|
Prospectus
Supplement No. 7
(to
Prospectus dated November 1, 2021)
|
Prospectus
Supplement No. 7
Filed
pursuant to Rule 424(b)(3)
Registration
No. 333-260420
|
Prospectus
Supplement No. 7
(To
Final Prospectus dated November 1, 2021)
This
Prospectus Supplement No. 7 supplements and amends the final
prospectus dated November 1, 2021, as previously supplemented (the
“Final Prospectus”), which forms a part of our registration
statement on Form S-1 (No. 333-260420), relating to the
registration of up to 6,666,667 shares of our common stock, par
value $0.001 (the “Common Stock”) issuable upon exercise of Common
Warrants and of up to 533,333 shares of Common Stock issuable upon
exercise of Placement Agent Warrants.
This
Prospectus Supplement No. 7 is being filed to update and supplement
the information in the Final Prospectus with the information
contained in our Quarterly Report on Form 10-Q filed on April 3,
2023 (the “Quarterly Report”). Accordingly, we have attached the
Quarterly Report to this Prospectus Supplement No. 7.
This
Prospectus Supplement No. 7 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. 7 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 April 21, 2023, the last reported sale price of our
Common Stock was $0.0965.
Investing
in our securities involves a high degree of risk. See “Risk
Factors” beginning on page 7 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 April 24,
2023.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
|
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended
December 31, 2022
OR
|
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the transition period from
to
Commission
file number:
033-17773-NY
ROCKETFUEL BLOCKCHAIN, INC.
(Exact
Name of Registrant as Specified in its Charter)
|
Nevada |
|
90-1188745 |
|
(State
of other jurisdiction
of
incorporation or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
|
|
201 Spear Street,
Suite 1100 |
|
|
|
San Francisco,
CA |
|
94105 |
|
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
(424)
256-8560
(Registrant’s
Telephone Number, including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of Each Class |
|
Trading
Symbol(s) |
|
Name
of Each Exchange on Which Registered |
|
None |
|
RKFL |
|
None |
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 past 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
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). ☒
Yes ☐ No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a 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:
|
|
Large
Accelerated Filer ☐ |
Accelerated
Filer ☐ |
| |
Non-Accelerated Filer ☒
|
Small
Reporting Company
☒
Emerging
Growth Company
☐
|
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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act) ☐ Yes ☒
No
Number
of shares of issuer’s common stock outstanding at March 29, 2023:
36,297,840
ROCKETFUEL
BLOCKCHAIN, INC.
TABLE
OF CONTENTS
PART I FINCANCIAL INFORMATION
Item 1 Consolidated Financial Statements
ROCKETFUEL BLOCKCHAIN, INC.
Consolidated
Balance Sheets
(Unaudited)
The
accompanying notes are an integral part of these consolidated
financial statements
ROCKETFUEL BLOCKCHAIN, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
The
accompanying notes are an integral part of these consolidated
financial statements
ROCKETFUEL BLOCKCHAIN, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For
the Three and Nine-Month Periods Ended December 31, 2021 and
2022
(Unaudited)
The
accompanying notes are an integral part of these consolidated
financial statements
ROCKETFUEL BLOCKCHAIN, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
| |
|
2022 |
|
|
2021 |
|
| Reconciliation of cash and restricted
cash within the consolidated balance sheets to the amounts shown in
the consolidated statements of cash flows above at December
31: |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
392,956 |
|
|
$ |
205,336 |
|
|
Restricted cash |
|
|
-
|
|
|
|
- |
|
| Total
cash and restricted cash |
|
$ |
392,956 |
|
|
$ |
205,336 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
ROCKETFUEL BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
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.
On
May 12, 2022, the Company incorporated a wholly owned subsidiary,
RocketFuel (BVI) Ltd., in the British Virgin Islands. The
subsidiary is formed to be the issuer of digital tokens in
connection with our planned loyalty program. As of March 30, 2023,
no tokens had been issued. On May 17, 2022, the Company
incorporated another wholly owned subsidiary, RocketFuel A/S, in
Denmark. This subsidiary will engage in our B2B cross border
settlement program. The subsidiary received a Virtual Asset
Services Provider (VASP) license in July 2022, allowing it to offer
a variety of crypto-based services in the EU. Both subsidiaries
have not commenced commercial operations as of December 31,
2022.
2.
Summary of Significant
Accounting Policies
Other
than as discussed herein, our significant accounting policies are
described in Note 2 to the audited financial statements as of March
31, 2022 which are included in our Annual Report on Form 10-K as
filed with the SEC on July 15, 2022.
