Attached files
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, 2016 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 International 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
day. 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, 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.
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Large
accelerated filter ☐
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Accelerated
filter ☐
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Non-accelerated
filter ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☑
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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, 2016;
as of June 30, 2016, 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 14, 2017, there were 5,909,687 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 International Inc., and
“our board of directors” refers to the board of
directors of HotApp International, 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
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other
factors discussed elsewhere in this annual report.
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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.
2
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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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8
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Item 1B.
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Unresolved Staff Comments.
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20
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Item 2.
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Properties
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20
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Item 3.
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Legal Proceedings.
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21
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Item 4.
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Mine Safety Disclosure.
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21
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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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21
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Item 6.
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Selected Financial Data.
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22
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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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22
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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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39
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Item 9A.
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Controls and Procedures.
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39
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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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Item 11.
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Executive Compensation.
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41
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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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43
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Item 13.
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Certain Relationships and Related Transactions, and Director
Independence.
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43
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Item 14.
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Principal Accounting Fees and Services.
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44
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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45
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Item 16.
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Form 10-K Summary
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SIGNATURES
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46
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3
PART I
Item
1.
Business.
Business Description
Hotapp
International Inc., formerly Fragmented Industry Exchange 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 of this transaction.
As of
December 31, 2016, 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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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. The Board has, in the meantime, reviewed
and approved the restructuring of HotApp, by which has since
reduced by half its personnel resources as compared to 2015. HotApp
has 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; (iv) real
estate; (v) social media; (vi) e-commerce; (vii) investor
relations; (viii) healthcare and wellness; and (ix) hospitality,
combining HotApp applications with hotel-room management. This
strategic shift is intended to create commercial value with a
sharper focus.
Our Business
HotApp,
our software application is a community communications ecosystem
(the “Platform”), connecting users who wish to seek out
both local and global communities (“Users” or
“Communities”) and equipping them with necessary tools
to communicate effectively across borders. HotApp will monetize the
relationship between brands, Online-2-Offline (“O2O”)
operators and service providers (collectively,
“Enterprises”) and the HotApp Communities, and in the
process mediate something of value to both parties.
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
Mobile
phone messaging apps will be used by more than 1.4 billion
consumers in 2015, up 31.6% from the previous year, according to a
November 2015 forecast for these services by eMarketer, a leading
research company for digital business professionals. eMarketer also
stated that worldwide, 75% of smartphone users will use an
over-the-top (OTT) mobile messaging app at least once a month in
2015. The growth in popularity of messaging apps is projected to
continue, and eMarketer predicts that by 2018, the number of chat
app users worldwide will reach 2 billion and represent 80% of
smartphone users.
4
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 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 OTT Services to reach out effectively to
their marketing network on a global basis.
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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 Payment Services, Loyalty
Programs, e-commerce.
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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, 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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Establish
community and business partnerships (collectively, “HotApp
Partnerships”) to expand our user base and
engagement.
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In 2016, 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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Achieved and Target Milestones:
In 2016, 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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Over the next twelve months we plan to
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Further
enhance our Enterprise Messaging and Collaboration
Framework.
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Strengthen
backend integration for Network Marketing
Organizations.
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Identify
technology and commercialization strategic alliance.
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Our Business Model and User Monetization Plan
We plan
to generate revenue through the following;
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Licensing of HotApp
Enterprise to organizations.
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Providing
customization and services for enterprises.
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Providing white
label solutions.
5
Our User Acquisition, Retention and Engagement
Approach
Our
marketing strategy begins with 3 key principles in mind:
“attraction, retention, and acquisition.” It couples
with our contextually-cultural localization plan targeting our 3
unique segments (ie users, communities and enterprise) which forms
our overarching marketing strategy for HotApp.
This
breaks our market penetration exercise into 3 phases. When HotApp
first enters the market, we will focus on attracting our key
segment, and after the initial attraction, we retain these users
within our ecosystem, and finally in the final phase convert these
users as our own ambassadors as they share their success with
HotApp, continuously supporting and growing our user
base.
Our
marketing objectives for each segment will always be contextually
driven to be relevant, tailored to fit local culture, and marketed
as part of the local community.
We
recognize that each target segment and the participants within have
their unique differences and requirements. We will
develop and market each core module differently, focusing on each
user-base segment’s unique requirements.
This
will break local bias against a foreign based mobile application,
and win local trailblazers and influencers alike, who will generate
new and relevant content that will in-turn pull in new users who
want to discover and contribute towards our society of
communities.
We
intend to focus our efforts primarily in the Healthcare,
Hospitality, and Small Media Enterprises in Asia, particularly Hong
Kong and China.
Our Competition and Industries We Operate In
The
Messaging and Social Media market is a highly competitive market
segment with ever increasing number of new entrants and several
dominant incumbents, such as Facebook, WeChat, Line and
others. Some of these players have significant
comparative and absolute advantages over us as a new market
entrant. In the Enterprise Market, new players like
Slack are aggressively picking up market share while incumbents
like Facebook and WeChat are aggressively entering into the
Enterprise Market. We face significant competitions from companies
that:
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have a
more established customer base;
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offer
more services from their established customer base;
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offer
full-featured products that replicate the range of communications
and related capabilities we provide;
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develop
branded applications for specific communities and enterprises, that
provide social, collaboration or other communications
functionality; and
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provide
traditional, online, and mobile media for marketers to reach their
audiences and/or develop tools and systems for managing and
optimizing advertising campaigns.
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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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Adapt
to the dynamic social networking market despite our short operating
history;
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Maintain
brand awareness and loyalty, prevent misuse of our Platform and
maintain our brand image and reputation;
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Compete
effectively for users acquisition and user engagement;
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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 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;
and
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Changing
consumer habit for those using competitive platform.
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Please
see “Risk Factors” and other information included in
this report for a detailed discussion on the above and other
challenges and risks.
