
Inline
XBRL Taxonomy Extension Schema Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.CAL |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.LAB |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.PRE |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 101.DEF |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
| 104 |
|
Cover Page
Interactive Data File (embedded within the Inline XBRL
document) |
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the Stockholders and Board of Directors of
RocketFuel
Blockchain, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of RocketFuel
Blockchain, Inc. (the “Company”) as of March 31, 2022 and 2021, and
the related statements of operations, stockholders’ equity
(deficit) and cash flows for the years ended March 31, 2022 and
2021, and the related notes (collectively referred to as the
financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of March 31, 2022 and 2021, and the results of its
operations and its cash flows for the years ended March 31, 2022
and 2021, in conformity with accounting principles generally
accepted in the United States of America.
Going
Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
3 to the financial statements, the Company reported a net loss of
$4,662,924 and $2,363,582 and a negative cash flow from operations
of $2,776,911 and $636,257 for the years ended March 31, 2022 and
2021, respectively. These factors, among others, raise substantial
doubt regarding the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are
described in Note 3 to the financial statements The accompanying
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical
Audit Matters
The
critical audit matters are matters arising from the current period
audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging,
subjective or complex judgments. We determined that there are no
critical audit matters for the current audit period.
|
/s/ Prager Metis CPAs, LLC |
|
|
|
|
| Auditor
firm ID: 273 |
|
|
We
have served as the Company’s auditor since 2018 |
|
| |
|
|
Hackensack,
New Jersey |
|
| |
|
|
July
14, 2022 |
|
ROCKETFUEL
BLOCKCHAIN, INC.
Balance Sheets
| |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
2,634,794 |
|
|
$ |
800,331 |
|
| Accounts
receivable |
|
|
3,475 |
|
|
|
10,000 |
|
|
Prepaid and other current assets |
|
|
12,350 |
|
|
|
5,000 |
|
| Total current
assets |
|
|
2,650,619 |
|
|
|
815,331 |
|
| |
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation and
amortization of $149,919 and $0, respectively |
|
|
460,176 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
3,110,795 |
|
|
$ |
815,331 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable
and accrued expenses |
|
$ |
487,200 |
|
|
$ |
144,830 |
|
| Payable to related
party |
|
|
11,277 |
|
|
|
35,475 |
|
|
Deferred revenue |
|
|
15,073 |
|
|
|
10,000 |
|
|
Total current liabilities |
|
|
513,550 |
|
|
|
190,305 |
|
| Total
liabilities |
|
|
513,550 |
|
|
|
190,305 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’ equity: |
|
|
|
|
|
|
|
|
| Preferred stock; $0.001 par value;
50,000,000 shares authorized; and 0 shares issued and
outstanding |
|
|
- |
|
|
|
- |
|
| Common stock,
$0.001 par value; 250,000,000 shares authorized; 31,975,083 and
24,438,416 shares issued; 31,965,083 and 24,438,416 shares
outstanding as of March 31, 2022 and 2021, respectively |
|
|
31,975 |
|
|
|
24,438 |
|
| Additional paid in
capital |
|
|
11,214,820 |
|
|
|
4,584,214 |
|
| Accumulated
deficit |
|
|
(8,646,550 |
) |
|
|
(3,983,626 |
) |
|
Treasury stock, at cost |
|
|
(3,000 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Total
stockholders’ equity |
|
|
2,597,245 |
|
|
|
625,026 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities and stockholders’ equity |
|
$ |
3,110,795 |
|
|
$ |
815,331 |
|
The
accompanying notes are an integral part of these financial
statements
ROCKETFUEL
BLOCKCHAIN, INC.
STATEMENTS OF OPERATIONS
| |
|
Year
Ended |
|
|
Year
Ended |
|
| |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
| |
|
|
|
|
|
|
| Revenue, net |
|
$ |
30,504 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
| Expenses: |
|
|
|
|
|
|
|
|
| Research and
development |
|
|
897,277 |
|
|
|
163,405 |
|
|
General and administrative expenses |
|
|
3,763,179 |
|
|
|
2,200,177 |
|
| Total
operating expenses |
|
|
4,660,456 |
|
|
|
2,363,582 |
|
| Loss from
operations |
|
|
(4,629,952 |
) |
|
|
(2,363,582 |
) |
| Other income (expense) |
|
|
|
|
|
|
|
|
| Change in fair
value of derivative liability |
|
|
4,128 |
|
|
|
- |
|
| Loss on debt
extinguishment |
|
|
(15,076 |
) |
|
|
- |
|
|
Interest expense |
|
|
(22,024 |
) |
|
|
- |
|
| Other expense |
|
|
(32,972 |
) |
|
|
- |
|
| Loss before provision for income
taxes |
|
|
(4,662,924 |
) |
|
|
(2,363,582 |
) |
| |
|
|
|
|
|
|
|
|
| Provision for
income taxes |
|
|
- |
|
|
|
- |
|
| Net Loss |
|
$ |
(4,662,924 |
) |
|
$ |
(2,363,582 |
) |
| |
|
|
|
|
|
|
|
|
| Loss per common share: |
|
|
|
|
|
|
|
|
| Basic
and diluted |
|
$ |
(0.17 |
) |
|
$ |
(0.10 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
| Basic
and diluted |
|
|
27,820,791 |
|
|
|
23,541,520 |
|
The
accompanying notes are an integral part of these financial
statements
ROCKETFUEL
BLOCKCHAIN, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For
the Years Ended March 31, 2022 and 2021
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common Stock Outstanding |
|
|
Treasury
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity (Deficit)
|
|
| Balance at March 31, 2020 |
|
|
22,809,666 |
|
|
$ |
22,810 |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
1,534,757 |
|
|
$ |
(1,620,044 |
) |
|
$ |
(62,477 |
) |
| Issuance of common
stock in connection with private placement |
|
|
478,750 |
|
|
|
478 |
|
|
|
- |
|
|
|
- |
|
|
|
478,272 |
|
|
|
- |
|
|
|
478,750 |
|
| Issuance of common
stock to consultants for services |
|
|
150,000 |
|
|
|
150 |
|
|
|
- |
|
|
|
- |
|
|
|
161,850 |
|
|
|
- |
|
|
|
162,000 |
|
| Issuance of common
stock in connection with exercise of investor warrants |
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
- |
|
|
|
- |
|
|
|
999,000 |
|
|
|
- |
|
|
|
1,000,000 |
|
| Stock-based
compensation - employee and consultant option grants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,090,204 |
|
|
|
- |
|
|
|
1,090,204 |
|
| Stock-based
compensation - CEO warrant |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
370,131 |
|
|
|
- |
|
|
|
370,131 |
|
| Placement agent
fee |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(50,000 |
) |
|
|
- |
|
|
|
(50,000 |
) |
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,363,582 |
) |
|
|
(2,363,582 |
) |
| Balance at March 31, 2021 |
|
|
24,438,416 |
|
|
|
24,438 |
|
|
|
- |
|
|
|
- |
|
|
|
4,584,214 |
|
|
|
(3,983,626 |
) |
|
|
625,026 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of common
stock in connection with exercise of common stock purchase
warrants |
|
|
850,000 |
|
|
|
850 |
|
|
|
- |
|
|
|
- |
|
|
|
881,650 |
|
|
|
- |
|
|
|
882,500 |
|
| Stock-based
compensation - employee and consultants option grants |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,360,642 |
|
|
|
- |
|
|
|
1,360,642 |
|
| Issuance of common
stock to customers |
|
|
20,000 |
|
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
19,980 |
|
|
|
- |
|
|
|
20,000 |
|
| Issuance of common
stock and warrants, net of issuance costs |
|
|
6,666,667 |
|
|
|
6,667 |
|
|
|
- |
|
|
|
- |
|
|
|
4,368,334 |
|
|
|
- |
|
|
|
4,375,001 |
|
| Repurchase of
common stock |
|
|
- |
|
|
|
- |
|
|
|
(10,000 |
) |
|
|
(3,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(3,000 |
) |
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,662,924 |
) |
|
|
(4,662,924 |
) |
| Balance as of March 31, 2022 |
|
|
31,975,083 |
|
|
$ |
31,975 |
|
|
|
(10,000 |
) |
|
$
|
(3,000 |
) |
|
$
|
11,214,820 |
|
|
$
|
(8,646,550 |
) |
|
$
|
2,597,245 |
|
The
accompanying notes are an integral part of these financial
statements
ROCKETFUEL
BLOCKCHAIN, INC.
