NODC Nodechain Inc (CE)

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

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Company Overview

Corporate History

The Company was incorporated under the laws of the State of Delaware on June 18, 2013, with an objective to acquire, or merge with, an operating business.

On March 6, 2014, we entered into a Share Purchase Agreement, resulting in a change of control, with Alham Benyameen and Andy Michael Ibrahim whereby Richard Chiang our Chairman of the Board of Directors, President, CEO, CFO and Secretary elected Mr. Benyameen as our Chairman of the Board of Directors and Mr. Ibrahim as our President, CEO, CFO, Secretary and Member of our Board of Directors.

Under the terms of the agreement, Mr. Chiang our former President and CEO sold 7,200,000 shares of Nodechain, Inc., formerly known as ALPINE 2 Inc. to Mr. Benyameen and Mr. Ibrahim in exchange for $20,000. Mr. Chiang simultaneously resigned from his positions held in the Company. Upon the closing of our Share Purchase Agreement, we entered into an employment agreement with Mr. Benyameen and Mr. Ibrahim as officers and directors of ALPINE 2 Inc. We issued in advance 20,000,000 shares of our common stock to Mr. Benyameen and 20,000,000 shares of our common stock to Mr. Ibrahim. These shares were valued at par $0.0001 at the time of transfer. Immediately after the closing of the Share Purchase Agreement, we had 50,000,000 shares of common stock outstanding, no shares of preferred stock, no options, and no warrants outstanding. On March 12, 2014, we filed a certificate of amendment of certificate of incorporation with the State of Delaware and on March 25, 2014, officially amended our name from ALPINE 2 Inc., to Vapetek, Inc.

On April 1, 2014, the Company entered into a product distribution agreement with West Coast Vape Supply Inc. to supply electronic cigarettes, vaporizers, e-liquids, and accessories, and other third-party products. West Coast Vape Supply Inc. is a related party and owned 100% by the management of Nodechain, Inc.

On August 11, 2014, we entered into a Licensing Agreement with PennyGrab Inc. (“PennyGrab”). PennyGrab is the owner of technology, including software code, relating a website designed for wholesale, retail, and online auction compatible products. The software code is a PHP website script that is 100% customizable and is SEO friendly that improves site search engines rankings. The software code is the “Licensed Technology.” Pursuant to the Agreement, PennyGrab granted to the Company an exclusive, transferable (including sublicensable) worldwide perpetual license of the Licensed Technology, to make, use, lease, and sell products incorporating the Licensed Technology (the “Licensed Products”). The Company is required to pay to PennyGrab royalty payments equal to $100 per year. To date there has been no revenue from the licensing agreement.

On September 23, 2014 we filed an 8-K regarding a change in shell Company Status as we were no longer to be deemed a shell Company as we had more than nominal operations. There are currently no outstanding comments in regards to the 8-K filed and as of today we are no longer deemed to be a shell Company.

On April 6, 2015 the Company completed a reverse stock split in which every eight shares of common stock became one share of common stock.

On December 1, 2017, the Board of Directors and majority stockholder of the Company approved an amendment to the Company’s Certificate of Incorporation to change the name of the Company from Vapetek, Inc. to Nodechain, Inc. On that date, the Company filed a Certificate of Amendment with the State of Delaware.

Our Business

Nodechain, Inc.’s current business operations are comprised of activities revolving around the blockchain, with a particular emphasis on digital cryptocurrency mining and transaction validation.

The Company utilizes, at present, forty-five mining computers (rigs) that include 1070, 1070Ti and AMD 570 and 580 GPUs per unit. Our mining rigs are capable of efficiently mining approximately $400-$500 per month in Ethereum cryptocurrency and $500-600 per month in Bitcoin cryptocurrency per mining rig. It must be noted that the projected revenue estimates are directly linked to the highly volatile currency market conditions and daily Bitcoin (BTC) and Ethereum (ETH) pricing.

Cryptocurrency mining is the underlying system that allows Bitcoin, Ethereum, and other cryptocurrencies, to be traded in a decentralized manner. It revolves around a ledger, or database, that is continuously updated and accessible to the public. Nodes have a copy of the ledger and verify the transactions by completing difficult mathematical problems by utilizing the GPU of the mining rigs. The validators are called “miners”. They authenticate and group transactions into cryptographically protected “blocks” which are then added to the public “chain”. Cryptocurrency miners are slowly rewarded with Bitcoin or Ethereum for carrying out this work, which involves substantial computing power.

In addition to our five current mining rigs we may, in the future, create additional mining rigs to increase our operations. The majority of mining companies purchase ASIC based mining rigs from China, which requires a long waiting period. In contrast, we believe all of our mining rigs will be created in-house with hardware from US based suppliers. It is the belief of the Company that building rigs from the ground up will allow us to scale our mining operations significantly faster than many competitors.

At present we will focus on mining Bitcoin and Ethereum, which have seen substantial and very public growth since their introduction. Our mining rigs are capable of mining alternative cryptocurrencies and we may evaluate, in the future, mining additional cryptocurrencies such as Zcash, Ethereum Classic, Bitcoin Gold and Monero. Such plans have not been fully developed at this point in time. We store our mined Bitcoin and Ethereum in a high-security, state-of-the-art cold storage wallets using the advanced cold storage wallet system provided by Coinbase.

In order to market and increase awareness of our Company we have hired a third party graphic artist and website developer to create and build a new website for our Company. This website is currently under development, although we anticipate it will be fully completed within several months.

In the future, the Company intends to, through as of yet unidentified means, expand its operations into different sectors related to the blockchain including, but not strictly limited to, dynamic cryptocurrency mining applications, blockchain applications, solidity smart contract development, cryptocurrency hashpower leasing, sales, service and B2B cryptocurrency consultation.