6
Our Key Competitive Strengths
We
believe building the following will provide us with some key
competitive strengthens:
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Understanding
local market needs -
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Establish
brand presence for local enterprises and communities based on
established HotApp Platform.
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Ready
to deploy Platform -
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Our
“Powered by HotApp” initiative create 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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Focus
in Community Building -
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Our
local marketing team and consultants are built to work hand-in-hand
with community operators to localize the HotApp for the local
community.
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HotApp
ecosystem -
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To work
closely with technology developers to further enhance the HotApp
ecosystem to better fit local needs.
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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.
Our 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 Hot App
offering;
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Quick
adaptation to third party services, such as payment and loyalty
program; and
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Dedicated
to continuous improvement of user experience in local
context.
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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
As at
the beginning of the second quarter of 2016, we had 10 full-time
staff. We had 17 full-time staff at end of 2016 which we intend to
maintain with moderate increases in the number of employees in line
with business activities and if our finance 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 since June 16,
2015.
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.
7
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 actually 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, our
independent registered public accounting firm, with respect to our
financial statements at December 31, 2016 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, 2016 contained herein, we have incurred net
losses, net cash used in operating activities and have working
capital deficit of $544,411 at December 31, 2016. 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.
8
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:
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the
popularity, usefulness, ease of use, performance, and reliability
of our products compared to our competitors' products, particularly
with respect to mobile products;
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the
size and composition of our user base;
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the
engagement of our users with our products and competing
products;
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the
timing and market acceptance of products, including developments
and enhancements to our or our competitors' products;
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our
ability to monetize our products;
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customer
service and support efforts;
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acquisitions
or consolidation within our industry, which may result in more
formidable competitors;
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our
ability to attract, retain, and motivate talented employees,
particularly software engineers, designers, and product
managers;
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our
ability to cost-effectively manage and grow our operations;
and
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our
reputation and brand strength relative to those of our
competitors.
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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 $4,628,976 and has net working capital
deficit of $544,411 at December 31, 2016. We expect to operate with
net losses for the next financial year-ending December 31, 2017 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.
9
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 31 as of December 31, 2015 to 10 as at the
beginning of the second quarter 2016. We expect headcounts to
maintain current 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 and Mr. Lum Kan Fai.
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 approximate at
least $50,000 per year, consisting of $25,000 in legal, $20,000 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.
10
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 98.17% 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.
We expect our quarterly results to fluctuate which may adversely
affect our stock price.
We
expect that our quarterly results will fluctuate
significantly. Due to the recent acquisition of HotApp
International Limited, our period-to-period comparisons of
operating results are not meaningful indicators of future results.
Additionally, if our operating results in one or more quarters do
not meet securities analysts' or your expectations, the price of
our common stock could decrease.
11
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.
12
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
which 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.
13
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.”
14
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:
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the
primary location of the day-to-day operational management is in the
PRC;
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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;
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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
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50% or
more of voting board members or senior executives habitually reside
in the PRC.
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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.
15
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:
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The
Advertising Law of the PRC (1994);
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The
Advertising Administrative Regulations (1987);
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The
Implementing Rules for the Advertising Administrative Regulations
(2004); and
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The
Administration Rules of Foreign-invested Advertising Enterprises
(2008).
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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.
16
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:
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gaining
improper entry into a computer or system of strategic
importance;
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disseminating
politically disruptive information or obscenities;
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leaking
State secrets;
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spreading
false commercial information; or
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infringing
intellectual property rights.
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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.
17
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.
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:
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that a
broker or dealer approve a person's account for transactions in
penny stocks; and
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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.
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In
order to approve a person's account for transactions in penny
stocks, the broker or dealer must:
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obtain
financial information and investment experience objectives of the
person; and
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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.
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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:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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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:
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the
number of users of our application;
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actual
or anticipated variations in our quarterly operating
results;
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announcements
of acquisitions;
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additions
or departures of our key personnel; and.
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sales
of our common stock
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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.
19
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 do not have any independent
directors. 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 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 all of our directors and officers reside outside of the
United States.
We
conduct substantially all of our operations in
China. Our CEO and director resides, and
substantially all of the assets of that person are located, 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
Item 2. Properties
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
September 17, 2014, the Company entered into a lease agreement with
Allbest Property Management Pte Ltd for 586 square feet of office
space in Singapore. The lease commenced on September 22, 2014 and
runs through June 30, 2017 with monthly payments of $2,325. The
Company was required to put up a security deposit of
$6,519
On
March 1, 2015, the Company entered into a lease agreement with
Allbest Property Management Pte Ltd for additional 954 square feet
of office space in Singapore. The lease commenced on March 1, 2015
and runs through June 30, 2017 with monthly payments of $3,750. The
Company was required to put up a security deposit of
$11,249.
As part
of the restructuring of the Company, SED has agreed to take-over
the lease commitment for the office space in Singapore with effect
from January 1, 2016. Under this arrangement, the Company will
recover the rent expense for 2016 from SED. The lease agreement
with Allbest Property Management Pte Ltd was novated to SED with
effect from April 1, 2016. For the year ended December 31, 2016,
the Company recorded rent expense of $0 for the Singapore
offices.
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On
September 1, 2014, the Company entered into a lease agreement for
3,470 square feet of office space in Guangzhou, China. The lease
commenced on November 1, 2014 and ran through August 2015. On
August 31, 2015, the lease was renewed for another year and was
expired on August 31, 2016 with monthly payments of $4,611. 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 $2,224. The Company was required to put up a security
deposit of $4,448. For the year ended December 31, 2016, the
Company recorded rent expense of $41,326 for Guangzhou
offices.
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 $2,579. The Company was required to put up a
security deposit of $5,158. For the year ended December 31, 2016,
the Company recorded rent expense of $34,734 for this
office.
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.
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.
Recent Sales of Unregistered 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.