STATEMENTS OF CASH FLOWS
| |
|
Year
Ended |
|
|
Year
Ended |
|
| |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
| Cash Flows from Operating
Activities: |
|
|
|
|
|
|
|
|
| Net
loss |
|
$ |
(4,662,924 |
) |
|
$ |
(2,363,582 |
) |
| Adjustments to
reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
149,919 |
|
|
|
- |
|
| Stock based
compensation |
|
|
1,380,642 |
|
|
|
1,622,335 |
|
| Change in fair
value of derivative liability |
|
|
(4,128 |
) |
|
|
- |
|
| Loss on
extinguishment of convertible note payable |
|
|
15,076 |
|
|
|
- |
|
| Amortization of
debt discount |
|
|
22,084 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
6,525 |
|
|
|
(10,000 |
) |
| Prepaid expenses
and other current assets |
|
|
(7,350 |
) |
|
|
(5,000 |
) |
| Accounts payable
and accrued expenses |
|
|
342,370 |
|
|
|
80,018 |
|
| Payable to related
party |
|
|
(24,198 |
) |
|
|
29,972 |
|
|
Deferred revenue |
|
|
5,073 |
|
|
|
10,000 |
|
| Net
cash flows used in operating activities |
|
|
(2,776,911 |
) |
|
|
(636,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment |
|
|
(23,395 |
) |
|
|
- |
|
|
Software
development costs |
|
|
(586,700 |
) |
|
|
- |
|
|
Net
cash flows used in investing activities |
|
|
(610,095 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Cash Flows from Financing
Activities: |
|
|
|
|
|
|
|
|
| Proceeds from
issuance of common stock and warrants, net of issuance costs |
|
|
4,375,001 |
|
|
|
428,750 |
|
| Proceeds from
exercise of common stock warrants |
|
|
882,500 |
|
|
|
1,000,000 |
|
| Shares repurchased |
|
|
(3,000 |
) |
|
|
- |
|
| Proceeds from
convertible note payable, net |
|
|
126,250 |
|
|
|
- |
|
|
Repayment of convertible note payable |
|
|
(159,282 |
) |
|
|
- |
|
| Net
cash flows provided by financing activities |
|
|
5,221,469 |
|
|
|
1,428,750 |
|
| Net change in
cash |
|
|
1,834,463 |
|
|
|
792,493 |
|
| Cash at
beginning of year |
|
|
800,331 |
|
|
|
7,838 |
|
| Cash at end
of year |
|
$ |
2,634,794 |
|
|
$ |
800,331 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental disclosure of non-cash
flow information |
|
|
|
|
|
|
|
|
|
Common stock issued to customer for early adoption |
|
$ |
20,000 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these financial
statements
ROCKETFUEL BLOCKCHAIN, INC.
NOTES TO FINANCIAL
STATEMENTS
MARCH 31, 2022
1.
Business
We
(or the “Company”) provide cryptocurrency and other check-out and
payment systems that securely automate and simplify the way online
payment and shipping information is received by merchants from
their customers. Our “one click” checkout solution is modeled on
the “buy now” button on leading eCommerce sites. Our check-out
systems are designed to enhance customers’ data protection,
enabling consumers to pay for goods and services using
cryptocurrencies or by direct transfers from their bank accounts
without exposing spending credentials such as credit card data. At
the same time, our check-out systems are designed to increase the
speed, security and ease of use for both customers and merchants
and include a merchant portal that provides detailed transactions
and metrics about payments received by the merchant. Our system
also includes a customer portal where shoppers are able to track
their payments, configure payment defaults and connect with various
cryptocurrency exchanges and banks to facilitate payment to
merchants. Merchants are able to integrate a unique pop-up user
interface that allows customers to pay directly from their
eCommerce checkout page with no need to redirect to another website
or web page.
Our
corporate headquarters are located in San Francisco,
California.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and pursuant to the rules and
regulations of the U.S. Securities and Exchange Commission
(“SEC”).
Use of Accounting Estimates
The
preparation of these financial statements in conformity with U.S.
GAAP requires management to make estimates and judgments, which are
evaluated on an ongoing basis, and that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Management bases its estimates on historical experience
and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities and the amounts of revenues and expenses that are not
readily apparent from other sources. Actual results could differ
from those estimates and judgments.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
Reclassifications
Certain
prior year amounts have been reclassified for consistency with the
current year presentation. These reclassifications had no effect on
the reported results of operations.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the
Financial Accounting Standards Board or other standard setting
bodies that may have an impact on our accounting and reporting. We
believe that such recently issued accounting pronouncements and
other authoritative guidance for which the effective date is in the
future either will not have an impact on our accounting or
reporting or that such impact will not be material to our financial
position, results of operations and cash flows when
implemented.
Cash and Cash Equivalents
Cash includes cash on hand. We consider all highly-liquid,
temporary cash investments with a maturity date of three months or
less to be cash equivalents.
Software
Development Costs
The Company accounts for software development costs in accordance
with ASC 350-40. Research and development costs are expensed
as incurred, except for certain costs which are capitalized in
connection with the development of its internal-use software and
website. These capitalized costs are primarily related to the
application software that is hosted by the Company and accessed by
its customers through the Company’s website. In addition, the
Company capitalizes certain general and administrative costs
related to the customization and development of our internal
business systems. Costs incurred in the preliminary stages of
development are expensed as incurred. Once an application has
reached the development stage, internal and external costs, if
direct and incremental, are capitalized until the software is
substantially complete and ready for its intended use.
Capitalization ceases upon completion of all substantial testing
performed to ensure the product is ready for its intended use. The
Company also capitalizes costs related to specific upgrades and
enhancements of internal-use software when it is probable that the
expenditures will result in additional functionality. Maintenance
and training costs are expensed as incurred. Capitalized internal
use software costs are recorded as part of property and equipment
and are amortized on a straight-line basis over an estimated useful
life of two years.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property
and equipment is calculated using the straight-line method over the
estimated useful lives of the assets, which is three years for the
Company. Maintenance and repairs are charged to operations as
incurred. Significant improvements are capitalized and depreciated
over the useful life of the assets. Gains or losses on disposition
or retirement of property and equipment are recognized in operating
expenses.
