Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
☑
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30,
2018
or
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____________________to
____________________
333-194748
Commission
file number
HotApp Blockchain Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
45-4742558
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
4800 Montgomery Lane, Suite 210 Bethesda MD
|
|
20814
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
301-971-3940
Registrant’s
telephone number, including area code
Indicate
by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
☐ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer ☐
|
Accelerated filer
☐
|
Non-accelerated
filer ☐
|
Smaller reporting
company ☑
|
(Do not check if a
smaller reporting company)
|
Emerging growth
company ☑
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☑
Indicate
the number of shares outstanding of each the registrant’s
classes of common stock, as of the latest practicable date. As of
November 14, 2018, there were 506,898,576 shares outstanding of the
registrant’s common stock $0.0001 par value.
Throughout this Report on Form 10-Q, the terms
“Company,” “we,” “us” and
“our” refer to HotApp Blockchain Inc., and “our
board of directors” refers to the board of directors of
HotApp Blockchain Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements that involve a number of
risks and uncertainties. Although our forward-looking statements
reflect the good faith judgment of our management, these statements
can be based only on facts and factors of which we are currently
aware. Consequently, forward-looking statements are inherently
subject to risks and uncertainties. Actual results and outcomes may
differ materially from results and outcomes discussed in the
forward-looking statements.
Forward-looking
statements can be identified by the use of forward-looking words
such as “may,” “will,”
“should,” “anticipate,”
“believe,” “expect,” “plan,”
“future,” “intend,” “could,”
“estimate,” “predict,” “hope,”
“potential,” “continue,” or the negative of
these terms or other similar expressions. 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:
●
the availability
and adequacy of capital to support and grow our
business;
●
economic,
competitive, business and other conditions in our local and
regional markets;
●
actions taken or
not taken by others, including competitors, as well as legislative,
regulatory,
judicial and other
governmental authorities;
●
competition in our
industry;
●
changes in our
business and growth strategy, capital improvements or development
plans;
●
the availability of
additional capital to support development; and
●
other factors
discussed elsewhere in this annual report.
The
cautionary statements made in this quarterly report are intended to
be applicable to all related forward-looking statements wherever
they may appear in this report.
We urge
you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. We
undertake no obligation to publicly update any forward
looking-statements, whether as a result of new information, future
events or otherwise.
TABLE OF CONTENTS
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Condensed
Consolidated Balance Sheets as of September 30, 2018 (unaudited)
and December 31, 2017
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5
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Condensed
Consolidated Statements of Operations and Comprehensive Loss for
the three and nine months ended September 30, 2018 and 2017
(unaudited)
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6
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|
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Condensed
Consolidated Statements of Stockholders’ Equity (Deficit) for
the nine months ended September 30, 2018 (unaudited)
|
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7
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Condensed
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2018 and 2017 (unaudited)
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8
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Notes
to Condensed Consolidated Financial Statements
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9
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4
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2018 (UNAUDITED)
AND DECEMBER 31, 2017
|
September
30, 2018
|
December
31, 2017
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
Cash
|
$66,912
|
$95,038
|
Accounts
receivable-related parties
|
39,427
|
89,427
|
Accounts
receivable-trade
|
10,220
|
17,914
|
Prepaid
expenses
|
3,870
|
7,532
|
Deposit and other
receivable
|
8,176
|
8,189
|
Current assets of
discontinued operations
|
15,370
|
35,038
|
TOTAL CURRENT
ASSETS
|
143,975
|
253,138
|
|
|
|
Fixed assets,
net
|
8,313
|
14,628
|
Non-current assets
of discontinued operations
|
2,320
|
8,309
|
TOTAL
ASSETS
|
$154,608
|
$276,075
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
Accounts payable
and accrued expenses
|
$35,713
|
$33,141
|
Accrued taxes and
franchise fees
|
7,742
|
7,742
|
Amount due to
related parties
|
987,206
|
825,107
|
Current liabilities
of discontinued operations
|
164,485
|
171,566
|
TOTAL CURRENT
LIABILITIES
|
1,195,146
|
1,037,556
|
|
|
|
TOTAL
LIABILITIES
|
1,195,146
|
1,037,556
|
|
|
|
STOCKHOLDERS'
(DEFICIT):
|
|
|
Preferred stock,
$0.0001 par value, 15,000,000 shares authorized, 0 issued and
outstanding as of September 30, 2018 and December 31,
2017
|
-
|
-
|
Common stock,
$0.0001 par value, 1,000,000,000 shares authorized, 506,898,576
shares issued and outstanding, as of September 30, 2018 and
December 31, 2017
|
50,690
|
50,690
|
Accumulated other
comprehensive loss
|
(198,836)
|
(289,398)
|
Additional paid-in
capital
|
4,604,191
|
4,604,191
|
Accumulated
deficit
|
(5,496,583)
|
(5,126,964)
|
TOTAL
STOCKHOLDERS' DEFICIT
|
(1,040,538)
|
(761,481)
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$154,608
|
$276,075
|
The
accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
5
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
|
Quarter
Ended September 30, 2018
|
Quarter
Ended September 30, 2017
|
Nine
Months Ended September 30, 2018
|
Nine
Months Ended September 30, 2017
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Project fee-related
parties
|
$23,018
|
$33,694
|
$115,107
|
$103,548
|
Project
fee-others
|
10,203
|
48,538
|
20,408
|
38,869
|
|
33,221
|