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.
21
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.
This form 10-K contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. For this purpose any statements contained in this
Form 10-K that are not statements of historical fact may be deemed
to be forward-looking statements. Without limiting the
foregoing, words such as “may”, “will”,
“expect”, “believe”,
“anticipate”, “estimate” or
“continue” or comparable terminology are intended to
identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of
factors, many of which are not within our control. These
factors include by are not limited to economic conditions generally
and in the industries in which we may participate; competition
within our chosen industry, including competition from much larger
competitors; technological advances and failure to successfully
develop business relationships.
Background
Hotapp
International Inc., formerly Fragmented Industry Exchange 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, 2016, 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:
|
|
|
|
|
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 ended December 31, 2015. In January 2016,
SeD advised the Group not to depend solely on financing from SeD
for its continuous development and marketing activities. The Group
has since increased its efforts to raise additional funds from
other sources. Without the certainty of new funding and in the face
of intense competition in the mobile messaging and social media
market in China and the rest of Asia, the Group has streamlined and
restructured its operations by significantly reducing its
development and marketing personnel as well as marketing
activities. Presently, only critical and essential development and
maintenance works are carried out with a minimal crew. It will
maintain its manning level and operating costs at a minimum level
and has begun exploring options to seek new funding before growing
its business.
Our Business
Our
software application (“HotApp”) is a community
communications ecosystem (the “Platform”), connecting
users who wish to seek out both local and global communities
(“Users” or “Communities”) and equipping
them with necessary tools to communicate effectively across
borders. HotApp will monetize the relationship
between advertisers, Online-2-Offline (“O2O”) operators
and eservice providers (collectively, “Enterprises”)
and the HotApp Communities, and in the process mediate something of
value to both parties. By targeting communities
beyond demographics (ie. topical interest, common activities)
Enterprises will be able to create targeted marketing campaigns
with the expectation of higher conversion
rates. The respective features of HotApp
like HotNearby and HotRoom enable peer to peer buying decision
influence more effectively compared to generic social
media. HotApp’s goal is to help business partners
to have reason to believe they can market their product or service
as a solution to the customer.
22
Our
mission is to empower communities to engage and communicate
effectively: “Not just forming connections, but forming
communities.”
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
Mobile
phone messaging apps will be used by more than 1.4 billion
consumers in 2015, up 31.6% on the previous year according to
eMarketer’s November 2015 forecast for these services.
eMarketer also stated that, worldwide, that means 75% of smartphone
users will use an over-the-top (OTT) mobile messaging app at least
once a month in 2015.
The
growth in popularity of messaging apps is projected to continue,
and eMarketer predicts that by 2018, the number of chat app users
worldwide will reach 2 billion and represent 80% of smartphone
users.
While
mergers and acquisitions are active in the Mobile messaging space,
such as Facebook acquired WhatsApp, Tencent invested in Kik, Viber
acquired by Rakuten, other popular messaging applications such as
Telegram and Snapchat with unique value proposition are gaining
market share significantly.
In
addition, enterprise messaging applications such as Slack, Facebook
At Work and DingTalk (of Alibaba Group) in China – started to
gain a lot of market attention with rapid deployment from both
large enterprise and Small Medium Enterprises (SME). The fields of
enterprise mobility is expected to be significantly more
sophisticated than consumer facing platforms, as there is likely
more scrutiny over security, different levels of accessibility,
communication channels, Office Automation and Customer Relationship
Management capabilities, and access to enterprises’ back-end
servers.
Lastly,
we have seen some providers, such as Facebook Messenger,
(Tencent’s) WeChat Public Accounts and Line successfully
monetizing their enterprise customers by providing targeted
advertising and commercial functions to their vast range of
customers. We expect this space to continue growing as there is
currently no unified model across various platforms, as user
experience standards and methods of content distribution vary
widely. We feel there is an opportunity between traditional
consumer facing providers such as Facebook and WeChat, who already
have an established architecture for their enterprise platforms,
and enterprise customers who continue to look for alternative ways
to service their clients.
Based
upon the above trends, we believe significant opportunities
exist for:
|
●
|
Enterprise
deploying messaging platform to effective 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. HotApp’s approach in white labelling for
the enterprises will augment and fill this demand in the
market.
|
|
●
|
Industries
such as Network Marketing and Hospitality and Franchising
businesses are utilizing OTT Services to reach out effectively to
their marketing network on a global basis.
|
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 Payment Services, Loyalty
Programs, e-commerce.
|
|
●
|
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.
|
|
●
|
Identify
Strategic Partnership Opportunities globally through
“Powered by
HotApp” initiatives, enabling Offline businesses to go
On Line (O2O) with HotApp technology support.
|
|
●
|
Establish
community and business partnerships (collectively, “HotApp
Partnerships”) to expand our user base and
engagement.
|
In 2016, 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.
|
23
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016 COMPARED
TO
YEAR ENDED DECEMBER 31, 2015
Results of Operations
For the years ended December 31, 2016 and 2015
Revenue
Revenue
consist primarily of the service rendered on projects which require
significant software production. Total revenue for the year ended
December 31, 2016 and 2015 were $151,443 and $0
respectively.
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, 2016 and 2015 were $55,213 and $0,
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. We expect
our research and development expenses to maintain with moderate
changes in line with business activities. Total research
and development for the year ended December 31, 2016 and 2015
were $364,900 and $1,322,159 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, 2016 and 2015
were $(64,666) and $442,122, 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, 2016 and
2015 were $666,465 and $1,212,797, respectively. The decrease from
the prior period was due to the reduction of rental and travelling
expenses and professional fee paid resulting from the streamlining
and restructuring of Company.