The Company reviews the carrying value of property and equipment
for impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and
eventual disposition. In cases where undiscounted expected future
cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds
the fair value of the related assets. The factors considered by
management in performing this assessment include current operating
results, trends and prospects, the manner in which the property is
used, the effects of obsolescence, demand, competition, and other
economic factors.
Revenue
Recognition
During
March 2021 we commenced commercial operations. Our revenues will be
generated from (i) fees charged in connection with the
implementation of our blockchain technology; and (ii) ongoing daily
transactional fees derived as a negotiated percentage of the
transactional revenues earned by our merchant customers.
Our
revenue recognition policy follows the guidance from Accounting
Standards Codification (“ASC”) 606, “Revenue Recognition,” and
Accounting Standards Update No. 2014-09 Revenue from Contracts with
Customers (Topic 606) which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. We
determine revenue recognition through the following steps: (i)
identification of the contract, or contracts, with a customer; (ii)
identification of the performance obligations in the contract;
(iii) determination of the transaction price; (iv) allocation of
the transaction price to the performance obligations in the
contract and (v) recognition of revenue when a performance
obligation is satisfied. Collectability is assessed based on a
number of factors, including the creditworthiness of a client, the
size and nature of a client’s website and transaction history.
Amounts billed or collected in excess of revenue recognized are
included as deferred revenue. An example of this deferred revenue
would be arrangements where clients request or are required by us
to pay in advance of delivery.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
In
April 2016, the FASB issued “ASU 2016 - 10 Revenue from Contract
with Customers (Topic 606): identifying Performance Obligations and
Licensing.” The amendments in this Update clarify the following two
aspects of Topic 606: identifying performance obligations and the
licensing implementation guidance, while retaining the related
principles for those areas. Topic 606 includes implementation
guidance on (a) contracts with customers to transfer goods and
services in exchange for consideration and (b) determining whether
an entity’s promise to grant a license provides a customer with
either a right to use the entity’s intellectual property (which is
satisfied at a point in time) or a right to access the entity’s
intellectual property (which is satisfied over time). The
amendments in this Update are intended to render more detailed
implementation guidance with the expectation to reduce the degree
of judgement necessary to comply with Topic 606. The amendments in
this Update affect the guidance in ASU 2014-09, Revenue from
Contracts with Customers (Topic 606), which is not yet effective.
The effective date and transition requirements for the amendments
in this Update are the same as the effective date and transition
requirements in Topic 606 (and any other Topic amended by Update
2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic
606): Deferral of the Effective Date, defers the effective date of
Update 2014-09 by one year. We are currently evaluating the impact
that this updated guidance will have on our results of operations,
cash flows or financial condition.
Fair
Value of Financial Instruments
We
follow Accounting Standards Codification 820-10 (“ASC 820-10”),
“Fair Value Measurements and Disclosures,” for fair value
measurements. ASC 820-10 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about
fair value measurements. The standard provides a consistent
definition of fair value, which focuses on an exit price, which is
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. The standard also
prioritizes, within the measurement of fair value, the use of
market-based information over entity specific information and
establishes a three-level hierarchy for fair value measurement
based on the nature of inputs used in the valuation of an asset or
liability as of the measurement date.
The
hierarchy established under ASC 820-10 gives the highest priority
to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy
under ASC 820-10 are described below:
Level
1 - Pricing inputs are quoted prices available in active markets
for identical investments as of the reporting date. As required by
ASC 820-10, we do not adjust the quoted price for these
investments, even in situations where we hold a large position and
a sale could reasonably impact the quoted price.
Level
2 - Pricing inputs are quoted prices for similar investments, or
inputs that are observable, either directly or indirectly, for
substantially the full term through corroboration with observable
market data. Level 2 includes investments valued at quoted prices
adjusted for legal or contractual restrictions specific to these
investments.
Level
3 - Pricing inputs are unobservable for the investment, that is,
inputs that reflect the reporting entity’s own assumptions about
the assumptions market participants would use in pricing the asset
or liability. Level 3 includes investments that are supported by
little or no market activity.
Net
Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the reporting
period. Diluted earnings per share is computed similar to basic
earnings per share, except the weighted average number of common
shares outstanding are increased to include additional shares from
the assumed exercise of share options, if dilutive. The dilutive
effect, if any, of convertible instruments or warrants is
calculated using the treasury stock method. There are no
outstanding dilutive instruments as the outstanding convertible
instruments and warrants would be anti-dilutive if converted or
exercised, respectively, as of March 31, 2022 and 2021.
The
following table summarizes the securities that were excluded from
the diluted per share calculation because the effect of including
these potential shares was antidilutive due to the Company’s net
loss position even though the exercise price could be less than the
average market price of the common shares:
Schedule of Antidilutive
Securities from the Diluted Per Share
| |
|
|
|
|
|
|
|
|
| |
|
Years Ended March 31, |
|
| |
|
2022 |
|
|
2021 |
|
| |
|
|
|
|
|
|
| Stock Options, vested and
exercisable |
|
|
2,377,300 |
|
|
|
1,078,579 |
|
| Common Stock
Warrants |
|
|
10,665,982
|
|
|
|
1,565,982 |
|
| Total |
|
|
13,043,282
|
|
|
|
2,644,561 |
|
Stock-based
Compensation
The
Company applies the provisions of ASC 718, Compensation - Stock
Compensation, (“ASC 718”) which requires the measurement and
recognition of compensation expense for all stock-based awards made
to employees, including employee stock options, in the statements
of operations.
ROCKETFUEL BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
For
stock options issued to employees and members of the Board of
Directors (the “Board) for their services, the Company estimates
the grant date fair value of each option using the Black-Scholes
option pricing model. The use of the Black-Scholes option pricing
model requires management to make assumptions with respect to the
expected term of the option, the expected volatility of the common
stock consistent with the expected life of the option, risk-free
interest rates and expected dividend yields of the common stock.
For awards subject to service-based vesting conditions, including
those with a graded vesting schedule, the Company recognizes
stock-based compensation expense equal to the grant date fair value
of stock options on a straight-line basis over the requisite
service period, which is generally the vesting term. Forfeitures
are recorded as they are incurred as opposed to being estimated at
the time of grant and revised.
Pursuant
to Accounting Standards Update (“ASU”) 2018-07, Compensation –
Stock Compensation (Topic 718): Improvements to Non-employee
Share-Based Payment Accounting, the Company accounts for stock
options issued to non-employees for their services in accordance
with ASC 718. The Company uses valuation methods and assumptions to
value the stock options that are in line with the process for
valuing employee stock options noted above.
Derivative
Financial Instruments
Derivative
financial instruments, as defined in ASC 815, “Accounting for
Derivative Financial Instruments and Hedging Activities”, consist
of financial instruments or other contracts that contain a notional
amount and one or more underlying variables (e.g. interest rate,
security price or other variable), require no initial net
investment and permit net settlement. Derivative financial
instruments may be free-standing or embedded in other financial
instruments. Further, derivative financial instruments are
initially, and subsequently, measured at fair value and recorded as
liabilities or, in rare instances, assets.
We do
not use derivative financial instruments to hedge exposures to
cash-flow, market or foreign-currency risks. However, during the
second quarter of fiscal 2022, we issued financial instruments
including convertible promissory notes payable with embedded
conversion features that do not afford equity classification. As
required by ASC 815, these embedded conversion options are required
to be carried as derivative liabilities, at fair value, in our
financial statements (See Note 7). During the third quarter of
fiscal 2022, these derivatives were satisfied.