Basis of Presentation
The
accompanying unaudited financial statements have been prepared in
accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”) for interim financial information pursuant to Rule
8-03 of Regulation S-X. Accordingly, these unaudited financial
statements do not include all of the information and disclosures
required by U.S. GAAP for complete financial statements. In the
opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting only of normal
recurring adjustments), which we consider necessary, for a fair
presentation of those financial statements. The results of
operations for the three and nine months ended December 31, 2022
and cash flows for the nine months ended December 31, 2022 may not
necessarily be indicative of results that may be expected for any
succeeding quarter or for the entire fiscal year. The March 31,
2022 balance sheet included herein was derived from the audited
financial statements included in the Company’s Annual Report on
Form 10-K as of that date. These unaudited financial statements
should be read in conjunction with our audited financial statements
as of March 31, 2022 as filed with the Securities and Exchange
Commission (the “SEC”) on July 15, 2022.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries in accordance with
consolidation accounting guidance. The Company’s subsidiaries
consist of RocketFuel Blockchain Company (RBC) (incorporated in
Nevada), RocketFuel A/S (incorporated in Denmark), and RocketFuel
(BVI) (incorporated in the British Virgin Islands), the latter two
of which were incorporated during the quarter ended June 30, 2022.
All intercompany balances and transactions have been eliminated in
consolidation.
Use of Accounting Estimates
The
preparation of these consolidated 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 consolidated
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
DECEMBER
31, 2022
(UNAUDITED)
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.
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.
Restricted Cash
In
relation to the Company’s incorporation of a subsidiary in Denmark,
a cash deposit of $55,956 was made into an escrow
account controlled by a legal firm. This cash is not available to
fund immediate or general business use until it is released from
escrow into an operating cash account of the Denmark subsidiary.
Until this release occurs, the cash is restricted in nature and is
separately disclosed on the Company’s consolidated balance sheet
and consolidated statement of cash flows.
Software Development Costs
The
Company accounts for software development costs in accordance with
Accounting Standards Codification (“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 are
generated from (i) fees charged under software development
contracts; (ii) fees charged in connection with conversion of
crypto currencies to and from fiat currencies; (iii) fees charged
in connection with the implementation of our ecommerce checkout
solutions; and (iv) ongoing daily transactional fees derived as a
negotiated percentage of the transactional revenues earned by our
merchant customers. In June 2022, we conducted tests of our
cross-border B2B solution, which we expect to place in commercial
operations by mid-2023.
Our
revenue recognition policy follows the guidance from 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 consolidated 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
DECEMBER
31, 2022
(UNAUDITED)
Earnings (Loss) Per Share
Earnings
(loss) per share is computed by dividing net income (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, stock options and warrants would be anti-dilutive if
converted or exercised for the three and nine months ended December
31, 2022 and 2021.
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.
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.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
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.
Impact of COVID-19 on Our Business
The
COVID-19 pandemic has resulted, and may continue to result, in
significant economic disruption despite progress made in the
development and distribution of vaccines. It disrupted global
travel, supply chains and the labor market and adversely impacted
global commercial activity. While the pandemic has largely
subsided, considerable uncertainty still surrounds COVID-19, the
evolution of its variants, its potential long-term economic
effects, as well as the effectiveness of any responses taken by
government authorities and businesses and of various efforts to
inoculate the global population.
Significant
uncertainty continues to exist concerning the impact of the
COVID-19 pandemic on our customers’ and prospects’ business and
operations in future periods. Although our total revenues for the
three and nine months ended December 31, 2022 were not materially
impacted by COVID-19, we believe our revenues may be negatively
impacted in future periods until the effects of the pandemic have
fully subsided and the current macroeconomic environment has
substantially recovered. Effects of the COVID-19 pandemic that may
negatively impact our business in future periods include, but are
not limited to: limitations on the ability of our customers to
conduct their business, purchase our products and services, and
make timely payments; curtailed consumer spending; deferred
purchasing decisions; delayed consulting services implementations;
labor shortages and decreases in product licenses revenues driven
by channel partners. We will continue to actively monitor the
nature and extent of the impact to our business, operating results,
and financial condition.
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.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
3.
Going
Concern
Our
consolidated 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 three and nine months ended December 31, 2022, we
reported a net loss of $1,335,971 and $3,527,170, respectively, which
included as a component of general and administrative expenses in
the statements of operations a non-cash stock-based compensation
charge of $697,608 and $1,287,048, respectively,
and cash flows used in operating activities during the nine months
ended December 31, 2022 of $(483,865).
These factors, among others, raise substantial doubt about the
ability of the Company to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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 nine months ended December 31, 2022, we
raised $700,000 in
proceeds, net of the issuance costs, through a private placement of
common stock, warrants and tokens (see Note 7). We have used and
plan to continue using the net proceeds of the private placement
and warrant exercise 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 warrant, 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
| |
|
Useful Life |
|
December 31, 2022 |
|
|
March 31, 2022 |
|
| Capitalized software
development costs |
|
2
years |
|
$ |
1,221,905
|
|
|
$ |
586,700 |
|
| Computer equipment |
|
3
years |
|
|
40,022 |
|
|
|
23,395 |
|
| Less:
Accumulated depreciation and amortization |
|
|
|
|
(493,660
|
) |
|
|
(149,919 |
) |
| Property and
equipment, net |
|
|
|
$ |
768,267
|
|
|
$ |
460,176 |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
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
and amortization expenses amount to $256,659 and
$493,660 for
the three and nine months ended December 31, 2022. No
depreciation and amortization expenses were recorded for the three
and nine months ended December 31, 2021.
5.
