Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2017
or
□ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________to
____________________
333-194748
Commission file number
HotApp Blockchain Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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45-4742558
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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4800 Montgomery Lane, Suite 210 Bethesda MD
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20814
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(Address of principal executive offices)
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(Zip Code)
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301-971-3940
Registrant’s telephone number, including area
code
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes □
No
☑
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yes □ No
☑
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes ☑
No
□
Indicate by check mark whether the registrant has submitted
electronically 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 checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained herein, and will not be contained, to the best of
registrant’s knowledge, in definite proxy or information
statement incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. □
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 if the
Exchange Act.
Large accelerated filter □ Accelerated
filter □
Non-accelerated filter □ (Do
not check if a smaller reporting
company) Smaller 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 ☑
State the aggregate market value of voting and non-voting common
equity held by non-affiliates computer by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal
quarter. The Company’s common stock did not trade
during the year ended December 31, 2017; as of June 30, 2017,
108,000 shares were held by non-affiliates, which had been sold to
such non-affiliates for total proceeds of
$5,400.
Indicate the number of shares outstanding of each the
registrant’s classes of common stock, as of the latest
practicable date. As of April 2, 2018, there were 506,898,576
shares outstanding of the registrant’s common stock $0.001
par value.
DOCUMENTS INCORPORATED BY REFERENCE
-None
Throughout this Report on Form 10-K, the terms
“Company,” “we,” “us” and
“our” refer to HotApp Blockchain Inc., and “our
board of directors” refers to the board of directors of
HotApp Blockchain Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve a
number of risks and uncertainties. Although our forward-looking
statements reflect the good faith judgment of our management, these
statements can be based only on facts and factors of which we are
currently aware. Consequently, forward-looking statements are
inherently subject to risks and uncertainties. Actual results and
outcomes may differ materially from results and outcomes discussed
in the forward-looking statements.
Forward-looking statements can be identified by the use of
forward-looking words such as “may,”
“will,” “should,” “anticipate,”
“believe,” “expect,” “plan,”
“future,” “intend,” “could,”
“estimate,” “predict,” “hope,”
“potential,” “continue,” or the negative of
these terms or other similar expressions. These statements include,
but are not limited to, statements under the captions “Risk
Factors,” “Management’s Discussion and Analysis
or Plan of Operation” and “Description of
Business,” as well as other sections in this report. Such
forward-looking statements are based on our management’s
current plans and expectations and are subject to risks,
uncertainties and changes in plans that may cause actual results to
differ materially from those anticipated in the forward-looking
statements. You should be aware that, as a result of any of these
factors materializing, the trading price of our common stock may
decline. These factors include, but are not limited to, the
following:
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the
availability and adequacy of capital to support and grow our
business;
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economic,
competitive, business and other conditions in our local and
regional markets;
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actions
taken or not taken by others, including competitors, as well as
legislative, regulatory,
judicial
and other governmental authorities;
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competition
in our industry;
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changes
in our business and growth strategy, capital improvements or
development plans;
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the
availability of additional capital to support development;
and
●
other
factors discussed elsewhere in this annual report.
The cautionary statements made in this annual report are intended
to be applicable to all related forward-looking statements wherever
they may appear in this report.
We urge you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. We
undertake no obligation to publicly update any forward
looking-statements, whether as a result of new information, future
events or otherwise.
TABLE OF CONTENTS
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PART
I
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Item
1.
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Business.
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4
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Item
1A.
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Risk
Factors.
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7
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Item
1B.
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Unresolved
Staff Comments.
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19
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Item
2.
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Properties
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19
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Item
3.
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Legal
Proceedings.
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19
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Item
4.
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Mine
Safety Disclosure.
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20
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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20
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Item
6.
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Selected
Financial Data.
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20
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
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20
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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26
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Item
8.
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Financial
Statements and Supplementary Data.
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27
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
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40
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Item
9A.
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Controls
and Procedures.
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40
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Item
9B.
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Other
Information.
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40
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance.
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41
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Item
11.
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Executive
Compensation.
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44
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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45
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence.
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46
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Item
14.
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Principal
Accounting Fees and Services.
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47
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules.
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48
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Item
16.
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Form
10-K Summary
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48
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SIGNATURES
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49
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PART I
Business Description
HotApp Blockchain Inc., formerly HotApp International, Inc., (the
“Company” or “Group”) was incorporated in
the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd
(“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices
(“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). HotApp can be used on any mobile platform (i.e. IOS
Online or Android).
Pursuant to the Purchase Agreement, the Company issued SeD
1,000,000 shares of common stock and 13,800,000 shares of newly
created convertible preferred stock. See Note 6 to the Financial
Statements for a further description.
As of December 31, 2017, details of the Company’s
subsidiaries are as follows:
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Subsidiaries
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Date of Incorporation
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Place of Incorporation
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Percentage of Ownership
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1st Tier Subsidiary:
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HotApps International Pte Ltd (“HIP”)
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May 23, 2014
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Republic of Singapore
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100% by Company
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2nd Tier Subsidiaries:
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Crypto Exchange Pte. Ltd., formerly HotApps Call Pte
Ltd
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September 15, 2014
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Republic of Singapore
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100% owned by HIP
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HotApps Information Technology Co Ltd
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November 10, 2014
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People’s Republic of China
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100% owned by HIP
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HotApp International Limited*
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July 8, 2014
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Hong Kong (Special Administrative Region)
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100% owned by HIP
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* On March 25, 2015, HotApps International Pte Ltd acquired 100% of
issued share capital in HotApp International Limited.
The Group has relied significantly on SeD as its principal sources
of funding during the year. With the restructuring efforts in 2016,
HotApp has reduced its expense runway significantly and had
revamped its business model and technology platform to focus on
business-to-business (“B2B”) services, built around
enterprise communications and workflow. Its product line will
target these industries: (i) network and direct marketing; (ii)
enterprise Voice-over-IP; (iii) enterprise messaging; and (iv)
e-commerce. This strategic shift is intended to create commercial
value with a sharper focus.
Our Business
HotApp Blockchain Inc. is a software development service and
project management company specializing in Voice over IP (VoIP),
enterprise messaging, eCommerce and we recently moved up our
technology coverage into blockchain platform architecture and
systems development.
Through previous project management, HotApp Blockchain Inc. has
built a number of reusable application modules and framework. These
properties will help enterprises and community users to transform
their business model with digital economy in a more effective
manner. With our platform users can discover and build their own
communities and create valuable content. Our platform tools empower
these communities to share their thoughts and words across multiple
channels. As these communities grow, they provide the critical mass
that attracts enterprises. Enterprises in turn enhance user
experience with premium contents, all of which are facilitated by
the transactions of every stakeholder via e-commerce.
Trends in the Market and Our Opportunity
2017 has been a fast changing year in technology, the embracing of
digital strategy for traditional business has been well recognized
and realized, resulting in high demand in enterprise messaging and
collaboration services. According to a November 2016 forecast by
eMarketer, a leading research company for digital business
professionals, more than one-quarter of the world’s
population will be using mobile messaging apps by 2019. eMarketer
also projected that mobile phone messaging apps would be used by
more than 1.4 billion people in 2016, an increase of almost 16%
from 2015. The Asia-Pacific region is home to more than 50% of all
chat app users worldwide, with more than 805 million consumers in
2016.
In addition to the substantial opportunities in consumer messaging
market, Enterprise Messaging and Collaboration Services and Apps
are widely deployed in Small Medium Enterprises (SMEs) and Large
Enterprise as an alternative to Email and Intranet. This emerging
need in Enterprise Messaging and Collaboration offers a huge
opportunity for IT service providers in offering development,
integration and white label services for SMEs and Corporations.
According to Statista, global messaging platform service providers
are expected to bring in US$1.8 billion revenue riding on the
growth in growing demand of Enterprise Messaging.
On the other hand, a new wave of fund raising exercise has emerged
- Initial Coin Offerings (ICOs). ICOs exploded onto the scene in
2017, going from a relatively unknown fundraising method used in
the blockchain community, to raising over $4 billion in 2017. ICOs
have allowed blockchain startups to crowdfund their projects
through the blockchain by issuing digital tokens, which the user
can then trade, spend, and use within the blockchain platform.
There is a huge demand in ICO technology consulting from startups
and traditional business using smart contract and token creation to
launch new business activities. (Source ICOdata:
https://www.icodata.io/stats/2017).
Based upon the above trends, we believe significant opportunities
exist for:
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Enterprises
deploying messaging platform to effectively engage different
stakeholders.
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Continuing
growth in demand for over the top ("OTT") Services encapsulated
within a single mobile app with a clear intent and objectives
fulfilling the communication need for specific communities and
industries.
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Enterprises
to increase usage of OTT Services, such as adoption of Enterprise
messaging Apps alongside with using of email, video and audio
conferencing, collaboration through cloud services, as a new medium
for different stakeholder engagement including customers, to
promote and market their products and services (Collaboration
Framework). HotApp’s approach in white labelling for the
enterprises will augment and fill this demand in the market. White
label refers to packaging HotApp solution under brand name of
clients with some content being customized only for
clients.
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Industries
such as Network Marketing and Hospitality and Franchising
businesses are utilizing Mobile friendly solutions to reach out
effectively to their marketing network on a global
basis.
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The
ICO wave in Asia demands technology service from HotApp Blockchain
Inc. to support in the area of System Architecture and business
modeling, there is an immediate opportunity to position HotApp
Blockchain Inc. as a technology consultant for the organization
which plan for ICO initiatives.
Our Plan of Operations and Growth Strategy
We believe that we have significant opportunities to further
enhance the value we deliver to our users. We intend to pursue the
following growth strategy:
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Position
HotApp as an open platform to be ready for integration with third
party technology partnerships such as eCommerce, ePayment and
cryptocurrency integration.
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Engage
Mobile App Integration Opportunities for Enterprises globally
through “Powered by HotApp” initiatives, enabling
Offline businesses to go On Line (O2O) with HotApp technology
support. Powered by HotApp, is a business initiative from HotApp
International Limited, that offers modules in HotApp technology for
service and customization, targeting vertical industry such as
Hospitality and Real Estate Agencies.
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Identify
Strategic Partnership Opportunities globally through “Powered
by HotApp” initiatives, enabling Offline businesses to go On
Line (O2O) with HotApp technology support.
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Position
HotApp as the technology consultant and project manager for ICO
initiatives in Asia.
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Expand
the service portfolio to blockchain / smart contract design and
implementation.
In 2017, we have taken the following steps to implement our
business plan:
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Revamp
HotApp into modular Software Development Kit (SDK) to open up
HotApp architecture for 3rd party technology partner
integration.
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In
progress to develop HotApp Enterprise and secure messaging
function.
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Equipped
3 out of 7 of our developers with blockchain programming and
architecture skill.
Achieved and Target Milestones
In 2017, we have achieved the following milestones:
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Delivered
HotApp services to businesses making use of the HotApp Platform in
areas of Hospitality eCommerce and Real Estate Agent
Management.
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Built
a modular framework for ease of adaptation to white label projects
particularly in the Network Marketing Industry.
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Restructured
R&D organization with lower cost of development in China and
set up a consultative integration team in Hong Kong, ready for
HotApp Enterprise deployment.
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Revamped
HotApp platform reusable framework allowing quick roll out of new
business solutions.
Over the next twelve months we plan to:
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Move
up the technology offering into blockchain related technical
services and consulting; 3 out of 7 of our developers will be
dedicated to blockchain related technologies.
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Development
of white label solutions for network marketing and franchising
business.
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Further
explore new technology and commercialization strategic
alliances.
Our Business Model and User Monetization Plan
We plan to generate revenue through the following:
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White
label of Network Marketing Solutions.
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Integration
Services for Enterprises.
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Blockchain
related consulting services.
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Selected
contract development services.
Our Competition and Industries We Operate In
With the focus as a service provider, our competitiveness is
strengthened by:
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Strengthening
the methodology for project management and development through
continuous improvement through project engagement.
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Understanding
the industry’s need, such as Network Marketing, Hospitality,
Supply Chain and Engineering Services.
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Sharpening
technology focus and continuous moving up to new area such as
blockchain.
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Continuing
to develop talent and skill within the organization and hiring of
best developers and business consulting.
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Closely
monitoring the cryptocurrency and ICO market
situation.
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Operating
within effective overhead to reduce operational risk.
Our Challenges
Our ability to execute our growth strategies is subject to risks
and uncertainties, including those relating to our ability
to:
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Raise
additional funding for the continuous development of our technology
and project and to pursue our business strategy.
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Maintain
the trusted status of our ecosystem.
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Grow
and maintain our high value user base, enhance User engagement and
create value services for communities and enterprises.
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Market
and profit from our service offerings, monetize our user base and
achieve profitability.
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Keep
up with technological developments and evolving user
expectations.
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Effectively
manage our growth and control our costs and expenses.
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Address
privacy and security concerns relating to our services and the use
of user information.
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Identify
a management team with owner mentality and proven track
record.
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Changing
market behavior for those using competitive platform.
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Changes
in regulations from various government in the world for ICO and
cryptocurrency related activities.
Please see “Risk Factors” and other information
included in this report for a detailed discussion on the above and
other challenges and risks.
Our Key Competitive Strengths
We believe building the following will provide us with some key
competitive strengthens:
●
Understanding
local market needs - Establish brand presence for local enterprises
and communities based on the established HotApp
Platform.
●
Ready
to deploy Platform - Our “Powered by HotApp” initiative
creates unique value proposition for HotApp clients and community
by integrating best-of-breed technology and defining clear
business/ commercialization model for go-to-market.
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Thin
and lean organization structure - to effectively adapt to the
growth and shrink of operation based on market and sales
pipelines.
●
HotApp
ecosystem - To work closely with technology developers to further
enhance the HotApp ecosystem to better fit local
needs.
Our Technology
Based on our core HotApp’s infrastructure engine, we are
building up additional functions on top of this stable and scalable
infrastructure. The system architecture is designed in modular form
so that we continue to add new applications modules while we are
growing our customer base. In addition, we shall also be able to
incorporate third party application module effectively to continue
building localized HotApp services.
Key aspects or strengths of our technology include:
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Scalable
infrastructure.
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Modular
design to add on and modify individual HotApp
offering.
●
Quick
adaptation to third party services, such as payment and loyalty
program.
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Dedicated
to continuous improvement of user experience in local
context.
Regulatory Matters
We are subject to the laws and regulations of those jurisdictions
in which we plan to conduct our services, including the
Peoples’ Republic of China (“PRC”) which are
generally applicable to business operations, such as business
licensing requirements, income taxes and payroll taxes. In
general, the development and operation of our business is not
subject to special regulatory and/or supervisory
requirements. Please see “Risk Factors” and
other information included in this report for further discussion on
the above matters.
Foreign Exchange Regulation
The principal regulations governing foreign currency exchange in
the PRC are the Foreign Exchange Administration Regulations. Under
the PRC foreign exchange regulations, payments of current account
items, such as profit distributions and trade and service-related
foreign exchange transactions, may be made in foreign currencies
without prior approval from SAFE by complying with certain
procedural requirements. By contrast, approval from or registration
with appropriate government authorities is required where RMB is to
be converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of foreign
currency-denominated loans or foreign currency is to be remitted
into China under the capital account, such as a capital increase or
foreign currency loans to our PRC subsidiaries.
Employees and Employment Agreements
At the beginning of 2017, we had 17 employees. We had 8 employees
at the end of 2017, resulting from the streamlining and
restructuring of the Company. We expect to maintain our headcounts
at current levels with moderate increases in line with business
activities for the foreseeable future and if our financing permits.
The Company has employees under written contracts that provide for
at will termination and include confidentiality
clauses.
The Company hired Mr. Lum Kan Fai on June 1, 2015 and Mr. Lum has
served as a member of the Company’s Board of Directors and as
the Company’s Chief Technology Officer (CTO) since June 14,
2015. On June 21, 2017, the Company appointed Mr. Lum as the
Company’s Chief Executive Officer (CEO) and President, and
Mr. Lum resigned as CTO. Effective as of December 1, 2017, Mr. Lum
voluntarily resigned as CEO and President of the Company. Mr. Lum
has been appointed as Vice Chairman of the Company’s Board of
Directors.
Mr. Lee Wang Kei joined the Company as a System Architect since
August of 2015, and has served as the Company’s CTO since
June 21, 2017. Effective as of December 1, 2017, the Company
appointed Mr. Lee as the Company’s CEO. Mr. Lee will continue
to serve as CTO while serving as CEO.
At the present time, Mr. Lee has an employment agreement with the
Company’s subsidiary HotApp International Limited in Hong
Kong, but has no employment agreement with the Company. Pursuant to
his current agreement, Mr. Lee is presently paid HK$25,000
(approximately U.S. $3,200) per month and is eligible for a bonus
based on performance.
Insurance
We do not maintain property insurance, business interruption
insurance or general third-party liability insurance, nor do we
maintain product liability or key-man insurance.
An investment in our common stock involves a high degree of risk.
Investors should carefully consider the following factors and other
information before deciding to invest in our Company. If any of the
following risks occur, our business, financial condition, results
of operations and prospects for growth would likely suffer. As a
result, you could lose all or part of your investment.
Our business is subject to numerous risk factors, including the
following:
RISKS RELATED TO OUR FINANCIAL CONDITION
There is substantial doubt about the company’s ability to
continue as a going concern.
The report of Rosenberg Rich Baker Berman & Company, P.A., our
independent registered public accounting firm, with respect to our
financial statements at December 31, 2017 contains an explanatory
paragraph as to our potential inability to continue as a going
concern. As a result, this may adversely affect our
ability to obtain new financing on reasonable terms or at all.