At present all of our mining rigs are managed and operated solely by our officers and directors.

The Company’s executive offices are located in Huntington Beach, CA, at 5445 Oceanus Drive, Suite 102, Huntington Beach, CA, 92649.

Results of operations for the three months ended June 30, 2018 and 2017.

Revenues

Our revenue was $15,447 for the three months ended June 30, 2018, compared to $19,205 for the three months ended June 30, 2017. Of the sales in the current period $75 were from our now discontinued operations. All of the sales in the prior period were from discontinued operations. The decrease in revenue is due to the phasing out of the e-cigarettes and vapor product business. During the current period we used 5,000 Ripple (XRP) for services resulting in a realized loss of $694 and had an unrealized loss of $50 on the mark to market of our digital assets.

Cost of Sales

Our cost of sales was $0 for the three months ended June 30, 2018, compared to $6,554 of costs from discontinued operations for the three months ended June 30, 2017.

Operating Expenses

Our operating expenses from continuing operations were $30,267 for the three months ended June 30, 2018 compared to $10,043 for the three months ended June 30, 2017. During the current period we incurred professional fees of $9,660 compared to $5,030 in the prior period, $1,500 of rent expense and $19,107 of general and administrative expense.

Other Income and Expense

During the three months ended June 30, 2018, we had a change in fair value of derivative of $3,305. We incurred $750 of interest expense from debt discount, $706 of interest expense on related party loans that was credited to paid in capital, and a loss on issuance of convertible debt of $4,228. In addition, we recognized a realized loss on trading securities of $694 and an unrealized loss of $50 on our digital assets.

Net Loss

We recorded a net loss of $17,943 for the three months ended June 30, 2018, as compared to $456 for the three months ended June 30, 2017. The increase to our net loss is due to increased professional fees and other expenses, including the loss on the issuance of convertible debt.

Results of operations for the six months ended June 30, 2018 and June 30, 2017.

Revenues

Our sales revenue was $48,405 for the six months ended June 30, 2018, compared to $25,081 for the six months ended June 30, 2017. All of the sales in the prior period were from discontinued operations. During the current period we used 5,000 Ripple (XRP) for services resulting in a realized loss of $5,944 and had an unrealized loss of $9,346 on the mark to market of our digital assets.

Cost of Sales

Our cost of sales was $30,000 for the six months ended June 30, 2018, compared to $34,409 for the six months ended June 30, 2017. The decrease is in line with the discontinued operations as mentioned above. All of the cost of sales in the prior period were from discontinued operations. In the current period our cost of sales is due to the sale of five GPU Mining Units.

Operating Expenses

Our operating expenses were $12,585,050 for the six months ended June 30, 2018 as compared to $40,779 for the six months ended June 30, 2017. The increase in expenses is primarily due to a $12,500,000 expense for director compensation. In the prior period $3,064 is from discontinued operations.

Net Loss

We recorded a net loss of $12,584,947 for the six months ended June 30, 2018, as compared to $14,965 for the six months ended June 30, 2017. The increase is primarily attributed to the $12,500,000 expense for director compensation.

Liquidity and Capital Resources

Cash Flows

Cash Used in Operating Activities

For the six months ended June 30, 2018 net cash used in operating activities was $5,642 compared to net cash provided by operating activities of $7,473 in the prior period. The decrease in net cash used in operating activities is due to an increased level of operations for the six months ended June 30, 2018.

Cash from Investing Activities

There were no investing activities in either the current or prior period.

Cash from Financing Activities

For the six months ended June 30, 2018 and 2017 we had net cash of $4,999 provided by and $9,268, used in financing activities, respectively. In the current period we received $10,000 from the sale of common stock, $2,500 from a convertible note, $660 from a related party and repaid $9,500 of related party loans. In the prior period the company sold stock for total proceeds of $232 and repaid $9,500 on loans.

As of June 30, 2018, we owed $20,000 to West Coast Vape Supply Inc and $25,000 to MeWe World, Inc.

As of June 30, 2018, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

Off-Balance Sheet Arrangements and Contractual Obligations

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Note 2 to the Financial Statements describes the significant accounting policies and methods used in the preparation of the Financial Statements. Estimates are used for, but not limited to, contingencies and taxes.  Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Financial Statements.

We are subject to various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate current information available to us to determine whether such accruals should be adjusted.

We recognize deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities represent the expected future tax return consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.  Future tax benefits have been fully offset by a 100% valuation allowance as management is unable to determine that it is more likely than not that this deferred tax asset will be realized.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon delivery.

For the Company’s new operations there are two types of revenue as of December 31, 2017. 1) Revenue is recognized from the sales of GPU mining units that are built and sold to third parties. 2) The Company earns revenue on the cryptocurrency that its GPU mining computers mine / blocks that are solved . The Company currently only mines Bitcoin and Ethereum. The only cryptocurrency mined in 2017 was Bitcoin, payment is always in Bitcoin and recoded on the date it is earned. When cryptocurrency is received as revenue is debited to an asset account and accounted for as trading securities. The Company may sell the asset at a higher or lower price than when it was mined or may trade it for a different cryptocurrency asset.

Trading Securities

The Company holds trading securities, which consist of investments in Digital Assets such as Bitcoin and Ethereum. The securities are recorded on the balance sheet in current assets at their fair value at the time of receipt. Trading securities are marked to market at each balance sheet date with gains and losses recorded in net income.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $13,301,892 as of June 30, 2018.  The Company requires capital for its contemplated operational and marketing activities.  The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.