Related Party
Transactions
During
the three and nine months ended December 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 $34,569 and $82,248 for the three and nine months
ended December 31, 2022, respectively. We recorded legal fees paid
to the Affiliate of $11,277 and $36,680 for the three and nine months
ended December 31, 2021, respectively. As of December 31, 2022 and
March 31, 2022, we had $24,396
and $35,475,
respectively, payable to the Affiliate.
On
January 18, 2023, we borrowed $200,000 from Peter M. Jensen,
our CEO, pursuant to a convertible promissory note. The proceeds
were to be used to support a transaction that ultimately was not
consummated. On February 15, 2023, we repaid the loan in full
together with $1,535 representing accrued
interest at a rate of 10% per
annum.
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. Deferred
revenue was $3,504 and $15,073 as of December 31, 2022 and
March 31, 2022, respectively.
7.
Stockholders’
Equity
Private
placement:
On
September 19, 2022, the Company completed a private placement (the
“Offering”) of
3,389,831 shares of its common stock, par value $0.001
per share (the “Common Stock”) and warrants to purchase 1,694,915 shares of Common
Stock (the “Warrants”). In addition, in connection with the
Offering, RocketFuel (BVI) Ltd., a wholly owned subsidiary of the
Company, also entered into pre-launch token sale agreements with
four investors for the issuance of 3,389,831 cryptographic
tokens (the “Tokens”) when such Tokens are created. The Company
plans to issue the Tokens in connection with a loyalty program it
is developing, and these Tokens have not been issued as of December
31, 2022. The combined purchase price for one share of Common
Stock, an accompanying Warrant and a Token was $0.2065.
The Warrants are immediately exercisable at an exercise price equal
to $0.2065
per share of Common Stock, subject to adjustments as provided under
the terms of the Warrants. The Warrants are exercisable for
five years from the initial exercise date.
On
September 19, 2022, in connection with the Offering, the Company
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with four 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. The Company also entered into a registration
rights agreement with the investors requiring the Company to file
within 90 days of closing a registration statement under the
Securities Act of 1933 covering the Common Stock sold in the
private placement and the shares issuable upon exercise of the
Warrants.
The
net proceeds to the Company from the Offering, excluding the
proceeds, if any, from the exercise of the Warrants, are $700,000. In
connection with the Offering, the Company issued 338,983
shares of its common stock to one of the investors for a
commission.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
Issuance
of common stock:
The
Company entered the marketing service agreement in July 2022 with a
firm. In connection with this service agreement, the Company issued
333,943 restricted
shares and recognized $17,491 of stock
compensation expense for the three and nine months ended December
31, 2022. Total unrecognized stock compensation expense as of
December 31, 2022 was
27,591
Cancellations
of Stock:
On
October 6, 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. In March 2022, in settlement of a customer dispute, we
repurchased the 10,000 shares of stock
issued in October 2021 for $3,000. During the
three months ended June 30, 2022, the 10,000 shares were
cancelled.
On
June 7, 2022, we entered into a settlement agreement in the legal
proceedings with Joseph Page, our former director and chief
technology officer, as defendant, whereunder Page surrendered
3,600,394 shares of the Company’s
common stock. In connection with this settlement, we recognized a
gain of $540,059, calculated
based on the Company’s share price of $0.15 per share on the date of settlement
of the legal proceedings. This gain was recorded in other income
for the nine months ended December 31, 2022 in the accompanying
consolidated statements of operations (see Note 9). Immediately
after these shares were transferred to the Company, the 3,600,394 shares were
cancelled and we recorded cancellation of these treasury shares
during the three months ended June 30, 2022.
As of
December 31, 2022, and March 31, 2022, we had 36,297,840 and
31,965,083 shares of
our common stock outstanding, respectively.
Warrants:
As of
December 31, 2022 and March 31, 2022, the total outstanding
warrants to purchase of the Company’s common stock were 12,360,897 and
10,665,982 with a
weighted average exercise price of $0.71 and $0.84, respectively. There
were 1,694,915 new
warrants issued with an average exercise price of $0.21 during the
three and nine months ended December 31, 2022. There were no
warrants exercised, cancelled or expired during the three and nine
months ended December 31, 2022. As of December 31, 2022 and March
31, 2022, the weighted average remaining contractual terms were
4.33
and 4.11
years, respectively.
8.
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. On May 10, 2022, the Board has approved a plan to
increase the number of shares to 8,000,000 for 2018 plan.
As of December 31, 2022 and March 31, 2022, there were 918,987 and
393,987 shares,
respectively, of our common stock available for grant pursuant to
the 2018 Plan.