Investors may be unwilling to invest in a company that will not
have the funds necessary to continue to deploy its business
strategies.
Failure to raise additional capital to fund future operations could
harm our business and results of operations.
As reflected on our audited consolidated financial statements for
the year ended December 31, 2017 contained herein, we have incurred
net losses, net cash used in operating activities and have working
capital deficit of $784,418 at December 31, 2017. We will require
additional financing in order to maintain our corporate existence
and to implement our business plans and strategy. The timing and
amount of our capital requirements will depend on a number of
factors, including our initial operational results with respect to
user acceptance of our HotApp product, the need for other
expenditures, and competitive pressures. If additional funds are
raised through the issuance of equity or convertible debt
securities, the percentage ownership of our then-existing
stockholders will likely be reduced significantly. We cannot make
assurances that any financing will be available on terms favorable
to us or at all. If adequate funds are not available on acceptable
terms, our ability to fund our business strategy, ongoing
operations, take advantage of unanticipated opportunities, and in
turn our business, financial condition and results of operations
will be significantly and adversely affected.
RISKS RELATED TO OUR BUSINESS
Lack of commercial acceptability.
Our HotApp cross-platform messaging and social media mobile
application was launched in China in the first quarter of 2015. To
date, we have a limited user base and limited indications of
commercial acceptability. While we believe that our product will be
commercially received, we cannot predict if our product will be a
commercial success.
Our new product could fail to attract or retain users or generate
revenue.
Our ability to retain, increase, and engage our user base and to
monetize existing and new users depends heavily on our ability to
create successful new products, both independently and in
conjunction with developers or other third parties. In
October 2014, we acquired HotApps International Pte. Ltd and its
HotApp mobile application. Since our commercial launch
of the application, our user base has been limited and we have
not yet been able to monetize our application. We may
not be successful in our efforts to generate meaningful revenue
from HotApp over the long term. If HotApp fails to engage users,
marketers, or developers, or if we are unsuccessful in our
monetization efforts, we may fail to attract or retain users or to
generate sufficient revenue, operating margin, or other value to
justify our investments, and our business may be adversely
affected.
Our Company cannot predict if it can achieve profitable
operations.
The Company has only had limited operations to date and requires
significant additional financing to reach its projected milestones,
which includes further product development, product marketing and
general overhead expenditures. While the Company considers its
business to be highly prospective, nonetheless it may be difficult
for the Company to attract funding necessary to reach its projected
milestones. Moreover, even if it achieves its projected milestones,
the Company cannot predict whether it will reach profitable
operations.
Our business is highly competitive. Competition presents an ongoing
threat to the success of our business.
We face significant competition in every aspect of our business,
including from companies that provide tools to facilitate the
sharing of information, companies that enable marketers to display
advertising and companies that provide development platforms for
applications developers. We compete with companies that offer
full-featured products that replicate the range of communications
and related capabilities we provide. We also compete with companies
that develop applications, particularly mobile applications, that
provide social or other communications functionality, such as
messaging, photo- and video-sharing, and micro-blogging, and
companies that provide web- and mobile-based information and
entertainment products and services that are designed to engage
users and capture time spent online and on mobile devices. In
addition, we face competition from traditional, online, and mobile
businesses that provide media for marketers to reach their
audiences and/or develop tools and systems for managing and
optimizing advertising campaigns.
Most, if not all, of our current and potential competitors may have
significantly greater resources or better competitive positions in
certain product segments, geographic regions or user demographics
than we do. These factors may allow our competitors to respond more
effectively than us to new or emerging technologies and changes in
market conditions.
Our competitors may develop products, features, or services that
are similar to ours or that achieve greater acceptance, may
undertake more far-reaching and successful product development
efforts or marketing campaigns, or may adopt more aggressive
pricing policies.
Certain competitors could use strong or dominant positions in one
or more markets to gain competitive advantage against us in our
target market or markets. As a result, our competitors
may acquire and engage users or generate revenue at the expense of
our own efforts, which may negatively affect our business and
financial results.
We believe that our ability to compete effectively depends upon
many factors both within and beyond our control,
including:
●
the
popularity, usefulness, ease of use, performance, and reliability
of our products compared to our competitors' products, particularly
with respect to mobile products;
●
the
size and composition of our user base;
●
the
engagement of our users with our products and competing
products;
●
the
timing and market acceptance of products, including developments
and enhancements to our or our competitors' products;
●
our
ability to monetize our products;
●
customer
service and support efforts;
●
acquisitions
or consolidation within our industry, which may result in more
formidable competitors;
●
our
ability to attract, retain, and motivate talented employees,
particularly software engineers, designers, and product
managers;
●
our
ability to cost-effectively manage and grow our operations;
and
●
our
reputation and brand strength relative to those of our
competitors.
The market situation in relationship to cryptocurrency and ICOs is
dynamic.
While the company recognizes the potential of blockchain technology
in relationship to ICO projects, ICOs are currently vulnerable to
misrepresentation, fraud and manipulation. ICOs may also be
structured in such a way that they are not subject to supervision
by the AFM. In addition, due to their unregulated status and the
anonymous nature of the transactions involved, ICOs are attractive
for the laundering of money obtained by criminal means. The current
hype surrounding cryptocurrencies and ICOs may involve to these
risks. Because of these risks, there is a strong possibility that
regulators will make policies to control the risk that might affect
the opportunities and acceptance of ICOs and the related technology
services.
We are a development stage company and we may never generate
significant revenues which could cause our business to
fail.
We are a development stage company and have generated limited
revenues as of the date of this Report. Since inception, the
Company has incurred net losses of $5,126,964 and has net working
capital deficit of $784,418 at December 31, 2017. We expect to
operate with net losses for the next financial year-ending December
31, 2018 or longer. We cannot predict the extent of these future
net losses, or when we may attain profitability, if at all. If we
are unable to generate significant revenue or attain profitability,
we will not be able to sustain operations and will have to curtail
significantly or cease operations.
We have a limited operating history that investors can use to
evaluate us, and the likelihood of our success must be considered
in light of the problems, expenses, difficulties, complications and
delays frequently encountered by a small developing
company.
We were incorporated in Delaware on March 7, 2012. We have no
significant financial resources and have recorded minimal revenues.
The likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays
frequently encountered by a small developing company starting a new
business enterprise and the highly competitive environment in which
we will operate. Since we have a limited operating history, we
cannot assure you that our business will be profitable or that we
will ever generate sufficient revenues to meet our expenses and
support our anticipated activities.
We cannot assure investors that we will effectively manage our
growth.
With the change in market place, our management team had been
closely monitoring the human resources requirement to ensure
balance of resources in development and marketing. We have reduced
our headcounts from 17 at December 31, 2016 to 8 as at the end of
2017. We expect to maintain current headcount levels with moderate
increases in line with business activities for the foreseeable
future. The growth and expansion of our business and products
create significant challenges for our management, operational, and
financial resources, including managing multiple relations with
users, marketers, developers, and other third parties. In the event
of continued growth of our operations or in the number of our
third-party relationships, our information technology systems or
our internal controls and procedures may not be adequate to support
our operations. In addition, some members of our management do not
have significant experience managing a large global business
operation, so our management may not be able to manage such growth
effectively. To effectively manage our growth, we must continue to
improve our operational, financial, and management processes and
systems and to effectively expand, train, and manage our employee
base. As our organization continues to grow, and we are required to
implement more complex organizational management structures, we may
find it increasingly difficult to maintain the benefits of our
corporate culture, including our ability to quickly develop and
launch new and innovative products. This could negatively affect
our business performance.
The loss of one or more of our key personnel, or our failure to
attract and retain other highly qualified personnel in the future,
could harm our business.
We currently depend on the continued services and performance of
our key personnel, including Mr. Chan Heng Fai, Mr. Lum Kan Fai and
Mr. Lee Wang Kei. In addition, many of our key technologies and
systems are custom-made for our business by our personnel. The loss
of key personnel, including members of management as well as key
engineering, product development, marketing, and sales personnel,
could disrupt our operations and have an adverse effect on our
business.
Our success also depends upon our ability to attract and retain the
personnel we need to maintain our competitive position. In
particular, we intend to continue to hire a significant number of
technical personnel in the foreseeable future, and we expect to
face significant competition from other companies in hiring such
personnel. Our ability to hire and retain qualified personnel could
be impaired by any diminution of our reputation, decrease in
compensation levels relative to our competitors, modifications of
our compensation philosophy or competitor hiring programs. If we
cannot attract, hire and retain qualified personnel, our business,
financial condition and results of operations would be adversely
affected.
We may incur significant costs to be a public company to ensure
compliance with U.S. corporate governance and accounting
requirements and we may not be able to absorb such
costs.
We may incur significant costs associated with our public company
reporting requirements, costs associated corporate governance
requirements, including requirements under the Sarbanes-Oxley Act
of 2002 and other rules implemented by the Securities and Exchange
Commission. We expect these costs to equal at least $50,000 per
year, consisting of $10,000 in legal, $35,000 in audit and $5,000
for financial printing and transfer agent fees. We expect all of
these applicable rules and regulations to significantly increase
our legal and financial compliance costs and to make some
activities more time consuming and costly. We may not be
able to cover these costs from our operations and may need to raise
or borrow additional funds. We also expect that these
applicable rules and regulations may make it more difficult and
more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same
or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified individuals to
serve on our board of directors or as executive officers. We are
currently evaluating and monitoring developments with respect to
these newly applicable rules, and we cannot predict or estimate the
amount of additional costs we may incur or the timing of such
costs. In addition, we may not be able to absorb these
costs of being a public company which will negatively affect our
business operations.
However, for as long as we remain an "emerging growth company" as
defined in the Jumpstart Our Business Startups Act of 2012, we
intend to take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not "emerging growth companies" including, but
not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute
payments not previously approved. We intend to take advantage of
these reporting exemptions until we are no longer an "emerging
growth company."
We will remain an "emerging growth company" for up to five years,
although if the market value of our common stock that is held by
non-affiliates exceeds $700 million as of any June 30 before that
time, we would cease to be an "emerging growth company" as of the
following December 31.
We are an "emerging growth company" and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
An "emerging growth company," as defined in the Jumpstart our
Business Startups Act of 2012, and we may take advantage of certain
exemptions from various reporting requirements that are applicable
to other public companies, including, but not limited to, not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our
common stock less attractive because we will rely on these
exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
Singapore eDevelopment Limited owns a significant amount of the
outstanding common stock and could take actions detrimental to
investments for which there would be no remedy.
Singapore eDevelopment Limited beneficially owns approximately
99.979% of the outstanding common stock as of the date of this
filing. Through this ownership, the shareholder has the ability to
substantially influence the board, management, policies, and
business operations. In addition, the rights of
the holders of our common stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock
that may be issued in the future. Because of the
shareholdings of the shareholder may cause the company to engage in
business combinations without having to seeking shareholder
approval.
Such concentration of ownership also may have the effect of
delaying or preventing a change in control, which may be to the
benefit of this one shareholder but not in the interest of the
other investors. Additionally, as investors one would not be able
to obtain the necessary shareholder vote to affect any change in
the course of our business. This lack of shareholder control could
prevent investors from removing from the Board of Directors any
directors who are not managing the company with sufficient skill to
make it profitable, which could prevent us from becoming
profitable.
Because our management is inexperienced in operating our business,
our business plan may fail.
Our management does not have any specific experience in
implementing the commercial launch of a mobile
application. With no direct experience in this
area, our management may not be fully aware of many of the specific
requirements related to working within this industry. As a result,
our management may lack certain skills that are advantageous in
managing our company. Consequently, our operations, earnings, and
ultimate financial success could suffer irreparable harm due to
management’s lack of experience in this
industry.
We may face liability for information displayed on or accessible
via our website, and for other content and commerce-related
activities, which could reduce our net worth and working capital
and increase our operating losses.
We could face claims for errors, defamation, negligence or
copyright or trademark infringement based on the nature and content
of information displayed on or accessible via our website, which
could adversely affect our financial condition. Even to the extent
that claims made against us do not result in liability, we may
incur substantial costs in investigating and defending such
claims.
Our insurance, if any, may not cover all potential claims to which
we are exposed or may not be adequate to indemnify us for all
liabilities that may be exposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage
would reduce our net worth and working capital and increase our
operating losses.
If our costs and expenses are greater than anticipated and we are
unable to raise additional working capital, we may be unable to
fully fund our operations and to otherwise execute our business
plan.
We do not currently have sufficient funds, or any agreements for
additional funds, for us to continue our business for the next 12
months. Should our costs and expenses prove to be greater than we
currently anticipate, or should we change our current business plan
in a manner that will increase or accelerate our anticipated costs
and expenses, the depletion of our working capital would be
accelerated. To the extent it becomes necessary to raise additional
cash in the future as our current cash and working capital
resources are depleted, we will seek to raise it through the public
or private sale of debt or equity securities, funding from
joint-venture or strategic partners, debt financing or short-term
loans, or a combination of the foregoing. We also may seek to
satisfy indebtedness without any cash outlay through the private
issuance of debt or equity securities. We currently do not have any
binding commitments for, or readily available sources of,
additional financing. We cannot give you any assurance that we will
be able to secure the additional cash or working capital we may
require to continue our operations.
If we require additional capital and even if we are able to raise
additional financing, we might not be able to obtain it on terms
that are not unduly expensive or burdensome to the company or
disadvantageous to our existing shareholders.
If we require additional capital and even if we are able to raise
additional cash or working capital through the public or private
sale of debt or equity securities, funding from joint-venture or
strategic partners, debt financing or short-term loans, or the
satisfaction of indebtedness without any cash outlay through the
private issuance of debt or equity securities, the terms of such
transactions may be unduly expensive or burdensome to the Company
or disadvantageous to our existing shareholders. For example, we
may be forced to sell or issue our securities at significant
discounts to market, or pursuant to onerous terms and conditions,
including the issuance of preferred stock with disadvantageous
dividend, voting or veto, board membership, conversion, redemption
or liquidation provisions; the issuance of convertible debt with
disadvantageous interest rates and conversion features; the
issuance of warrants with cashless exercise features; the issuance
of securities with anti-dilution provisions; and the grant of
registration rights with significant penalties for the failure to
quickly register. If we raise debt financing, we may be required to
secure the financing with all of our business assets, which could
be sold or retained by the creditor should we default in our
payment obligations.
We may not timely and effectively scale and adapt our existing
technology and network infrastructure to ensure that our services
and solutions are accessible within an acceptable load time.
Additionally, other catastrophic occurrences beyond our control
could interfere with access to our services.
A key element to our continued growth is the ability of our users
(whom we define as anyone who download and use) in all geographies
to access our services and solutions within acceptable load times.
We may, in the future, experience service disruptions, outages and
other performance problems due to a variety of factors, including
infrastructure changes, human or software errors, and denial of
service or fraud or security attacks. In some instances, we may not
be able to identify the cause or causes of these website
performance problems within an acceptable period of time. If our
services are unavailable when users attempt to access them as
quickly as users expect, users may seek other services to obtain
the information for which they are looking, and may not return to
our use our services as often in the future, or at all. This would
negatively impact our ability to attract users and increase
engagement of our users. We expect to continue to make significant
investments to maintain and improve mobile application performance
and to enable rapid releases of new features and products. To the
extent that we do not effectively address capacity constraints,
upgrade our systems as needed and continually develop our
technology and network architecture to accommodate actual and
anticipated changes in technology, our business and operating
results may be harmed.
Our systems are also vulnerable to damage or interruption from
catastrophic occurrences such as earthquakes, floods, fires, power
loss, telecommunication failures, terrorist attacks and other
similar events. Despite any precautions we may take, the occurrence
of a natural disaster or other unanticipated problems could result
in lengthy interruptions in our services.
We do not carry business interruption insurance sufficient to
compensate us for the potentially significant losses, including the
potential harm to the growth of our business that may result from
interruptions in our service as a result of system
failures.
If our security measures are compromised, or if our websites are
subject to attacks that degrade or deny the ability of members or
customers to access our solutions, or if our member data is
compromised, members and customers may curtail or stop use of our
solutions.
Our application will involve the collection, processing, storage,
sharing, disclosure and usage of members’ and
customers’ information and communications, some of which may
be private. We are vulnerable to computer viruses, break-ins,
phishing attacks, attempts to overload our servers with
denial-of-service or other attacks and similar disruptions from
unauthorized use of our computer systems, any of which could lead
to interruptions, delays, or website shutdowns, causing loss of
critical data or the unauthorized disclosure or use of personally
identifiable or other confidential information. If we experience
compromises to our security that result in website performance or
availability problems, the complete shutdown of our websites, or
the loss or unauthorized disclosure of confidential information,
such as credit card information, our members or customers may be
harmed or lose trust and confidence in us, and decrease the use of
our website and services or stop using our services in their
entirety, and we would suffer reputational and financial
harm.
In addition, we could be subject to regulatory investigations and
litigation in connection with a security breach or related issue,
and we could also be liable to third parties for these types of
breaches. Such litigation, regulatory investigations and our
technical activities intended to prevent future security breaches
are likely to require additional management resources and
expenditures. If our security measures fail to protect this
information adequately or we fail to comply with the applicable
credit card association operating rules, we could be liable to both
our customers for their losses, as well as the vendors under our
agreements with them. In addition, we could be subject to fines and
higher transaction fees, we could face regulatory action, and our
customers and vendors could end their relationships with us. Any of
these developments could harm our business and financial
results.
Public scrutiny of internet privacy and security issues may result
in increased regulation and different industry standards, which
could deter or prevent us from providing our current products and
solutions to our members and customers, thereby harming our
business.