When
derivative treatment is determined, we estimate the fair value of
the bifurcated embedded conversion features using a Stock Path
Monte Carlo Simulation model. Estimating fair values of derivative
financial instruments requires the development of significant and
subjective estimates (such as volatility, estimated life and
risk-free rates of return) that may, and are likely to, change over
the duration of the instrument with related changes in internal and
external market factors. In addition, option-based techniques are
highly volatile and sensitive to changes in the trading market
price of our common stock, which has a high-historical
volatility.
Income
Taxes
We
are required to file federal and state income tax returns in the
United States. The preparation of these tax returns requires us to
interpret the applicable tax laws and regulations in effect in such
jurisdictions, which could affect the amount of tax paid by us. In
consultation with our tax advisors, we base our tax returns on
interpretations that are believed to be reasonable under the
circumstances. The tax returns, however, are subject to routine
reviews by the various federal and state taxing authorities in the
jurisdictions in which we file tax returns. As part of these
reviews, a taxing authority may disagree with respect to the income
tax positions taken by us (“uncertain tax positions”) and,
therefore, may require us to pay additional taxes. As required
under applicable accounting rules, we accrue an amount for our
estimate of additional income tax liability, including interest and
penalties, which we could incur as a result of the ultimate or
effective resolution of the uncertain tax positions. We account for
income taxes using the asset and liability method. Under the asset
and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributed to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
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 and carry-forwards are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
established when necessary to reduce deferred tax assets to amounts
expected to be realized.
In
assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this
assessment.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
3.
Going Concern
Our
financial statements have been presented on the basis that we are a
going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. We
incorporated our business on January 12, 2018, the date of our
inception, and commenced commercial operations in March 2021.
During the years ended March 31, 2022 and 2021, we reported a net
loss of $4,662,924 and
$2,363,582,
respectively, which included as a component of general and
administrative expenses in the statements of operations a non-cash
stock-based compensation charge of $1,380,642 and
$1,622,335,respectively,
and cash flows used in operating activities during the years ended
March 31, 2022 and 2021 of $2,776,911 and
$636,257, respectively. As a result, management believes that there
is substantial doubt about our ability to continue as a going
concern.
We
will require additional financing to continue to develop our
product and execute on our business plan. However, there can be no
assurances that we will be successful in raising the additional
capital necessary to continue operations and execute on our
business plan. During the year ended March 31, 2022, we raised
$882,500 through the exercise by certain investors of common stock
purchase warrants. During the year ended March 31, 2022, we
completed a public offering of 6,666,667 shares of Common Stock and
accompanying warrants to purchase 6,666,667 shares of Common Stock
and raised approximately $4.4 million in proceeds, net of the
issuance costs (See Note 9 – Stockholders’ equity (deficit). We
have used and plan to continue using the net proceeds of the
private placement, warrant exercise and public offering to recruit
key management and operational personnel, to retain software and
blockchain developers and to develop our blockchain-based check-out
solution. Management believes the funding from the private
placement, the exercise of the common stock purchase warrants, the
public offering and the growth strategy actions executed and
planned for execution could contribute to our ability to mitigate
any substantial doubt as to our ability to continue as a going
concern.
4.
Property, Plant & Equipment
The Company’s property, plant and equipment assets are comprised of
the following:
Schedule
of Property Plant And Equipment
| |
|
|
March
31, 2022 |
|
|
|
March
31, 2021 |
|
| Capitalized software
development costs |
|
$ |
586,700 |
|
|
$ |
- |
|
| Computer equipment |
|
|
23,395
|
|
|
|
- |
|
| Property
and equipment, gross |
|
|
- |
|
|
|
- |
|
| Less:
Accumulated depreciation and amortization |
|
|
(149,919
|
) |
|
|
- |
|
| Property and
equipment, net |
|
$ |
460,176 |
|
|
$ |
- |
|
Capitalized software development costs represent the costs incurred
during the development stage, when direct and incremental internal
and external costs, are capitalized until the software is
substantially complete and ready for its intended use. The Company
also capitalizes costs related to specific upgrades and
enhancements of internal-use software when it is probable that the
expenditures will result in additional functionality.
Depreciation expense amount to $2,642 and amortization expense
amounted to $147,277 for the year ended March 31, 2022.
5.
Related Party Transactions
During
the year ended March 31, 2022 and 2021, our chief financial officer
was affiliated with legal counsel who provided us with general
legal services (the “Affiliate”). We recorded legal fees paid to
the Affiliate of $126,850 and
$100,349 for
the years ended March 31, 2022 and 2021, respectively. As of March
31, 2022 and 2021, we had $11,277 and
$35,475,
respectively, payable to the Affiliate.
6.
Deferred Revenue
We
enter into certain contracts typically having initial one-year
terms which define the scope of services to be provided. These
contracts can include agreed-upon setup fees during the initial
one-year term, which setup fees are recorded as deferred revenue
and amortized ratably over the initial one-year term. During the
years ended March 31, 2022 and 2021, we recorded revenues of
$30,504 and $0, respectively. Deferred revenue was $15,073
and
$10,000 as of March 31, 2022 and 2021, respectively.
7.
Convertible Note Payable
On
August 4, 2021, we entered into a securities purchase agreement
with a lender pursuant to which we sold a convertible note payable
in the principal amount of $130,000 for cash proceeds of $126,250.
The convertible note is due one year from issuance, pays interest
at the rate of 8% per annum, unless in default, upon which the
interest rate would increase to 22% and the principal balance would
increase by 150% or 200% depending upon the nature of the default.
The convertible note gives us the right to prepay the note within
the first 180 days from issuance at prepayment rates ranging from
110% to 125% of the then outstanding principal and interest
balance. At any time during the period beginning 180 days from the
origination date to the maturity date or date of default, the
holder can convert all or any part of the outstanding balance into
common stock at a conversion price per share equal to 65% of the
lowest daily volume weighted average price of our common stock
during the 10 trading days prior to the date of
conversion.
ROCKETFUEL BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
We
evaluated the embedded conversion feature and concluded that it was
required to be bifurcated and accounted for as a derivative
liability due to the lack of explicit limit on the number of shares
that may be required to be issued to settle the instrument.
Accordingly, the fair value of the embedded conversion feature at
inception was reflected as a derivative liability in the balance
sheet, with a resulting discount applied to the note payable. At
inception, the fair value of the conversion feature was deemed to
be $120,151 as determined using a Stock Path Monte Carlo Simulation
model. The key assumptions used in this valuation included: (1)
dividend yield of 0%, (2) expected volatility of 197.41%, (3)
risk-free interest rate of 0.07%, (4) expected life of 1 year, and
(5) the quoted market price of $1.01 for our common
stock.
On
November 8, 2021, we repaid the convertible note in full. Using the
same valuation method, the fair value of the embedded conversion
feature at repayment was $116,023,
resulting in a change in fair value of the derivative liability of
$4,128 for
the year ended March 31, 2022. We also recognized a loss on debt
extinguishment of $15,076 for
the year ended March 31, 2021. There was no conversion prior to
November 8, 2021.
8.