82,232
|
135,515
|
142,417
|
|
|
|
|
|
Cost
of revenues
|
20,652
|
39,135
|
74,111
|
46,715
|
|
|
|
|
|
Gross
profit
|
$12,569
|
$43,097
|
$61,404
|
$95,702
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Research and
product development
|
$-
|
$-
|
$-
|
$-
|
Deposits written
off
|
-
|
25
|
-
|
2,705
|
Depreciation
|
2,207
|
3,954
|
7,833
|
9,138
|
Loss on disposal of
fixed assets
|
-
|
-
|
-
|
131
|
General and
administrative
|
71,137
|
123,106
|
293,161
|
483,818
|
Total
operating expenses
|
73,344
|
127,085
|
300,994
|
495,792
|
|
|
|
|
|
(Loss)
from operations
|
(60,775)
|
(83,988)
|
(239,590)
|
(400,090)
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
Interest
income
|
-
|
-
|
7
|
1
|
Other sundry
income
|
-
|
-
|
-
|
-
|
Foreign exchange
gain (loss)
|
(3,359)
|
31,567
|
(49,773)
|
147,424
|
Total
other income (expenses)
|
(3,359)
|
31,567
|
(49,766)
|
147,425
|
|
|
|
|
|
Loss
before taxes
|
(64,134)
|
(52,421)
|
(289,356)
|
(252,665)
|
Income tax
provision
|
-
|
-
|
-
|
-
|
Net
income from continuing operations
|
(64,134)
|
(52,421)
|
(289,356)
|
(252,665)
|
Loss
from discontinued operations, net of tax
|
(32,143)
|
(75,492)
|
(80,263)
|
(191,262)
|
Net
loss applicable to common shareholders
|
$(96,277)
|
$(127,913)
|
$(369,619)
|
$(443,927)
|
|
|
|
|
|
Net loss from
continuing operations per share - basic and diluted
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
Net loss from
discontinued operations per share - basic and diluted
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
Net loss per share
- basic and diluted
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
$(0.00)
|
|
|
|
|
|
Weighted number of
shares outstanding -
|
|
|
|
|
Basic and
diluted
|
506,898,576
|
506,898,576
|
506,898,576
|
214,041,100
|
|
|
|
|
|
Comprehensive
Income Loss:
|
|
|
|
|
Net
loss
|
$(96,277)
|
$(127,913)
|
$(369,619)
|
$(443,927)
|
Foreign currency
translation gain (loss)
|
21,899
|
(44,241)
|
90,562
|
(165,908)
|
Total
comprehensive loss
|
$(74,378)
|
$(172,154)
|
$(279,057)
|
$(609,835)
|
The
accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
6
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED)
|
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, 2017
|
-
|
$-
|
506,898,576
|
$50,690
|
$4,604,191
|
$(289,398)
|
$(5,126,964)
|
$(761,481)
|
Net loss for
period
|
-
|
-
|
-
|
-
|
-
|
-
|
(70,645)
|
(70,645)
|
Foreign currency
translation adjustment
|
-
|
-
|
-
|
-
|
-
|
(59,452)
|
-
|
(59,452)
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2018
|
-
|
$-
|
506,898,576
|
$50,690
|
$4,604,191
|
$(348,850)
|
$(5,197,609)
|
$(891,578)
|
Net loss for
period
|
-
|
-
|
-
|
-
|
-
|
-
|
(202,697)
|
(202,697)
|
Foreign currency
translation adjustment
|
-
|
-
|
-
|
-
|
-
|
128,115
|
-
|
128,115
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2018
|
-
|
|
$506,898,576
|
$50,690
|
$4,604,191
|
$(220,735)
|
$(5,400,306)
|
$(966,160)
|
Net loss for
period
|
-
|
-
|
-
|
-
|
-
|
-
|
(96,277)
|
(96,277)
|
Foreign currency
translation adjustment
|
-
|
-
|
-
|
-
|
-
|
21,899
|
-
|
21,899
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2018
|
-
|
$-
|
506,898,576
|
$50,690
|
$4,604,191
|
$(198,836)
|
$(5,496,583)
|
$(1,040,538)
|
The
accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
7
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
|
Nine
Months Ended September 30, 2018
|
Nine
Months Ended September 30, 2017
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Continuing
Operations
|
|
|
Net
Loss including noncontrolling interests
|
$(289,356)
|
$(252,665)
|
Adjustments
to reconcile net loss to cash used in operations of Continuing
Operations:
|
|
|
Depreciation
|
7,833
|
9,138
|
Deposit written
off
|
-
|
2,705
|
Loss on disposal of
fixed asset
|
-
|
131
|
Foreign exchange
transaction loss (gain)
|
49,773
|
(147,424)
|
|
|
|
Change
in operating assets and liabilities:
|
|
|
Costs in excess of
billings
|
-
|
30,332
|
Accounts
receivable-related parties
|
50,000
|
(58,088)
|
Accounts
receivable-trade
|
7,694
|
(35,848)
|
Security deposit
and other receivable
|
13
|
3,628
|
Prepaid
expenses
|
3,662
|
(7,199)
|
Accounts payable
and accrued expenses
|
2,572
|
(5,102)
|
Deferred
revenue
|
-
|
5,377
|
Net
cash used in operating activities
|
$(167,809)
|
$(455,015)
|
|
|
|
Discontinued
Operations
|
|
|
Net
Loss from discontinued operations, including noncontrolling
interests
|
(80,263)
|
(191,262)
|
Depreciation
|
5,989
|
18,894
|
Deposit written
off
|
-
|
-
|
Loss on disposal of
fixed asset
|
-
|
-
|
Foreign exchange
transaction loss (gain)
|
9,123
|
6,612
|
Change
in operating assets and liabilities:
|
|
|
Accounts
receivable-trade
|
(2,913)
|
-
|
Security deposit
and other receivable
|
279
|
-
|
Prepaid
expenses
|
-
|
2,921
|
Accounts payable
and accrued expenses
|
(7,081)
|
(16,990)
|
Net
cash used in operations of Discontinued Operations
|
$(74,866)
|
$(179,825)
|
|
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
Purchase of fixed
asset
|
(1,518)
|
(12,529)
|
Net
cash used in investing activities
|
$(1,518)
|
$(12,529)
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
Advance from
related parties
|
162,099
|
719,455
|
Net
cash provided by financing activities
|
$162,099
|
$719,455
|
|
|
|
NET
(DECREASE)/INCREASE IN CASH
|
(82,094)
|
72,086
|
Effects of exchange
rates on cash
|
31,666
|
(25,096)
|
|
|
|
CASH
AND CASH EQUIVALENTS at beginning of period
|
124,739
|
102,776
|
CASH
AND CASH EQUIVALENTS at end of period
|
$74,311
|
$149,766
|
|
|
|
Supplemental
schedule of non-cash investing and financing
activities
|
|
|
Conversion of
shareholder loan into common stock
|
$-
|
$450,890
|
|
|
|
The
accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
8
HOTAPP BLOCKCHAIN INC. (FORMERLY KNOWN AS HOTAPP INTERNATIONAL,
INC.)
Note 1. The Company History and Nature of the Business
HotApp
Blockchain Inc., formerly HotApp International, Inc., (the
“Company” or “Group”) was incorporated in
the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd
(“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices
(“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). Started from a cross platform mobile application
that incorporate messaging and eCommerce, HotApp has evolved as a
platform service provider with application framework serving
vertical industry such as multilevel marketing. The messaging and
calling services was terminated in 2017. HotApp can be used on any
mobile platform (i.e. IOS Online or Android).
