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 March 31, 2020
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
|
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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 pursuant to Section 12(b) of the Act: None
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
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 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 ☐
|
|
Smaller reporting
company ☑
|
Non-accelerated
filer ☐
|
Emerging growth
company ☐
|
(Do not
check if a smaller reporting 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
May 13, 2020, 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
4
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4
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5
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6
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7
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8
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9
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17
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22
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22
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24
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24
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24
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
24
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
24
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24
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24
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24
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4
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6
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7
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8
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9
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4
HOTAPP BLOCKCHAIN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019
|
March
31,
2020
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December
31,
2019
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ASSETS
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|
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CURRENT
ASSETS:
|
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Cash
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$51,768
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$55,752
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Accounts
receivable-related parties, net of allowance
|
-
|
-
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Accounts
receivable-trade, net of allowance
|
-
|
-
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Promissory
note-related parties
|
100,000
|
100,000
|
TOTAL CURRENT
ASSETS
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151,768
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155,752
|
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|
Other non-current
assets
|
102
|
102
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TOTAL
ASSETS
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$151,870
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$155,854
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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CURRENT
LIABILITIES:
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Accounts payable
and accrued expenses
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$21,702
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$18,561
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Accrued
taxes
|
7,742
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7,742
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Amount due to
related parties
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1,335,912
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1,401,871
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TOTAL CURRENT
LIABILITIES
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1,365,356
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1,428,174
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TOTAL
LIABILITIES
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1,365,356
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1,428,174
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STOCKHOLDERS'
(DEFICIT):
|
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Preferred stock,
$0.0001 par value, 15,000,000 shares authorized, 0 issued and
outstanding as of March 31, 2020 and December 31, 2019
|
-
|
-
|
Common stock,
$0.0001 par value, 1,000,000,000 shares authorized, 506,898,576
shares issued and outstanding, as of March 31, 2020 and December
31, 2019
|
50,690
|
50,690
|
Accumulated other
comprehensive loss
|
(140,753)
|
(310,293))
|
Additional paid-in
capital
|
4,604,191
|
4,604,191
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Accumulated
deficit
|
(5,727,614)
|
(5,616,908)
|
TOTAL
STOCKHOLDERS' DEFICIT
|
(1,213,486)
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(1,272,320)
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$151,870
|
$155,854
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
5
HOTAPP BLOCKCHAIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND
2019 (UNAUDITED)
|
Three Months
Ended March 31, 2020
|
Three Months
Ended March 31, 2019
|
|
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|
Revenues
|
$-
|
$-
|
|
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|
Cost
of revenues
|
-
|
-
|
|
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Gross
profit
|
$-
|
$-
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|
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|
Operating
expenses:
|
|
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Depreciation
|
$-
|
$-
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General and
administrative
|
18,049
|
151,205
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Total
operating expenses
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18,049
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151,205
|
|
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|
(Loss)
from operations
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(18,049)
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(151,205)
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|
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Other
income (loss):
|
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Interest
income
|
1
|
9
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Foreign exchange
(loss) gain
|
(92,658)
|
8,174
|
Gain on disposal of
subsidiary
|
-
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299,255
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Total
other income
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(92,657)
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307,438
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|
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Income
(Loss) before taxes from continuing operations
|
(110,706)
|
156,233
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Income tax
provision
|
-
|
-
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Net
income (loss) from continuing operations
|
(110,706)
|
156,233
|
Loss
from discontinued operations, net of tax
|
-
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(3,712)
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Net
income (loss) applicable to common shareholders
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$(110,706)
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$152,521
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Net income (loss)
from continuing operations per share - basic and
diluted
|
$(0.00)
|
$(0.00)
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Net loss from
discontinued operations per share - basic and diluted
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$(0.00)
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$(0.00)
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Net income (loss)
per share - basic and diluted
|
$(0.00)
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$(0.00)
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Weighted number of
shares outstanding -
|
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Basic and
diluted
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506,898,576
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506,898,576
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Comprehensive
Income (Loss):
|
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Net (loss)
income