Service-Based
Stock Option Grants
In
determining the fair value of the service-based options during the
nine months ended December 31, 2022, we utilized the Black-Scholes
pricing model utilizing the following assumptions:
Schedule of Share-based Payment Award, Stock
Options, Valuation Assumptions
| Option exercise price per share |
|
|
$0.10 - $0.30 |
|
| Grant date fair value per share |
|
|
$0.14 - $0.21 |
|
| Range of expected volatility |
|
|
151% - 179 |
% |
| Expected term of option in
years |
|
|
6.25 |
|
| Range of risk-free interest rate |
|
|
2.5 - 4.7 |
% |
| Dividend yield |
|
|
- |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
Activity
under the 2018 Plan for all service-based stock options for the
nine months ended December 31, 2022 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, 2022: |
|
|
5,766,886 |
|
|
$ |
0.21 |
|
|
|
8.00 |
|
|
$ |
- |
|
| Granted |
|
|
575,000 |
|
|
$ |
0.17 |
|
|
|
5.61 |
|
|
|
6,780 |
|
| Exercised |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
Cancelled or forfeited |
|
|
489,127 |
|
|
$ |
0.21 |
|
|
|
5.61 |
|
|
|
- |
|
| Options outstanding as of December 31, 2022 |
|
|
5,852,758 |
|
|
$ |
0.20 |
|
|
|
5.61 |
|
|
$ |
28,099 |
|
| Options vested and exercisable as
of December 31, 2022 |
|
|
2,784,623 |
|
|
|
0.21 |
|
|
|
|
|
|
$ |
5,899 |
|
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 December 31, 2022 of $0.1455
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 December 31, 2022. There were no
service-based stock options exercised under the 2018 Plan for the
three and nine months ended December 31, 2022.
For
the three months ended December 31, 2022 and 2021, we recorded
stock-based compensation expense for service-based stock options
pursuant to the 2018 Plan in the amount of $253,188 and
$294,446,
respectively. For the nine months ended December 31, 2022 and 2021,
we recorded stock-based compensation expense for service-based
stock options pursuant to the 2018 Plan in the amount of $770,842 and
$585,939,
respectively. As of December 31, 2022 and March 31, 2022, we had
$2,017,192 and
$3,336,948 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
nine months ended December 31, 2022 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 at April 1, 2022: |
|
|
600,000 |
|
|
$ |
0.33 |
|
|
|
8.46 |
|
|
$ |
- |
|
| Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
| Options outstanding as of December 31, 2022 |
|
|
600,000 |
|
|
$ |
0.33 |
|
|
|
7.96 |
|
|
$ |
- |
|
| Options vested and exercisable as
of December 31, 2022 |
|
|
282,822 |
|
|
$ |
0.33 |
|
|
|
|
|
|
$ |
- |
|
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
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 December 31, 2022 of $0.1455
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 December 31, 2022. There were no
performance-based stock options exercised under the 2018 Plan for
the three and nine months ended December 31, 2022.
For
the three months ended December 31, 2022 and 2021, we recorded
stock-based compensation expense for performance-based stock
options pursuant to the 2018 Plan in the amount of $27,148
and $25,404,
respectively. For the nine months ended December 31, 2022 and 2021,
we recorded stock-based compensation expense for performance-based
stock options pursuant to the 2018 Plan in the amount of $54,295
and $50,808,
respectively. As of December 31, 2022 and March 31, 2022, we had
$233,721
and $315,164
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 three and nine months ended December 31, 2022 and
2021.
9.
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.
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
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. In connection with
this settlement, we recognized a gain of $540,059,
calculated based on the Company’s share price of $0.15 per share on the date of settlement
of the legal proceedings. This gain was recorded in other income
for the nine months ended December 31, 2022 in the accompanying
consolidated statements of operations (see Note 7).
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
February 8, 2023 we entered into a settlement agreement with EGS,
pursuant to which EGS agreed to pay us $750,000 in full
settlement of the lawsuit. After payment of our legal fees, the net
payment to us, which was received on February 14, 2023, was
$525,000. As part of the
settlement (i) we have agreed to dismiss the lawsuit with prejudice
and (ii) each party has agreed to grant a mutual general release to
the other party and its affiliates, related parties and
agents.
ROCKETFUEL
BLOCKCHAIN, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2022
(UNAUDITED)
In
January 2022, the Company terminated its agreement with Scarola
Schaffzib Zubatov PLLC (“SSZ”), which the Company had retained to
represent it in the litigation against EGS. The reason for the
termination was that the Company believed that SSZ had overcharged
for legal services provided. Subsequent to the termination, SSZ
sent the Company additional invoices, to which the Company also
objected. In August 2022 SZZ filed a lawsuit in the Supreme Court
of the State of New York, County of New York, claiming it is owed
approximately $120,000 in legal fees. The Company
disputes that this amount is owed and contends that a portion of
the legal fees previously paid should be refunded. Discovery has
commenced; a trial date has not been set. The Company has accrued
approximately $120,000 in accounts
payable.
10.
Subsequent
Events
On
January 13, 2023, we completed a private placement (the “Offering”)
of $150,000 principal amount of its
secured convertible promissory notes (the “Notes”). The purchase
price was $150,000. There were three purchasers,
including Gert Funk, the Company’s Chairman, and Peter M. Jensen,
the Company’s Chief Executive Officer and a member of its Board of
Directors. The third purchaser was a private investor. Each
investor purchased a Note for $50,000.
The
Notes bear interest at
10% per annum and mature on July 13, 2023 (the “Maturity
Date”). The Notes may be prepaid by the
Company at any time. If the Company shall prepay the entire
outstanding principal amount of a Note on or before April 13, 2023,
then there is no prepayment premium. If the Company shall prepay
the entire outstanding principal amount of a Note between April 14,
2023 and the Maturity Date, then it shall also pay accrued interest
on such principal amount in an amount equal to 50% of such
principal amount. If the Company shall repay the outstanding
principal amount of a Note on or after the Maturity Date, then it
shall also pay accrued interest on such principal amount in an
amount equal to 100% of such principal amount.