As of
September 30, 2018, 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
|
Crypto
Exchange Inc.
|
December
15, 2017
|
State
of Nevada, the United States of America
|
100% by
Company
|
2nd Tier Subsidiaries:
|
|
|
|
HWH
World Pte. Ltd., formerly Crypto Exchange Pte. Ltd. and 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 the
issued and outstanding shares of HotApp International
Limited.
These
financial statements have been prepared using accounting principles
generally accepted in the United States of America applicable for a
going concern, which assumes that the Company will realize its
assets and discharge its liabilities in the ordinary course of
business. Since inception, the Company has incurred net losses of
$5,496,583 and has net working capital deficit of $1,051,171 at
September 30, 2018. 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 November
14, 2019. We have evaluated the significance of the conditions in
relation to our ability to meet our obligations and believe that
our current cash balance along with our current operations will not
provide sufficient capital to continue operation through 2018. Our
ability to continue as a going concern is dependent upon achieving
sales growth, the management of operating expenses and the 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 them
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
accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). These condensed consolidated
financial statements should be read in conjunction with the
financial statements and additional information as contained in our
Annual Report on Form 10-K for the year ended December 31, 2017.
Results of operations for the nine month periods ended September
30, 2018 are not necessarily indicative of the operating results
that may be expected for the year ending December 31, 2018. The
other information in these condensed consolidated financial
statements is unaudited but, in the opinion of management, reflects
all adjustments necessary for a fair presentation of the results
for the periods covered. All such adjustments are of a normal
recurring nature unless disclosed otherwise.
9
Basis of consolidation
The
consolidated financial statements of the Group include the
financial statements of HotApp Blockchain Inc. and its
subsidiaries. All inter-company transactions and balances have been
eliminated upon consolidation.
Use of estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and revenues, cost
and expenses in the financial statements and accompanying notes.
Significant accounting estimates reflected in the Group’s
consolidated financial statements include revenue recognition, the
useful lives and impairment of property and equipment.
Cash and cash equivalents
The
Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash
equivalents. There were no cash equivalents as of September 30,
2018 and December 31, 2017.
Foreign currency risk
Because
of its foreign operations, the Company holds cash in non-US
dollars. As of September 30, 2018, cash and cash equivalents of the
Group includes, on an as converted basis to US dollars $51,872,
$7,399 and $14,102 in Hong Kong Dollars (“HK$”),
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.
Concentrations
Financial
instruments that potentially expose the Group to concentration of
credit risk consist primarily of cash. Although the cash at each
particular bank in the United States is insured up to $250,000 by
Federal Deposit Insurance Corporation (FDIC), the Group exposes to
risk due to its concentration of cash in foreign countries. The
Group places their cash with financial institutions with
high-credit ratings and quality. The Group also exposes to credit
risk due to its concentration for customers with revenue in excess
of 10%.
|
Total
|
Related
parties
|
Related
parties
|
Trade
|
Trade
|
|
Amount
|
Amount
|
Percentage
|
Amount
|
Percentage
|
Accounts
receivables
|
|
|
|
|
|
As of September 30,
2018
|
$52,560
|
$39,427
|
75%
|
$13,133
|
25%
|
As of December 31,
2017
|
$107,341
|
$89,427
|
83%
|
$17,914
|
17%
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
For the nine months
ended September 30, 2018
|
$142,952
|
$115,107
|
81%
|
$27,845
|
19%
|
For the nine months
ended September 30, 2017
|
$186,596
|
$103,548
|
55%
|
$83,048
|
45%
|
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
|
10
Fair value
The
carrying value of cash and cash equivalents, accounts payable and
accrued liabilities, and borrowings, as reflected in the balance
sheets, approximate fair value because of the short-term maturity
of these instruments. All other significant financial assets,
financial liabilities and equity instruments of the Company are
either recognized or disclosed in the financial statements together
with other information relevant for making a reasonable assessment
of future cash flows, interest rate risk and credit risk. Where
practicable the fair values of financial assets and financial
liabilities have been determined and disclosed; otherwise only
available information pertinent to fair value has been
disclosed.
Revenue recognition
Accounting
Standards Codification ("ASC") 606, Revenue from Contracts with
Customers ("ASC 606"), establishes principles for reporting
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. Under the new standard,
revenue is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration the
entity expects to receive in exchange for those goods or services.
The Company adopted this new standard on January 1, 2018 under the
modified retrospective method to all contracts not completed as of
January 1, 2018 and the adoption did not have a material effect on
our financial statements but we expanded our disclosures related to
contracts with customers below.
Revenue
is recognized when (or as) the Company transfers promised goods or
services to its customers in amounts that reflect the consideration
to which the Company expects to be entitled to in exchange for
those goods or services, which occurs when (or as) the Company
satisfies its contractual obligations and transfers over control of
the promised goods or services to its customers. Costs to obtain or
fulfill a contract are expensed as incurred.
Disaggregation of Revenue
We
generate revenue from the project involving provision of services
and web/software development to customers. In respect to the
provision of services, the agreement span over the length of one
year with cancellable clause and are typically billed on a monthly
basis. The following table depicts the disaggregation of revenue
according to revenue type and is consistent with how we evaluate
our financial performance:
|
For
the nine months ended September 30, 2018
|
||
Segments
|
Provision
of Services
|
Web
/ Software Development
|
Total
|
Primary
Geographical Markets
|
|
|
|
North
America
|
$115,107
|
$-
|
$115,107
|
Asia
|
-
|
27,845
|
27,845
|
|
$115,107
|
$27,845
|
$142,952
|
|
|
|
|
Timing
of Revenue Recognition
|
|
|
|
Goods transferred
at a point in time
|
$-
|
$27,845
|
$27,845
|
Services
transferred over time
|
115,107
|
-
|
115,107
|
|
$115,107
|
$27,845
|
$142,952
|
|
For
the nine months ended September 30, 2017
|
||
Segments
|
Provision
of Services
|
Web
/ Software Development
|
Total
|
Primary
Geographical Markets
|
|
|
|
North
America
|
$-
|
$103,548
|
$103,548
|
Asia
|
48,521
|
34,527
|
83,048
|
|
$48,521
|
$138,075
|
$186,596
|
|
|
|
|
Timing of Revenue
Recognition
|
|
|
|
Goods transferred
at a point in time
|
$-
|
$138,075
|
$138,075
|
Services
transferred over time
|
48,521
|
-
|
48,521
|
|
$48,521
|
$138,075
|
$186,596
|
11
Contract assets and contract liabilities
Based
on our contracts, we normally invoice customers once our
performance obligations have been satisfied, at which point payment
is unconditional. Accordingly, our contracts do not give rise to
contract assets or liabilities under ASC 606. Accounts receivable
are recorded when the right to consideration becomes
unconditional.