The regulatory framework for privacy and security issues worldwide
is evolving and is likely to remain in flux for the foreseeable
future. Practices regarding the collection, use, storage, display,
processing, transmission and security of personal information by
companies offering online services have recently come under
increased public scrutiny. The U.S. government, including the White
House, the Federal Trade Commission, the Department of Commerce and
many state governments, are reviewing the need for greater
regulation of the collection, use and storage of information
concerning consumer behavior with respect to online services,
including regulation aimed at restricting certain targeted
advertising practices and collection and use of data from mobile
devices. The FTC in particular has approved consent decrees
resolving complaints and their resulting investigations into the
privacy and security practices of a number online, social media
companies. Similar actions may also impact us
directly.
Our business, including our ability to operate and expand
internationally or on new technology platforms, could be adversely
affected if legislation or regulations are adopted, interpreted, or
implemented in a manner that is inconsistent with our current
business practices that may require changes to these practices, the
design of our websites, mobile applications, products, features or
our privacy policy. In particular, the success of our business is
expected to be driven by our ability to responsibly use the data
that our members share with us. Therefore, our business could be
harmed by any significant change to applicable laws, regulations or
industry standards or practices regarding the storage, use or
disclosure of data our members choose to share with us, or
regarding the manner in which the express or implied consent of
consumers for such use and disclosure is obtained. Such changes may
require us to modify our products and features, possibly in a
material manner, and may limit our ability to develop new products
and features that make use of the data that we collect about our
members.
We will rely on outside firms to host our servers and to provide
telecommunication connections, and a failure of service by these
providers could adversely affect our business and
reputation.
We will rely upon third party providers to host our number of our
servers and provide telecommunication connections. In the event
that these providers experience any interruption in operations or
cease operations for any reason or if we are unable to agree on
satisfactory terms for continued hosting relationships, we would be
forced to enter into a relationship with other service providers or
assume hosting responsibilities ourselves. If we are forced to
switch hosting facilities, we may not be successful in finding an
alternative service provider on acceptable terms or in hosting the
computer server ourselves. We may also be limited in our remedies
against these providers in the event of a failure of service. A
failure or limitation of service or available capacity by any of
these third-party providers could adversely affect our business and
reputation.
We could experience unforeseen difficulties in building and
operating key portions of our technical
infrastructure.
We have designed and built our own data centers and key portions of
our technical infrastructure through which we serve our products,
and we plan to continue to significantly expand the size of our
infrastructure primarily through data centers and other projects.
The infrastructure expansion we are undertaking is complex, and
unanticipated delays in the completion of these projects or
availability of components may lead to increased project costs,
operational inefficiencies, or interruptions in the delivery or
degradation of the quality of our products. In addition, there may
be issues related to this infrastructure that are not identified
during the testing phases of design and implementation, which may
only become evident after we have started to fully utilize the
underlying equipment, that could further degrade the user
experience or increase our costs.
Our products and internal systems rely on software that is highly
technical, and if it contains undetected errors, our business could
be adversely affected.
Our products and internal systems rely on software, including
software developed or maintained internally and/or by third parties
that is highly technical and complex. In addition, our products and
internal systems depend on the ability of such software to store,
retrieve, process, and manage immense amounts of data. The software
on which we rely has contained, and may now or in the future
contain, undetected errors, bugs, or vulnerabilities. Some errors
may only be discovered after the code has been released for
external or internal use. Errors or other design defects within the
software on which we rely may result in a negative experience for
users and marketers who use our products, delay product
introductions or enhancements, result in measurement or billing
errors, or compromise our ability to protect the data of our users
and/or our intellectual property. Any errors, bugs, or defects
discovered in the software on which we rely could result in damage
to our reputation, loss of users, loss of revenue, or liability for
damages, any of which could adversely affect our business and
financial results.
A significant or prolonged economic downturn would have a material
adverse effect on our results of operations.
Our results of operations are expected to affect by the level of
business activity of our users many of whom are expected to be
businesses. These businesses, in turn can be affected by general
economic conditions and the level of economic activity in the
industries and markets that they serve. On an aggregate basis, our
clients may be less likely to hire as many senior executives or
consultants during economic downturns and periods of economic
uncertainty. To the extent our clients delay or reduce hiring
senior executives or consultants due to an economic downturn or
economic uncertainty, our results of operations will be adversely
affected. A continued economic downturn or period of economic
uncertainty and a decline in the level of business activity of our
clients would have a material adverse effect on our business,
financial condition and results of operations.
Any intellectual property rights we develop will be valuable and
any inability to protect them could reduce the value of our
products, services and brand.
Any trademarks, trade secrets, copyrights and other intellectual
property rights that we develop will be important assets to us.
There can be no assurance that the protections provided by these
intellectual property rights will be adequate to prevent our
competitors from misappropriating our technology or that our
competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. There are
events that are outside our control that could pose a threat to our
intellectual property rights. Additionally, protecting our
intellectual property rights is costly and time consuming. Any
increase in the unauthorized use of our intellectual property could
make it more expensive to do business and harm our operating
results.
We may be subject to intellectual property rights claims in the
future, which may be costly to defend, could require the payment of
damages and could limit our ability to use certain technologies in
the future.
Companies in the Internet, technology and media industries own
large numbers of patents, copyrights, trademarks and trade secrets
and frequently enter into litigation based on allegations of
infringement or other violations of intellectual property rights.
As our product usage becomes more wide-spread, the possibility of
intellectual property rights claims increases. Our technologies may
not be able to withstand any third-party claims or rights against
their use. Any intellectual property claims, with or without merit,
could be time consuming, expensive to litigate or settle and could
divert management resources and attention. An adverse determination
also could prevent us from offering our products and services to
others and may require that we procure substitute products or
services for these members.
With respect to any intellectual property rights claim, we may have
to pay damages or stop using technology found to be in violation of
a third party’s rights. We may have to seek a license for the
technology, which may not be available on reasonable terms and may
significantly increase our operating expenses. The technology also
may not be available for license to us at all. As a result, we also
may be required to develop alternative non-infringing technology,
which could require significant effort and expense. If we cannot
license or develop technology for any infringing aspects of our
business in the future, we may be forced to limit our product and
service offerings and may be unable to compete effectively. Any of
these results could harm our brand and operating
results.
RISKS RELATED TO DOING BUSINESS IN THE PEOPLES REPUBLIC OF CHINA
(“PRC”)
Regulations on Tax
PRC Enterprise Income Tax
The PRC enterprise income tax, or EIT, is calculated based on the
taxable income determined under the applicable EIT Law and its
implementation rules, which became effective on January 1, 2008.
The EIT Law imposes a uniform enterprise income tax rate of 25% on
all resident enterprises in China, including foreign-invested
enterprises.
The EIT Law and its implementation rules permit certain High and
New Technologies Enterprises, or HNTEs, to enjoy a reduced 15%
enterprise income tax rate subject to these HNTEs meeting certain
qualification criteria. In addition, the relevant EIT laws and
regulations also provide that entities recognized as Software
Enterprises are able to enjoy a tax holiday consisting of a
2-year-exemption commencing from their first profitable year and a
50% reduction in ordinary tax rate in the subsequent three years,
while entities qualified as Key Software Enterprises can enjoy a
preferential EIT rate of 10%. A number of our PRC subsidiaries and
operating entities enjoy these types of preferential tax treatment.
See “Taxation — People’s Republic of China
Taxation.”
According to Circular 82, a Chinese-controlled offshore
incorporated enterprise will be regarded as a PRC tax resident by
virtue of having a “de facto management body” in China
and will be subject to PRC enterprise income tax on its worldwide
income only if all of the following criteria are met:
●
the
primary location of the day-to-day operational management is in the
PRC;
●
decisions
relating to the enterprise’s financial and human resource
matters are made or are subject to approval by organizations or
personnel in the PRC;
●
the
enterprise’s primary assets, accounting books and records,
company seals, and board and shareholders meeting minutes are
located or maintained in the PRC; and
●
50%
or more of voting board members or senior executives habitually
reside in the PRC.
We
do not believe that we meet any of the conditions outlined in the
immediately preceding paragraph.
Under Circular 698, if a non-resident enterprise transfers the
equity interests of a PRC resident enterprise indirectly by
disposition of the equity interests of an overseas non-public
holding company and such overseas holding company is located in a
tax jurisdiction that: (i) has an effective tax rate less than
12.5%, or (ii) does not tax foreign income of its residents, the
non-resident enterprise, being the transferor, must report such
disposition to the PRC competent tax authority of the PRC resident
enterprise. The PRC tax authority may disregard the existence of
the overseas holding company if it lacks a reasonable commercial
purpose and was established for the purpose of reducing, avoiding,
or deferring PRC tax. As a result, gains derived from such
disposition may be subject to a PRC withholding tax rate of up to
10%. Circular 698 also provides that, where a non-PRC resident
enterprise transfers its equity interests in a PRC resident
enterprise to its related parties at a price which is not on an
arm’s length basis and results in reducing the taxable
income, the relevant tax authority has the power to make a
reasonable adjustment as to the taxable income of the transaction.
Circular 698 was retroactively effective on January 1, 2008.
On March 28, 2011, the State Administration of Taxation released
SAT Public Notice 24 to clarify several issues related to Circular
698. SAT Public Notice 24 became effective on April 1, 2011.
According to SAT Public Notice 24, the term “effective
tax” refers to the effective tax on the gain derived from
disposition of the equity interests of an overseas holding company;
and the term “does not impose income tax” refers to
cases where the gains derived from disposition of the equity
interests of an overseas holding company is not subject to income
tax in the country or region where the overseas holding company is
a resident. There is uncertainty as to the application of Circular
698.
PRC Business Tax
Pursuant to applicable PRC tax regulations, any entity or
individual conducting business in the service industry is generally
required to pay a business tax at the rate of 5% on the revenues
generated from providing such services. However, if the services
provided are related to technology development and transfer, such
business tax may be exempted subject to approval by the relevant
tax authorities.
In November 2011, the Ministry of Finance and the State
Administration of Taxation promulgated the Pilot Plan for
Imposition of Value-Added Tax to Replace Business Tax. Pursuant to
this plan and relevant notices, from August 1, 2013, a value-added
tax will generally be imposed to replace the business tax in the
transport and shipping industry and some of the modern service
industries on a nationwide basis. A value-added tax, or VAT, rate
of 6% applies to revenue derived from the provision of some modern
services. Unlike business tax, a taxpayer is allowed to offset the
qualified input VAT paid on taxable purchases against the output
VAT chargeable on the modern services provided. Accordingly,
although the 6% VAT rate is higher than the previously applicable
5% business tax rate, no materially different tax cost to us has
resulted or do we expect to result from the replacement of the
business tax with a VAT on our services.
Regulations Relating to Foreign Exchange and Dividend
Distribution
Foreign Exchange Regulation
The principal regulations governing foreign currency exchange in
China are the Foreign Exchange Administration Regulations. Under
the PRC foreign exchange regulations, payments of current account
items, such as profit distributions and trade and service-related
foreign exchange transactions, may be made in foreign currencies
without prior approval from SAFE by complying with certain
procedural requirements. By contrast, approval from or registration
with appropriate government authorities is required where RMB is to
be converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of foreign
currency-denominated loans or foreign currency is to be remitted
into China under the capital account, such as a capital increase or
foreign currency loans to our PRC subsidiaries.
Regulation of Dividend Distribution
The principal laws, rules and regulations governing dividend
distribution by foreign-invested enterprises in the PRC are the
Company Law of the PRC, as amended, the Wholly Foreign-owned
Enterprise Law and its implementation regulations and the
Chinese-foreign Equity Joint Venture Law and its implementation
regulations. Under these laws, rules and regulations,
foreign-invested enterprises may pay dividends only out of their
accumulated profit, if any, as determined in accordance with PRC
accounting standards and regulations. Both PRC domestic companies
and wholly-foreign owned PRC enterprises are required to set aside
as general reserves at least 10% of their after-tax profit, until
the cumulative amount of such reserves reaches 50% of their
registered capital. A PRC company is not permitted to distribute
any profits until any losses from prior fiscal years have been
offset. Profits retained from prior fiscal years may be distributed
together with distributable profits from the current fiscal
year.
Labor Laws and Social Insurance
Pursuant to the PRC Labor Law and the PRC Labor Contract Law,
employers must execute written labor contracts with full-time
employees. All employers must comply with local minimum wage
standards. Violations of the PRC Labor Contract Law and the PRC
Labor Law may result in the imposition of fines and other
administrative and criminal liability in the case of serious
violations.
In addition, according to the PRC Social Insurance Law, employers
in China must provide employees with welfare schemes covering
pension insurance, unemployment insurance, maternity insurance,
work-related injury insurance, medical insurance and housing
funds.
Regulations on Anti-Monopoly Law
The PRC Anti-Monopoly Law, which took effect on August 1, 2008,
prohibits monopolistic conduct, such as entering into monopoly
agreements, abuse of dominant market position and concentration of
undertakings that have the effect of eliminating or restricting
competition.
Regulation of Advertising Services
The principal regulations governing advertising businesses in China
are:
●
The
Advertising Law of the PRC (1994);
●
The
Advertising Administrative Regulations (1987);
●
The
Implementing Rules for the Advertising Administrative Regulations
(2004); and
●
The
Administration Rules of Foreign-invested Advertising Enterprises
(2008).
These laws, rules and regulations require companies such as ours
that engage in advertising activities to obtain a business license
that explicitly includes advertising in the business scope from the
SAIC or its local branches.
Applicable PRC advertising laws, rules and regulations contain
certain prohibitions on the content of advertisements in China
(including prohibitions on misleading content, superlative wording,
socially destabilizing content or content involving obscenities,
superstition, violence, discrimination or infringement of the
public interest). Advertisements for anesthetic, psychotropic,
toxic or radioactive drugs are prohibited, and the dissemination of
advertisements of certain other products, such as tobacco, patented
products, pharmaceuticals, medical instruments, agrochemicals,
foodstuff, alcohol and cosmetics, are also subject to specific
restrictions and requirements.
Advertisers, advertising operators and advertising distributors,
including the businesses that certain of the variable interest
entities operate, are required by applicable PRC advertising laws,
rules and regulations to ensure that the content of the
advertisements they prepare or distribute are true and in
compliance with applicable laws, rules and regulations. Violation
of these laws, rules and regulations may result in penalties,
including fines, confiscation of advertising income, orders to
cease dissemination of the advertisements and orders to publish an
advertisement correcting the misleading information. In
circumstances involving serious violations, the SAIC or its local
branches may revoke the violator’s license or permit for
advertising business operations. In addition, advertisers,
advertising operators or advertising distributors may be subject to
civil liability if they infringe the legal rights and interests of
third parties, such as infringement of intellectual proprietary
rights, unauthorized use of a name or portrait and
defamation.
Although advertising services are no longer categorized as a
prohibited or restricted area for foreign investment, the
Administration Rules of Foreign-invested Advertising Enterprises
issued on August 22, 2008 by the SAIC and the Ministry of Commerce,
or the MOFCOM, require all foreign investors of advertising
enterprises to have a track record in, and mainly engage in,
advertising businesses overseas. The establishment of a
foreign-invested advertising enterprise is also subject to
pre-approval by the SAIC or its local branch.
Regulation of Online and Mobile Commerce
China’s online and mobile commerce industry is at an early
stage of development and there are few PRC laws, regulations or
rules specifically regulating this industry. The SAIC adopted the
Interim Measures for the Administration of Online Commodities
Trading and Relevant Services on May 31, 2010 and replaced those
measures with the Administrative Measures for Online Trading on
January 26, 2014, which became effective on March 15, 2014. The
SAIC also issued the Opinions on Strengthening the Administration
of Online Group Buying Operations on March 12, 2012 to subject
group buying website operators to the foregoing measures,
especially those relating to marketplace platform service
providers. These newly issued measures impose more stringent
requirements and obligations on the online trading or service
operators as well as the marketplace platform providers. For
example, the marketplace platform providers are obligated to
examine the legal status of each third-party merchant selling
products or services on the platform and display on a prominent
location on the web page of such merchant the information stated in
the merchant’s business license or a link to such business
license, and a group buying website operator must only allow a
third-party merchant with a proper business license to sell
products or services on its platform. Where the marketplace
platform providers also act as online distributors, these
marketplace platform providers must make a clear distinction
between their online direct sales and sales of third-party merchant
products on the marketplace platform.
Regulation of Internet Content
The PRC government has promulgated measures relating to Internet
content through various ministries and agencies, including the
MIIT, the News Office of the State Council, the Ministry of Culture
and the General Administration of Press and Publication. In
addition to various approval and license requirements, these
measures specifically prohibit Internet activities that result in
the dissemination of any content which is found to contain
pornography, promote gambling or violence, instigate crimes,
undermine public morality or the cultural traditions of the PRC or
compromise State security or secrets. ICPs must monitor and control
the information posted on their websites. If any prohibited content
is found, they must remove such content immediately, keep a record
of it and report to the relevant authorities. If an ICP violates
these measures, the PRC government may impose fines and revoke any
relevant business operation licenses.
Regulation of Internet Security
The Decision in Relation to Protection of the Internet Security
enacted by the Standing Committee of the National People’s
Congress of China on December 28, 2000 provides that the following
activities conducted through the Internet are subject to criminal
punishment:
●
gaining
improper entry into a computer or system of strategic
importance;
●
disseminating
politically disruptive information or obscenities;
●
spreading
false commercial information; or
●
infringing
intellectual property rights.