Other Expense/Income
For the
years ended December 2016 and 2015, we have incurred $8,093 and $0
in loss on disposal of fixed assets, $0 and $60,068 on impairment
provision of intangible assets. For the years ended December 2016
and 2015, we have incurred $2,072 and $0 on the impairment
provision of the amount due from a related party. For the years
ended December 2016 and 2015, we have incurred $(60,164) and
$21,043 in foreign exchange gain (loss), $2 and $6 in interest
income.
Liquidity and Capital Resources
At
December 31, 2016, we had cash of $102,776 and working capital
deficit of $544,411. Cash had decreased during 2016 primarily due
to operating losses incurred in 2016.
We had
a total stockholders’ deficit of $498,315 and an accumulated
deficit of $4,628,976 as of December 31, 2016 compared with a total
stockholders’ equity of $363,092 and an accumulated deficit
of $3,688,180 as of December 31, 2015. This difference is primarily
due to the net loss incurred during the year and the
Shareholder’s loan conversion in 2015.
For the
year ended December 31, 2016, we recorded a net loss of $940,796.
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 negative change of $141,064 due to accounts payable and
accrued expenses and a positive change of $453,785 due to amount
due to related parties. We had a positive change of $7,492 due to
accrued taxes and franchise fee and a positive change of $9,040 due
to security deposit and other assets. As a result, we had net cash
used in operating activities of $512,377 for the year ended
December 31, 2016.
24
For the
year ended December 31, 2015, we recorded a net loss of $3,016,097.
We made a positive adjustment of $37,633 due to depreciation and a
positive adjustment of $60,068 due to impairment of excess purchase
price over net assets. We had a positive change of $187,660 due to
accounts payable and accrued expenses and a negative change of
$12,729 due to security deposits and other assets. We had a
negative change of $20,831 due to prepaid expenses and $3,563 due
to accrued taxes and franchise fee. As a result, we had net cash
used in operating activities of $2,767,859 for the year ended
December 31, 2015.
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, 2015, we spent $150,541 on the acquisition
of fixed assets, resulting in net cash used in investing activities
of $150,541 for the year.
For the
year ended December 31, 2016, we did not pursue any financing
activities.
For the
year ended December 31, 2015, we repaid shareholder loans of
$432,083, resulting in net cash used in financing activities of
$432,083 for the year.
As of
December 31, 2016, we have fixed operating office lease agreements
for Guangzhou’s office amounting to US$11,120 from 2017 to
2018 and Hong Kong’s office amounting to US$9,371 from 2017
to 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
party) 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 $151,443 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 due to the
significant software production required, 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.
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.
25
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 not yet adopted
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. We do not expect the adoption of this guidance to
have a significant effect on our consolidated financial
statements.
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.
We do not expect the adoption of this guidance to 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.
Off –Balance Sheet Arrangements
As of
December 31, 2016, 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.
26
Item
8.
Financial
Statements.
HOTAPP INTERNATIONAL INC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
|
Report
of Independent Registered Public Accounting Firm
|
|
29
|
|
|
|
|
|
Consolidated
Financial Statements
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2016 and 2015
|
|
30
|
|
|
|
|
|
Consolidated
Statements of Operations And Comprehensive Loss for the Years Ended
December 31, 2016 and 2015
|
|
31
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Period
From January 1, 2015 Through
December 31,
2016
|
|
32
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2016 and
2015
|
|
33
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
34
|
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and
Stockholders
of HotApp International, Inc.
We have
audited the accompanying consolidated balance sheets of HotApp
International, Inc. as of December 31, 2016 and 2015, 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, 2016 and
2015. HotApp International, Inc.’s management is responsible
for these consolidated financial statements. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HotApp International, Inc. as of December 31,
2016 and 2015, and the consolidated results of its operations and
its cash flows for each of the years in the two year period ended
December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more
fully discussed in Note 1 to the consolidated financial statements,
the Company has incurred net losses, net cash used in operating
activities and has working capital deficit of $544,411 at December
31, 2016. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
/s/
Rosenberg Rich Baker Berman & Company
Somerset,
New Jersey
April
14, 2017
28
HOTAPP INTERNATIONAL INC
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2016 AND
2015
|
|
12/31/16
|
12/31/15
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash and cash
equivalents
|
$102,776
|
$495,136
|
|
Costs in excess of
billings
|
30,332
|
-
|
|
Prepaid
expenses
|
4,650
|
26,492
|
|
Deposits
|
19,745
|
4,154
|
|
TOTAL CURRENT
ASSETS
|
157,503
|
525,782
|
|
|
|
|
|
Fixed assets,
net
|
46,096
|
192,308
|
|
Deposits
|
-
|
24,631
|
|
TOTAL
ASSETS
|
$203,599
|
$742,721
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Accounts payable
and accrued expenses
|
$238,315
|
$379,379
|
|
Accrued taxes and
franchise fees
|
7,742
|
250
|
|
Amount due to
related parties
|
455,857
|
-
|
|
TOTAL CURRENT
LIABILITIES
|
701,914
|
379,629
|
|
|
|
|
|
TOTAL
LIABILITIES
|
701,914
|
379,629
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT):
|
|
|
|
Preferred stock,
$0.0001 par value, 15,000,000 shares authorized, 13,800,000 issued
and outstanding
|
1,380
|
1,380
|
|
Common stock,
$.0001 par value, 500,000,000 shares authorized, 5,909,687 shares
issued and outstanding, as of December 31, 2016 and 2015,
respectively
|
591
|
591
|
|
Accumulated other
comprehensive income (loss)
|
(73,330)
|
(152,719)
|
|
Additional paid-in
capital
|
4,202,020
|
4,202,020
|
|
Accumulated
deficit
|
(4,628,976)
|
(3,688,180)
|
|
TOTAL STOCKHOLDERS'
(DEFICIT) EQUITY
|
(498,315)
|
363,092
|
|
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
|
$203,599
|
$742,721
|
The
accompanying notes to the consolidated financial statements are an
integral part of these statements.