Income Taxes
As of
March 31, 2022 and 2021, we had no material unrecognized tax
benefits and no adjustments to liabilities or operations were
required. We were incorporated on January 12, 2018, and therefore,
the years ended March 31, 2018 through 2021 tax years are subject
to examination by the federal and state taxing authorities. There
are no income tax examinations currently in process.
Reconciliation
between our effective tax rate and the United States statutory rate
is as follows for the years ended March 31:
Schedule of Reconciliation Effective
Tax Rate
| |
|
2022 |
|
|
2021 |
|
| Federal income tax expense
(benefit) based on statutory rate |
|
$ |
(979,000 |
) |
|
|
(21.0 |
)% |
|
$ |
(284,000 |
) |
|
|
(21.0 |
)% |
| State income tax expense (benefit),
net of federal taxes |
|
|
(410,000 |
) |
|
|
(8.8 |
)% |
|
|
- |
|
|
|
- |
% |
| Revision of NOL estimates, state
apportionment factors, stock-based compensation and state effective
tax rates |
|
|
(359,000 |
) |
|
|
(7.2 |
)% |
|
|
- |
|
|
|
- |
% |
| Change in
valuation allowance |
|
|
1,748,000 |
|
|
|
37.0 |
% |
|
|
284,000 |
|
|
|
21.0 |
% |
|
Total taxes on income (loss) |
|
$ |
- |
|
|
|
- |
% |
|
$ |
- |
|
|
|
- |
% |
Deferred
tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax basis
of the assets and liabilities using the enacted tax rate in effect
in the years in which the differences are expected to reverse. A
100% valuation allowance has been recorded against the deferred tax
asset as it is more likely than not, based upon our analysis of all
available evidence, that the tax benefit of the deferred tax asset
will not be realized.
Significant
components of our deferred tax assets consist of the
following:
Schedule of Deferred tax
Assets
| |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
| Deferred tax assets arising
from: |
|
|
|
|
|
|
|
|
|
Share based compensation |
|
|
1,223,000 |
|
|
|
- |
|
|
Net operating loss carryforwards |
|
|
1,381,000 |
|
|
|
284,000 |
|
| Total deferred
tax assets |
|
|
2,604,000 |
|
|
|
284,000 |
|
|
Less valuation allowance |
|
|
(2,604,000 |
) |
|
|
(284,000 |
) |
|
Net deferred tax assets |
|
$ |
- |
|
|
$ |
- |
|
As of March 31, 2022 and 2021, we had federal and state tax net
operating loss carryforwards of $4,634,000 and $1,351,000,
respectively. Federal net operating loss carryforwards of
$4,634,000 do not expire. State net operating loss carryforwards of
$1,351,000
will expire at various dates beginning in 2039, each year’s loss
limited to a 20-year carryover period.
ROCKETFUEL BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
Potential
382 Limitations
We
have not completed a study to assess whether one or more ownership
changes have occurred since we became a loss corporation as defined
in Section 382 of the Code, but we believe that it is likely that
an ownership change has occurred. If we have experienced an
ownership change, utilization of the NOL and AMT would be subject
to an annual limitation, which is determined by first multiplying
the value of our common stock at the time of the ownership change
by the applicable long-term, tax-exempt rate, and then could be
subject to additional adjustments, as required. Any such limitation
may result in the expiration of a portion of the NOL and AMT before
utilization. Until a study is completed and any limitation known,
no amounts are being considered as an uncertain tax position or
disclosed as an unrecognized tax benefit under ASC 740. Any
carryforwards that expire prior to utilization as a result of such
limitations will be removed from deferred tax assets with a
corresponding adjustment to the valuation allowance. Due to the
existence of the valuation allowance, it is not expected that any
potential limitation will have a material impact on our operating
results.
Our
net operating loss carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and are subject to
certain limitations in the event of cumulative changes in the
ownership interest of significant stockholders over a three-year
period in excess of 50%.
9.
Stockholders’ Equity (Deficit)
On
January 9, 2020, we sold 10,000 shares of our common stock to a
private investor, resulting in cash proceeds of $10,000. On
February 13, 2020, we sold 11,250 shares of our common stock to a
private investor, resulting in cash proceeds of $11,250. On April
29, 2020, we entered into a subscription agreement with a private
investor for the purchase of 478,750 shares of our common stock, at
a purchase price of $1.00 per share, resulting in cash proceeds of
$478,750. All these transactions were part of a private placement
of 500,000 shares of common stock. We paid a placement fee of
$50,000 in connection with these transactions during the year ended
March 31, 2021.
On
August 24, 2020, we issued 150,000 shares of our common stock to a
consultant in lieu of cash for services. The common stock was
valued at $162,000, or $1.08 per share, based on an independent
appraisal.
On
May 1, 2020, we issued a warrant to purchase 1,500,000 shares of
common stock at $1.00 per share (the “First Warrant”). The warrant
was to expire on April 30, 2021. We also agreed that upon the full
and timely exercise of the First Warrant, it would issue a second
warrant for an additional 1,500,000 shares of common stock at a
purchase price of $1.50 per share having a term of 12 months from
the date of issue (the “Second Warrant”). The First Warrant was
transferred to an affiliate of the original holder in November
2020. During the year ended March 31, 2021, the warrant holder
exercised warrants from the First Warrant to purchase 1,100,000
shares of our common stock of which (i) 1,000,000 shares of our
common stock were issued in consideration of gross proceeds of
$1,000,000 prior to March 31, 2021; and (ii) 100,000 shares of our
common stock, for which we received notice of exercise on March 31,
2021, were issued in April 2021 in consideration of gross proceeds
of $100,000. Additionally, the warrant holder exercised the First
Warrant for the remaining 400,000 shares of our common stock in
April 2021 in consideration of gross proceeds of $400,000. On April
26, 2021, we issued the Second Warrant to the holder. On August 6,
2021, we agreed to amend the terms of the Second Warrant to
increase the number of shares purchasable to 2,250,000 and to
reduce the exercise price to $1.00 per share. In the year ended
March 31, 2022, the warrant holder exercised warrants from the
Second Warrant to purchase 300,000 shares of our common stock at an
exercise price of $1.00 per share. At March 31, 2022, there are
1,950,000 Second Warrants outstanding and exercisable.
On
October 11, 2021, we and Triton Funds, LP, a Delaware limited
partnership (“Triton”), an unrelated third party, entered into an
amendment to the Common Stock Purchase Agreement (the “CSPA”) dated
February 25, 2021. Under the CSPA, Triton agreed to invest up to
$1,000,000 in the Company through purchases of common stock during
the commitment period (which runs through December 31, 2022).
During the commitment period, the Company may, in its sole
discretion, deliver purchase notices to Triton stating the dollar
amount of shares which the Company intends to sell to Triton, not
to exceed $500,000 per purchase notice. The amount to be funded
under a purchase notice under the CSPA, as amended, is the number
of shares of common stock to be purchased multiplied by the greater
of (i) $1.00 (changed from $1.65) or (ii) eighty percent (80%) of
the lowest closing price of the common stock within fifteen
business days prior to the closing date for the purchase. The
closing date for each purchase is five business days following the
date of the corresponding purchase notice. In connection with the
amendment to the CSPA, the Company also amended the warrants issued
to Triton. As amended the warrants are to purchase, in one or more
instalments, 1,300,000 shares (increased from 800,000 under the
CSPA) of the Company’s common stock (the “Warrants”) at an exercise
price equal to the greater of (i) $1.00 per share (changed from
$1.65) and (ii) eighty percent (80%) of the average closing price
of the common stock over the 90-calendar day period preceding the
Warrant exercise date, subject to adjustments. The Warrants
terminate on February 25, 2026. On May 5, 2021, Triton exercised
50,000 Warrants for an aggregate purchase price of $82,500 ($1.65
per share). After the amendment, 1,250,000 Warrants remain
unexercised.