Remaining performance obligations
As of
September 30, 2018, the aggregate amount of the transaction price
allocated to the remaining performance obligation is $5,110, and
the Group will recognize this revenue as the web development is
completed, which is expected to occur over the next 3
months.
Research and development expenses
Research
and development expenses primarily consist of salaries and benefits
for research and development personnel. 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 non-current based on their
characteristics.
The
impact of an uncertain income tax position on the income tax return
is recognized at the largest amount that is more-likely-than-not to
be sustained upon audit by the relevant tax authority. An uncertain
income tax position will not be recognized if it has less than a
50% likelihood of being sustained. Interest and penalties on income
taxes will be classified as a component of the provisions for
income taxes. The Group did not recognize any income tax due to
uncertain tax position or incur any interest and penalties related
to potential underpaid income tax expenses for the period ended
September 30, 2018 or 2017, 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
Items
included in the financial statements of each entity in the group
are measured using the currency of the primary economic environment
in which the entity operates (“functional
currency”).
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
three and nine months ended September 30, 2018, the Company
recorded other comprehensive income from translation gain of
$21,899 and $90,562 in the consolidated financial statements. For
the three and nine months ended September 30, 2017, the Company
recorded other comprehensive income from translation loss of
$44,241 and $165,908 in the consolidated financial
statements.
12
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 September 30, 2018, no shares of preferred stock are
eligible for conversion into voting common stock.
As of
September 30, 2018, there are no potentially dilutive securities
that were excluded from the computation of diluted
EPS.
Recent accounting pronouncements not yet adopted
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. ASU 2016-02 is effective for interim
and annual periods beginning after December 15, 2018. The Company
is currently evaluating the potential impacts of this
Update.
In
February 2018, the FASB issued Accounting Standards Update No.
2018-02, Income Statement – Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from
accumulated Other Comprehensive Income, or ASU 2018-02, which
requires the reclassification from accumulated other comprehensive
income to retained earnings for the stranded tax effects arising
from the change in the reduction of the U.S. federal statutory
income tax rate to 21% from 35%. ASU 2018-02 is effective for
interim and annual periods beginning after December 15, 2018. We
will adopt ASU 2018-02 on January 1, 2019. The Company is currently
evaluating the potential impacts of this Update.
In June
2018, the FASB issued Accounting Standards Update No. 2018-07,
which simplifies several aspects of the accounting for nonemployee
share-based payment transactions resulting from expanding the scope
of Topic 718, Compensation-Stock Compensation, to include
share-based payment transactions for acquiring goods and services
from nonemployees. Some of the areas for simplification apply only
to nonpublic entities. The amendments specify that Topic 718
applies to all share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment
awards. The amendments also clarify that Topic 718 does not apply
to share-based payments used to effectively provide (1) financing
to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for
under Topic 606, Revenue from Contracts with Customers. The
amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. The Company is
currently evaluating the potential impacts of this
Update.
Note 3. FIXED ASSETS, NET
Fixed
assets, net consisted of the following:
|
September
30,
|
December
31,
|
|
2018
|
2017
|
Computer
equipment
|
$78,078
|
$76,662
|
Office
equipment
|
22,945
|
22,843
|
Furniture and
fixtures
|
10,599
|
10,599
|
|
$111,622
|
$110,104
|
Less: accumulated
depreciation
|
(100,989)
|
(87,167)
|
Fixed assets,
net
|
$10,633
|
$22,937
|
Depreciation
expenses charged to the consolidated statements of operations for
the three months ended September 30, 2018 and 2017 were $3,400 and
$9,965, respectively. Depreciation expenses charged to the
consolidated statements of operations for the nine months ended
September 30, 2018 and 2017 were $13,822 and $28,032,
respectively.
13
Note 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued
expenses and other current liabilities consisted of the
following:
|
September
30,
|
December
31,
|
|
2018
|
2017
|
Accrued payroll
& benefits
|
$173,250
|
$170,915
|
Accrued
professional fees
|
18,532
|
20,666
|
Other
|
8,416
|
13,126
|
Total
|
$200,198
|
$204,707
|
Note 5. SHARE CAPITALIZATION
The
Company is authorized to issue 1 billion shares of common stock and
15 million shares of preferred stock. The authorized share capital
of the Company’s common stock was increased from 500 million
to 1 billion on May 5, 2017. Both share types have a $0.0001 par
value. As of September 30, 2018 and December 31, 2017, the Company
had issued and outstanding, 506,898,576 of common stock, and 0
shares of preferred stock.
Common 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.
On July
13, 2015, Singapore eDevelopment Limited (“SeD”)
acquired 777,687 shares of the Company common stock by converting
outstanding loans made to the Company into common stock of the
Company at a rate of $5.00 per share (rounded to the nearest full
share). After such transactions SeD owned 98.17% of the
Company.
On
March 27, 2017, the Company entered into a Loan Conversion
Agreement with SeD, pursuant to which SeD agreed to convert
$450,890 of debt owed by Company to SeD into 500,988,889 common
shares at a conversion price of $0.0009. The captioned shares were
issued on June 9, 2017, and SeD owned 99.979% of the Company after
such transactions.
Preferred Shares:
Pursuant
to the Purchase Agreement, dated October 15, 2014, the Company
issued 13,800,000 shares of a class of preferred stock called
Perpetual Preferred Stock (“Preferred Stock”) to SeD .
The Preferred Stock has no dividend or voting rights. The Preferred
Stock is convertible to common stock of the Company dependent upon
the number of commercial users of the Software. For each 1,000,000
commercial users of the Software (without duplication), SeD shall
have the right to convert 1,464,000 shares of Perpetual Preferred
Stock into 7,320,000 shares of Common Stock, so that there must be
a minimum of 9,426,230 commercial users in order for all of the
shares of the Perpetual Preferred Stock to be converted into common
stock of the Company (13,800,000 shares of Preferred Stock
convertible into 69,000,000 shares of common stock).
On
March 27, 2017, SeD and the Company entered into a Preferred Stock
Cancellation Agreement, by which SeD agreed to cancel its
13,800,000 shares Perpetual Preferred Stock issued by the Company.