The
Notes are convertible into shares of the Company’s Series A
Preferred Stock (“Series A Preferred”) at a conversion price equal
to (a) the outstanding principal amount of, plus all accrued
interest on, the Note divided by (b) $0.2065. The
conversion price is subject to adjustment for certain stock splits,
recapitalizations and other similar events. The Notes are secured
by a security interest in all of the Company’s assets.
Up to
1,000,000 shares of Series A
Preferred were approved by the Board. The Series A Preferred has a
200% liquidation preference over the common stock and any other
future series of preferred stock, payable in the event of a
liquidation or merger of the Company. In such event, the holders of
the Series A Preferred will be entitled to a priority distribution
equal to 200% of the deemed issue price of $0.2065 per
share, (i.e., $0.4130 per
share). The Series A Preferred is convertible at the option of the
stockholder into shares of common stock at a conversion price of
$0.2065 per
share, subject to adjustment for certain stock splits,
recapitalizations and other similar events.
On
January 13, 2023, in connection with the Offering, the Company
entered into a Convertible Notes Subscription Agreement (the
“Subscription Agreement”) with three investors. The Subscription
Agreement sets forth the economic terms set forth above.
The
Company intends to use the $150,000 net proceeds of the
Offering for general corporate purposes and to fund ongoing
operations and expansion of its business.
On
February 8, 2023 we entered into a settlement agreement with EGS,
pursuant to which EGS agreed to pay us $750,000 in full
settlement of the lawsuit. After payment of our legal fees, the net
payment to us, which was received on February 14, 2023, was
$525,000. As part of the
settlement (i) we have agreed to dismiss the lawsuit with prejudice
and (ii) each party has agreed to grant a mutual general release to
the other party and its affiliates, related parties and
agents.
On
January 18, 2023, we borrowed $200,000 from Peter M. Jensen,
our CEO, pursuant to a convertible promissory note. The proceeds
were to be used to support a transaction that ultimately was not
consummated. On February 15, 2023, we repaid the loan in full
together with $1,535 representing accrued
interest at a rate of 10% per
annum.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains certain statements that are
“forward-looking” within the meaning of the federal securities
laws. These forward-looking statements and other information are
based on our beliefs as well as assumptions made by us using
information currently available.
The
words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“will,” “should” and similar expressions, as they relate to us, are
intended to identify forward-looking statements. Such statements
reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions, and are
not guaranties of future performance. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated,
expected, intended or using other similar expressions. We are
making investors aware that such forward-looking statements,
because they relate to future events, are by their very nature
subject to many important factors that could cause actual results
to differ materially from those contemplated by the forward-looking
statements contained in this Quarterly Report on Form 10-Q.
Important factors that could cause actual results to differ from
our predictions include, without limitation:
|
|
● |
Market
acceptance of our products and services; |
| |
● |
Competition
from existing products or new products that may emerge; |
| |
● |
The
implementation of our business model and strategic plans for our
business and our products; |
| |
● |
Estimates
of our future revenue, expenses, capital requirements and our need
for financing; |
| |
● |
Our
financial performance; |
| |
● |
Current
and future government regulations; |
| |
● |
Developments
relating to our competitors; and |
| |
● |
Other
risks and uncertainties, including those listed under the section
titled “Risk Factors” in our annual report filed on Form 10-K filed
with the Securities and Exchange Commission on July 15,
2022. |
Although
we have sought to identify the most significant risks to our
business, we cannot predict whether, or to what extent, any of such
risks may be realized, nor can there be any assurance that we have
identified all possible issues which we might face. For all of
these reasons, the reader is cautioned not to place undue reliance
on forward-looking statements contained herein, which speak only as
of the date hereof. We assume no responsibility to update any
forward-looking statements as a result of new information, future
events, or otherwise except as required by law. We urge readers to
review carefully the risk factors described in this Quarterly
Report and in our annual report filed on Form 10-K filed with the
Securities and Exchange Commission on July 15, 2022. You can read
these documents at www.sec.gov.
Overview
Our
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 Gemini, and in the future we plan to
add connectivity to Binance, Kraken 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
corporate headquarters are located in San Francisco,
California.
Critical
Accounting Policies
Our
significant accounting policies are described in Note 2 to the
financial statements as of March 31, 2022 which are included in our
Annual Report on Form 10-K. There were no changes to our
significant accounting policies during the three and nine months
ended December 31, 2022 as compared to the significant account
policies described in our Annual Report on Form 10-K for the year
ended March 31, 2022. Our discussion and analysis of our financial
condition and results of operations are based upon these financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets
and liabilities. We evaluate our estimates on an on-going basis. We
base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. In the past, actual
results have not been materially different from our estimates.
However, results may differ from these estimates under different
assumptions or conditions.