The Administrative Measures on the Security Protection of Computer
Information Network with International Connections, issued by the
Ministry of Public Security on December 16, 1997 and amended on
January 8, 2011, prohibit the use of the Internet in a manner that
would result in the leakage of State secrets or the spread of
socially destabilizing content. If a value-added telecommunications
services license holder violates these measures, the Ministry of
Public Security and the local security bureaus may revoke its
operating license and shut down its websites.
Regulation Relating to Privacy Protection
Under the ICP Measures, ICPs are prohibited from producing,
copying, publishing or distributing information that is humiliating
or defamatory to others or that infringes upon the lawful rights
and interests of others. Depending on the nature of the violation,
ICPs may face criminal charges or sanctions by PRC security
authorities for such acts, and may be ordered to suspend
temporarily their services or have their licenses
revoked.
Under the Several Provisions on Regulating the Market Order of
Internet Information Services, issued by the MIIT on December 29,
2011, ICPs are also prohibited from collecting any user personal
information or providing any such information to third parties
without the consent of a user. ICPs must expressly inform the users
of the method, content and purpose of the collection and processing
of such user personal information and may only collect such
information necessary for its services. ICPs are also required to
properly maintain the user personal information, and in case of any
leak or likely leak of the user personal information, ICPs must
take remedial measures immediately and report any material leak to
the telecommunications regulatory authority.
In addition, the Decision on Strengthening Network Information
Protection promulgated by the Standing Committee of the National
People’s Congress on December 28, 2012 emphasizes the need to
protect electronic information that contains individual
identification information and other private data. The decision
requires ICPs to establish and publish policies regarding the
collection and use of personal electronic information and to take
necessary measures to ensure the security of the information and to
prevent leakage, damage or loss. Furthermore, MIIT’s Rules on
Protection of Personal Information of Telecommunications and
Internet Users promulgated on July 16, 2013 contain detailed
requirements on the use and collection of personal information as
well as the security measures to be taken by ICPs.
The PRC government retains the power and authority to order ICPs to
provide an Internet user’s personal information if such user
posts any prohibited content or engages in any illegal activities
through the Internet.
Regulation of Website and Mobile Interfaces
Under PRC law, we are required to monitor our websites and the
websites hosted on our servers and mobile interfaces for items or
content deemed to be socially destabilizing, obscene, superstitious
or defamatory, as well as items, content or services that are
illegal to sell online or otherwise in other jurisdictions in which
we operate our marketplaces, and promptly take appropriate action
with respect to such items, content or services. We may also be
subject to potential liability for any unlawful actions of our
customers or users of our websites or mobile interfaces or for
content we distribute that is deemed inappropriate. It may be
difficult to determine the type of content that may result in
liability to us, and if we are found to be liable, we may be
subject to fines, have our relevant business operation licenses
revoked, or be prevented from operating our websites or mobile
interfaces in China.
In addition, claims may be brought against us for defamation,
libel, negligence, copyright, patent or trademark infringement,
tort (including personal injury), other unlawful activity or other
theories and claims based on the nature and content of information
posted on our marketplaces, including product reviews and message
boards, by our buyers, sellers and other marketplace
participants.
Regardless of the outcome of such a dispute or lawsuit, we may
suffer from negative publicity and reputational damage as a result
of these actions.
Regulation of Contractual Arrangements with our Variable Interest
Entities
If the PRC government deems that the contractual arrangements in
relation to our variable interest entities do not comply with PRC
governmental restrictions on foreign investment, or if these
regulations or the interpretation of existing regulations changes
in the future, we could be subject to penalties or be forced to
relinquish our interests in those operations. Foreign ownership of
certain types of Internet businesses, such as Internet information
services, is subject to restrictions under applicable PRC laws,
rules and regulations. For example, foreign investors are generally
not permitted to own more than 50% of the equity interests in a
value-added telecommunication service provider. Any such foreign
investor must also have experience and a good track record in
providing value-added telecommunications services
overseas.
RISKS RELATED TO OUR COMMON STOCK
Should our stock become quoted on the OTC Markets and if we fail to
remain current on our reporting requirements, we could be removed
from the OTC Markets which would limit the ability of
broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary
market.
On June 9, 2015, the Financial Industry Regulatory Authority
(“FINRA”), cleared the Company’s request under
Rule 15c2-11 for an unpriced quotation on the OTC Bulletin Board
and in OTC Link under the symbol HTPN. Since that time, through the
date of this 10-K, the Company has not had any trading in its
stock. The Company’s stock symbol has been changed to HTBC to
reflect the Company’s new name.
Once publicly trading, the application of the “penny
stock” rules could adversely affect the market price of our
common shares and increase your transaction costs to sell those
shares.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a “penny stock,” for the
purposes relevant to us, as any equity security that has a market
price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules
require:
●
that
a broker or dealer approve a person's account for transactions in
penny stocks; and
●
the
broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must:
●
obtain
financial information and investment experience objectives of the
person; and
●
make
a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in
a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight
form:
●
sets
forth the basis on which the broker or dealer made the suitability
determination; and
●
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the “penny stock” rules. This may
make it more difficult for investors to dispose of our common stock
and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny
stocks.
We do not expect to pay dividends in the future; any return on
investment may be limited to the value of our common
stock.
We do not currently anticipate paying cash dividends in the
foreseeable future. The payment of dividends on our common stock
will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of
directors may consider relevant. Our current intention is to apply
net earnings, if any, in the foreseeable future to increasing our
capital base and development and marketing efforts. There can be no
assurance that the company will ever have sufficient earnings to
declare and pay dividends to the holders of our common stock, and
in any event, a decision to declare and pay dividends is at the
sole discretion of our Board of Directors. If we do not pay
dividends, our common stock may be less valuable because a return
on your investment will only occur if its stock price
appreciates.
Our common stock price is likely to be highly volatile which may
subject us to securities litigation thereby diverting our resources
which may affect our profitability and results of
operation.
Once listed, due to the nature of our company and its business, the
market price for our common stock is expected to be limited and
highly volatile. The following factors will add to our common stock
price's volatility:
●
the
number of users of our application;
●
actual
or anticipated variations in our quarterly operating
results;
●
announcements
of acquisitions;
●
additions
or departures of our key personnel; and
●
sales
of our common stock.
Some of these factors are beyond our control. These factors may
decrease the market price of our common stock, regardless of our
operating performance. In the
past, plaintiffs have initiated securities class action litigation
against a company following periods of volatility in the market
price of its securities. We may be the target of similar litigation
in the future. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention
and resources.
In addition, as a result of the expected volatility in our stock,
investors may be unable to resell their shares at a fair price or
at a price lower than their entry price.
Expected Limited Trading Market For Our Common Stock.
If a market for our common stock develops, it is expected to be
limited and thinly traded, and we can provide no assurance to
investors that a more robust market will develop. If a market for
our common stock does not develop, our shareholders may not be able
to resell the shares of our common stock they have purchased and
they may lose all of their investment.
By issuing preferred stock, we may be able to delay, defer, or
prevent a change of control.
Our Articles of Incorporation permits us to issue, without approval
from our stockholders, a total of 15,000,000 shares of preferred
stock. Our Board of Directors can determine the rights,
preferences, privileges and restrictions granted to, or imposed
upon, the shares of preferred stock and to fix the number of shares
constituting any series and the designation of such series. It is
possible that our Board of Directors, in determining the rights,
preferences and privileges to be granted when the preferred stock
is issued, may include provisions that have the effect of delaying,
deferring or preventing a change in control, discouraging bids for
our common stock at a premium over the market price, or that
adversely affect the market price of and the voting and other
rights of the holders of our common stock.
We have not voluntarily implemented various corporate governance
measures, in the absence of which stockholders may have more
limited protections against interested director transactions,
conflicts of interests and similar matters.
We have not yet adopted any corporate governance measures and,
since our securities are not yet listed on a national securities
exchange, we are not required to do so. We have not adopted
corporate governance measures such as an audit or other independent
committees of our board of directors as we presently have only one
independent director. If we expand our board membership in future
periods to include additional independent directors, we may seek to
establish an audit and other committees of our board of directors.
It is possible that if our Board of Directors included additional
independent directors and if we were to adopt some or all of these
corporate governance measures, stockholders would benefit from
somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been
implemented to define responsible conduct. For example, in the
absence of audit, nominating and compensation committees comprised
of at least a majority of independent directors, decisions
concerning matters such as compensation packages to our senior
officers and recommendations for director nominees may be made by a
majority of directors who have an interest in the outcome of the
matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating
their investment decisions.
Securities analysts may not cover our common stock and this may
have a negative impact on our common stock’s market
price.
The trading market for our common stock in the future may depend on
the research and reports that securities analysts publish about us
or our business. We do not have any control over these analysts.
There is no guarantee that securities analysts will cover our
common stock. If securities analysts do not cover our common stock,
the lack of research coverage may adversely affect our common
stock’s market price, if any. If we are covered by securities
analysts, and our stock is downgraded, our stock price would likely
decline. If one or more of these analysts ceases to cover us or
fails to publish regularly reports on us, we could lose visibility
in the financial markets, which could cause our stock price or
trading volume to decline.
Your ability to bring an action against us or against our directors
and officers, or to enforce a judgment against us or them, may be
limited because we conduct substantially all of our operations in
China and our CEO, CFO and Executive Chairman reside outside the
United States.
We conduct substantially all of our operations in China. Our CEO,
CFO and Executive Chairman reside outside the United States. As a
result, it may be difficult for you to bring an action against us
or against these individuals in the United States in the event that
you believe that your rights have been infringed under the
securities laws or otherwise. Even if you are successful in
bringing an action of this kind, the laws of China may render you
unable to enforce a judgment against assets or the assets of a
directors and officers.
Item
1B. Unresolved Staff Comments.
Not Applicable
Our US office is located at 4800 Montgomery Lane, Suite 210,
Bethesda MD 20814. We occupy one office at this location free of
rent based on a month-to-month arrangement with an affiliate of
SeD, the Company’s largest shareholder.
On May 9, 2016, the Company entered into a lease agreement for
1,231 square feet of office space in Guangzhou, China. The lease
commenced on May 9, 2016 and runs through May 8, 2018 with monthly
payments of $2,373. The Company was required to put up a security
deposit of $4,747. For the year ended December 31, 2017, the
Company recorded rent expense of $27,500 for the Guangzhou
office.
On April 10, 2015, the Company entered into a lease agreement for
347 square feet of office space in Kowloon, Hong Kong. This lease
commenced on April 20, 2015 and runs through April 19, 2017 with
monthly payments of $2,559. The Company was required to put up a
security deposit of $5,118. On March 16, 2017, the Company entered
into a lease agreement for 1,504 square feet of office space in
Kowloon, Hong Kong. This lease commenced on March 16, 2017 and runs
through March 31, 2019 with monthly payments of $3,263. The Company
was required to put up a security deposit of $6,526. For the year
ended December 31, 2017, the Company recorded rent expense of
$38,713 for these offices.
Item 3.
Legal Proceedings.
The Company is not a party to any proceedings, and no such
proceedings are known to be contemplated.
There are no material proceedings to which any director, officer or
affiliate of the Company, or any owner of record or beneficially of
more than five percent of any class of voting securities of the
Company, or any associate of any such director, office, affiliate
of the Company, or security holder is a party adverse to the
Company or any of its subsidiaries or has a material interest
adverse to the Company of any of its subsidiaries.
Item 4.
Mine Safety Disclosure.
Not Applicable.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.
Market Information
Presently, there is no established public trading market for our
shares of common stock. The Company is currently in the process of
requesting to be quoted on the Pink Sheet OTC Markets (OTC-QB)
pursuant to a 15c2-11 filing with FINRA.
Holders
As of the date of filing, we had 34 shareholders of our common
stock.
Dividends
Since inception we have not paid any dividends on our common stock.
We currently do not anticipate paying any cash dividends in the
foreseeable future on our common stock. Although we intend to
retain our earnings, if any, to finance the exploration and growth
of our business, our Board of Directors will have the discretion to
declare and pay dividends in the future. Payment of dividends in
the future will depend upon our earnings, capital requirements, and
other factors, which our Board of Directors may deem
relevant.
Securities authorized for issuance under equity compensation
plans
The Company does not have securities authorized for issuance under
any equity compensation plans.
Recent sales of unregistered securities; use of proceeds from
registered securities
On March 27, 2017, the Company sold 500,988,889 shares of common
stock to SeD in exchange for the conversion of $450,890.00 of debt
owed by the Company to SeD at a conversion price of $0.0009 per
share. The issuance of these shares was completed in accordance
with the exemption provided by Section 4(a)(2) of the Securities
Act of 1933, as amended.
Performance Graph
We are a smaller reporting company as defined in Rule 12b-2 of the
Exchange Act and not required to provide the information required
under this item.
Purchases of Equity Securities by the issuer and affiliated
purchasers
During the period covered by this report, the Company did not
repurchase any shares of the Company’s common
stock.
Item 6.
Selected Financial Data.
Not applicable to smaller reporting companies.
Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements.
Such forward-looking statements contained in this Annual Report
involve risks and uncertainties, including statements as
to:
1. our future operating results;
2. our business prospects;
3. any contractual arrangements and relationships with third
parties;
4. the dependence of our future success on the general
economy;
5. any possible financings; and
6. the adequacy of our cash resources and working
capital.
These forward-looking statements can generally be identified as
such because the context of the statement will include words such
as we “believe,” “anticipate,”
“expect,” “estimate” or words of similar
meaning. Similarly, statements that describe our future plans,
objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and
uncertainties which are described in close proximity to such
statements and which could cause actual results to differ
materially from those anticipated as of the date of filing of this
Annual Report. Shareholders, potential investors and other readers
are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking
statements included herein are only made as of the date of filing
of this Annual Report, and we undertake no obligation to publicly
update such forward-looking statements to reflect subsequent events
or circumstances.
This discussion contains forward-looking statements that reflect
our plans, estimates and beliefs. Our actual results may differ
materially from those anticipated in these forward-looking
statements.
Background
HotApp Blockchain Inc., formerly HotApp International, Inc., (the
“Company” or “Group”) was incorporated in
the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd (the
“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices (the
“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). HotApp can be used on any mobile platform (i.e. IOS
Online or Android).
Pursuant to the Purchase Agreement, the Company issued SED
1,000,000 shares of common stock and 13,800,000 shares of newly
created convertible preferred stock. See Note 6 for further
description.
As of December 31, 2017, details of the Company’s
subsidiaries are as follows:
|
Subsidiaries
|
Date of
Incorporation
|
Place of
Incorporation
|
Percentage of
Ownership
|
|
1st Tier Subsidiary:
|
|
|
|
|
HotApps International Pte Ltd (“HIP”)
|
May 23, 2014
|
Republic of Singapore
|
100% by Company
|
|
2nd Tier Subsidiaries:
|
|
|
|
|
Crypto Exchange Pte. Ltd., formerly HotApps Call Pte
Ltd
|
September 15, 2014
|
Republic of Singapore
|
100% owned by HIP
|
|
HotApps Information Technology Co Ltd
|
November 10, 2014
|
People’s Republic of China
|
100% owned by HIP
|
|
HotApp International Limited*
|
July 8, 2014
|
Hong Kong (Special Administrative Region)
|
100% owned by HIP
|
* On March 25, 2015, HotApps International Pte Ltd acquired 100% of
issued share capital in HotApp International Limited.
The Group has relied significantly on SeD as its principal sources
of funding during the year. With the restructuring efforts in 2016,
HotApp has reduced its expense runway significantly and had
revamped its business model and technology platform to focus on
business-to-business (“B2B”) services, built around
enterprise communications and workflow. Its product line will
target these industries: (i) network and direct marketing; (ii)
enterprise Voice-over-IP; (iii) enterprise messaging; and (iv)
e-commerce. This strategic shift is intended to create commercial
value with a sharper focus.
Our Business
HotApp Blockchain Inc. is a software development service and
project management company specializing in Voice over IP (VoIP),
enterprise messaging, eCommerce and lately moved up our technology
coverage into blockchain platform architecture and systems
development.
Through previous project management, HotApp Blockchain Inc. has
built a number of reusable application modules and framework. These
properties will help enterprises and community users to transform
their business model with digital economy in a more effective
manner. With our platform users can discover and build their own
communities and create valuable content. Our platform tools empower
these communities to share their thoughts and words across multiple
channels. As these communities grow, they provide the critical mass
that attracts enterprises. Enterprises in turn enhance user
experience with premium contents, all of which are facilitated by
the transactions of every stakeholder via e-commerce.
Trends in the Market and Our Opportunity
2017 has been a fast-changing year in technology, the embracing of
digital strategy for traditional business has been well recognized
and realized, resulting in high demand in enterprise messaging and
collaboration services. According to a November 2016 forecast by
eMarketer, a leading research company for digital business
professionals, more than one-quarter of the world’s
population will be using mobile messaging apps by 2019. eMarketer
also projected that mobile phone messaging apps would be used by
more than 1.4 billion people in 2016, an increase of almost 16%
from 2015. The Asia-Pacific region is home to more than 50% of all
chat app users worldwide, with more than 805 million consumers in
2016.
In addition to the substantial opportunities in consumer messaging
market, Enterprise Messaging and Collaboration Services and Apps
are widely deployed in Small Medium Enterprises (SMEs) and Large
Enterprise as an alternative to Email and Intranet. This emerging
need in Enterprise Messaging and Collaboration offers a huge
opportunity for IT service providers in offering development,
integration and white label services for SMEs and Corporations.
According to Statista, global messaging platform service providers
are expected to bring in US$1.8 billion revenue riding on the
growth in growing demand of Enterprise Messaging.