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$(110,706)
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$152,521
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Foreign currency
translation gain (loss)
|
169,540
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(47,392)
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Total
comprehensive income (loss)
|
$58,834
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$105,129
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
6
HOTAPP BLOCKCHAIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 2020
AND 2019 (UNAUDITED)
|
Common
Shares
|
Par
Value
|
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Stockholders'
Equity
(Deficit)
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Balance
December 31, 2019
|
506,898,576
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$50,690
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$4,604,191
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$(310,293)
|
$(5,616,908)
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$(1,272,320)
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Net income for
period
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-
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-
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-
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-
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(110,706)
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(110,706)
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Foreign currency
translation adjustment
|
-
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-
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-
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169,540
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-
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169,540
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Balance
March 31, 2020
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506,898,576
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$50,690
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$4,604,191
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$(140,753)
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$(5,727,614)
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$(1,213,486)
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|
Common
Shares
|
Par
Value
|
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Stockholders'
Equity
(Deficit)
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Balance
December 31, 2018
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506,898,576
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$50,690
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$4,604,191
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$(225,119)
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$(5,623,034)
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$(1,193,272)
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Net income for
period
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-
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-
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-
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-
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152,521
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152,521
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Foreign currency
translation adjustment
|
-
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-
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-
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(47,392)
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-
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(47,392)
|
|
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|
|
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Balance
March 31, 2019
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506,898,576
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$50,690
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$4,604,191
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$(272,511)
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$(5,470,513)
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$(1,088,143)
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
7
HOTAPP BLOCKCHAIN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)
|
Three Months Ended
March 31, 2020
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Three Months Ended
March 31, 2019
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
Income (Loss) including noncontrolling interests from continuing
operations:
|
$(110,706)
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$156,233
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Net
(Loss) including noncontrolling interests from discontinued
operations:
|
-
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(3,712)
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Net
Income (Loss) including noncontrolling interests,
total
|
(110,706)
|
152,521
|
Adjustments
to reconcile net loss to cash used in operations:
|
|
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Depreciation
|
-
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48
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(Gain) on disposal
of subsidiary
|
-
|
(299,255)
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Impairment on
accounts receivable
|
-
|
49,625
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Foreign exchange
transaction loss (gain)
|
92,479
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(8,172)
|
|
|
|
Change
in operating assets and liabilities:
|
|
|
Security deposit
and other receivable
|
-
|
481
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Prepaid
expenses
|
-
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(49,597)
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Promissory
note-related party
|
-
|
(100,000)
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Accounts payable
and accrued expenses
|
3,141
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(11,017)
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Net
cash used in operating activities
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$(15,086)
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$(265,366)
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CASH
FLOW FROM INVESTING ACTIVITIES:
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Other non-current
assets
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-
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(102)
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Net cash inflow on
disposal of subsidiary
|
-
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68,940
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Net
cash generated from (used in) investing activities
|
$-
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$68,838
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CASH
FLOW FROM FINANCING ACTIVITIES:
|
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Advance from
related parties
|
10,823
|
139,677
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Net
cash generated from financing activities
|
$10,823
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$139,677
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|
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NET
(DECREASE) IN CASH
|
(4,263)
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(56,851)
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Effects of exchange
rates on cash
|
279
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(4,901)
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CASH
AND CASH EQUIVALENTS at beginning of period
|
55,752
|
118,045
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CASH
AND CASH EQUIVALENTS at end of period
|
$51,768
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$56,293
|
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|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
8
HOTAPP BLOCKCHAIN INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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. Our Board determined it was in the best interest of the
Company to expand our business plan. On October 15, 2014, through a
sale and purchase agreement, the Company acquired all the issued
and outstanding stock of HotApps International Pte Ltd
(“HIP”) from Singapore eDevelopment Limited
(“SeD”). SeD is presently our largest stockholder. HIP
owned certain intellectual property relating to instant messaging
for portable devices (referred to herein as the “HotApp
Application”).