Results
of Operations
For the Three Months Ended December 31, 2022 vs December 31,
2021
Revenues
During
the three months ended December 31, 2022, we recorded revenues of
$42,408, including $28,837 as a result of revenue recognized under
a new software development contract, and a combined total of
$13,571 of transaction fees and the recognition of amortization of
deferred setup fee revenues in connection with the execution of
contracts with customers. During the three months ended December
31, 2021, we recorded revenues of $2,500 for similar recognition of
deferred revenues.
For
the three months ended December 31, 2022, we recognized $26,890 in
transaction costs, of which $14,268 was related to the software
development contract, $7,988 in hosting fees, $2,296 in exchange
fees, and $2,338 merchant processing fees, for a net positive
margin of $15,518. We anticipate that the hosting fees and
processing fee structure will contribute positive gross margin as
the Company grows and these expenses remain static or grow ratably
with revenues.
We
anticipate that future revenues will continue to be generated from
(i) fees charged under the software development contract; (ii) fees
charged in connection with conversion of crypto currencies to and
from fiat currencies; (iii) fees charged in connection with the
implementation of our ecommerce checkout solutions; and (iv)
ongoing daily transactional fees derived as a negotiated percentage
of the transactional revenues earned by our merchant customers. In
June 2022, we conducted tests of our cross-border B2B solution,
which we expect to place in commercial operations by the end of
2022.
Research
and Development Expenses
Research and development expenses for the three months ended
December 31, 2022 were $210,342, a decrease of $83,984 as compared
with expenses of $294,326 for the prior year period. Research and
development expenses increased due to increases in software coding
and development activities during the recent quarter compared to
the same period of the prior year.
General
and Administrative Expenses
General and administrative expenses for the three months ended
December 31, 2022 were $1,140,603 as compared with $879,355 for the
prior year period, an increase of $261,248. The increase is
primarily a result of an increase in hiring expense and staffing
costs for increased staffing and finance professional fees in
designing and managing accounting systems to accommodate additional
revenue stream opportunities.
For the Nine Months Ended December 31, 2022 vs December 31,
2021
Revenues
During
the nine months ended December 31, 2022, we recorded revenues of
$92,355, including $60,000 resulting from the new software
development contract, and a combined total of $32,355 in
transaction fees and the recognition of amortization of deferred
setup fee revenues in connection with the execution of contracts
with customers. During the nine months ended December 31, 2021, we
recorded revenues of $11,875 for similar recognition of deferred
revenues.
For the nine months ended December 31, 2022, we recognized $102,492
in transaction costs, of which $53,802 was related to the software
development contract, $23,525 in hosting fees, $12,582 in exchange
fees, and $12,583 merchant processing fees, for a net negative
margin of $(10,137). We anticipate that the hosting fees and
processing fee structure will contribute positive gross margin as
the Company grows and these expenses remain static or grow ratably
with revenues.
We
anticipate that future revenues will continue to be generated from
(i) fees charged under the software development contract; (ii) fees
charged in connection with conversion of crypto currencies to and
from fiat currencies; (iii) fees charged in connection with the
implementation of our ecommerce checkout solutions; and (iv)
ongoing daily transactional fees derived as a negotiated percentage
of the transactional revenues earned by our merchant customers. In
June 2022, we conducted tests of our cross-border B2B solution,
which we expect to place in commercial operations by the end of
2022.
Research
and Development Expenses
Research
and development expenses for the nine months ended December 31,
2022 were $797,006, a increase of $146,244 as compared with
expenses of $650,762 for the prior year period. Research and
development expenses increased year over year by approximately
22.5% due to increased staffing in software coding and development
activities, but was more than offset in the current period as a
result of capitalization of software development costs, which
practice was implemented after the completion of the nine-month
period of the prior year.
General
and Administrative Expenses
General and administrative expenses for the nine months ended
December 31, 2022 were $5,398,527 as compared with $2,676,525 for
the prior year period, an increase of $2,722,022. The increase is a
result of an increase in hiring expense and staffing costs for
increased staffing of accounting and consultancy costs not
experienced in the prior period; and increases in travel, audit and
other fees. These were partially offset by a decrease in legal fees
in connection with decreased work on business development
strategies.
Liquidity
and Capital Resources
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.
On December 31, 2022, we had total assets of $1,272,816 and total
liabilities of $751,882. This compares to total assets of
$2,650,619 and total liabilities of $513,550 on March 31, 2022. As
of December 31, 2022, our assets consisted of $392,956,of cash and
restricted cash, $0 of accounts receivable, $111,593 of prepaid
expenses and other current assets and $768,267 of property and
equipment, net of depreciation and amortization. The decrease in
assets compared to March 31, 2022 is due to the use of cash to pay
for operating costs as a result of increase business activities, an
increase in prepaid expenses and other current assets and the
capitalization of software development costs. As of December 31,
2022, our liabilities consist of $723,982 of accounts payable and
accrued expenses, $24,396 due to related parties and $3,504 of
deferred revenue. The increase in liabilities compared to March 31,
2022 is largely due to increases of accounts payables and accrued
expenses, and an increase in amounts due to a related party.