On June 8, 2017, a Certificate of Retirement for 13,800,000 shares
of the Perpetual Preferred Stock has been filed to the office of
Secretary of State of the State of Delaware.
Other
than the conversion rights described above, the Preferred Stock has
no voting, dividend, redemption or other rights.
Note 6. EQUITY INCENTIVE PLAN
On July
30, 2018, the Company adopted the Equity Incentive Plan (the
“Equity Plan”). The Equity Plan is intended to
encourage ownership of shares of common stock by employees,
directors, and certain consultants to the Company in order to
attract and retain such people and, to induce them to work for the
benefit of the Company. The Equity Plan provides for the grant of
options and/or other stock-based or stock-denominated awards.
Subject to adjustment in accordance with the terms of the Equity
Plan, 50,000,000 shares of Common Stock of the Company have been
reserved for issuance pursuant to awards under the Equity Plan. The
Equity Plan will be administered by the Company’s Board of
Directors. This Equity Plan shall terminate ten (10) years from the
date of its adoption by the Board of Directors.
14
Note 7. DISCONTINUED OPERATIONS
The
composition of assets and liabilities included in discontinued
operations was as follows:
|
September
30, 2018
|
December
31, 2017
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
Cash
|
$7,399
|
$29,701
|
Accounts
receivable-trade
|
2,913
|
-
|
Deposit and other
receivable
|
5,058
|
5,337
|
TOTAL CURRENT
ASSETS
|
15,370
|
35,038
|
|
|
|
Fixed assets,
net
|
2,320
|
8,309
|
TOTAL
ASSETS
|
$17,690
|
$43,347
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
Accounts payable
and accrued expenses
|
$164,485
|
$171,566
|
TOTAL CURRENT
LIABILITIES
|
164,485
|
171,566
|
|
|
|
TOTAL
LIABILITIES
|
$164,485
|
$171,566
|
The
aggregate financial results of discontinued operations were as
follows:
|
Quarter
Ended September 30, 2018
|
Quarter
Ended September 30, 2017
|
Nine
Months Ended September 30, 2018
|
Nine
Months Ended September 30, 2017
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Project
fee-others
|
$-
|
$-
|
$7,437
|
$44,179
|
|
-
|
-
|
7,437
|
44,179
|
|
|
|
|
|
Cost
of revenues
|
-
|
-
|
4,596
|
9,071
|
|
|
|
|
|
Gross
profit
|
$-
|
$-
|
$2,841
|
$35,108
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Research and
product development
|
$-
|
$59,242
|
$-
|
$162,013
|
Depreciation
|
1,193
|
6,011
|
5,989
|
18,894
|
General and
administrative
|
21,279
|
11,404
|
68,413
|
38,851
|
Total
operating expenses
|
22,472
|
76,657
|
74,402
|
219,758
|
|
|
|
|
|
(Loss)
from operations
|
(22,472)
|
(76,657)
|
(71,561)
|
(184,650)
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
|
Other sundry
income
|
81
|
-
|
421
|
-
|
Foreign exchange
gain (loss)
|
(9,752)
|
1,165
|
(9,123)
|
(6,612)
|
Total
other income (expenses)
|
(9,671)
|
1,165
|
(8,702)
|
(6,612)
|
|
|
|
|
|
Loss
from discontinued operations
|
$(32,143)
|
$(75,492)
|
$(80,263)
|
$(191,262)
|
15
Note 8. COMMITMENTS AND CONTINGENCIES
On May
9, 2016, the Company entered into a lease agreement for 1,231
square feet of office space in Guangzhou, China. The lease
commenced on May 9, 2016 and runs through May 8, 2018 with monthly
payments of $2,366. The Company has renewed the lease agreement for
another year until May 29, 2019 with monthly payments of $2,484.
The Company was required to put up a security deposit of $4,498.
For the nine months ended September 30, 2018, the Company recorded
rent expense of $21,883 for the Guangzhou office.
On
April 10, 2015, the Company entered into a lease agreement for 347
square feet of office space in Kowloon, Hong Kong. This lease
commenced on April 20, 2015 and runs through April 19, 2017 with
monthly payments of $2,574. The Company was required to put up a
security deposit of $5,147. On March 16, 2017, the Company entered
into a lease agreement for 1,504 square feet of office space in
Kowloon, Hong Kong. This lease commenced on March 16, 2017 and runs
through March 31, 2019 with monthly payments of $3,253. The Company
was required to put up a security deposit of $6,515. For the three
and nine months ended September 30, 2018, the Company recorded rent
expense of $10,577 and $30,894 for the office. For the three and
nine months ended September 30, 2017, the Company recorded rent
expense of $12,043 and $31,561 for the office. The
lease was terminated on September 30, 2018 and the security deposit
is expected to be returned in the coming quarter.
The
following is a schedule by years of future minimum lease payments
under non-cancellable operating leases:
2018
|
$7,452
|
2019
|
4,968
|
Total
|
$12,420
|
|
|
Note 9. RELATED PARTY BALANCES AND TRANSACTIONS
The
Company’s Acting Chief Executive Officer, Mr. Chan Heng Fai
is also the Chief Executive Officer of SeD. SeD is the
majority shareholder of the Company. As of the date of this
report, the Company has not entered into any employment arrangement
with any director or officer.
On
March 1, 2018, the Company’s subsidiary HotApp International
Ltd. entered into an Outsource Technology Development Agreement
(the “Agreement”) with Document Security Systems, Inc.
(“Document Security Systems”), which may be terminated
by either party on 30-days’ notice. The purpose of the
Agreement is to facilitate Document Security Systems’
development of a software application to be included as part of
Document Security Systems’ AuthentiGuard® Technology
suite. Under this agreement, Document Security Systems agreed to
pay $23,000 per month for access to HotApp International
Ltd.’s software programmers. The
agreement was terminated on July 31, 2018. Mr. Chan Heng Fai
is a member of the Company’s Board of Directors and, through
his control of the Company’s majority shareholder, the
beneficial owner of a majority of the Company’s common stock.
Mr. Chan is also a member of the Board of Document Security Systems
and a shareholder of Document Security Systems. The agreement was terminated on July 31,
2018.
As of
September 30, 2018, the Company has amount due to SeD for $981,951,
plus an amount due to a director of $5,255 and has an amount due
from an affiliate for $2,192. The Company has made full impairment
provision for the amount due from the affiliate.