The
HotApp Application is a cross-platform mobile application that
incorporates instant messaging and ecommerce. This application can
be used on any mobile platform (i.e. IOS Online or Android). The
HotApp Application offered messaging and calling services for
HotApp Application users (text, photo, audio); however, the
messaging and calling services we offered were terminated in
2017.
On
December 29, 2017, our Board approved a change of the
Company’s name from “HotApp International, Inc.”
to “HotApp Blockchain Inc.” to reflect the
Board’s determination that it was in the best interest of the
Company to expand its activities to include the development and
commercialization of blockchain-related technologies. One area we
are presently exploring is providing technology consulting for
security token offerings (“STO”). Such services, which
have not yet commenced commercially, would include STO white paper
development, technology design and web development. We intend to
outsource certain aspects of these projects to potential partners
we have identified. We have no plans to launch our own token
offering, but rather may develop technologies that could facilitate
such offerings by other companies.
We
believe that the increasing acceptance of distributed ledger
technologies by potential customers will benefit us. The growth of
network marketing throughout the world would impact our
technologies that target that industry. In this rapidly evolving
field, however, technology is advancing quickly and it is possible
that our competitors could create products that gain market
acceptance before our products.
In
2018, one of our main developments was a broadening of our scope of
planned operations into a digital transformation technology
business. As a digital transformation technology business, we are
committed to enabling enterprises we work with to engage in a
digital transformation by providing consulting, implementation and
development services with various technologies, including instant
messaging, blockchain, e-commerce, social media and payment
solutions. We continue to be involved in mobile application product
development and other businesses, providing information technology
services to end-users, service providers and other commercial users
through multiple platforms.
We are
focused on serving business-to-business (B2B) needs in e-commerce,
collaboration and supply chains. We 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. Enterprises can in turn enhance the user experience with
premium content, all of which are facilitated by the transactions
of every stakeholder via e-commerce.
Our
technology platform consists of instant messaging systems, social
media, e-commerce and payment systems, network marketing platforms
and e-real estate. We are focused on business-to-business solutions
such as enterprise messaging and workflow. We have successfully
implemented several strategic platform developments for clients,
including a mobile front-end solution for network marketing, a
hotel e-commerce platform for Asia and a real estate agent
management platform in China. We have also enhanced our
technological capability from mobile application development to
include blockchain architectural design, allowing mobile-friendly
front-end solutions to integrate with software platforms. Our main
digital assets at the present time are our applications. Our
emphasis will be on developing solutions and providing
services.
9
As of
March 31, 2020, 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
|
HWH
World Inc.
|
August
28, 2018
|
State
of Delaware, the United States of America
|
100% by
Company
|
2nd Tier Subsidiaries:
|
|
|
|
HWH
World Pte. Ltd.
|
September
15, 2014
|
Republic
of Singapore
|
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
$5,727,614 and has net working capital deficit of $1,213,588 at
March 31, 2020. 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 May 13, 2021. 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 2020. 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 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, 2019.
Results of operations for the three month periods ended March 31,
2020 are not necessarily indicative of the operating results that
may be expected for the year ending December 31, 2020. 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.
Basis of consolidation
The
condensed 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
condensed consolidated financial statements include revenue
recognition, the useful lives and impairment of property and
equipment.
10
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 March 31, 2020
and December 31, 2019.
Foreign currency risk
Because
of its foreign operations, the Company holds cash in non-US
dollars. As of March 31, 2020, cash and cash equivalents of the
Group includes, on an as converted basis to US dollars, $29,179 and
$22,371 in Hong Kong Dollars (“HK$”) and Singapore
Dollars (“S$”), respectively. As of December 31, 2019,
cash and cash equivalents of the Group include, on an as converted
basis to US dollars, $32,283, and $23,131, in Hong Kong Dollars
(“HK$”), and Singapore Dollars (“S$”),
respectively.
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 its cash with financial institutions with high-credit
ratings and quality.