29
HOTAPP INTERNATIONAL INC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
Year Ended
December 31,
|
|
|
|
2016
|
2015
|
|
|
|
|
|
Revenues:
|
|
|
|
Project
fee
|
$151,443
|
$-
|
|
|
151,443
|
-
|
|
|
|
|
|
Cost of
revenues
|
55,213
|
-
|
|
|
|
|
|
Gross
profit
|
$96,230
|
$-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research and
product development
|
364,900
|
1,322,159
|
|
Sales and
marketing
|
(64,666)
|
442,122
|
|
Depreciation
|
37,327
|
37,633
|
|
Impairment of
intangible asset
|
-
|
60,068
|
|
Impairment on
amount due from a related company
|
2,072
|
-
|
|
Loss on disposal of
fixed assets
|
8,093
|
-
|
|
General and
administrative
|
629,138
|
1,175,164
|
|
Total operating
expenses
|
976,864
|
3,037,146
|
|
|
|
|
|
Loss from
operations
|
(880,634)
|
(3,037,146)
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
Interest
income
|
2
|
6
|
|
Foreign exchange
gain (loss)
|
(60,164)
|
21,043
|
|
Total other
income
|
(60,162)
|
21,049
|
|
|
|
|
|
Loss before
taxes
|
(940,796)
|
(3,016,097)
|
|
Income tax
provision
|
-
|
-
|
|
Net loss applicable
to common shareholders
|
$(940,796)
|
$(3,016,097)
|
|
|
|
|
|
Net loss per share
- basic and diluted
|
$(0.16)
|
$(0.55)
|
|
|
|
|
|
Weighted number of
shares outstanding -
|
|
|
|
Basic and
diluted
|
5,909,687
|
5,496,341
|
|
|
|
|
|
Comprehensive
Income Loss:
|
|
|
|
Net
loss
|
$(940,796)
|
$(3,016,097)
|
|
Foreign currency
translation gain (loss)
|
79,389
|
(156,741)
|
|
Total comprehensive
loss
|
$(861,407)
|
$(3,172,838)
|
The
accompanying notes to the consolidated financial statements are an
integral part of these statements.
30
HOTAPP INTERNATIONAL INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 2015 TO DECEMBER 31,
2016
|
|
Preferred
Stock
|
Common
|
Paid-In
|
Accumulated
Other Comprehensive
|
Accumulated
|
Stockholders'
Equity
|
||
|
|
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Capital
|
Income
(Loss)
|
Deficit
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2014
|
13,800,000
|
$1,380
|
5,132,000
|
$513
|
$213,267
|
$4,022
|
$(672,083)
|
$(452,901)
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock (Debt
Conversion)
|
|
|
777,687
|
78
|
3,988,753
|
|
|
3,988,831
|
|
Net loss for
period
|
|
|
|
|
|
|
(3,016,097)
|
(3,016,097)
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
(156,741)
|
-
|
(156,741)
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
The
accompanying notes to the consolidated financial statements are an
integral part of these statements.
31
HOTAPP INTERNATIONAL INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
Year Ended
December 31,
|
|
|
|
2016
|
2015
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net
Loss
|
$(940,796)
|
$(3,016,097)
|
|
Adjustments to
reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
37,327
|
37,633
|
|
Provision for
impairment of amount due from related party
|
2,072
|
-
|
|
Impairment of
intangible asset
|
-
|
60,068
|
|
Loss on disposal of
fixed asset
|
8,093
|
-
|
|
Foreign exchange
loss
|
60,164
|
-
|
|
|
|
|
|
Change in operating
assets and liabilities:
|
|
|
|
Costs in excess of
billings
|
(30,332)
|
-
|
|
Prepaid
expenses
|
21,842
|
(20,831)
|
|
Accounts payable
and accrued expenses
|
(141,064)
|
187,660
|
|
Amount due to
related parties
|
453,785
|
-
|
|
Accrued taxes
payable and franchise fees
|
7,492
|
(3,563)
|
|
Security deposit
and other assets
|
9,040
|
(12,729)
|
|
Net cash used in
operating activities
|
$(512,377)
|
$(2,767,859)
|
|
|
|
|
|
CASH FLOW FROM
INVESTING ACTIVITIES:
|
|
|
|
Acquisition of
fixed assets
|
(12,795)
|
(150,541)
|
|
Proceeds from
disposal of fixed assets
|
113,587
|
-
|
|
Net cash provided
by (used in) investing activities
|
$100,792
|
$(150,541)
|
|
|
|
|
|
CASH FLOW FROM
FINANCING ACTIVITIES:
|
|
|
|
Net repayments to
shareholder loan
|
-
|
(432,083)
|
|
Net cash used in
financing activities
|
$-
|
$(432,083)
|
|
|
|
|
|
NET DECREASE IN
CASH
|
(411,585)
|
(3,350,483)
|
|
Effects of exchange
rates on cash
|
19,225
|
(164,265)
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS at beginning of period
|
495,136
|
4,009,884
|
|
CASH AND CASH
EQUIVALENTS at end of period
|
$102,776
|
$495,136
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
Cash paid
for:
|
|
|
|
Interest
|
$-
|
$-
|
|
Income
Taxes
|
$-
|
$3,564
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities
|
|
|
|
Shareholder loan
converted into common stock
|
$-
|
$3,988,831
|
The
accompanying notes to the consolidated financial statements are an
integral part of these statements.
32
HOTAPP INTERNATIONAL INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hotapp
International Inc, formerly Fragmented Industry Exchange 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, 2016, 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:
|
|
|
|
|
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
$4,628,976 and has net working capital deficit of $544,411 at
December 31, 2016. 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 14,
2018. 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 operation through 2017. 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 International 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.
33
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, 2016, cash and cash
equivalents of the Group includes, on an as converted basis to US
dollars, $23,568, $63,678 and $13,588, in Hong Kong Dollars
(“HK$”), Reminbi (“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.