The
account receivable as of September 30, 2018 included a trade
receivable from an affiliate by common ownership amounting to
$39,428 resulting from the revenue earned from that affiliate
during the year 2017.
On October 25, 2018, HotApps International Pte. Ltd.
(“HotApps International”), a wholly owned subsidiary of
the Company entered into an Equity Purchase Agreement with DSS Asia
Limited (“DSS Asia”), a Hong Kong subsidiary of DSS
International Inc. (“DSS International”), pursuant to
which HotApps International will sell to DSS Asia all of the issued
and outstanding shares of Guangzhou HotApps Technology Ltd.
(“Guangzhou HotApps”). Mr. Chan Heng
Fai is the Acting Chief Executive Officer and a Member of the
Board of Directors of the Company. He is also the Chief
Executive Officer, Chairman and controlling shareholder of
Singapore eDevelopment Limited, the majority shareholder of the
Company. Mr. Chan is also the Chief Executive Officer and
Chairman of DSS International and a significant shareholder and a
member of the Board of Document Security Systems Inc., which is the
sole owner of DSS International. Mr. Chan Heng Fai is
also a member of the Board of Directors of Document Security
Systems and a shareholder of Document Security
Systems. Lum Kan Fai, a member of the Board of Directors
of the Company, is also an employee of DSS
International. The closing of the Equity Purchase
Agreement is subject to conditions and the parties expect to close
in 2018. Guangzhou HotApps is primarily engaged in
engineering work for software development, mainly voice over
internet protocol. Guangzhou HotApps is also involved in
a number of outsourcing projects, including projects related to
real estate and lighting. The purchase price for this
transaction is $100,000, which shall be paid in the form of a
two-year, interest free, unsecured, demand promissory note in the
principal amount of $100,000. The note shall be due and
payable in full on two years from the closing of the Equity
Purchase Agreement.
Note 10. SUBSEQUENT EVENTS
On
October 25, 2018, HotApps International Pte. Ltd. (“HotApps
International”), a wholly owned subsidiary of the Company
entered into an Equity Purchase Agreement with DSS Asia Limited
(“DSS Asia”), a Hong Kong subsidiary of DSS
International Inc. (“DSS International”), pursuant to
which HotApps International will sell to DSS Asia all of the issued
and outstanding shares of Guangzhou HotApps Technology Ltd.
(“Guangzhou HotApps”). Mr. Chan Heng Fai is the Acting
Chief Executive Officer and a Member of the Board of Directors of
the Company. He is also the Chief Executive Officer, Chairman and
controlling shareholder of Singapore eDevelopment Limited, the
majority shareholder of the Company. Mr. Chan is also the Chief
Executive Officer and Chairman of DSS International and a
significant shareholder and a member of the Board of Document
Security Systems Inc., which is the sole owner of DSS
International. Mr. Chan Heng Fai is also a member of the Board of
Directors of Document Security Systems and a shareholder of
Document Security Systems. Lum Kan Fai, a member of the Board of
Directors of the Company, is also an employee of DSS International.
The closing of the Equity Purchase Agreement is subjectto
conditions and the parties expect to close in 2018. Guangzhou
HotApps is primarily engaged in engineering work for software
development, mainly voice over internet protocol. Guangzhou HotApps
is also involved in a number of outsourcing projects, including
projects related to real estate and lighting. The purchase price
for this transaction is $100,000, which shall be paid in the form
of a two-year, interest free, unsecured, demand promissory note in
the principal amount of $100,000. The note shall be due and payable
in full on two years from the closing of the Equity Purchase
Agreement.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements.
Such forward-looking statements contained in this Form 10-Q involve
risks and uncertainties, including statements as to:
1. our
future operating results;
2. our
business prospects;
3. any
contractual arrangements and relationships with third
parties;
4. the
dependence of our future success on the general
economy;
5. any
possible financings; and
6. the
adequacy of our cash resources and working capital.
These forward-looking statements can generally be identified as
such because the context of the statement will include words such
as we “believe,” “anticipate,”
“expect,” “estimate” or words of similar
meaning. Similarly, statements that describe our future plans,
objectives or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and
uncertainties which are described in close proximity to such
statements and which could cause actual results to differ
materially from those anticipated as of the date of filing of this
Form 10-Q. Shareholders, potential investors and other readers are
urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included
herein are only made as of the date of filing of this Form 10-Q,
and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or
circumstances.
This discussion contains forward-looking statements that reflect
our plans, estimates and beliefs. Our actual results may differ
materially from those anticipated in these forward-looking
statements.
Background
HotApp
Blockchain Inc., formerly HotApp International, Inc., (the
“Company” or “Group”) was incorporated in
the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd (the
“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices (the
“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). Started from a cross platform mobile application
that incorporate messaging and eCommerce, HotApp has evolved as a
platform Service provider with application framework serving
vertical industry such as multilevel Marketing. The messaging and
calling services has been terminated in 2017. HotApp can be used on
any mobile platform (i.e. IOS Online or Android). On 1 January
2018, the Company’s new subsidiary, Crypto Exchange Inc., has
issued 1,000 shares of its common stock to the
Company.
As of
September 30, 2018, 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
|
Crypto
Exchange Inc.
|
December
15, 2017
|
State
of Nevada, the United States of America
|
100% by
Company
|
2nd Tier Subsidiaries:
|
|
|
|
HWH
World Pte. Ltd., formerly Crypto Exchange Pte. Ltd. and 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 the
issued and outstanding shares of HotApp International
Limited.
The
Group has relied significantly on SeD as its principal sources of
funding during the year. With the restructuring efforts in 2016,
HotApp has reduced its expense runway significantly and had
revamped its business model and technology platform to focus on
business-to-business (“B2B”) services, built around
enterprise communications and workflow. Its product line will
target these industries: (i) network and direct marketing; (ii)
enterprise Voice-over-IP; (iii) enterprise messaging; and (iv)
e-commerce. This strategic shift is intended to create commercial
value with a sharper focus.
17
Our Business
HotApp
Blockchain Inc.is positioned as a technology platform serving
Business to Business (B2B) need in eCommerce, collaboration and
supply chain, the company has built a number of reusable
application modules and framework. These properties will help
enterprises and community users to transform their business model
with digital economy in a more effective manner. With our platform,
users can discover and build their own communities and create
valuable content. Our platform tools empower these communities to
share their thoughts and words across multiple channels. As these
communities grow, they provide the critical mass that attracts
enterprises. Enterprises in turn enhance user experience with
premium contents, all of which are facilitated by the transactions
of every stakeholder via e-commerce.
