ROCKETFUEL BLOCKCHAIN, INC. Management’s Discussion and Analysis of Financial Condition and Results
of Operations (form 10-Q)

ROCKETFUEL BLOCKCHAIN, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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.



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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 six months ended September 30, 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.



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Results of Operations


For the Three Months Ended September 30, 2022 vs September 30, 2021



Revenues


During the three months ended September 30, 2022, we recorded revenues of
$41,815 , including $31,000 as a result of revenue recognized under a new
software development contract, and a combined total of $10,815 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 September 30, 2021, we recorded revenues of $9,375 for similar
recognition of deferred revenues.

For the three months ended September 30, 2022, we recognized $75,602 in
transaction costs, of which $14,000 was related to the software development
contract, $40,000 in hosting fees, $13,000 in exchange fees, and $9,000 merchant
processing fees, for a net negative margin of $33,787. 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 September 30, 2022
were $327,699, an increase of $33,373 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 September 30,
2022
were $891,008 as compared with $879,355 for the prior year period, an
increase of $11,653. The increase is primarily a result of (i) an increase in
hiring expense and staffing costs for increased staffing of approximately
$140,000; and (ii) an increase of approximately $57,000 in finance professional
fees in designing and managing accounting systems to accommodate additional
revenue stream opportunities. These were largely offset by a decrease in legal
fees in connection with decreased work on business development strategies.

For the Six Months Ended September 30, 2022 vs September 30, 2021



Revenues


During the six months ended September 30, 2022, we recorded revenues of $49,947,
including $31,000 resulting from the new software development contract, and a
combined total of $18,947 in transaction fees and the recognition of
amortization of deferred setup fee revenues in connection with the execution of
contracts with customers. During the six months ended September 30, 2021, we
recorded revenues of $11,875 for similar recognition of deferred revenues.

For the six months ended September 30, 2022, we recognized $75,602 in
transaction costs, of which $14,000 was related to the software development
contract, $40,000 in hosting fees, $13,000 in exchange fees, and $9,000 merchant
processing fees, for a net negative margin of $25,655. 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 six months ended September 30, 2022
were $586,664, a decrease of $64,098 as compared with expenses of $650,762 for
the prior year period. Research and development expenses increased year over
year by approximately $106,000 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 six-month period of the prior year.

General and Administrative Expenses

General and administrative expenses for the six months ended September 30, 2022
were $2,128,962 as compared with $1,730,010 for the prior year period, an
increase of $398,952. The increase is a result of (i) an increase in hiring
expense and staffing costs for increased staffing of approximately $200,000;
(ii) $113,000 of accounting and consultancy costs not experienced in the prior
period; and (iii) 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.



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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 September 30, 2022, we had total assets of $1,969,040 and total liabilities
of $813,613. This compares to total assets of $3,110,795 and total liabilities
of $513,550 on March 31, 2022. As of September 30, 2022, our assets consisted of
$1,135,460 of cash and restricted cash, $60,200 of accounts receivable, $130,460
of prepaid expenses and other current assets and $642,920 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, somewhat offset by an increase in
accounts receivable as a result of a new software development contract and
increasing merchant contracts, an increase in prepaid expenses and other current
assets and the capitalization of software development costs. As of September 30,
2022
, our liabilities consist of $743,197 of accounts payable and accrued
expenses, $34,569 due to related parties and $35,847 of deferred revenue. The
increase in liabilities compared to March 31, 2022 is largely due to increases
of accounts payables and accrued expenses, an increase in deferred revenues as a
result of a new software development contract in process, and an increase in
amounts due to a related party.

On September 30, 2022, we had working capital of $512,507 and a stockholders’
equity of $1,155,427 compared to working capital of $2,137,069 and stockholders’
equity of $2,597,245 at March 31, 2022. Working capital decreased during the six
months ended September 30, 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 six-month period ended September 30, 2022, with an
offset for the $700,000 additional private placement funds to offset the
operating loss.

As of September 30, 2022, we had cash and restricted cash of $1,135,460 as
compared to $2,634,794 as of March 31, 2022.

During the six months ended September 30, 2022, we had net cash of $1,818,113
used in operating activities, which was composed primarily of (i) our net loss
of $2,191,199, (ii) a gain from a legal settlement of $540,059, (iii) increases
in accounts receivable of $56,725, and (iv) increases in prepaid expenses and
other current assets of $118,110. The cash flows used in operating activities
were partially offset by (i) stock-based compensation of $589,440 primarily in
connection with stock options granted pursuant to the 2018 Stock Option Plan,
(ii) depreciation and amortization of $198,477, (iii) an increase in accounts
payable and accrued expenses of $255,997, (iv) an increase in a payable to a
related party of $23,292, and (v) an increase in deferred revenue of $20,774.
During the six months ended September 30, 2021, we had net cash of $1,403,745
used in operating activities, which was composed of our net loss of $2,383,129
and offset by (i) stock-based compensation of $646,746 and (ii) smaller
incremental increases and decreases to accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued expenses, payables to related
parties and deferred revenues.

During the six months ended September 30, 2022, we used cash of $381,221 for the
purchase of property and equipment and the capitalization of software
development costs. There were no such investments during the six-month period
ended September 30, 2021.

During the six months ended September 30, 2022, we had $700,000 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 six-month
period ended September 30, 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 six months ended
September 30, 2022, we reported a net loss of $2,191,199, which included
non-cash stock-based compensation of $589,440 and $540,059 of gain from a legal
settlement, and cash flows used in operating activities of $1,818,113. 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 September 30, 2022.



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Subsequent Events


On October 27, 2022, by action of the board of directors, the Company reduced
the exercise price of all stock options to $0.2065 per share, including all
stock options issued and outstanding under our 2018 Stock Incentive Plan and a
warrant to purchase 265,982 shares issued to our chief executive officer, Peter
M. Jensen
, on February 15, 2021. Additionally, the vesting of stock options held
by one key manager was changed to straight vesting options in November 2022. All
other terms remained unchanged.

In November 2022, the Company issued 100,000 options to purchase shares of its
common stock in relation to a contract with a contractor.

On November 11, 2022, our chief technology officer tendered his resignation,
effective as of December 11, 2022.

Off-Balance Sheet Arrangements

As of September 30, 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 six months ended
September 30, 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.

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