Fair value
Fair
Value of Financial Instruments
The
carrying value of cash and cash equivalents, accounts payable and
accrued liabilities, and short-term 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. The Company classifies and discloses assets and
liabilities carried at fair value in one of the following three
categories:
●
Level 1 - quoted
prices in active markets for identical assets and
liabilities;
●
Level 2 -
observable market based inputs or unobservable inputs that are
corroborated by market data; and
●
Level 3 -
significant unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
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 when the amortization
period is less than one-year.
11
Disaggregation of Revenue
We
generate revenue from the project involving provision of services
and web/software development for customers. In respect to the
provision of services, the agreements are less than one year with
cancellable clause and customers are typically billed on a monthly
basis. The Company has generated $0 revenue in 2019 through March
31, 2020.
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
March 31, 2020, the aggregate amount of the transaction price
allocated to the remaining performance obligation is
$0.
Income taxes
Current
income taxes are provided for in accordance with the laws of the
relevant tax authorities. Deferred income taxes are recognized when
temporary differences exist between the tax bases of assets and
liabilities and their reported amounts in the condensed
consolidated financial statements. Net operating loss carry
forwards and credits are applied using enacted statutory tax rates
applicable to future years. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more-likely-than-not that a portion of or all of the deferred tax
assets will not be realized. The components of the deferred tax
assets and liabilities are individually classified as non-current
based on their characteristics.
The
impact of an uncertain income tax position on the income tax return
is recognized at the largest amount that is more-likely-than-not to
be sustained upon audit by the relevant tax authority. An uncertain
income tax position will not be recognized if it has less than a
50% likelihood of being sustained. Interest and penalties on income
taxes will be classified as a component of the provisions for
income taxes. The Group did not recognize any income tax due to
uncertain tax position or incur any interest and penalties related
to potential underpaid income tax expenses for the period ended
March 31, 2020 or 2019, respectively.
Foreign currency translation
Items
included in the financial statements of each entity in the group
are measured using the currency of the primary economic environment
in which the entity operates (“functional
currency”).
The
functional and reporting currency of the Company is the United
States dollar (“U.S. dollar”). The financial records of
the Company’s subsidiaries located in Singapore and Hong Kong
are maintained in their local currencies, the Singapore Dollar (S$)
and Hong Kong Dollar (HK$), 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 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).
12
For the
three months ended March 31, 2020, the Company recorded other
comprehensive income from translation gain of $169,540 in the
condensed consolidated financial statements. For the three months
ended March 31, 2019, the Company recorded other comprehensive
income from translation loss of $47,392 in the condensed
consolidated financial statements.
Comprehensive income (loss)
Comprehensive
income (loss) includes gains (losses) from foreign currency
translation adjustments. Comprehensive income (loss) is reported in
the condensed 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 March 31, 2020, no shares of preferred stock are
eligible for conversion into voting common stock.
As of
March 31, 2020, there are no potentially dilutive securities that
were excluded from the computation of diluted EPS.
Recent accounting pronouncements
On
February 25, 2016, the Financial Accounting Standards Board (FASB)
released Accounting Standards Update (ASU) No. 2016-02, Leases
(Topic 842) (the Update). The ASU requires lessees to recognize
leases on-balance sheet and disclose key information about leasing
arrangements. In July 2018, the FASB issued ASU 2018-10 and ASU
2018-11, Codification Improvements to Topic 842, Leases, amending
various aspects of Topic 842. The new standard establishes a
right-of-use model (ROU) that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with
a term longer than 12 months. Leases will be classified as finance
or operating, with classification affecting the pattern and
classification of expense recognition in the income
statement.
Topic
842 is effective for annual and interim periods beginning in the
first quarter 2019, with early adoption permitted. A modified
retrospective transition approach is required, applying the new
standard to all leases existing at the date of initial application.
An entity may choose to use either (1) its effective date or (2)
the beginning of the earliest comparative period presented in the
financial statements as its date of initial application. If an
entity chooses the second option, the transition requirements for
existing leases also apply to leases entered into between the date
of initial application and the effective date. The entity must also
recast its comparative period financial statements and provide the
disclosures required by the new standard for the comparative
periods. We have adopted the new standard on January 1, 2019 and
use the effective date as our date of initial
application.