On
March 31, 2021, we entered into a contract with one customer having
a one-year term from the date of execution that provided for (1)
the payment of $10,000 in
connection with the implementation of our blockchain technology and
(2) the issuance of 10,000 shares
of our common stock valued at $1.00 per
share in consideration of being an early adopter of our blockchain
technology. On August 4, 2021, we issued such 10,000
shares
of our common stock to the customer. On October 6, 2021, we issued
10,000 shares of our common stock to another customer. Prior to the
fiscal yearend, in settlement of a customer dispute, we repurchased
the 10,000 shares
of stock issued in October 2021 for $10,000 and
are carrying those shares as treasury stock.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
From
January 1, 2018 through March 31, 2022, we granted stock options
under our 2018 Stock Incentive Plan, as amended, to issue up to an
aggregate of 5,606,013 shares of our common stock to our employees,
directors, and consultants, at a weighted average exercise price of
$0.33 per share (after re-pricing).
On
February 15, 2021, we issued a warrant to purchase 265,982 shares
of our common stock to our chief executive officer at an exercise
price of $1.00 per share.
All
of these transactions were exempt from registration under the
Securities Act of 1933 pursuant to Regulations D or S, or Rule 701,
thereunder.
On
November 4, 2021, we completed a public offering (the “Offering”)
of 6,666,667 shares of its common stock, par value $0.001 per share
(the “Common Stock”) and warrants to purchase 6,666,667 shares of
Common Stock (the “Common Warrants”). The combined purchase price
of one share of Common Stock and accompanying Common Warrant was
$0.75. The Common Warrants are immediately exercisable at an
exercise price equal to $0.75 per share of Common Stock (the
“Exercise Price”), subject to adjustments as provided under the
terms of the Common Warrants. The Warrants are exercisable for five
and one-half years from the initial exercise date.
On
November 1, 2021, in connection with the Offering, we entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with
certain institutional investors. The Purchase Agreement sets forth
the economic terms set forth above and contains customary
representations and warranties of the Company, as well as certain
indemnification obligations of the Company and ongoing covenants
for the Company. In addition, under the Purchase Agreement, the
Company has agreed not to issue, enter into any agreement to issue
or announce the issuance or proposed issuance of any shares of the
Company’s (or its subsidiaries’) Common Stock or common stock
equivalents for a period of 90 days from the closing of the
Offering, other than certain exempt issuances. Additionally, the
Company has also agreed for a period of two years following the
closing date of the Offering not to (i) issue or agree to issue
equity or debt securities convertible into, or exercisable or
exchangeable for, Common Stock at a conversion price, exercise
price or exchange price which floats with the trading price of our
Common Stock or which may be adjusted after issuance upon the
occurrence of certain events or (ii) enter into any agreement,
including an equity line of credit, whereby the Company may issue
securities at a future-determined price. This agreement does not
apply to the offer, issuance or sale by the Company of Common Stock
pursuant to an at-the-market offering facility the Company may
enter with the placement agent of the Offering following expiration
of the 90-day lock-up period.
The
net proceeds to the Company from the Offering, after deducting
placement agent’s fees and other Offering expenses, and excluding
the proceeds, if any, from the exercise of the Common Warrants, are
approximately $4.37 million.
In
connection with the Offering, pursuant to an engagement letter (the
“Engagement Letter”) dated as of July 9, 2021, as amended on
September 20, 2021 and on October 28, 2021 between the Company and
H.C. Wainwright & Co., LLC (“Wainwright”), the Company paid
Wainwright (i) a total cash fee equal to 8.0% of the aggregate
gross proceeds received by the Company from the sale of the
securities in the transaction, and (ii) a non-accountable expense
allowance of $75,000. Pursuant to the Engagement Letter, the
Company also issued to Wainwright or its designees warrants to
purchase up to an aggregate of 533,333 shares of Common Stock (8.0%
of the aggregate number of shares of Common Stock sold in the
Offering) (the “Placement Agent Warrants”). The Placement Agent
Warrants have substantially the same terms as the Warrants, except
that the Placement Agent Warrants are exercisable for five years
from the date of the Purchase Agreement and have an exercise price
equal to 125% of the purchase price per share of Common Stock in
the Offering, or $0.9375 per share.
As of
March 31, 2022, and 2021, we had 31,965,083 shares and
24,438,416 shares
of our common stock outstanding, respectively.
Warrants:
The
following is a summary of warrants for the years ended March 31,
2022 and 2021:
Summary
of Warrants
| |
|
Warrants |
|
|
Weighted
Average
Exercise Price |
|
| Outstanding at April 1, 2020 |
|
|
- |
|
|
$ |
- |
|
| Issued |
|
|
2,565,982 |
|
|
|
1.00 to 1.65 |
|
| Exercised |
|
|
(1,000,000 |
) |
|
|
1.00 |
|
| Canceled |
|
|
- |
|
|
|
- |
|
| Expired |
|
|
- |
|
|
|
- |
|
| Outstanding at March 31, 2021 |
|
|
1,565,982 |
|
|
|
1.00 to 1.65 |
|
| Issued |
|
|
9,950,000 |
|
|
|
0.75
to
1.00 |
|
| Exercised |
|
|
(850,000 |
) |
|
|
1.00 to 1.65 |
|
| Canceled |
|
|
- |
|
|
|
- |
|
| Expired |
|
|
- |
|
|
|
- |
|
| Outstanding and
exercisable at March 31, 2022 |
|
|
10,665,982 |
|
|
$ |
0.84 |
|
| Weighted
average remaining contractual term (years) |
|
|
|
|
|
|
4.11 |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
10.
Stock-Based Compensation
Stock
Option Plan
On
August 8, 2018, the Board and stockholders holding a majority of
our voting power approved the RocketFuel Blockchain, Inc., 2018
Plan, which plan enables us to make awards that qualify as
performance-based compensation. Under the terms of the 2018 Plan,
the options will (i) be incentive stock options, (ii) have an
exercise price equal to the fair market value per share of our
common stock on the date of grant as determined by an independent
valuation by a qualified appraiser, (iii) have a term of 10 years,
(iv) vest and become exercisable pursuant to the terms set forth in
the grantees stock option agreement, (v) be subject to the
exercise, forfeiture and termination provisions set forth in the
2018 Plan and (vi) otherwise be evidenced by and subject to the
terms of our standard form of stock option agreement. We initially
reserved 2,000,000 shares of our common stock for issuance in
connection with awards under the plan. On September 15, 2020 and
March 18, 2021, our board of directors unanimously resolved to
amend the 2018 Plan to increase the number of shares of our common
stock available for grant to 4,000,000 shares and 6,000,000 shares,
respectively. As of March 31, 2022 and 2021 there were 393,987
shares and 502,230 shares, respectively, of our common stock
available for grant pursuant to the 2018 Plan. As of the date of
the filing of this Annual Report on Form 10-K, we had not yet
solicited votes from our stockholders to approve the increase in
the number of shares of our common stock available for grant
pursuant to the 2018 Plan. On May 10, 2022, the Board has approved
a plan to increase the number of shares to 8,000,000 for 2018 plan.