Trends in the Market and Our Opportunity
Digital
and mobile technologies are reshaping the B2B marketplace. This
isn’t only a technological revolution, it’s also a
paradigm shift in how B2B buyers consume content, make informed
buying decisions, and engage with sales people.
A
report by Statista on B2B eCommerce in 2017 has estimated $2.3
trillion B2C sales online while for B2B it is $7.7 trillion with a
234.78% difference. The reasons behind the dominance of B2B
are:
●
The rise of
self-service: 57% B2B customers use typical purchase process for
accomplishing proactive research online.
●
The simplified
ordering experiences: The wholesale customers on B2B portals find
simplified interface compared to a number of bells & whistles
required on the B2C e-commerce sites.
Mobile
is increasingly playing a critical role in the B2B customer
journey. In fact, 50% of B2B search queries today are made on
smartphones. A research from Boston Consulting Group expects that
figure to grow to 70% by 2020.
Based
upon the above trends, we believe significant opportunities
exist for:
●
Enterprises
deploying mobile platform to effectively engage different
stakeholders.
●
User Experience in
Mobile Commerce is one of the critical success factor, HotApp has
been able to capitalize our experience in B2C and apply to B2B
world.
●
Enterprises to
increase usage of Over-The-Top Services, such as adoption of
Enterprise messaging Apps alongside with using of email, video and
audio conferencing, collaboration through cloud services, as a new
medium for different stakeholder engagement including customers, to
promote and market their products and services (Collaboration
Framework). HotApp’s approach in white labelling for the
enterprises will augment and fill this demand in the market. White
label refers to packaging HotApp solution under brand name of
clients with some content being customized only for
clients.
●
Industries such as
Network Marketing and Hospitality and Franchising businesses are
utilizing Mobile friendly solutions to reach out effectively to
their marketing network on a global basis.
●
Application of
blockchain technology is no longer confined in the Financial
industry, enterprises are looking to blockchain as a way to address
product diversion, counterfeiting and track and trace solution.
These applications become a major building block of B2B
commerce.
Recent Developments
Outsource Technology Development Agreement
On
March 1, 2018, the Company’s subsidiary HotApp International
Ltd. entered into an Outsource Technology Development Agreement
(the “Agreement”) with Document Security Systems, Inc.
(“Document Security Systems”), which may be terminated
by either party on 30-days’ notice. The purpose of the
Agreement is to facilitate Document Security Systems’
development of a software application to be included as part of
Document Security Systems’ AuthentiGuard® Technology
suite. Under this agreement, Document Security Systems agreed to
pay $23,000 per month for access to HotApp International
Ltd.’s software programmers. The
agreement was terminated on July 31, 2018. Mr. Chan Heng Fai
is a member of the Company’s Board of Directors and, through
his control of the Company’s majority shareholder, the
beneficial owner of a majority of the Company’s common stock.
Mr. Chan is also a member of the Board of Document Security Systems
and a shareholder of Document Security Systems.
18
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:
●
Continual focus in
Business to Business market
●
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 Mobile B2B
commerce.
●
Position HotApp as
the technology consultant and project manager for ICO initiatives
in Asia.
●
Expand the service
portfolio to blockchain / smart contract design and implementation
in supply chain network
Results of Operations
Summary of Key Results
For the unaudited three months period ending September 30, 2018 and
2017
Revenue
Revenue
consist primarily of the service rendered on projects which require
significant software production. Total revenue for the three months
ended September 30, 2018 and 2017 were $33,221 and $82,232,
including $23,018 and $33,694 from related parties respectively.
There were two projects undergoing for the three months ended
September 30, 2018 and 2017 respectively. Both projects went
through the whole quarter ended September 30, 2017; while one of
the projects has terminated by end of July 2018.
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
three months ended September 30, 2018 and 2017 were $20,652 and
$39,135, 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 three months ended September
30, 2018 and 2017 were $0 and $59,242, respectively. The decrease
was a result from the streamlining and restructuring of
Company.
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 three months ended September 30,
2018 and 2017 were $95,816 and $144,475, respectively.
Other (Expense) / Income
In the
three months ended September 30, 2018 and 2017, we have incurred
$(13,111) and $32,732 in foreign exchange (loss) gain, $0 and $(25)
for the deposits written off and $81 and $0 in other sundry
income.
For the unaudited nine months period ending September 30, 2018 and
2017
Revenue
Revenue
consist primarily of the service rendered on projects which require
significant software production. Total revenue for the nine months
ended September 30, 2018 and 2017 were $142,952 and $186,596,
including $115,107 and $103,548 from related parties
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
nine months ended September 30, 2018 and 2017 were $78,707 and
$55,786, respectively.
19
Research and Development Expense
Research
and development expenses consists primarily of salary and benefits.
Expenditures incurred during the research phase are expensed as
incurred. Total research and development for the nine months ended
September 30, 2018 and 2017 were $0 and $162,013, respectively. The
decrease was a result from the streamlining and restructuring of
Company.
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 nine months ended September 30,
2018 and 2017 were $375,396 and $550,701,
respectively.
Other (Expense) / Income
In the
nine months ended September 30, 2018 and 2017, we have incurred $0
and $(2,705) for the deposits written off, $0 and $131 for loss on
disposal of fixed assets, and $(58,896) and $140,812 in foreign
exchange (loss) gain, $7 and $1 in interest income and $421 and $0
in other sundry income.
Liquidity and Capital Resources
At
September 30, 2018, we had cash of $74,311 and working capital
deficit of $1,051,171. Cash had decreased during the nine months
ended September 30, 2018 primarily due to operating losses incurred
during the quarter.
We had
a total stockholders’ deficit of $1,040,538 and an
accumulated deficit of $5,496,583 as of September 30, 2018 compared
with a total stockholders’ deficit of $761,481 and an
accumulated deficit of $5,126,964 as of December 31, 2017. This
difference is primarily due to the net loss incurred during the
period.
For the
nine months ended September 30, 2018, we recorded a net loss of
$369,619.
We had
net cash used in operating activities of $242,675 for the nine
months ended September 30, 2018. We had a positive change of
$54,781 due to accounts receivable, a positive change of $292 due
to security deposit and other receivables, and a positive change of
$3,662 due to prepaid expenses. We had a negative change of $4,509
due to accounts payable and accrued expenses.
For the
nine months ended September 30, 2017, we recorded a net loss of
$443,927.