On the other hand, a new wave of fund raising exercise has emerged
- Initial Coin Offerings (ICOs). ICOs exploded onto the scene in
2017, going from a relatively unknown fundraising method used in
the blockchain community, to raising over $4 billion in 2017. ICOs
have allowed blockchain startups to crowdfund their projects
through the blockchain by issuing digital tokens, which the user
can then trade, spend, and use within the blockchain platform.
There is a huge demand in ICO technology consulting from startups
and traditional business using smart contract and token creation to
launch new business activities. (Source ICOdata:
https://www.icodata.io/stats/2017).
Based upon the above trends, we believe significant opportunities
exist for:
●
Enterprises
deploying messaging platform to effectively engage different
stakeholders.
●
Continuing
growth in demand for OTT Services encapsulated within a single
mobile app with a clear intent and objectives fulfilling the
communication need for specific communities and
industries.
●
Enterprises
to increase usage of OTT Services, such as adoption of Enterprise
messaging Apps alongside with using of email, video and audio
conferencing, collaboration through cloud services, as a new medium
for different stakeholder engagement including customers, to
promote and market their products and services (Collaboration
Framework). HotApp’s approach in white labelling for the
enterprises will augment and fill this demand in the market. White
label refers to packaging HotApp solution under brand name of
clients with some content being customized only for
clients.
●
Industries
such as Network Marketing and Hospitality and Franchising
businesses are utilizing Mobile friendly solutions to reach out
effectively to their marketing network on a global
basis.
●
The
ICO wave in Asia demands technology service from HotApp Blockchain
Inc. to support in the area of System Architecture and business
modeling, there is an immediate opportunity to position HotApp
Blockchain Inc. as a technology consultant for the organization
which plan for ICO initiatives.
Our Plan of Operations and Growth Strategy
We believe that we have significant opportunities to further
enhance the value we deliver to our users. We intend to pursue the
following growth strategy:
●
Position
HotApp as an open platform to be ready for integration with third
party technology partnerships such as eCommerce, ePayment and
crytocurrency integration.
●
Engage
Mobile App Integration Opportunities for Enterprises globally
through “Powered by HotApp” initiatives, enabling
Offline businesses to go On Line (O2O) with HotApp technology
support. Powered by HotApp, is a business initiative from HotApp
International Limited, that offers modules in HotApp technology for
service and customization, targeting vertical industry such as
Hospitality and Real Estate Agencies.
●
Identify
Strategic Partnership Opportunities globally through “Powered
by HotApp” initiatives, enabling Offline businesses to go On
Line (O2O) with HotApp technology support.
●
Position
HotApp as the technology consultant and project manager for ICO
initiatives in Asia.
●
Expand
the service portfolio to blockchain / smart contract design and
implementation.
In 2017, we have taken the following steps to implement our
business plan:
●
Revamp
HotApp into modular Software Development Kit (SDK) to open up
HotApp architecture for 3rd party technology partner
integration.
●
In
progress to develop HotApp Enterprise and secure messaging
function.
●
Equipped
3 out of 7 of our developers with blockchain programming and
architecture skill.
Achieved and Target Milestones:
In 2017, we have achieved the following milestones:
●
Delivered
HotApp services to businesses making use of the HotApp Platform in
areas of Hospitality eCommerce and Real Estate Agent
Management.
●
Built
a modular framework for ease of adaptation to white label projects
particularly in the Network Marketing Industry.
●
Restructured
R&D organization with lower cost of development in China and
set up a consultative integration team in Hong Kong, ready for
HotApp Enterprise deployment.
●
Revamped
HotApp platform reusable framework allowing quick roll out of new
business solution
Over the next twelve months we plan to:
●
Move
up the technology offering into blockchain related technical
services and consulting; 3 out of 7 of our developers will be
dedicated to blockchain related technologies.
●
Develop
white label solutions for network marketing and franchising
business.
●
Further
explore new technology and commercialization strategic
alliances.
Our Business Model and User Monetization Plan
We plan to generate revenue through the following:
●
White
label of Network Marketing Solutions.
●
Integration
Services for Enterprises.
●
Blockchain
related consulting services.
●
Selected
contract development services.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 COMPARED
TO
YEAR ENDED DECEMBER 31, 2016
Results of Operations
For the years ended December 31, 2017 and 2016
Revenue
Revenue consists primarily of the service rendered on software
projects. Some of projects require significant software production.
Total revenue for the year ended December 31, 2017 and 2016 were
$247,989 and $151,443 respectively. The significant increase in
2017 was due to a service agreement with iGalen, an affiliate. The
agreement has contributed $134,877 revenue in 2017.
Cost of revenue
Cost of revenue consist primarily of salary and outside consulting
expenses incurred directly to the projects. Total cost of revenue
for the year ended December 31, 2017 and 2016 were $81,516 and
$55,213, respectively.
Research and Development Expense
Research and development expenses consists primarily of salary and
benefits. Expenditures incurred during the research phase are
expensed as incurred. Total research and development for the year
ended December 31, 2017 and 2016 were $169,853 and $364,900
respectively. The decrease was due to the reduction of development
staff which is in line with the streamlining and restructuring of
Company.
Sales and Marketing Expense
Sales and marketing expenses consist primarily of third party
professional service providers. We expect our sales and marketing
expenses to decrease as we streamline our business. Total sales and
marketing expenses for the years ended December 31, 2017 and 2016
were $0 and $(64,666), respectively. The negative ($64,666) was due
to a reversal of $65,252 provision for HotApp Credit Points because
the program was eliminated.
General and Administrative
General and administrative expenses consist primarily of salary and
benefits, professional fees and rental expense. We expect our
general and administrative expenses to maintain with moderate
changes in line with business activities. Total general and
administrative expenses for the years ended December 31, 2017 and
2016 were $668,498 and $666,465.
Other Expense / Income
For the years ended December 2017 and 2016, we have incurred $131
and $8,093 in loss on disposal of fixed assets, $2,722 and $0 on
deposit written off. For the years ended December 2017 and 2016, we
have incurred $0 and $2,072 on the impairment provision of the
amount due from a related party. For the years ended December 2017
and 2016, we have incurred $176,649 and $(60,164) in foreign
exchange gain (loss), $4 and $2 in interest income, and $90 and $0
in other sundry income.
Liquidity and Capital Resources
At December 31, 2017, we had cash of $124,739 and working capital
deficit of $784,418. Cash had increased during 2017 primarily due
to receipt of the revenue earned.
We had a total stockholders’ deficit of $761,481 and an
accumulated deficit of $5,126,964 as of December 31, 2017 compared
with a total stockholders’ deficit of $498,315 and an
accumulated deficit of $4,628,976 as of December 31, 2016. This
difference is primarily due to the net loss incurred during the
year and the Shareholder’s loan conversion during the
year.
For the year ended December 31, 2017, we recorded a net loss of
$497,988.
We had net cash used in operating activities of $739,197 for the
year ended December 31, 2017. We had a positive change of $30,332
due to costs in excess of billings and a negative change of
$107,341 due to accounts receivable. We had a negative change of
$2,882 due to prepaid expenses and a positive change of $3,497 due
to security deposit and other assets. We had a negative change of
$28,228 due to accounts payable and accrued expenses.
For the year ended December 31, 2016, we recorded a net loss of
$940,796.
We had net cash used in operating activities of $966,162 for the
year ended December 31, 2016. We made a positive adjustment of
$37,327 due to depreciation and a positive adjustment of $2,072 due
to the provision for impairment of the amount due from a related
party. We made a positive adjustment of $8,093 due to loss on
disposal of fixed asset and a positive adjustment of $60,164 due to
foreign currency transaction loss. We had a negative change of
$30,332 due to costs in excess of billings and a positive change of
$21,842 due to prepaid expenses. We had a positive change of $9,040
due to security deposit and other assets and a negative change of
$141,064 due to accounts payable and accrued expenses. We had a
positive change of $7,492 due to accrued taxes and franchise
fee.
For the year ended December 31, 2017, we spent
$14,181 on the acquisition of fixed assets, resulting in net cash
used in investing activities of $14,181 for the
year.
For the year ended December 31, 2016, we spent $12,795 on the
acquisition of fixed assets and received $113,587 on the disposal
of fixed assets, resulting in net cash provided by investing
activities of $100,792 for the year.
For the year ended December 31, 2017, we had net cash provided by
financial activities of $814,760 due to advances from an affiliate
amounting to $814,760.
For the year ended December 31, 2016, we had net cash provided by
financial activities of $453,785 due to advances from an affiliate
amounting to $453,785.
As of December 31, 2017, we have fixed operating office lease
agreements for Guangzhou’s office amounting to US$11,867 in
2018 and Hong Kong’s office amounting to US$9,789 in
2018.
We will need to raise additional capital through equity or debt
financings. However, we cannot be certain that such capital (from
SeD or third parties) will be available to us or whether such
capital will be available on a term that is acceptable to us. Any
such financing likely would be dilutive to existing shareholders
and could result in significant financial and operating covenants
that would negatively impact our business. If we are unable to
raise sufficient additional capital on acceptable terms, we will
have insufficient funds to operate our business and pursue our
business plan.
Consistent with Section 144 of Delaware General Corporation Law, it
is our current policy that all transactions between us and our
officers, directors and their affiliates will be entered into only
if such transactions are approved by a majority of the
disinterested directors, are approved by vote of the stockholders,
or are fair to us as corporation as of the time it is authorized,
approved or ratified by the board. We will conduct an appropriate
review of all related party transactions on an ongoing
basis.
Critical Accounting Policies
Our discussion and analysis of the financial condition and results
of operations are based upon the Company’s financial
statements, which have been prepared in accordance with generally
accepted accounting principles in the United States
(“GAAP”). 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 believe
that the estimates, assumptions and judgments involved in the
accounting policies described below have the greatest potential
impact on our financial statements, so we consider these to be our
critical accounting policies. Because of the uncertainty inherent
in these matters, actual results could differ from the estimates we
use in applying the critical accounting policies. Certain of these
critical accounting policies affect working capital account
balances, including the policies for revenue recognition, allowance
for doubtful accounts, inventory reserves and income taxes. These
policies require that we make estimates in the preparation of our
financial statements as of a given date.
Within the context of these critical accounting policies, we are
not currently aware of any reasonably likely events or
circumstances that would result in materially different amounts
being reported.
Revenue recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed
or determinable, and collectability is reasonably assured. The
Company currently has $247,989 revenue from its services rendered
on projects and plans to derive its revenue from membership
subscription services, offering the platform for mobile games
developed by third parties and other services, including the use of
the paid emoticons and mobile marketing services. Revenue is
currently recognized under contract accounting when the agreement
requires significant software production, and the
percentage-of-completion method is used in accordance with ASC
605-35. The Company is recognizing the percentage-of-completion
based on input measures that measured directly from cost incurred,
and management reviews progress-to-completion. In case of the 3%
iGalen revenue sharing, the arrangement has met all of the four
criteria for ASC 985-605-25-3 and revenue is recognized
accordingly. Persuasive evidence of an arrangement exists as
written agreement has been signed, delivery has occurred as iGalen
has access to the software, the fee is determinable, and
collectability is probable.
Research and development expenses
Research and development expenses primarily consist of (i) salaries
and benefits for research and development personnel, and (ii)
office rental, general expenses and depreciation expenses
associated with the research and development activities. The
Company’s research and development activities primarily
consist of the research and development of new features for its
mobile platform and its self-developed mobile games. Expenditures
incurred during the research phase are expensed as
incurred.
Income taxes
Current income taxes are provided for in accordance with the laws
of the relevant tax authorities. Deferred income taxes are
recognized when temporary differences exist between the tax bases
of assets and liabilities and their reported amounts in the
consolidated financial statements. Net operating loss carry
forwards and credits are applied using enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more-likely-than-not that a portion of or all of the deferred tax
assets will not be realized. The components of the deferred tax
assets and liabilities are individually classified as current and
non-current based on their characteristics.
Uncertainties exist with respect to the application of the New EIT
Law to our operations, specifically with respect to our tax
residency. The New EIT Law specifies that legal entities organized
outside of the PRC will be considered residents for PRC income tax
purposes if their “de facto management bodies” as
“establishments that carry on substantial and overall
management and control over the operations, personnel, accounting,
properties, etc. of the Company.” Because of the
uncertainties resulted from limited PRC guidance on the issue, it
is uncertain whether our legal entities outside the PRC constitute
residents under the New EIT Law. If one or more of our legal
entities organized outside the PRC were characterized as PRC
residents, the impact would adversely affect our results of
operations.
Recent Accounting Pronouncements
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which amends the existing
accounting standards for revenue recognition. In August 2015, the
FASB issued ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date, which delays the
effective date of ASU 2014-09 by one year. The FASB also agreed to
allow entities to choose to adopt the standard as of the original
effective date. The Company is still evaluating the impact of this
ASU and expects to adopt this ASU effective July 1,
2018.
In November 2015, the FASB issued Accounting Standards Update No.
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes (ASU 2015-17), which simplifies the presentation of
deferred income taxes by requiring deferred tax assets and
liabilities be classified as noncurrent on the balance sheet. The
updated standard is effective for us beginning on January 1, 2017.
The adoption of this standard did not have a significant effect on
our consolidated financial statements.
On Feb. 25, 2016, the Financial Accounting Standards Board (FASB)
released Accounting Standards Update No. 2016-02, Leases (Topic
842) (the Update). The new leasing standard presents dramatic
changes to the balance sheets of lessees. Lessor accounting is
updated to align with certain changes in the lessee model and the
new revenue recognition standard. The Company does not expect the
adoption of ASU No. 2016-02 to have a material impact on its
financial statements.
Management does not believe that any recently issued, but not yet
effective accounting pronouncements, when adopted, will have a
material effect on the accompanying consolidated financial
statements.
Off –Balance Sheet Arrangements
As of December 31, 2017, we do not have any off-balance sheet
arrangements, as defined under applicable SEC rule.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not applicable.
Item 8.
Financial Statements.
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
|
Report of Independent Registered Public Accounting
Firm
|
|
28
|
|
|
|
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2017 and
2016
|
|
29
|
|
|
|
|
|
Consolidated Statements of Operations and Comprehensive Loss for
the Years Ended December 31, 2017 and 2016
|
|
30
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Equity (Deficit) for
the Period from January 1, 2016 through
December 31, 2017
|
|
31
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December
31, 2017 and 2016
|
|
32
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
33
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and
Stockholders
of HotApp Blockchain, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of HotApp
Blockchain, Inc. (the Company) as of December 31, 2017 and 2016,
and the related consolidated statements of operations and
comprehensive loss, stockholders’ equity (deficit), and cash
flows for each of the years in the two-year period ended December
31, 2017, and the related notes (collectively referred to as the
consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2017 and 2016, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31,
2017, in conformity with accounting principles generally accepted
in the United States of America.
Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
1, the Company has incurred losses since inception and has net
working capital deficit at December 31, 2017. These matters raise
substantial doubt about the Company’s ability to continue as
a going concern. Management’s plans in regard to these
matters are also described in Note 1 to the financial statements.