In addition to the options discussed here, there have been 600,000
performance-based option shares issued outside the 2018
Plan.
Stock
Option Re-Pricing
On
January 11, 2022, our Board of Directors approved the re-pricing of
the exercise price of certain options totaling 5,597,970
(vested
and unvested) from $1.08 per
share to $0.33 per
share. All other terms of these stock option grants were unchanged.
Also included in the re-pricing is a warrant to purchase 265,982
shares issued to our chief executive officer with an exercise price
of $1.00 per share. As a result of this repricing, we recorded a
total incremental stock-based compensation of $123,580, among which
$34,465 was recorded as an additional expense for the fiscal year
ended March 31, 2022.
Service-Based
Stock Option Grants
In
determining the fair value of the service-based options during the
fiscal years ended March 31, 2022 and 2021, we utilized the
Black-Scholes pricing model utilizing the following
assumptions:
Schedule
of Share-based Payment Award, Stock Options, Valuation
Assumptions
| |
|
Year Ended March 31 |
|
| |
|
2022 |
|
|
2021 |
|
| Option exercise price per share |
|
|
$0.25
- $2.75 |
|
|
|
$1.08
- $1.32 |
|
| Grant date fair value per share |
|
|
$0.20
- $2.75 |
|
|
|
$1.08
- $1.96 |
|
| Range of Expected volatility |
|
|
161.0%
- 220.5 |
% |
|
|
85.0%
- 214.5 |
% |
| Expected term of option in
years |
|
|
3 - 6.25 |
|
|
|
6.25 |
|
| Range of risk-free interest rate |
|
|
0.50%
- 2.20 |
% |
|
|
0.42%
- 0.84 |
% |
| Dividend yield |
|
|
- |
|
|
|
- |
|
Activity
under the 2018 Plan for all service-based stock options for the
years ended March 31, 2022 and 2021 are as follows:
Schedule of Stock Option
Activity
| |
|
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
per Share
|
|
|
Weighted-
Average
Remaining
Contractual
Term
in Years
|
|
|
Aggregate
Intrinsic
Value
|
|
| Options outstanding at April 1, 2020: |
|
|
500,000 |
|
|
$ |
1.08 |
|
|
|
8.33 |
|
|
$ |
120,000 |
|
| Granted |
|
|
4,397,770 |
|
|
|
1.08 |
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
| Options outstanding as of March 31, 2021 |
|
|
4,897,770 |
|
|
$ |
1.08 |
|
|
|
9.63 |
|
|
$ |
1,175,417 |
|
| Granted |
|
|
708,243 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
| Options
outstanding as of March 31, 2022 |
|
|
5,606,013 |
|
|
$ |
0.33 |
|
|
|
8.57 |
|
|
$ |
5,000 |
|
| Options vested and exercisable as
of March 31, 2022 |
|
|
2,160,106 |
|
|
$ |
0.33 |
|
|
|
|
|
|
$ |
344 |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
The
aggregate intrinsic value in the table above represents the total
pre-tax intrinsic value (the difference between the closing price
of the common stock on March 31, 2022 of $0.30 and the exercise
price of each in-the-money option) that would have been received by
the option holders had all option holders exercised their options
on March 31, 2022. There were no service-based stock options
exercised under the 2018 Plan for the years ended March 31, 2022
and 2021.
For
the fiscal year ended March 31, 2022, we recorded stock-based
compensation expense for service-based stock options pursuant to
the 2018 Plan in the amount of $1,257,283, inclusive of the
additional stock-based compensation of $32,721 recorded in
connection with the re-pricing of exercise price of certain
outstanding stock options. For the fiscal year ended March 31,
2021, we recorded stock-based compensation expense for
service-based stock options pursuant to the 2018 Plan in the amount
of $1,023,672, inclusive of the additional stock-based compensation
of $489,064 recorded in connection with the re-pricing of the
exercise price of certain stock options. As of March 31, 2022 and
2021, we had $3,336,948 and $4,069,865 of unrecognized stock-based
compensation cost related to service-based stock options,
respectively.
Performance-Based
Stock Option Grants
We
also granted performance-based options pursuant to the 2018 Plan to
Rohan Hall, our chief technology officer, which are exercisable
into 600,000 shares of our common stock subject to certain
designated milestones. On March 18, 2021, our Board of Directors
determined that Mr. Hall earned all of the performance-based
options effective February 1, 2021. The Board of Directors also
entered into a resolution whereby 75,000 shares of our common stock
underlying the performance-based options would vest immediately and
525,000 shares of our common stock underlying the performance-based
option would vest ratably over a 48-month period with the first
vesting date being February 1, 2021.
In
determining the fair value of the performance-based options granted
to Mr. Hall on September 14, 2020 and earned effective February 1,
2021, we utilized the Black-Scholes pricing model utilizing the
following assumptions:
Schedule of Share-based Payment
Award, Stock Options, Valuation
Assumptions
| |
|
Performance
-Based
Options
|
|
| Option exercise price per share |
|
$ |
1.08 |
|
| Grant date fair market value per share |
|
$ |
1.08 |
|
| Expected term of option in years |
|
|
6.25 |
|
| Expected volatility |
|
|
240.1 |
% |
| Expected dividend rate |
|
|
0.00 |
% |
| Risk free interest rate |
|
|
0.54 |
% |
Activity
under the 2018 Plan for all performance-based stock options for the
years ended March 31, 2022 and 2021 is as follows:
Schedule of Stock Option
Activity
| |
|
Options Outstanding |
|
|
Weighted-
Average Exercise
Price
per Share
|
|
|
Weighted- Average Remaining Contractual Term in Years |
|
|
Aggregate
Intrinsic
Value |
|
| Options outstanding as of April 1, 2020 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Granted |
|
|
600,000 |
|
|
|
1.08 |
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options outstanding at March 31, 2021 |
|
|
600,000 |
|
|
$ |
1.08 |
|
|
|
9.83 |
|
|
$ |
144,000 |
|
| Granted |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options outstanding as of March
31, 2022 |
|
|
600,000 |
|
|
$ |
0.33 |
|
|
|
8.46 |
|
|
$ |
nil |
|
| Options vested and exercisable as
of March 31, 2022 |
|
|
217,194 |
|
|
$ |
0.33 |
|
|
|
|
|
|
$ |
nil |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2022
For
the fiscal year ended March 31, 2022, we recorded stock-based
compensation expense for performance-based stock options pursuant
to the 2018 Plan in the amount of $103,359, inclusive of the
additional stock-based compensation of $1,744 recorded in
connection with the re-pricing of exercise price of certain
outstanding stock options. For the fiscal year ended March 31,
2021, we recorded stock-based compensation expense for
performance-based stock options pursuant to the 2018 Plan in the
amount of $66,531. As of March 31, 2022 and 2021, we had $315,164
and $397,975 of unrecognized stock-based compensation cost related
to performance-based stock options, respectively. There were no
performance-based stock options exercised under the 2018 Plan for
the fiscal years ended March 31, 2022 and 2021.
11.