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 Group 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 $151,443 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 due to the significant
software production required, 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.
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.
34
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, 2016 or 2015,
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, 2016, the Company recorded other
comprehensive income from translation gain of $79,389 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, 2016, no shares of
preferred stock are eligible for conversion into voting common
stock.
Recent accounting pronouncements not yet adopted
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. We do not expect the adoption of this guidance to
have a significant effect on our consolidated financial
statements.
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.
We do not expect the adoption of this guidance to have a
significant effect on our consolidated financial
statements.
35
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.
Note 3. FIXED ASSETS, NET
Fixed
assets, net consisted of the following:
|
|
As of December
31,
|
|
|
|
2016
|
2015
|
|
Computer
equipment
|
$69,442
|
$69,002
|
|
Office
equipment
|
19,671
|
20,787
|
|
Furniture and
fixtures
|
7,156
|
46,916
|
|
Motor
vehicle
|
-
|
97,418
|
|
|
$96,269
|
$234,123
|
|
Less: accumulated
depreciation
|
(50,173)
|
(41,815)
|
|
Fixed assets,
net
|
$46,096
|
$192,308
|
Depreciation
expense for the years ended December 31, 2016 and 2015 was
$37,327 and $37,633, respectively.
A motor
vehicle has been sold to an affiliate of Singapore eDevelopment
Limited (“SeD”) for a consideration of $93,678 and
furniture and fixture of $10,040 has been sold to SeD.
Note 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued
expenses and other current liabilities consisted of the
following:
|
|
As of December
31,
|
|
|
|
2016
|
2015
|
|
Accrued
payroll
|
$180,464
|
$196,401
|
|
Accrued
professional fees
|
45,612
|
112,215
|
|
Other
|
12,239
|
71,763
|
|
Total
|
$238,315
|
$379,379
|
36
Note 5. INCOME TAXES
The
provision for income taxes for the years ended December 31, 2016
and 2015, was as follows:
|
|
Year Ended
December 31,
|
|||||
|
|
2016
|
2015
|
||||
|
|
Domestic
|
Foreign
|
Total
|
Domestic
|
Foreign
|
Total
|
|
Loss from
continuing operations, before income taxes
|
$(195,199)
|
$(745,597)
|
$(940,796)
|
$(329,715)
|
$(2,686,382)
|
$(3,016,097)
|
|
Income tax at
statutory rate
|
(68,320)
|
(161,083)
|
(229,403)
|
(115,400)
|
(557,608)
|
(673,008)
|
|
Items not taxable
for tax purposes
|
-
|
-
|
-
|
(7,365)
|
-
|
(7,365)
|
|
Items not
deductible for tax purposes
|
29,400
|
-
|
29,400
|
20,128
|
207,830
|
227,958
|
|
Change in
valuation allowance
|
38,920
|
161,083
|
200,003
|
102,637
|
349,778
|
452,415
|
|
Income
tax expense
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
Deferred
income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
carry-forwards
|
$223,907
|
$529,323
|
$753,230
|
$184,987
|
$368,240
|
$553,227
|
|
Less: valuation
allowance
|
(223,907)
|
(529,323)
|
(753,230)
|
(184,987)
|
(368,240)
|
(553,227)
|
|
Total net deferred
tax assets
|
$-
|
$-
|
$-
|
$
|
$-
|
$-
|
The
Company provided a valuation allowance equal to the deferred income
tax assets for period ended December 31, 2016 because it is not
presently known whether future taxable income will be sufficient to
utilize the loss carry-forwards.
As of
December 31, 2016, the Company had approximately $3,753,400 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 500 million shares of common stock
and 15 million shares of preferred stock. Both share types have a
$0.0001 par value. As of December 31, 2016 and 2015, the Company
had issued and outstanding, 5,909,687 of common stock, respectively
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.
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).
Other
than the conversion rights described above, the Preferred Stock has
no voting, dividend, redemption or other rights.
37
Note 7 – COMMITMENTS AND CONTINGENCIES
On
September 17, 2014, the Company entered into a lease agreement with
Allbest Property Management Pte Ltd for 586 square feet of office
space in Singapore. The lease commenced on September 22, 2014 and
runs through June 30, 2017 with monthly payments of $2,325. The
Company was required to put up a security deposit of
$6,519.
On
March 1, 2015, the Company entered into a lease agreement with
Allbest Property Management Pte Ltd for additional 954 square feet
of office space in Singapore. The lease commenced on March 1, 2015
and runs through June 30, 2017 with monthly payments of $3,750. The
Company was required to put up a security deposit of
$11,249.
As part
of the restructuring of the Company, SED has agreed to take-over
the lease commitment for the office space in Singapore with effect
from January 1, 2016. Under this arrangement, the Company will
recover the rent expense for 2016 from SED. The lease agreement
with Allbest Property Management Pte Ltd was novated to SED with
effect from April 1, 2016. For the year ended December 31, 2016,
the Company recorded rent expense of $0 for the Singapore
offices.
On
September 1, 2014, the Company entered into a lease agreement for
3,470 square feet of office space in Guangzhou, China. The lease
commenced on November 1, 2014 and ran through August 2015. On
August 31, 2015, the lease was renewed for another year and was
expired on August 31, 2016 with monthly payments of $4,611. 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 $2,224. The Company was required to put up a security
deposit of $4,448. For the year ended December 31, 2016 and 2015,
the Company recorded rent expense of $41,326 and $55,407 for
Guangzhou offices, respectively.
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 $2,579. The Company was required to put up a
security deposit of $5,158. For the year ended December 31, 2016,
the Company recorded rent expense of $34,734 for this
office.