These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
|
/s/
Rosenberg Rich Baker Berman & Company, P.A.
|
|
|
|
|
We have
served as the Company’s auditor since 2013.
|
|
|
|
|
Somerset,
NJ 08873
|
|
|
|
|
March
29, 2018
|
|
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
and cash equivalents
|
$124,739
|
$102,776
|
|
Accounts
receivable-related party
|
89,427
|
-
|
|
Accounts
receivable-other
|
17,914
|
-
|
|
Costs
in excess of billings
|
-
|
30,332
|
|
Prepaid
expenses
|
7,532
|
4,650
|
|
Deposits
|
13,526
|
19,745
|
|
TOTAL
CURRENT ASSETS
|
253,138
|
157,503
|
|
|
|
|
|
Fixed
assets, net
|
22,937
|
46,096
|
|
TOTAL
ASSETS
|
$276,075
|
$203,599
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Accounts
payable and accrued expenses
|
$204,707
|
$238,315
|
|
Accrued
taxes and franchise fees
|
7,742
|
7,742
|
|
Amount
due to related parties
|
825,107
|
455,857
|
|
TOTAL
CURRENT LIABILITIES
|
1,037,556
|
701,914
|
|
|
|
|
|
TOTAL
LIABILITIES
|
1,037,556
|
701,914
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENIES
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT):
|
|
|
|
Preferred
stock, $0.0001 par value, 15,000,000 shares authorized, 0 and
13,800,000 issued and outstanding
|
-
|
1,380
|
|
Common
stock, $.0001 par value, 1,000,000,000 and 500,000,000 shares
authorized, 506,898,576 and 5,909,687 shares issued and
outstanding, as of December 31, 2017 and 2016,
respectively
|
50,690
|
591
|
|
Accumulated
other comprehensive income (loss)
|
(289,398)
|
(73,330)
|
|
Additional
paid-in capital
|
4,604,191
|
4,202,020
|
|
Accumulated
deficit
|
(5,126,964)
|
(4,628,976)
|
|
TOTAL
STOCKHOLDERS' (DEFICIT) EQUITY
|
(761,481)
|
(498,315)
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$276,075
|
$203,599
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
|
|
|
Revenues:
|
|
|
Service
fee revenue-related party
|
134,877
|
-
|
|
Project
fees
|
$113,112
|
$151,443
|
|
|
247,989
|
151,443
|
|
|
|
|
|
Cost
of revenues
|
81,516
|
55,213
|
|
|
|
|
|
Gross
profit
|
$166,473
|
$96,230
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and product development
|
169,853
|
364,900
|
|
Sales
and marketing
|
-
|
(64,666)
|
|
General
and administrative
|
668,498
|
666,465
|
|
Total
operating expenses
|
838,351
|
966,699
|
|
|
|
|
|
Loss
from operations
|
(671,878)
|
(870,469)
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
Other
income
|
90
|
-
|
|
Interest
income
|
4
|
2
|
|
Deposit
written off
|
(2,722)
|
-
|
|
Impairment
on amount due from a related company
|
-
|
(2,072)
|
|
Loss
on disposal of fixed assets
|
(131)
|
(8,093)
|
|
Foreign
exchange gain (loss)
|
176,649
|
(60,164)
|
|
Total
other income
|
173,890
|
(70,327)
|
|
|
|
|
|
Loss
before taxes
|
(497,988)
|
(940,796)
|
|
Income
tax provision
|
-
|
-
|
|
Net
loss applicable to common shareholders
|
$(497,988)
|
$(940,796)
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
$(0.00)
|
$(0.16)
|
|
|
|
|
|
Weighted
number of shares outstanding -
|
|
|
|
Basic
and diluted
|
288,060,023
|
5,909,687
|
|
|
|
|
|
Comprehensive
Income Loss:
|
|
|
|
Net
loss
|
$(497,988)
|
$(940,796)
|
|
Foreign
currency translation gain (loss)
|
(216,068)
|
79,389
|
|
Total
comprehensive loss
|
$(714,056)
|
$(861,407)
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 2016 TO DECEMBER 31,
2017
|
|
|
|
|
Accumulated Other Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2015
|
13,800,000
|
$1,380
|
5,909,687
|
$591
|
$4,202,020
|
$(152,719)
|
$(3,688,180)
|
$363,092
|
|
Net
loss for period
|
|
|
|
|
|
|
(940,796)
|
(940,796)
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
79,389
|
-
|
79,389
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2016
|
13,800,000
|
$1,380
|
5,909,687
|
$591
|
$4,202,020
|
$(73,330)
|
$(4,628,976)
|
$(498,315)
|
|
Cancellation
of preferred stock
|
(13,800,000)
|
(1,380)
|
|
|
1,380
|
|
|
-
|
|
Issuance
of common stock (Debt Conversion)
|
|
|
500,988,889
|
50,099
|
400,791
|
|
|
450,890
|
|
Net
loss for period
|
|
|
|
|
|
|
(497,988)
|
(497,988)
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
(216,068)
|
-
|
(216,068)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2017
|
-
|
$-
|
506,898,576
|
$50,690
|
$4,604,191
|
$(289,398)
|
$(5,126,964)
|
$(761,481)
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
Loss
|
$(497,988)
|
$(940,796)
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
37,209
|
37,327
|
|
Provision
for impairment of amount due from related party
|
-
|
2,072
|
|
Deposit
written off
|
2,722
|
-
|
|
Loss
on disposal of fixed asset
|
131
|
8,093
|
|
Foreign
exchange (gain)/loss
|
(176,649)
|
60,164
|
|
|
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
Costs
in excess of billings
|
30,332
|
(30,332)
|
|
Accounts
receivable
|
(107,341)
|
-
|
|
Prepaid
expenses
|
(2,882)
|
21,842
|
|
Security
deposit and other assets
|
3,497
|
9,040
|
|
Accounts
payable and accrued expenses
|
(28,228)
|
(141,064)
|
|
Accrued
taxes payable and franchise fees
|
-
|
7,492
|
|
Net
cash used in operating activities
|
$(739,197)
|
$(966,162)
|
|
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
Acquisition
of fixed assets
|
(14,181)
|
(12,795)
|
|
Proceeds
from disposal of fixed assets
|
-
|
113,587
|
|
Net
cash provided by (used in) investing activities
|
$(14,181)
|
$100,792
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
Advance
from affiliate
|
814,760
|
453,785
|
|
Net
cash provided by financing activities
|
$814,760
|
$453,785
|
|
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH
|
61,382
|
(411,585)
|
|
Effects
of exchange rates on cash
|
(39,419)
|
19,225
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS at beginning of period
|
102,776
|
495,136
|
|
CASH
AND CASH EQUIVALENTS at end of period
|
$124,739
|
$102,776
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
Cash
paid for:
|
|
|
|
Interest
|
$-
|
$-
|
|
Income
Taxes
|
$-
|
$-
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities
|
|
|
|
Conversion
of shareholder loan into common stock
|
$450,890
|
$-
|
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hotapp Blockchain Inc., formerly HotApp International, Inc., (the
“Company” or “Group”) was incorporated in
the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd (the
“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices (the
“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). HotApp can be used on any mobile platform (i.e. IOS
Online or Android).
Pursuant to the Purchase Agreement, the Company issued SeD
1,000,000 shares of common stock and 13,800,000 shares of newly
created convertible preferred stock. See Note 6 for further
description.
As of December 31, 2017, details of the Company’s
subsidiaries are as follows:
|
Subsidiaries
|
Date of Incorporation
|
Place of Incorporation
|
Percentage of Ownership
|
|
1st Tier Subsidiary:
|
|
|
|
|
HotApps International Pte Ltd (“HIP”)
|
May 23, 2014
|
Republic of Singapore
|
100% by Company
|
|
2nd Tier Subsidiaries:
|
|
|
|
|
Crypto Exchange Pte. Ltd., formerly HotApps Call Pte
Ltd
|
September 15, 2014
|
Republic of Singapore
|
100% owned by HIP
|
|
HotApps Information Technology Co Ltd
|
November 10, 2014
|
People’s Republic of China
|
100% owned by HIP
|
|
HotApp International Limited*
|
July 8, 2014
|
Hong Kong (Special Administrative Region)
|
100% owned by HIP
|
* On March 25, 2015, HotApps International Pte Ltd acquired 100% of
issued share capital in HotApp International Limited.
The financial statements have been prepared using accounting
principles generally accepted in the United States of America
applicable for a going concern, which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary
course of business. Since inception, the Company has incurred net
losses of $5,126,964 and has net working capital deficit of
$784,418 at December 31, 2017. Management has concluded that due to
the conditions described above, there is substantial doubt about
the entities ability to continue as a going concern through April
2, 2019. We have evaluated the significance of the conditions in
relation to our ability to meet our obligations and believe that
our current cash balance along with our current operations will not
provide sufficient capital to continue operations through 2018. Our
ability to continue as a going concern is dependent upon achieving
sales growth, management of operating expenses and ability of the
Company to obtain the necessary financing to meet its obligations
and pay its liabilities arising from normal business operations
when they come due, and upon profitable operations.
Our majority shareholder has advised us not to depend solely on it
for financing. We have increased our efforts to raise additional
capital through equity or debt financings from other sources.
However, we cannot be certain that such capital (from our
shareholders or third parties) will be available to us or whether
such capital will be available on terms that are acceptable to us.
Any such financing likely would be dilutive to existing
stockholders and could result in significant financial operating
covenants that would negatively impact our business. If we are
unable to raise sufficient additional capital on acceptable terms,
we will have insufficient funds to operate our business or pursue
our planned growth.
These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts,
or amounts and classification of liabilities that might result from
this uncertainty.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared in
accordance with the accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
Basis of consolidation
The consolidated financial statements of the Group include the
financial statements of Hotapp Blockchain Inc. and its
subsidiaries. All inter-company transactions and balances have been
eliminated upon consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and revenues,
cost and expenses in the financial statements and accompanying
notes. Significant accounting estimates reflected in the
Group’s consolidated financial statements include revenue
recognition, the useful lives and impairment of property and
equipment, valuation allowance for deferred tax assets and
share-based compensation.
Cash and
cash equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments, which are unrestricted from withdrawal or use, or
which have original maturities of three months or less when
purchased.
Foreign currency risk
Because of its foreign operations, the Company holds cash in non-US
dollars. As of December 31, 2017, cash and cash equivalents of the
Group includes, on an as converted basis to US dollars, $80,410,
$29,701 and $13,237, in Hong Kong Dollars (“HK$”),
Renminbi (“RMB”) and Singapore Dollars
(“S$”), respectively.
The Renminbi (“RMB”) is not a freely convertible
currency. The State Administration for Foreign Exchange, under the
authority of the People’s Bank of China, controls the
conversion of RMB into foreign currencies. The value of the RMB is
subject to changes in central government policies and to
international economic and political developments affecting supply
and demand in the China Foreign Exchange Trading System
market.
Concentration of credit risk
Financial instruments that potentially expose the Group to
concentration of credit risk consist primarily of cash and cash
equivalents. The Group places their cash with financial
institutions with high-credit ratings and quality. The Group also
expose to credit risk due to its concentration for customers with
revenue in excess of 10%.
Fixed assets, net
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis
over the following estimated useful lives:
|
Office equipment
|
3 years
|
|
Computer equipment
|
3 years
|
|
Furniture and fixtures
|
3 years
|
|
Motor vehicles
|
10 years
|
Fair value
Fair value is the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it
would transact and it considers assumptions that market
participants would use when pricing the asset or
liability.
Revenue recognition
The Group recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed
or determinable, and collectability is reasonably assured. The
Company currently has $247,989 revenue from its services rendered
on projects, and plans to derive its revenue from membership
subscription services, offering the platform for Enterprise
Collaboration with integration. Revenue is currently recognized
under contract accounting when the agreement requires significant
software production, and the percentage-of-completion method is
used in accordance with ASC 605-35. The Company is recognizing the
percentage-of-completion based on input measures that measured
directly from expenses incurred, and management reviews the
progress to completion. In case of the 3% iGalen revenue sharing,
the arrangement has met all of the four criteria for ASC
985-605-25-3 and revenue is recognized accordingly. Persuasive
evidence of an arrangement exists as written agreement has been
signed, delivery has occurred as iGalen has access to the software,
the fee is determinable, and collectability is
probable.
Research and development expenses
Research and development expenses primarily consist of (i) salaries
and benefits for research and development personnel, and (ii)
office rental, general expenses and depreciation expenses
associated with the research and development activities. The
Company’s research and development activities primarily
consist of the research and development of new features for its
mobile platform and its self-developed mobile games. Expenditures
incurred during the research phase are expensed as
incurred.
Income taxes
Current income taxes are provided for in accordance with the laws
of the relevant tax authorities. Deferred income taxes are
recognized when temporary differences exist between the tax bases
of assets and liabilities and their reported amounts in the
consolidated financial statements. Net operating loss carry
forwards and credits are applied using enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more-likely-than-not that a portion of or all of the deferred tax
assets will not be realized. The components of the deferred tax
assets and liabilities are individually classified as current and
non-current based on their characteristics.
The impact of an uncertain income tax position on the income tax
return is recognized at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant tax
authority. An uncertain income tax position will not be recognized
if it has less than a 50% likelihood of being sustained. Interest
and penalties on income taxes will be classified as a component of
the provisions for income taxes. The Group did not recognize any
income tax due to uncertain tax position or incur any interest and
penalties related to potential underpaid income tax expenses for
the years ended December 31, 2017 or 2016,
respectively.
Uncertainties exist with respect to the application of the New EIT
Law to our operations, specifically with respect to our tax
residency. The New EIT Law specifies that legal entities organized
outside of the PRC will be considered residents for PRC income tax
purposes if their “de facto management bodies” as
“establishments that carry on substantial and overall
management and control over the operations, personnel, accounting,
properties, etc. of the Company.” Because of the
uncertainties that have resulted from limited PRC guidance on the
issue, it is uncertain whether our legal entities outside the PRC
constitute residents under the New EIT Law. If one or more of our
legal entities organized outside the PRC were characterized as PRC
residents, the impact would adversely affect our results of
operations.
Foreign currency translation
The functional and reporting currency of the Company is the United
States dollar (“U.S. dollar”). The financial records of
the Company’s subsidiaries located in Singapore, Hong Kong
and the PRC are maintained in their local currencies, the Singapore
Dollar (S$), Hong Kong Dollar (HK$) and Renminbi ("RMB"), which are
also the functional currencies of these entities.
Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional
currency at the rates of exchange ruling at the balance sheet date.
Transactions in currencies other than the functional currency
during the year are converted into functional currency at the
applicable rates of exchange prevailing when the transactions
occurred. Transaction gains and losses are recognized in the
statement of operations.
The Company’s entities with functional currency of Renminbi,
Hong Kong Dollar and Singapore Dollar, translate their operating
results and financial positions into the U.S. dollar, the
Company’s reporting currency. Assets and liabilities are
translated using the exchange rates in effect on the balance sheet
date. Revenues, expenses, gains and losses are translated using the
average rate for the year. Translation adjustments are reported as
cumulative translation adjustments and are shown as a separate
component of comprehensive income (loss).
For the year ended December 31, 2017, the Company recorded other
comprehensive loss from a translation loss of $216,068 in the
consolidated financial statements.
Operating leases
Leases where the rewards and risks of ownership of assets primarily
remain with the lessor are accounted for as operating leases.
Payments made under operating leases are charged to the
consolidated statements of operations on a straight-line basis over
the lease periods.
Comprehensive income (loss)
Comprehensive income (loss) includes gains (losses) from foreign
currency translation adjustments. Comprehensive income (loss) is
reported in the consolidated statements of operations and
comprehensive loss.
Loss per share
Basic loss per share is computed by dividing net loss attributable
to shareholders by the weighted average number of shares
outstanding during the period.
The Company's convertible preferred shares are not participating
securities and have no voting rights until converted to common
stock. As of December 31, 2017, no shares of preferred stock are
eligible for conversion into voting common stock.
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update No. 2014-09, Revenue from Contracts
with Customers (Topic 606) (ASU 2014-09), which amends the existing
accounting standards for revenue recognition. In August 2015, the
FASB issued ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date, which delays the
effective date of ASU 2014-09 by one year. The FASB also agreed to
allow entities to choose to adopt the standard as of the original
effective date. The Company is still evaluating the impact of this
ASU and expects to adopt this ASU effective July 1,
2018.
In November 2015, the FASB issued Accounting Standards Update No.
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes (ASU 2015-17), which simplifies the presentation of
deferred income taxes by requiring deferred tax assets and
liabilities be classified as noncurrent on the balance sheet. The
updated standard is effective for us beginning on January 1, 2017.
The adoption of this standard did not have a significant effect on
our consolidated financial statements.
On Feb. 25, 2016, the Financial Accounting Standards Board (FASB)
released Accounting Standards Update No. 2016-02, Leases (Topic
842) (the Update). The new leasing standard presents dramatic
changes to the balance sheets of lessees. Lessor accounting is
updated to align with certain changes in the lessee model and the
new revenue recognition standard. The Company does not expect the
adoption of ASU No. 2016-02 to have a material impact on its
financial statements.
Management does not believe that any recently issued, but not yet
effective accounting pronouncements, when adopted, will have a
material effect on the accompanying consolidated financial
statements.
Note 3. FIXED ASSETS, NET
Fixed assets, net consisted of the following:
|
|
|
|
|
|
|
|
Computer
equipment
|
$76,662
|
$69,442
|
|
Office
equipment
|
22,843
|
19,671
|
|
Furniture
and fixtures
|
10,599
|
7,156
|
|
|
$110,104
|
$96,269
|
|
Less:
accumulated depreciation
|
(87,167)
|
(50,173)
|
|
Fixed
assets, net
|
$22,937
|
$46,096
|
Depreciation expense for the years ended December 31, 2017 and 2016
was $37,209 and 37,327, respectively.
Note 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued expenses and other current liabilities consisted of the
following:
|
|
|
|
|
|
|
|
Accrued
payroll
|
$170,915
|
$180,464
|
|
Accrued
professional fees
|
20,666
|
45,612
|
|
Other
|
13,126
|
12,239
|
|
Total
|
$204,707
|
$238,315
|
Note 5. INCOME TAXES
The provision for income taxes for the years ended December 31,
2017 and 2016, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, before income taxes
|
$241,776
|
$(739,764)
|
$(497,988)
|
$(195,199)
|
$(745,597)
|
$(940,796)
|
|
Income
tax at statutory rate
|
50,773
|
(140,963)
|
(90,190)
|
(68,320)
|
(161,083)
|
(229,403)
|
|
Items
not taxable for tax purposes
|
(63,173)
|
(483)
|
(63,656)
|
-
|
-
|
-
|
|
Items
not deductible for tax purposes
|
-
|
24,833
|
24,833
|
29,400
|
-
|
29,400
|
|
Change
in valuation allowance
|
12,400
|
116,613
|
129,013
|
38,920
|
161,083
|
200,003
|
|
Income tax expense
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
Deferred income tax assets/(liabilities):
|
|
|
|
|
|
|
Operating loss carry forwards
|
147,585
|
804,339
|
951,924
|
225,308
|
686,396
|
911,704
|
|
Unrealized exchange (gain)/loss
|
(63,173)
|
24,833
|
(38,340)
|
29,400
|
-
|
29,400
|
|
Total deferred assets
|
$84,412
|
$829,172
|
$913,584
|
$254,708
|
$686,396
|
$941,104
|
|
Less: valuation
allowance
|
(84,412)
|
$(829,172)
|
$(913,584)
|
$(254,708)
|
$(686,396)
|
$(941,104)
|
|
Total net deferred tax assets
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
On December 22, 2017, the Tax Cuts and Jobs Act was signed into
legislation, lowering the corporate income tax rate to 21%
effective January 1, 2018 and making many other significant changes
to the US income tax code. Under ASC740, the effects of changes in
tax rates and laws are recognized in the period in which the new
legislation is enacted. As a result, the Company’s income tax
expense for the year ended December 31, 2017 includes tax expense
from the re-measurement of deferred assets and liabilities totaling
$97,830.