Commitments and Contingencies
Legal
Proceedings
Other
than as set forth below, we are not the subject of any pending
legal proceedings; and to the knowledge of management, no
proceedings are presently contemplated against us by any federal,
state or local governmental agency. Further, to the knowledge of
management, no director or executive officer is party to any action
in which any has an interest adverse to us.
On
October 8, 2020, we filed a lawsuit in the U.S. District Court for
the Central District of California against Joseph Page, our former
director and chief technology officer. On January 13, 2021, the
case was transferred to the U.S. District Court for the District of
Nevada, Las Vegas Division. The causes of action include securities
fraud under Federal and California law; fraud, breach of fiduciary
duty, negligent misrepresentation and unjust enrichment under
California law; and violation of California Business and
Professions Code §17200 et seq.
We
were seeking injunctive and declaratory relief as well as damages
of at least $5.1 million. On May 29, 2019, Mr. Page resigned from
our board. After his resignation, we retained independent patent
counsel to review our patent applications. In connection with this
review, we discovered certain deficiencies in some of the
applications and in their assignments to us. We determined that all
of the applications had been abandoned. Based on this review, we
decided to refile three of our applications with the U.S. Patent
and Trademark Office, which we did in May 2020. It is our belief
that the three newly filed patent applications cover and/or
disclose the same subject matter as we disclosed in the five
original patent applications. In this case, our rights may be
subject to any intervening patent applications made after the dates
of the original applications. In the lawsuit, we were alleging that
Mr. Page was aware of the abandonments when he assigned the patents
to RocketFuel Blockchain Company (“RBC”), a private corporation
that he controlled, and that he failed to disclose to us the
abandonments when the Company acquired RBC in exchange for shares
of the Company’s Common Stock. Mr. Page filed an answer denying the
Company’s claims and asserted cross- and counterclaims against the
Company and several of the Company’s shareholders alleging breach
of contract and fraud. In September 2021, Mr. Page voluntarily
dismissed all of the counterclaims against the
shareholders.
On
March 2, 2021, we filed a lawsuit in the U.S. District Court for
the Southern District of New York against Ellenoff Grossman &
Schole LLP (“EGS”) for negligence and legal malpractice, breach of
contract and breach of fiduciary duty. EGS had represented RBC
prior to the Business Combination and represented us after the
closing of the Business Combination through August 2019. In the
litigation against Mr. Page, he has alleged that he provided
information to an EGS partner that the patent applications had been
abandoned and that EGS failed to inform RBC and us of the fact. We
are seeking damages and the return of legal fees previously
paid.
On June 7, 2022, RBC entered into a settlement agreement in the
legal proceedings between the Company as plaintiff, and Joseph Page
as defendant, whereunder Page surrendered 3,600,394 shares of the
Company’s common stock, and kept 1,500,000 shares. Mr. Page
represents and warrants that he has not filed or assisted anyone
else in filing any patent applications that would preempt or
infringe upon the Company’s patent applications. Plaintiff and
defendant have each released their claims against each other and
covenanted not to sue the other, including related parties and
stakeholders, with the exclusion of current or future claims
against EGS. The parties agreed to a Stipulated Dismissal of the
Action with Prejudice filed with the court.
At
the date of this report, the Company is unable to estimate the
probability success or dollar amount of rulings in the March 2,
2021 case against EGS, and as a result, has not accrued any
potential benefit to the Company’s balance sheet. Attorney fees
related to these proceedings are expensed as incurred.
12.
Subsequent Events
With
the exception of the following, all significant events subsequent
to the close of the fiscal year ended March 31, 2022 have been
disclosed in the notes to which the events apply to these financial
statements.
Subsequent to March 31, 2022, the Company issued a total of 125,000
10-year options to purchase shares of the Company with an exercise
prices equal to the fair market value on the grant date.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| |
RocketFuel
Blockchain, Inc. |
| |
|
|
|
By: |
/s/
Gert Funk |
| |
|
Gert
Funk |
| |
|
Executive
Chairman and Director |
| |
|
|
| |
By: |
/s/
Peter M. Jensen |
| |
|
Peter
M. Jensen |
| |
|
Chief
Executive Officer and Director |
| |
|
(Principal
Executive Officer) |
| |
|
|
| |
By: |
/s/
Bennett J. Yankowitz |
| |
|
Bennett
J. Yankowitz |
| |
|
Chief
Financial Officer and Director |
| |
|
(Principal
Financial and Accounting Officer) |
| |
|
|
| Dated:
July 14, 2022 |
|
|
Exhibit 31.1
CERTIFICATION
I,
Peter M. Jensen, hereby certify that:
1. I
have reviewed this Annual Report on Form 10-K of RocketFuel
Blockchain, Inc. (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the
periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a.
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Company is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
b.
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c.
Evaluated the effectiveness of the Company’s disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d.
Disclosed in this report any change in the Company’s internal
control over financial reporting that occurred during the Company’s
fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal
control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the
Company’s board of directors (or persons performing the equivalent
functions):
a.
All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the Company’s ability to
record, process, summarize and report financial information;
and
b.
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company’s
internal control over financial reporting.
|
Date:
July 14, 2022 |
|
| |
|
|
/s/
Peter M. Jensen |
|
| Peter
M. Jensen |
|
| Chief
Executive Officer |
|
| (Principal
Executive Officer) |
|
Exhibit 31.2
CERTIFICATION
I,
Bennett J. Yankowitz, hereby certify that:
1. I
have reviewed this Annual Report on Form 10-K of RocketFuel
Blockchain, Inc. (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the
periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a.
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Company is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
b.
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c.
Evaluated the effectiveness of the Company’s disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d.
Disclosed in this report any change in the Company’s internal
control over financial reporting that occurred during the Company’s
fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal
control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the
Company’s board of directors (or persons performing the equivalent
functions):
a.
All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the Company’s ability to
record, process, summarize and report financial information;
and
b.
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company’s
internal control over financial reporting.
|
Date:
July 14, 2022 |
|
| |
|
|
/s/
Bennett J. Yankowitz |
|
|
Bennett
J. Yankowitz |
|
|
Chief
Financial Officer |
|
|
(Principal
Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION
906
OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of RocketFuel Blockchain, Inc., a
Nevada corporation (the “Company”), on Form 10-K for the period
ended March 31, 2022, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Peter M. Jensen,
Chief Executive Officer of the Company, hereby certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
Date:
July 14, 2022 |
|
| |
|
|
/s/
Peter M. Jensen |
|
|
Peter
M. Jensen |
|
|
Chief
Executive Officer |
|
This
certification accompanies each report of the Company on Form 10-Q
and Form 10-K pursuant to §906 of the Sarbanes-Oxley Act of 2002
and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of §18 of
the Securities Exchange Act of 1934, as amended.
A
signed original of this written statement required by §906 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of RocketFuel Blockchain, Inc., a
Nevada corporation (the “Company”), on Form 10-K for the period
ended March 31, 2022, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Bennett J.
Yankowitz, Chief Financial Officer of the Company, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
|
Date:
July 14, 2022 |
|
| |
|
|
/s/
Bennett J. Yankowitz |
|
| Bennett
J. Yankowitz |
|
| Chief
Financial Officer |
|
This
certification accompanies each report of the Company on Form 10-Q
and Form 10-K pursuant to §906 of the Sarbanes-Oxley Act of 2002
and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of §18 of
the Securities Exchange Act of 1934, as amended.
A
signed original of this written statement required by §906 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.
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