We had
net cash used in operating activities of $634,840 for the nine
months ended September 30, 2017. We had a negative change of
$63,604 due to costs in excess of billings and account receivable,
a positive change of $3,628 due to security deposit and other
receivables, and a negative change of $4,278 due to prepaid
expenses. We had a negative change of $22,092 due to accounts
payable and accrued expenses, and a positive change of $5,377
due to deferred revenue.
For the
nine months ended September 30, 2018, we spent $1,518 on the
acquisition of fixed assets, resulting in net cash used in
investing activities of $1,518 for the period.
For the
nine months ended September 30, 2017, we spent $12,529 on the
acquisition of fixed assets, resulting in net cash used in
investing activities of $12,529 for the period.
For the
nine months ended September 30, 2018, we had net cash provided by
financial activities of $162,099 due to advances from an
affiliate.
For the
nine months ended September 30, 2017, we had net cash provided by
financial activities of $719,455 due to advances from an
affiliate.
As of
September 30, 2018, we have fixed operating office lease agreements
for Guangzhou’s office amounting to $12,420 from 2018 to
2019.
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 terms that are 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 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 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.
20
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
Accounting
Standards Codification ("ASC") 606, Revenue from Contracts with
Customers ("ASC 606"), establishes principles for reporting
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. Under the new standard,
revenue is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration the
entity expects to receive in exchange for those goods or services.
The Company adopted this new standard on January 1, 2018 under the
modified retrospective method to all contracts not completed as of
January 1, 2018 and the adoption did not have a material effect on
our financial statements but we expanded our disclosures related to
contracts with customers below.
Revenue
is recognized when (or as) the Company transfers promised goods or
services to its customers in amounts that reflect the consideration
to which the Company expects to be entitled to in exchange for
those goods or services, which occurs when (or as) the Company
satisfies its contractual obligations and transfers over control of
the promised goods or services to its customers. Costs to obtain or
fulfill a contract are expensed as incurred.
Disaggregation of Revenue
We
generate revenue from the project involving provision of services
and web/software development to customers. In respect to the
provision of services, the agreement span over the length of one
year with cancellable clause and are typically billed on a monthly
basis. The following table depicts the disaggregation of revenue
according to revenue type and is consistent with how we evaluate
our financial performance:
|
For
the nine months ended September 30, 2018
|
||
Segments
|
Provision
of Services
|
Web
/ Software Development
|
Total
|
Primary
Geographical Markets
|
|
|
|
North
America
|
$115,107
|
$-
|
$115,107
|
Asia
|
-
|
27,845
|
27,845
|
|
$115,107
|
$27,845
|
$142,952
|
|
|
|
|
Timing
of Revenue Recognition
|
|
|
|
Goods transferred
at a point in time
|
$-
|
$27,845
|
$27,845
|
Services
transferred over time
|
115,107
|
-
|
115,107
|
|
$115,107
|
$27,845
|
$142,952
|
21
|
For
the nine months ended September 30, 2017
|
||
Segments
|
Provision
of Services
|
Web
/ Software Development
|
Total
|
Primary
Geographical Markets
|
|
|
|
North
America
|
$-
|
$103,548
|
$103,548
|
Asia
|
48,521
|
34,527
|
83,048
|
|
$48,521
|
$138,075
|
$186,596
|
|
|
|
|
Timing of Revenue
Recognition
|
|
|
|
Goods transferred
at a point in time
|
$-
|
$138,075
|
$138,075
|
Services
transferred over time
|
48,521
|
-
|
48,521
|
|
$48,521
|
$138,075
|
$186,596
|
Contract assets and contract liabilities
Based
on our contracts, we normally invoice customers once our
performance obligations have been satisfied, at which point payment
is unconditional. Accordingly, our contracts do not give rise to
contract assets or liabilities under ASC 606. Accounts receivable
are recorded when the right to consideration becomes
unconditional.
Remaining performance obligations
As of
September 30, 2018, the aggregate amount of the transaction price
allocated to the remaining performance obligation is $5,110, and
the Group will recognize this revenue as the web development is
completed, which is expected to occur over the next 3
months.
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 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item
10(f)(1) of Regulation S-K, the Company is not required to provide
the information required by this Item.
CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining disclosure controls
and procedures for the Company.
(a)
Evaluation of Disclosure Controls and Procedures
Based on the evaluation as of the end of the period covered by this
Quarterly Report on Form 10-Q, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”) are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commission’s (“SECs”) rules and forms and to
ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
22
(b)
Changes in the Company’s Internal Controls over Financial
Reporting
There have been no changes in the Company’s internal control
over financial reporting during the most recently completed fiscal
quarter that have materially affected or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
23
OTHER INFORMATION
LEGAL PROCEEDINGS
We are not a party to any legal proceedings. Management is not
aware of any legal proceedings proposed to be initiated against us.
However, from time to time, we may become subject to claims and
litigation generally associated with any business venture operating
in the ordinary course.
RISK FACTORS
Not applicable to a “smaller reporting company” as
defined in Item 10(f)(1) of Regulation S-K.
UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
None.
DEFAULTS UPON SENIOR SECURITIES
None.
MINE SAFETY DISCLOSURES
Not Applicable.
OTHER INFORMATION
None.
EXHIBITS
The
following exhibits filed with this Form 10-Q Quarterly
Report:
Exhibit Number
|
Description
|
Guangzhou
HotApp Equity Purchase Agreement
|
|
Certification
of Acting Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Section
1350 Certification of Chief Executive Officer and Chief Financial
Officer
|
|
101.INS
|
XBRL
Instance Document
|
101.SCH
|
XBXRL
Taxonomy Extension Schema
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
101.DEF
|
XBRL
Taxonomy Extenstion Definition Linkbase
|
101.LAB
|
XBRL Taxonomy
Extension Label Linkbase
|
101.PRE
|
XBRL Taxonomy
Extension Presentation Linkbase
|
24
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
HOTAPP BLOCKCHAIN INC.
|
|
|
|
|
|
|
|
|
|
|
Date:
November 14, 2018
|
By:
|
/s/ Chan Heng
Fai
|
|
|
|
Chan Heng Fai
|
|
|
|
Acting
Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
Date:
November 14, 2018
|
By:
|
/s/ Lui
Wai Leung, Alan
|
|
|
|
Lui Wai
Leung, Alan
|
|
|
|
Chief
Financial Officer
(Principal
Financial Officer and
Principal
Accounting Officer)
|
|
|
|
|
|
25