The Company provided a valuation allowance equal to the deferred
income tax assets for period ended December 31, 2017 because it is
not presently known whether future taxable income will be
sufficient to utilize the loss carry-forwards.
As of December 31, 2017, the Company had approximately $4,498,407
in tax loss carry-forwards that can be utilized in future periods
to reduce taxable income, and expire by the year 2035. The Company
did not identify any material uncertain tax positions. The Company
did not recognize any interest or penalties for unrecognized tax
benefits.
The federal income tax returns of the Company are subject to
examination by the IRS, generally for three years after they are
filed. The tax returns for the years ended December 31, 2016, 2015
and 2014 are still subject to examination by the taxing
authorities.
Note 6. SHARE CAPITALIZATION
The Company is authorized to issue 1 billion shares of common stock
and 15 million shares of preferred stock. The authorized share
capital of the Company’s common stock was increased from 500
million to 1 billion on May 5, 2017. Both share types have a
$0.0001 par value. As of December 31, 2017 and 2016, the Company
had issued and outstanding, 506,898,576 and 5,909,687 of common
stock, respectively and 0 and 13,800,000 shares of preferred stock,
respectively.
Common Shares:
On July 13, 2015, SED acquired 777,687 shares of the Company common
stock by converting outstanding loans made to the Company into
common stock of the Company at a rate of $5.00 per share (rounded
to the nearest full share). After such transactions SED owned
98.17% of the Company.
On March 27, 2017, the Company entered into a Loan Conversion
Agreement with SeD, pursuant to which SeD agreed to convert
$450,890 of debt owed by Company to SeD into 500,988,889 common
shares at a conversion price of $0.0009. The captioned shares were
issued on June 9, 2017, and SeD owned 99.979% of the Company after
such transactions.
Preferred Shares:
Pursuant to the Purchase Agreement, dated October 15, 2014, the
Company issued 1,000,000 shares of common stock to SED. Such amount
represented 19% ownership in the Company. Pursuant to the Purchase
Agreement, dated October 15, 2014, the Company issued 13,800,000
shares of a class of preferred stock called Perpetual Preferred
Stock (“Preferred Stock”) to SED. The Preferred Stock
has no dividend or voting rights. The Preferred Stock is
convertible to common stock of the Company dependent upon the
number of commercial users of the Software. For each 1,000,000
commercial users of the Software (without duplication), SED shall
have the right to convert 1,464,000 shares of Perpetual Preferred
Stock into 7,320,000 shares of Common Stock, so that there must be
a minimum of 9,426,230 commercial users in order for all of the
shares of the Perpetual Preferred Stock to be converted into common
stock of the Company (13,800,000 shares of Preferred Stock
convertible into 69,000,000 shares of common stock).
On March 27, 2017, SeD and the Company entered into a Preferred
Stock Cancellation Agreement, by which SeD agreed to cancel its
13,800,000 shares Perpetual Preferred Stock issued by the Company.
On June 8, 2017, a Certificate of Retirement for 13,800,000 shares
of the Perpetual Preferred Stock has been filed to the office of
Secretary of State of the State of Delaware.
Other than the conversion rights described above, the Preferred
Stock has no voting, dividend, redemption or other
rights.
Note 7. COMMITMENTS AND CONTINGENCIES
On May 9, 2016, the Company entered into a lease agreement for
1,231 square feet of office space in Guangzhou, China. The lease
commenced on May 9, 2016 and runs through May 8, 2018 with monthly
payments of $2,373. The Company was required to put up a security
deposit of $4,747. For the year ended December 31, 2017, the
Company recorded rent expense of $27,500 for Guangzhou
office.
On April 10, 2015, the Company entered into a lease agreement for
347 square feet of office space in Kowloon, Hong Kong. This lease
commenced on April 20, 2015 and runs through April 19, 2017 with
monthly payments of $2,559. The Company was required to put up a
security deposit of $5,118. On March 16, 2017, the Company entered
into a lease agreement for 1,504 square feet of office space in
Kowloon, Hong Kong. This lease commenced on March 16, 2017 and runs
through March 31, 2019 with monthly payments of $3,263. The Company
was required to put up a security deposit of $6,526. For the year
ended December 31, 2017, the Company recorded rent expense of
$38,713 for this office.
The following is a schedule by year of future minimum lease
payments under non-cancellable operating leases:
|
2018
|
$19,893
|
|
2019
|
-
|
|
Total
|
$19,893
|
Note 8. RELATED PARTY BALANCES AND TRANSACTIONS
As of December 31, 2017, the Company has amount due to SeD for
$819,727, plus an amount due to a director of $5,380 and has an
amount due from an affiliate for US$2,072. The Company has made
full impairment provision for the amount due from the
affiliate.
On March 27, 2017, the Company entered into a Loan Conversion
Agreement with SeD, pursuant to which SeD agreed to convert
$450,890 of debt owed by Company to SeD into 500,988,889 common
shares at a conversion price of $0.0009. The captioned shares were
issued on June 9, 2017, and SeD owned 99.979% of the Company after
such transactions.
On March 27, 2017, SeD and the Company entered into a Preferred
Stock Cancellation Agreement, by which SeD agreed to cancel its
13,800,000 shares Perpetual Preferred Stock issued by the Company.
On June 8, 2017, a Certificate of Retirement for 13,800,000 shares
of the Perpetual Preferred Stock has been filed to the office of
Secretary of State of the State of Delaware.
During the year, the Group has revenue amounting to US$134,877 from
iGalen, an affiliate by common ownership, and the account
receivable as of December 31, 2017 included a trade receivable from
that affiliate amounting to US$89,427.
Note 9. SUBSEQUENT EVENT
HotApp Blockchain Inc. (the “Company”) is launching a
new enterprise and expanding its activities to include the
development and commercialization of Blockchain related
technologies and ICO Technology Consulting in addition to the
previous activities of the Company. The initial services to be
offered include ICO white paper development, blockchain
architecture design and smart contract design, website development
and technology consulting services.
On February 1, 2018, the Company announced its plans to create two
new cryptocurrency exchange platforms, one in Asia and one in the
United States. Accordingly, the Company has created a new
wholly-owned subsidiary, Crypto Exchange Inc., which is intended to
conduct such operations. This new plan is currently in the
development stage, as the Company identifies and enters into
agreements with appropriate new employees, consultants and partners
to assist the Company in achieving its goals. The Company intends
to provide additional information to the public as such plan is
further developed.
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item
9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Report on Form 10-K, an
evaluation was carried out by management, with the participation of
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 (Exchange Act) as of December 31, 2017. Disclosure controls
and procedures are designed to ensure that information required to
be disclosed in reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported within the time
periods specified, and that such information is accumulated and
communicated to management, including the Chief Executive Officer
and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
During evaluation of disclosure controls and procedures as of
December 31, 2017 conducted as part of our annual audit and
preparation of our annual financial statements, management
conducted an evaluation of the effectiveness of the design and
operations of our disclosure controls and procedures and concluded
that our disclosure controls and procedures were not effective.
Management determined that at December 31, 2017, we had a material
weakness that relates to the relatively small number of employees
who have bookkeeping and accounting functions and therefore
prevents us from segregating duties within our internal control
system.
Management’s Report on Internal Control over Financial
Reporting
Management is responsible for the preparation and fair presentation
of the financial statements included in this annual report. The
financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America and reflect management’s judgment and estimates
concerning effects of events and transactions that are accounted
for or disclosed.
Management is also responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control over financial reporting includes those policies and
procedures that pertain to our ability to record, process,
summarize and report reliable data. Management recognizes that
there are inherent limitations in the effectiveness of any internal
control over financial reporting, including the possibility of
human error and the circumvention or overriding of internal
control. Accordingly, even effective internal control over
financial reporting can provide only reasonable assurance with
respect to financial statement presentation. Further, because of
changes in conditions, the effectiveness of internal control over
financial reporting may vary over time.
In order to ensure that our internal control over financial
reporting is effective, management regularly assesses controls and
did so most recently for its financial reporting as of December 31,
2017. This assessment was based on criteria for effective internal
control over financial reporting described in the Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. Based on this
assessment, management has concluded that, as of December 31, 2017,
we had a material weakness that relates to the relatively small
number of employees who have bookkeeping and accounting functions
and therefore prevents us from segregating duties within our
internal control system. The inadequate segregation of duties is a
weakness because it could lead to the untimely identification and
resolution of accounting and disclosure matters or could lead to a
failure to perform timely and effective reviews. The Company also
noted the internal staff has limited US GAAP and SEC Reporting
experience.
This annual report filed on Form 10-K does not include an
attestation report of the Company’s registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation
by our registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit us to
provide only management’s report in this annual
report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the
Exchange Act) that occurred during the quarterly period ended
December 31, 2017 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. Other Information.
None
PART III
Item
10. Directors, Executive Officers and Corporate
Governance.
Identification of directors and officers
The following table sets forth the name and age of officers and
director as of the date hereof. Our executive officers are elected
annually by our board of directors. Our executive officers hold
their offices until they resign, are removed by the Board, or his
successor is elected and qualified.
Directors and Executive Officers
|
Name
|
|
Age
|
|
Position
|
|
Chan Heng Fai
|
|
73
|
|
Executive Chairman of the Board
|
|
Conn Flanigan
|
|
49
|
|
Director, Secretary
|
|
Lum Kan Fai
|
|
55
|
|
Vice Chairman of the Board
|
|
Sanjib Kalita
|
|
45
|
|
Director
|
|
Lee Wang Kei
|
|
27
|
|
Chief Executive Officer, Chief Technology Officer
|
|
Lui Wai Leung Alan
|
|
47
|
|
Chief Financial Officer
|
On October 21, 2014, the Company reported under Form 8-K the Sale
& Purchase Agreement (“Purchase Agreement”) with
Singapore eDevelopment Limited (“SeD”), a Singapore
exchange listed company, dated October 15, 2014. The Purchase
Agreement also granted SeD the right to nominate one member to the
Company’s Board of Directors. On October 24, 2014, SeD
nominated, and the Company appointed Mr. Conn Flanigan and Mr. Chan
Heng Fai as Directors of the Company.
The mailing address for each of the officers and directors named
above is c/o the Company at: 4800 Montgomery Lane, Suite 210,
Bethesda, Maryland 20814.
Business Experience
Mr. Chan has served as a
Director since October 23, 2014 and as the Executive Chairman of
the Company’s Board of Directors since December 1, 2017. Mr.
Chan previously served as the Company’s Chief Executive
Officer from December 31, 2014 until June 21, 2017. Mr. Chan has
served as a member of the Board of Directors of SeD Intelligent
Home Inc. since January 10, 2017, and has served as Co-Chief
Executive Officer of SeD Intelligent Home since December 29, 2017.
Mr. Chan is an expert in banking and finance, with years of
experience in these industries. He has also restructured 35
companies in various industries and countries in the past 40 years.
Mr. Chan serves as the CEO of Singapore eDevelopment, a limited
company listed on the Catalist of the Singapore Exchange Securities
Trading Limited. Singapore eDevelopment is a diversified holding
company. He was appointed director of Singapore eDevelopment on
March 1, 2014. He is also Non-Executive Director of ASX-listed
bio-technology company Holista Colltech Ltd, a position he has held
since July of 2013. From September of 1992 until July of 2015, Mr.
Chan also served as Managing Chairman of HKSE-listed Heng Fai
Enterprises Limited, a holding company now known as ZH
International Holdings, Ltd. He also served as director of Global
Medical REIT Inc. (NYSE: GMRE) from December of 2013 until July of
2015 and as director of American Housing REIT Inc. from October of
2013 to July of 2015. Mr. Chan was also formerly (i) the Managing
Director of SGX Catalist-listed SingHaiyi Group Ltd from November
of 2003 until September of 2013, which under his leadership,
transformed from a failing store-fixed business provider with net
asset value of less than S$10 million into a property trading and
investment company and finally to a property development company
with net asset value over S$150 million before Mr. Chan ceded
controlling interest in late 2012; (ii) the Executive Chairman of
China Gas Holdings Limited, a formerly failing fashion retail
company listed on SEHK which, under his direction, was restructured
to become one of a few large participants in the investment in and
operation of city gas pipeline infrastructure in China; (iii) a
director of Global Med Technologies, Inc., a medical company listed
on NASDAQ engaged in the design, development, marketing and support
information for management software products for healthcare-related
facilities; (iv) a director of Skywest Ltd, an ASX-listed airline
company; and (v) the Chairman and Director of American Pacific
Bank.
Director Qualifications of Chan Heng Fai:
The board of directors appointed Mr. Chan in recognition of his
abilities to assist the Company in expanding its business and the
contributions he can make to the Company’s strategic
direction.
Mr. Flanigan has served a
director of the Company since October 23, 2014 and as legal counsel
and secretary since December 31, 2014.
Mr. Flanigan is a practicing attorney specializing in corporate,
real estate, and securities law. Mr. Flanigan is a legal advisor to
Singapore eDevelopment and has served as officer and director to
several US subsidiaries of Singapore eDevelopment. Mr. Flanigan
served as the Chief Executive Officer of SeD Intelligent Home Inc.
from December of 2013 until December of 2017. Mr. Flanigan remains
as a member of the Board of Directors of SeD Intelligent Home Inc.
and certain of its subsidiaries, a position he has held since
December of 2013. Mr. Flanigan served as the Secretary and General
Counsel for Global Medical REIT Inc. (NYSE:GMRE) from December 2013
to May 2017. From September 4, 2013 to May 2017, Mr. Flanigan also
served as General Counsel and Secretary, and as a director, of
American Housing REIT Inc. Mr. Flanigan served as a member of the
Board Directors of Amarantus Bioscience Holdings, Inc., a biotech
company, from February 23, 2017 until May 12, 2017. From February
2000 until May 2017, Mr. Flanigan was employed as General Counsel
by subsidiaries of ZH International Holdings, Ltd., including
eBanker USA.com, Inc. and ZH USA, LLC. In this role, he served as
General Counsel and Secretary for other ZH International Holdings,
Ltd. subsidiaries. Mr. Flanigan received a B.A. in International
Relations from the University of San Diego in 1990 and a Juris
Doctor Degree from the University of Denver Sturm College Of Law in
1996.
Director Qualifications of Conn Flanigan:
Mr. Flanigan’s service as an officer, director and employee
of various entities has provided him with significant knowledge and
experience regarding corporate financial and governance
matters.
Mr. Lum has served as a member
of the Company’s Board of Directors and Chief Technology
Officer (“CTO”) since June 14, 2015. On June 21, 2017,
the Company appointed Mr. Lum Kan Fai as the Company’s CEO
and President, and Mr. Lum resigned as CTO. Effective as of
December 1, 2017, Mr. Lum Kan Fai voluntarily resigned as CEO and
President of the Company. Mr. Lum has been appointed as Vice
Chairman of the Company’s Board of Directors. Mr. Lum was the
founder, and since 2009 had served as Chief Executive Officer, of
FUNboxx Ltd. From 2007 through 2009, Mr. Lum served as Chief
Executive Officer for Vitop Ltd. From 2004 through 2007, he served
as Asia-Pacific marketing director and head of the consumer
products division of York International (now Johnson Controls).
Prior to that, Mr. Lum held senior management positions with Apple
and Datacraft Asia. Mr. Lum graduated from the University of Essex
(UK) in 1985, first class honor degree in Computer and
Communication Engineering.
Director Qualifications of Mr. Lum Kan Fai
The board of directors appointed Mr. Lum in recognition of his
extensive knowledge in information technology business and his
ability to assist in the Company’s continuous growth. He has
over 30 years of technology business experience in multinational
corporations.
Mr. Kalita has served as a
member of the Company’s Board of Directors since February 20,
2018. Mr. Kalita is presently the Chief Executive Officer of the
Guppy Group, a next generation credit bureau built on blockchain
technology. Mr. Kalita has held this position since June of 2016.
In addition, since April of 2013 Mr. Kalita has worked for and
helped build Money 20/20, a leading fintech industry event focusing
on disruptive technology in financial technology and payments. His
positions at Money 20/20 have included Knowledge Director (from
April of 2013 until December of 2014), Head of Marketing (from
January of 2015 until August of 2016) and Chief Marketing Officer
(since August of 2016). He is also an advisor to multiple startups
including MPOWER Financing, an alternative lender for international
students studying in the USA, and Impact Analytics, which provides
advanced analytics and data services for the retail industry. Mr.
Kalita is also a Member of the Advisory Board to the SXSW
Accelerator. Previously, Mr. Kalita served in business development
for Google Wallet from April 2012 to April 2013. Prior to that
position, Mr. Kalita was involved with several successful startups
including TxVia, a payment platform building technology company
acquired by Google in 2012, and Irynsoft, a mobile education app
company. Mr. Kalita has also worked for Intel and Citibank. Mr.
Kalita has an M.B.A. from the Kellogg School of Management, as well
as a B.S. and M.Eng. from Cornell University where he majored in
Electrical Engineering.
Director Qualifications of Sanjib Kalita:
Mr. Kalita’s service as an officer, director and employee of
various entities has provided him with significant knowledge and
experience regarding financial technology and
payments.
Mr. Lee Wang Kei has served as
the Company’s CTO since June 21, 2017. Effective as of
December 1, 2017, the Company appointed Mr. Lee Wang Kei
(“Nathan”) as the Company’s CEO. Mr. Lee will
continue to serve as CTO while serving as CEO. Mr. Lee has served
as a System Architect for the Company since August of 2015, where
he has helped lead the Company’s software development, and
from April of 2015 to July of 2015, Mr. Lee served as a Consultant
to the Company. Prior to joining the Company, Mr. Lee served as
Software Project Manager for Appcraft Asia from 2014-2015 and
served as Software Architect for myFunboxx from
2012-2014.