The
following is a schedule by years of future minimum lease
payments:
|
2017
|
$20,491
|
|
2018
|
-
|
|
Total
|
$20,491
|
|
|
|
Note 8. RELATED PARTY BALANCES AND
TRANSACTIONS
The
Company’s Chief Executive Officer (CEO) and Director is the
Chief Executive Officer of SED. SED is the
majority shareholder of the Company. The Company’s
other two directors, one being the Chief Technology Officer who has
entered into an employment arrangement with the Company’s
wholly owned subsidiary, HotApp International
Limited. As of the date of this report, the
Company has not entered into any employment arrangement with any
director or officer.
As
described in Note 7, SED has agreed to take-over the lease
commitment for the office space in Singapore with effect from
January 1, 2016. Under this arrangement, the Company will recover
the rent expense and related utilities expenses for the six months
ended June 30, 2016 from SED. The lease agreement with Allbest
Property Management Pte Ltd was novated to SED with effect from
April 1, 2016.
For the
year ended December 31, 2016, the Company recovered $19,970 of
rental and utilities expenses from SED, and transferred furniture
& fixtures amounting $10,040 to SeD.
As of
December 31, 2016, the Company has made impairment provision for
the receivable from a related party amounting $2,072 and the
Company has $455,857 amount due to related parties
Note 9. SUBSEQUENT EVENT
HotApp
International Inc (“HotApp”) announced in February 2017
that it has entered into an Agreement for Services
(“Agreement”) 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, 53% owned subsidiary of Singapore Exchange-listed
Singapore eDevelopment Limited (“SeD”), and affiliate
of HotApp, will share 3% of its entire annual global revenue with
HotApp for the financial year ending December 31, 2017. In turn,
HotApp will be responsible for maintaining and upgrading the Mobile
App platform, as well as providing the required cloud
infrastructure.
HotApp
will absorb the cost of development of the Mobile App, and will not
charge individual members for use of the Mobile App’s
standard functions.
38
On
March 27, 2017, the Company entered into a Loan Conversion
Agreement with Singapore eDevelopment Limited (“SeD”),
a Singapore company, 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. On March 27, 2017, SeD and
the Company also 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.
The
Board of Directors and Majority Stockholder of the Company have
approved an increase in the number of the Company’s
authorized shares of common stock from 500,000,000 to 1,000,000,000
by means of an amendment to the Company’s Articles of
Incorporation.
On
March 27, 2017, SeD and the Company also 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.
The
terms of the additional shares of common stock will be identical to
those of the currently outstanding shares of Common Stock. However,
because the holders of common stock do not have preemptive rights
to purchase or subscribe for any new issuances of common stock, the
authorization and subsequent issuance of additional shares of
common stock will reduce the current stockholders’ percentage
ownership interest in the total outstanding shares of common stock.
This amendment and the creation of additional shares of authorized
common stock will not alter current stockholders’ relative
rights and limitations.
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, 2016. 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,
2016 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, 2016, 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, 2016.
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, 2016,
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.
39
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,
2016 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
|
|
72
|
|
Chairman,
Chief Executive Officer and President
|
|
Conn
Flanigan
|
|
48
|
|
Director,
Secretary
|
|
Lum Kan
Fai
|
|
54
|
|
Director,
Chief Technology Officer
|
|
Lui Wai
Leung Alan
|
|
46
|
|
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
the Company’s Chief Executive Officer as of December 31,
2014. In April 2013, Mr. Chan was appointed a Non-Executive
Director of Singapore eDevelopment Limited (SED), to assist its
business and capital restructuring. In April 2014, Mr. Chan was
appointed Chief Executive Officer and Executive Director of SED.
Prior to the Subsidiary being purchased by SED, Mr. Chan was
responsible for overseeing the development of and all funding for
HotApp. Mr. Chan has restructured over 35 companies in different
industries and countries in the past 40 years. In September 2014,
SED announced the successful completion of a round of financing for
S$40.6mm (the “Financing”). Since April 2013, Mr. Chan
has invested approximately $8mm of his own money, plus an
additional $9mm through a subscription to the Financing by Heng Fai
Business Development Pte Ltd, a Singapore-based company controlled
by Mr. Chan.
Mr.
Chan is the Managing Chairman of Heng Fai Enterprises, Ltd. ("Heng
Fai"). He has been Director of Heng Fai since September 1992. Mr.
Chan is responsible for the overall business development of Heng
Fai. In November 2013, Mr. Chan was appointed a Board member of
Ontarget360 Group Inc, a reporting company under the federal
securities laws and an OTC-QB listed public company. In November
2013, Mr. Chan was appointed a Board member of Global Medical REIT
Inc, a reporting company under the federal securities laws and an
OTC-QB listed public company.
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 since October 23, 2014
and as legal counsel and secretary since December 31, 2014. Mr.
Flanigan has served as General Counsel with eBanker Corporate
Services, Inc., a Colorado subsidiary of Heng Fai Enterprises Ltd
since 2007. Since July 2013, Mr. Flanigan has served as the CEO and
Board member of American Housing REIT, Inc, a reporting company
under the federal securities laws and an OTC-Pink listed public
company. Since December 2013, Mr. Flanigan has also served as CEO
and Board Member of HOMEOWNUSA, a company that was publicly listed
and is currently in the process of updating its financial
statements. Since September 2013, Mr. Flanigan has served as an
officer and director of Global Medical REIT Inc, a reporting
company under the federal securities laws and an OTC-Pink listed
public company. 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.
40
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 Kan Fai has served a director and Chief Technology
Officer since June 16, 2015. 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. On
June 16, 2015, Mr. Lum was appointed as an Executive Director and
Chief Technology Officer of Singapore eDevelopment
Limited.
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 the Company continuous growth. He has over 30
years of technology business experience in Multinationals
Corporations.
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
To our
knowledge, no director, officer or beneficial owner of more than
ten percent of any class of our equity securities, failed to file
on a timely basis, reports required by Section 16(a) of the
Exchange Act during 2016.
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.