On
December 31, 2022, we had working capital of $(247,333) and a
stockholders’ equity of $520,934 compared to working capital of
$2,137,069 and stockholders’ equity of $2,597,245 at March 31,
2022. Working capital decreased during the nine months ended
December 31, 2022 largely due to cash paid for prepaid expenses,
and cash used in operating activities to expand on the Company’s
product offerings and capabilities of its software. Stockholders’
equity decreased due to the operating loss for the nine-month
period ended December 31, 2022, with an offset for the $700,000
additional private placement funds to offset the operating
loss.
As of
December 31, 2022, we had cash and restricted cash of $392,956 as
compared to $2,634,794 as of March 31, 2022.
During
the nine months ended December 31, 2022, we had net cash of
$483,865 used in operating activities, which was composed primarily
of (i) our net loss of $3,527,170 (ii) a gain from a legal
settlement of $540,059 (iii) increases in prepaid expenses and
other current assets of $99,243. The cash flows used in operating
activities were partially offset by (i) stock-based compensation of
$1,287,048 primarily in connection with stock options granted
pursuant to the 2018 Stock Option Plan, (ii) depreciation and
amortization of $493,660, (iii) an increase in accounts payable and
accrued expenses of $435,953, (iv) an increase in a payable to a
related party of $36,680, and (v) an increase in deferred revenue
of $1,004. During the nine months ended December 31, 2021, we had
net cash of $483,865 used in operating activities, which was
composed of our net loss of $3,527,170 and offset by (i)
stock-based compensation of $1,287,048 and (ii) smaller incremental
increases and decreases to prepaid expenses and other current
assets, accounts payable and accrued expenses, payables to related
parties and deferred revenues.
During
the nine months ended December 31, 2022, we used cash of $651,832
for the purchase of property and equipment and the capitalization
of software development costs. There were no such investments
during the nine-month period ended December 31, 2021.
During
the nine months ended December 31, 2022, we had $0 net cash
provided by financing activities, compared with $808,750
net cash provided by the issuance of common stock in connection
with exercise of common stock purchase warrants and issuance of
convertible note payable during the nine-month period ended
December 31, 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 nine months ended December 31, 2022, we reported a net
loss of $3,527,170, which included non-cash stock-based
compensation of $1,287,048 and $540,059 of gain from a legal
settlement, and cash flows used in operating activities of
$483,865. These factors, among others, raise substantial doubt
about the ability of the Company to continue as a going concern.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Commitments
We do
not have any long-term commitments as of December 31,
2022.
Subsequent
Events
On
January 13, 2023, we completed a private placement (the “Offering”)
of $150,000 principal amount of its secured convertible promissory
notes (the “Notes”). The purchase price was $150,000. There were
three purchasers, including Gert Funk, the Company’s Chairman, and
Peter M. Jensen, the Company’s Chief Executive Officer and a member
of its Board of Directors. The third purchaser was a private
investor. Each investor purchased a Note for $50,000.
The
Notes bear interest at 10% per annum and mature on July 13, 2023
(the “Maturity Date”). The Notes may be prepaid by the Company at
any time. If the Company shall prepay the entire outstanding
principal amount of a Note on or before April 13, 2023, then there
is no prepayment premium. If the Company shall prepay the entire
outstanding principal amount of a Note between April 14, 2023 and
the Maturity Date, then it shall also pay accrued interest on such
principal amount in an amount equal to 50% of such principal
amount. If the Company shall repay the outstanding principal amount
of a Note on or after the Maturity Date, then it shall also pay
accrued interest on such principal amount in an amount equal to
100% of such principal amount.
The
Notes are convertible into shares of the Company’s Series A
Preferred Stock (“Series A Preferred”) at a conversion price equal
to (a) the outstanding principal amount of, plus all accrued
interest on, the Note divided by (b) $0.2065. The conversion price
is subject to adjustment for certain stock splits,
recapitalizations and other similar events. The Notes are secured
by a security interest in all of the Company’s assets.
Up to
1,000,000 shares of Series A Preferred were approved by the Board.
The Series A Preferred has a 200% liquidation preference over the
common stock and any other future series of preferred stock,
payable in the event of a liquidation or merger of the Company. In
such event, the holders of the Series A Preferred will be entitled
to a priority distribution equal to 200% of the deemed issue price
of $0.2065 per share, (i.e., $0.4130 per share). The Series
A Preferred is convertible at the option of the stockholder into
shares of common stock at a conversion price of $0.2065 per share,
subject to adjustment for certain stock splits, recapitalizations
and other similar events.
On
January 13, 2023, in connection with the Offering, the Company
entered into a Convertible Notes Subscription Agreement (the
“Subscription Agreement”) with three investors. The Subscription
Agreement sets forth the economic terms set forth above.
The
Company intends to use the $150,000 net proceeds of the Offering
for general corporate purposes and to fund ongoing operations and
expansion of its business.
On
February 8, 2023 we entered into a settlement agreement with EGS,
pursuant to which EGS agreed to pay us $750,000 in full settlement
of the lawsuit. After payment of our legal fees, the net payment to
us, which was received on February 14, 2023, was $525,000. As part
of the settlement (i) we have agreed to dismiss the lawsuit with
prejudice and (ii) each party has agreed to grant a mutual general
release to the other party and its affiliates, related parties and
agents.