At the present time, Mr. Lee has an employment agreement with the
Company’s subsidiary HotApp International Limited in Hong
Kong, but has no employment agreement with the Company. Pursuant to
his current agreement, Mr. Lee is presently paid HK$25,000
(approximately U.S. $3,200) per month and is eligible for a bonus
based on performance.
Mr. Lui Wai Leung Alan has
served as Chief Financial Officer since May 12, 2016. Mr. Lui has
been Chief Financial Officer of Singapore eDevelopment Limited, the
Company’s majority shareholder, since November 1, 2016 and
served as its Acting Chief Financial Officer since June 22, 2016
until November 1, 2016. From 1997 through 2016, Mr. Lui served in
various executive roles, including Financial Controller. Mr. Lui
oversaw the financial and management reporting and focusing on its
financing operations, treasury investment and management. He has
extensive experience in financial reporting, taxation and financial
consultancy and management in Hong Kong. He also managed all
financial forecasts and planning. Mr. Lui is a certified CPA in
Australia and received a Bachelor’s Degree in Business
Administration from the Hong Kong Baptist University in
1993.
Section 16(a) Beneficial Ownership Reporting
Compliance
Not Applicable.
Corporate Governance
Board of Directors
The varying business experience of each of our directors led to the
conclusion that each such party should be a member of our Board of
Directors. The minimum number of directors we are authorized to
have is one and the maximum is eight. In no event may we have less
than one director.
Directors on our Board of Directors are elected for one-year terms
and serve until the next annual security holders’ meeting or
until their death, resignation, retirement, removal,
disqualification, or until a successor has been elected and
qualified. All officers are appointed annually by the Board of
Directors and serve at the discretion of the Board. Currently,
directors receive no compensation for their services on our
Board.
All directors will be reimbursed by us for any accountable expenses
incurred in attending directors' meetings provided that we have the
resources to pay these fees. We will consider applying for officers
and directors’ liability insurance at such time when we have
the resources to do so.
Committees of the Board of Directors
Concurrent with having sufficient members and resources, our Board
of Directors intends to establish an audit committee and a
compensation committee. The audit committee will review the results
and scope of the audit and other services provided by the
independent auditors and review and evaluate the system of internal
controls. The compensation committee will review and recommend
compensation arrangements for the officers and employees. No final
determination has yet been made as to the memberships of these
committees or when we will have sufficient members to establish
committees. We believe that we will need a minimum of three
independent directors to have effective committee
systems.
As of the date hereof, we have not established any Board
committees.
Family Relationships
No family relationship exists between any director, executive
officer, or any person contemplated to become such.
Director Independence
In light of the relationships between certain members of our Board
and our majority shareholder, only one of our directors, Mr. Sanjib
Kalita, may be deemed to be independent. Our board of directors has
voluntarily adopted the corporate governance standards defining the
independence of our directors imposed by the NASDAQ Capital
Market's requirements for independent directors pursuant to Rule
5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market
LLC.
Possible Potential Conflicts
The OTC-QB on which we plan to have our shares of common stock
quoted does not currently have any director independence
requirements.
Some members of our management do not work for the Company on a
full-time basis. Accordingly, certain conflicts of interest may
arise between us and our officer(s) and director(s) in that they
may have other business interests in the future to which they
devote their attention, and they may be expected to continue to do
so although management time must also be devoted to our business.
As a result, conflicts of interest may arise that can be resolved
only through their exercise of such judgment as is consistent with
each officer's understanding of his/her fiduciary duties to
us.
Currently we have a dedicated Chief Technology Officer and
Executive Director, and will seek to add additional officer(s)
and/or director(s) as and when the proper personnel are located and
terms of employment are mutually negotiated and agreed, and we have
sufficient capital resources and cash flow to make such
offers.
We cannot provide assurances that our efforts to eliminate the
potential impact of conflicts of interest will be
effective.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has, during the past
ten years:
|
●
|
has had any bankruptcy petition filed by or against any business of
which he was a general partner or executive officer, either at the
time of the bankruptcy or within two years prior to that
time;
|
|
●
|
been convicted in a criminal proceeding or been subject to a
pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
●
|
been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities, futures, commodities or banking
activities;
|
|
●
|
been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been
reversed, suspended, or vacated;
|
|
●
|
been subject or a party to or any other disclosable event required
by Item 401(f) of Regulation S-K.
|
Code of Business Conduct and Ethics
We currently do not have a Code of Business Conduct and Ethics. We
intend to adopt one in the immediate future.
EXECUTIVE COMPENSATION
Summary Compensation Table for 2017 and 2016
The following table presents summary information regarding the
total compensation awarded to, earned by, or paid to each of the
named executive officers for services rendered to us for the
calendar years ended December 31, 2017 and December 31, 2016.
Name and Principal Position
|
|
|
|
|
All Other
Compensation
($)
|
|
|
Chan
Heng Fai, Executive Chairman
(on
June 21, 2017 resigned as CEO and President, and from December 1,
2017 appointed as Executive Chairman)
|
2017
|
--
|
--
|
--
|
--
|
--
|
|
Conn
Flanigan, Director, Secretary
|
2017
|
--
|
--
|
--
|
--
|
--
|
|
Lum
Kan Fai, Director, Vice Chairman
(from
June 21,2017 appointed as CEO & President and resigned as CTO,
and from December 1, 2017 appointed as Vice Chairman and resigned
as CEO & President)
|
2017
|
96,219
|
--
|
--
|
2,117
|
98,336
|
|
Lee
Wang Kei, CEO, CTO
(from
June 21, 2017 appointed as CTO, and from December 1, 2017 appointed
as CEO)
|
2017
|
3,688
|
|
|
184
|
3,872
|
|
Lui
Wai Leung Alan, CFO
|
2017
|
--
|
--
|
--
|
--
|
--
|
Name and Principal Position
|
|
|
|
|
All Other
Compensation
($)
|
|
|
Chan
Heng Fai, Chairman, CEO & President
|
2016
|
--
|
--
|
--
|
--
|
--
|
|
Conn
Flanigan, Director, Secretary
|
2016
|
--
|
--
|
--
|
--
|
--
|
|
Lum
Kan Fai, Director, CTO
(from
June 16, 2015)
|
2016
|
112,842
|
--
|
--
|
--
|
112,842
|
|
Chew
Sien Lup, CFO
(from
June 16, 2015 until May 12, 2016)
|
2016
|
--
|
--
|
--
|
--
|
--
|
|
Lui
Wai Leung Alan, CFO
(from
May 12, 2016)
|
2016
|
--
|
--
|
--
|
--
|
--
|
Other than as set forth in the table above, there has been no cash
or non-cash compensation awarded to, earned by or paid to any of
our officers and directors since inception. We do not currently
have a stock option plan, non-equity incentive plan or pension
plan.
Director Compensation
Our directors will not receive a fee for attending each board of
directors meeting or meeting of a committee of the board of
directors. All directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attending board
of director and committee meetings.
Employment Agreement
We do not currently have any employment agreements with our
officers and directors.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
The following table sets forth certain information as of April 2,
2018 with respect to the beneficial ownership of our common stock,
the sole outstanding class of our voting securities, by (i) any
person or group owning more than 5% of each class of voting
securities, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table in the section entitled
“Executive Compensation” above and (iv) all executive
officers and directors as a group. As of April 2, 2018, we had
506,898,576 shares of common stock issued and
outstanding.
Beneficial ownership is determined under the rules of the
Securities and Exchange Commission and generally includes voting or
investment power over securities. Except in cases where community
property laws apply or as indicated in the footnotes to this table,
we believe that each stockholder identified in the table possesses
sole voting and investment power over all shares of common stock
shown as beneficially owned by the stockholder.
Shares of common stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of the date of
this Form 10-K are considered outstanding and beneficially owned by
the person holding the options for the purpose of computing the
percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership
of any other person.
|
|
|
|
|
Greater than 5% Holders
|
|
|
|
Singapore eDevelopment Limited (2)
|
506,790,576
|
99.979%
|
|
Officers and Directors
|
|
|
|
Chan Heng Fai (3)
|
506,790,576
|
99.979%
|
|
Conn
Flanigan
|
0
|
0%
|
|
Sanjib
Kalita
|
0
|
0%
|
|
Lum
Kan Fai
|
0
|
0%
|
|
Lui
Wai Leung Alan
|
0
|
0%
|
|
All
directors and officers as a group (5 persons)
|
|
|
_____________________
|
(1)
|
Unless otherwise stated, the address is 4800 Montgomery Lane, Suite
210, Bethesda MD 20814, the address of the Company
|
|
(2)
(3)
|
The address is: 7 Temasek Boulevard #29-01B, Suntec Tower One,
Singapore 038987.
Mr. Chan, as the Chief Executive Officer and majority shareholder
of Singapore eDevelopment Limited, is deemed to be the beneficial
owner of those shares owned by Singapore eDevelopment
Limited.
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
SeD is the Company’s majority stockholder. Chan Heng Fai, the
Executive Chairman of the Company’s board of directors, is
also the Chief Executive Officer and a member of SeD’s board
of directors, as well as the majority shareholder of SeD. Conn
Flanigan, another member of the Company’s board of directors,
serves in various director and officer positions with subsidiaries
of SeD. Lui Wai Leung Alan, the Company’s Chief Financial
Officer, is also the Chief Financial Officer of SeD. As of the date
of this report, the Company has not entered into any employment
arrangement with any director or officer.
On December 31, 2014, the Company owed Singapore eDevelopment
Limited (SeD), its majority shareholder, $4,428,438. This amount
reflects a loan of $50,000 and the US equivalent of S$5,702,500. It
also includes $32,574 in payments made by SED on behalf of the
Company. On December 28, 2014, SED loaned the Company under a
promissory note (the “Note”) that covered $3,988,831
(S$5,250,533.93). The Note is non-interest bearing and matures on
June 25, 2015. The Note has no prepayment penalty. The other loans
and expenses covered by SED for the benefit of the Company are not
covered under a loan document.
On July 13, 2015, the Company entered into a Loan Conversion
Agreement with SeD, pursuant to which SeD converted outstanding
loans made to the Company into common stock of the Company at a
rate of $5.00 per share (rounded to the nearest full share). The
total amount converted consists of outstanding principal in the
amount of $5,250,554 Singapore Dollars or $3,888,437 USD as of
exchange rate on July 10, 2015) which amount was evidenced by a
promissory note in favor of SeD effective December 28, 2014
(“SeD Promissory Note”). The principal amount of
$3,888,437 was converted to common stock of the Company, and in
exchange, SeD received 777,687 shares of common stock of the
Company. The other loans and expenses covered by SED for the
benefit of the Company are not covered under a loan
document.
On March 25, 2015, HotApps International Pte Ltd acquired 100% of
issued share capital in HotApp International Limited, a Hong Kong
company, for a cash consideration of HK$1.00 from Mr. Chan Heng
Fai, a substantial shareholder and the Company’s Executive
Director and CEO. HotApp International Pte Ltd is a corporation
incorporated in Hong Kong Special Administrative Region of the
People’s Republic of China with a total issued share capital
of HK$1.00 represented by one (1) issued share at HK$1.00 each. The
consideration of the acquisition was based on the issued share
capital of HotApp International Limited which is principally
engaged in the sales and marketing of mobile application. HotApp
International Limited was dormant and has a net equity deficiency
of HK$5,456 due to incorporation expenses as at the date of
acquisition.
On January 25, 2017, the Company entered into an Agreement for
Services with iGalen International Inc. (“iGalen”), a
company specializing in dietary supplements, to provide iGalen with
a mobile enterprise resource planning platform (“Mobile
App”) for iGalen’s members. Under the terms of the
agreement, iGalen, a U.S.-based network marketing company which is
53% owned by SeD, agreed to share 3% of its entire annual global
revenue with the Company for the financial year ending December 31,
2017. In exchange, the Company assumed responsiblity for
maintaining and upgrading the Mobile App platform, as well as
providing the required cloud infrastructure. The Company agreed to
absorb the cost of development of the Mobile App, and agreed not to
charge individual members for use of the Mobile App’s
standard functions.
On March 27, 2017, the Company entered into a Loan Conversion
Agreement with SeD, pursuant to which SeD agreed to convert
$450,890 of debt owed by Company to SeD into 500,988,889 common
shares at a conversion price of $0.0009. The captioned shares were
issued on June 9, 2017, and SeD owned 99.979% of the Company after
such transactions.
On March 27, 2017, SeD and the Company entered into a Preferred
Stock Cancellation Agreement, by which SeD agreed to cancel its
13,800,000 shares Perpetual Preferred Stock issued by the Company.
On June 8, 2017, a Certificate of Retirement for 13,800,000 shares
of the Perpetual Preferred Stock has been filed to the office of
Secretary of State of the State of Delaware.
We believe that the foregoing transactions were in our best
interests. Consistent with Section 144 of the Delaware General
Corporation Law, it is our current policy that all transactions
between us and our officers, directors and their affiliates will be
entered into only if such transactions are approved by a majority
of the disinterested directors, are approved by vote of the
stockholders, or are fair to us as a corporation as of the time
they were authorized, approved or ratified by the board. We will
conduct an appropriate review of all related party transactions on
an ongoing basis, and, where appropriate, we will utilize our audit
committee for the review of potential conflicts of
interest.
Except as set forth above, none of the following persons has any
direct or indirect material interest in any transaction to which we
are a party since our incorporation or in any proposed transaction
to which we are proposed to be a party:
|
|
(A)
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Any of our directors or officers;
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(B)
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Any proposed nominee for election as our director;
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(C)
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Any person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our common
stock; or
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(D)
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Any relative or spouse of any of the foregoing persons, or any
relative of such spouse, who has the same house as such person or
who is a director or officer of any parent or subsidiary of our
company.
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Item
14. Principal Accounting Fees and Services.
The following table indicates the fees paid by us for services
performed for the:
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|
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Audit
Fees
|
$37,500
|
$54,004
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Tax
Fees
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3,500
|
3,500
|
|
Total
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$41,000
|
$57,504
|
PART IV
Item
15. Exhibits, Financial Statement Schedules
(a)(1)
List
of Financial Statements included in Part II hereof:
Consolidated Balance Sheets as of December 31, 2017 and
2016
Consolidated Statements of Operations and Comprehensive Loss for
the Years Ended December 31, 2017 and 2016
Consolidated Statements of Stockholder Equity (Deficit) for the
Period January 1, 2016 to December 31, 2017
Consolidated Statements of Cash Flows for the Years Ended December
31, 2017 and 2016
(a)(2)
List
of Financial Statement schedules included in Part IV
hereof:
None
The following exhibits are included herewith:
|
Exhibit
Number
|
|
Description
|
|
|
|
|
Certificate of Incorporation (incorporated herein by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form
S-1 filed on March 21, 2014).
|
|
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Certificate of Amendment to the Certificate of Incorporation
(incorporated herein by reference to Exhibit 3.1.(i) to the
Company’s Current Report on Form 8-K filed on December 9,
2014).
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Certificate of Amendment to the Certificate of
Incorporation.
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Bylaws (incorporated herein by reference to Exhibit 3.2 to the
Company’s Registration Statement on Form S-1 filed on March
21, 2014).
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Amended Bylaws.
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|
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Loan Conversion Agreement dated July 13, 2015, by and between the
Company and Singapore eDevelopment Limited (incorporated herein by
reference to Exhibit 10.6 to the Company’s Current Report on
Form 8-K filed on July 16, 2015).
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|
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Agreement for Services dated January 25, 2017, by and between the
Company and IGalen International Inc. (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on February 21, 2017).
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|
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Loan Conversion Agreement, by and among HotApp International Inc.
and Singapore eDevelopment Limited, dated as of March 27, 2017
(incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on March 31,
2017).
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|
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Preferred Stock Cancellation Agreement, by and among HotApp
International Inc. and Singapore eDevelopment Limited, dated as of
March 27, 2017 (incorporated herein by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on March 31,
2017).
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Subsidiaries of the Registrant
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Certification of Chief Executive Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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|
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Certification of Chief Financial Officer Pursuant to Rules
13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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|
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|
Certification of Chief Executive and Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS*
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|
XBRL Instance Document
|
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
*
|
Filed with this document
|
|
|
|
|
Item 16. Form 10-K
Summary
None.
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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|
HOTAPP BLOCKCHAIN INC.
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|
|
Date: April 2, 2018
|
By:
|
/s/
Lee
Wang Kei
|
|
|
|
|
Lee Wang Kei
|
|
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Chief Executive Officer
(Principal Executive Officer)
|
|
|
Date: April 2, 2018
|
By:
|
/s/
Lui
Wai Leung, Alan
|
|
|
|
|
Lui Wai Leung, Alan
|
|
|
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated and on the
dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Lee
Wang Kei
|
|
Chief Executive Officer
|
|
April 2, 2018
|
|
Lee Wang Kei
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Lui
Wai Leung, Alan
|
|
Chief Financial Officer
|
|
April 2, 2018
|
|
Lui Wai Leung, Alan
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Chan
Heng Fai
|
|
Executive Chairman of the Board
|
|
April 2, 2018
|
|
Chan Heng Fai
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lum
Kan Fai
|
|
Vice Chairman of the Board
|
|
April 2, 2018
|
|
Lum Kan Fai
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Conn
Flanigan
|
|
Secretary and Director
|
|
April 2, 2018
|
|
Conn Flanigan
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Sanjib
Kalita
|
|
Director
|
|
April 2, 2018
|
|
Sanjib Kalita
|
|
|
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|