41
Director Independence
We
currently do not have any independent directors serving on our
board of directors.
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.
No
member of management will be required by us to work 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.
Item
11.
Executive
Compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table for 2016 and 2015
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, 2016 and December 31,
2015.
|
Name and
Principal Position
|
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
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
till May 12, 2016)
|
|
2016
|
--
|
--
|
--
|
--
|
--
|
|
Lui Wai Leung Alan,
CFO
(from May 12,
2016)
|
|
2016
|
--
|
--
|
--
|
--
|
--
|
42
|
Name and
Principal Position
|
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
Chan Heng Fai,
Chairman, CEO & President
|
|
2015
|
--
|
--
|
--
|
--
|
--
|
|
Conn Flanigan,
Director, Secretary
|
|
2015
|
--
|
--
|
--
|
--
|
--
|
|
Lum Kan Fai,
Director, CTO
(from June 16,
2015)
|
|
2015
|
105,805
|
--
|
--
|
--
|
105,805
|
|
Chew Sien Lup,
CFO
(from June 16, 2015
till May 12, 2016)
|
|
2015
|
--
|
--
|
--
|
--
|
--
|
|
Robert Trapp,
Director, CFO
(till June 16,
2015)
|
|
2015
|
--
|
--
|
--
|
--
|
--
|
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 14, 2017
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 14, 2017, we had
5,909,687 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.
|
Name And Address (1)
|
Beneficially
Owned
|
Percentage
Owned
|
|
Greater
than 5% Holders
|
|
|
|
Singapore
eDevelopment Limited (2)
|
5,801,687
|
98.17%
|
|
Officers
and Directors
|
|
|
|
Chan Heng Fai
(3)
|
5,801,687
|
98.17%
|
|
Conn
Flanigan
|
0
|
0%
|
|
Lum Kan
Fai
|
0
|
0%
|
|
Lui Wai Leung
Alan
|
0
|
0%
|
|
All directors and
officers as a group (4 persons)
|
5,801,687
|
98.17%
|
_____________________
|
(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: 10 Winstedt Road, #02-02, Singapore
227977.
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
Company’s Chief Executive Officer and a member 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. Mr. Lum Kan Fai, the Company’s
Chief Technology Officer and a member of the Company’s board
of directors, is also the Chief Technology Officer of SeD. As of
the date of this report, the Company has not entered into any
employment arrangement with any director or officer.
43
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.
Subsequent Events
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 the Company to SeD into 500,988,889 shares
of the Company’s common stock at a conversion price of
$0.0009 per share.
The
Company’s board of directors and majority stockholder have
approved an increase in the number of the Company’s
authorized shares of common stock from 500,000,000 to 1,000,000,000
by means of an amendment to the Company’s Articles of
Incorporation. This increase in authorized shares will permit the
Company to issue the 500,988,889 shares of common stock described
above.
On
March 27, 2017, SeD and the Company also 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.
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)
|
Any of
our directors or officers;
|
|
|
(B)
|
Any
proposed nominee for election as our director;
|
|
|
(C)
|
Any
person who beneficially owns, directly or indirectly, shares
carrying more than 10% of the voting rights attached to our common
stock; or
|
|
|
(D)
|
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.
|
Item
14.
Principal
Accounting Fees and Services.
The
following table indicates the fees paid by us for services
performed for the:
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
|
2016
|
2015
|
|
Audit
Fees
|
$54,004
|
$30,000
|
|
Tax
Fees
|
3,500
|
$3,500
|
|
Total
|
$57,504
|
$33,500
|
44
PART IV
Item
15.
Exhibits,
Financial Statement Schedules
(a)(1)
List of Financial
Statements included in Part II hereof:
Consolidated
Balance Sheet as of December 31, 2016 and 2015
Consolidated
Statement of Comprehensive Loss for the Years Ended December 31,
2016 and 2015
Consolidated
Statement of Stockholder Equity (Deficit) for the Period January 1,
2015 to December 31, 2016
Consolidated
Statements of Cash Flow for the Years Ended December 31, 2016 and
2015
(a)(2)
List of Financial
Statement schedules included in Part IV hereof:
None
(a)(3)
Exhibits
The
following exhibits are included herewith:
|
Exhibit
Number
|
Description
|
|
|
|
|
|
|
3.1
|
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).
|
|
|
3.1.1
|
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).
|
|
|
3.2
|
Bylaws
(incorporated herein by reference to Exhibit 3.2 to the
Company’s Registration Statement on Form S-1 filed on March
21, 2014).
|
|
|
10.6
|
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).
|
|
|
10.7
|
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).
|
|
|
10.8
|
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).
|
|
|
10.9
|
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).
|
|
|
21.1*
|
Subsidiaries
of the Registrant
|
|
|
31.1*
|
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.
|
|
|
31.2*
|
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.
|
|
|
32.1*
|
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*
|
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.
45
SIGNATURES
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.
|
|
HOTAPP INTERNATIONAL INC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
April 14, 2017
|
By:
|
/s/
Chan Heng
Fai
|
|
|
|
|
Chan
Heng Fai
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
Date:
April 14, 2017
|
By:
|
/s/
Lui Wai Leung,
Alan
|
|
|
|
|
Lui Wai
Leung, Alan
|
|
|
|
|
Chief
Financial 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/
Chan Heng
Fai
|
|
Chief
Executive Officer and Director
|
|
April
14, 2017
|
|
Chan
Heng Fai
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
| s/ Lui Wai Leung, Alan |
|
Chief
Financial Officer
|
|
April
14, 2017
|
|
Lui Wai
Leung, Alan
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Conn
Flanigan
|
|
Secretary
and Director
|
|
April
14, 2017
|
|
Conn
Flanigan
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lum Kan Fai
|
|
Chief Technology
Officer and Director
|
|
April 14,
2017
|
|
Lum Kan
Fai
|
|
|
|
|
46