On
January 18, 2023, we borrowed $200,000 from Peter M. Jensen, our
CEO, pursuant to a convertible promissory note. The proceeds were
to be used to support a transaction that ultimately was not
consummated. On February 15, 2023, we repaid the loan in full
together with $1,535 representing accrued interest at a rate of 10%
per annum.
Off-Balance
Sheet Arrangements
As of
December 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.
Impact
of COVID-19 on Our Business
The
COVID-19 pandemic has resulted, and may continue to result, in
significant economic disruption despite progress made in the
development and distribution of vaccines. It disrupted global
travel, supply chains and the labor market and adversely impacted
global commercial activity. While the pandemic has largely
subsided, considerable uncertainty still surrounds COVID-19, the
evolution of its variants, its potential long-term economic
effects, as well as the effectiveness of any responses taken by
government authorities and businesses and of various efforts to
inoculate the global population.
Significant
uncertainty continues to exist concerning the impact of the
COVID-19 pandemic on our customers’ and prospects’ business and
operations in future periods. Although our total revenues for the
three and nine months ended December 31, 2022 were not materially
impacted by COVID-19, we believe our revenues may be negatively
impacted in future periods until the effects of the pandemic have
fully subsided and the current macroeconomic environment has
substantially recovered. Effects of the COVID-19 pandemic that may
negatively impact our business in future periods include, but are
not limited to: limitations on the ability of our customers to
conduct their business, purchase our products and services, and
make timely payments; curtailed consumer spending; deferred
purchasing decisions; delayed consulting services implementations;
labor shortages and decreases in product licenses revenues driven
by channel partners. We will continue to actively monitor the
nature and extent of the impact to our business, operating results,
and financial condition.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Not
applicable.
Item 4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Based
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 December 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 December 31, 2022, our internal
controls over financial reporting were not effective.
Changes
in Internal Control Over Financial Reporting
The
following changes have been made 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
expanded the responsibilities assigned to a new accountant and an
independent Controller, engaged in the quarter ended June 30, 2022,
to transact and oversee the financial activities of the Company,
with preparation of our public filings by an SEC Manager, each with
the guidance of our SEC Director. In February 2023 we hired a full
time Director of Finance to replace the accountant and independent
Controller. The Director of Finance. Reports directly to our
CFO.
We
intend to perform additional internal control improvements,
beginning with written documentation of financial
processes.
Inherent
Limitations of the Effectiveness of Internal
Controls
A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the internal control system are met. Because of the
inherent limitations of any internal control system, no evaluation
of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.
PART II. OTHER INFORMATION
Item 1. 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.
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
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. In connection with this
settlement, we recognized a gain of $540,059, calculated based on
the Company’s share price of $0.15 per share on the date of
settlement of the legal proceedings. This gain was recorded in
other income for the nine months ended December 31, 2022 in the
accompanying consolidated statements of operations.
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
February 8, 2023 we entered into a settlement agreement with EGS,
pursuant to which EGS agreed to pay us $750,000 in full settlement
of the lawsuit. After payment of our legal fees, the net payment to
us, which was received on February 14, 2023, was $525,000. As part
of the settlement (i) we have agreed to dismiss the lawsuit with
prejudice and (ii) each party has agreed to grant a mutual general
release to the other party and its affiliates, related parties and
agents.
In
January 2022, the Company terminated its agreement with Scarola
Schaffzib Zubatov PLLC (“SSZ”), which the Company had retained to
represent it in the litigation against EGS. The reason for the
termination was that the Company believed that SSZ had overcharged
for legal services provided. Subsequent to the termination, SSZ
sent the Company additional invoices, to which the Company also
objected. In August 2022 SZZ filed a lawsuit in the Supreme Court
of the State of New York, County of New York, claiming it is owed
approximately $120,000 in legal fees. The Company disputes that
this amount is owed, and contends that a portion of the legal fees
previously paid should be refunded. Discovery has commenced; a
trial date has not been set. The Company has accrued approximately
$120,000 in accounts payable.
Item 1A. Risk Factors
The
Risk Factors identified in our Annual Report on Form 10-K for the
year ended March 31, 2022 continue to represent the most
significant risks to the Company’s future results of operations and
financial conditions, without further modification or
amendment.
Item 2. Unregistered Sales of Equity
Securities
We
made no unregistered sales of equity securities during the three
months ended December 31, 2023.
Item 6. Exhibits
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/
Peter M. Jensen |
| |
|
Peter
M. Jensen |
| |
|
Chief
Executive Officer |
| |
|
(Principal
Executive Officer) |
| |
|
|
| |
By: |
/s/
Bennett J. Yankowitz |
| |
|
Bennett
J. Yankowitz |
| |
|
Chief
Financial Officer |
| |
|
(Principal
Financial Officer) |
| |
|
|
| |
By: |
/s/
Justin D. Fewell |
| |
|
Justin
D. Fewell |
| |
|
Director
of Finance |
| |
|
(Principal
Accounting Officer) |
| |
|
|
| Dated:
April 3, 2023 |
|
|
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