The new
standard provides a number of optional practical expedients in
transition. We elected the ‘package of practical
expedients’, which permits us not to reassess under the new
standard our prior conclusions about lease identification, lease
classification and initial direct costs, and we do not expect to
elect the use-of- hindsight.
The new
standard also provides practical expedients for an entity’s
ongoing accounting. We elected the short-term lease recognition
exemption for all leases that qualify. For those leases that
qualify, we will not recognize ROU assets or lease liabilities, and
this includes not recognizing ROU assets or lease liabilities for
existing short-term leases of those assets in transition. We also
elected the practical expedient to not separate lease and non-lease
components for all of our leases.
The
adoption of Topic 842 had no material impact on the
Company.
Note 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accrued
expenses and other current liabilities consisted of the
following:
|
March
31,
|
December
31,
|
|
2020
|
2019
|
Accrued
professional fees
|
$19,793
|
$16,712
|
Other
|
1,909
|
1,849
|
Total
|
$21,702
|
$18,561
|
13
Note 4. 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 March 31, 2020 and December 31, 2019, 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.
On
December 20, 2018, the Board of Directors of SeD announced its
intention to sell up to 3,200,000 shares of the Company to
independent third parties at US$0.50 per share for an aggregate
cash consideration of up to US$1,600,000. The purpose of this
proposed sale was to raise funds to continue to support the general
corporate and working capital of the Company, including but not
limited to the operating costs of the Company. As of March 31,
2020, SeD has sold 641,900 shares of the Company to independent
third parties, and SeD owned 99.852% 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 our 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 5. EQUITY INCENTIVE PLAN
On July
30, 2018, the Company adopted the Equity Incentive Plan (“The
Plan”). The Plan is intended to encourage ownership of shares
by employees, directors and certain consultants to the Company in
order to attract and retain such people, to induce them to work for
the benefit of the Company. The 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 Plan,
50,000,000 shares of Common Stock of the Company have been reserved
for issuance pursuant to awards under the Plan. The Plan will be
administered by the Company’s Board of Directors. This Plan
shall terminate ten (10) years from the date of its adoption by the
Board of Directors. There have been no awards issued under the Plan
as of March 31, 2020.
Note 6. DISCONTINUED OPERATIONS
On
October 25, 2018, HotApps International Pte. Ltd.
(“HIP”) 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 HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of HotApps Information Technology Co. Ltd.,
also known as Guangzhou HotApps Technology Ltd. (“Guangzhou
HotApps”). Guangzhou HotApps was a wholly owned subsidiary of
HIP, which was primarily engaged in engineering work for software
development, mainly voice over internet protocol. Guangzhou HotApps
was also involved in a number of outsourcing projects, including
projects related to real estate and lighting.
14
The
parties to the Equity Purchase Agreement agreed that the purchase
price for this transaction would be $100,000, which would be paid
in the form of a two-year, interest free, unsecured, demand
promissory note in the principal amount of $100,000, and that such
note would be due and payable in full in two years. The closing of
the Equity Purchase Agreement was subject to certain conditions;
these conditions were met and the transaction closed on January 14,
2019.
The
composition of assets and liabilities included in discontinued
operations was as follows:
|
March
31,
2020
|
January
14,
2019
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
Cash
|
$-
|
$31,060
|
Deposit
and other receivable
|
-
|
5,136
|
TOTAL
CURRENT ASSETS
|
-
|
36,196
|
|
|
|
Fixed
assets, net
|
-
|
1,717
|
TOTAL ASSETS
|
$-
|
$37,913
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
Accounts
payable and accrued expenses
|
$-
|
$202,848
|
TOTAL
CURRENT LIABILITIES
|
-
|
202,848
|
TOTAL LIABILITIES
|
$-
|
$202,848
|
The
aggregate financial results of discontinued operations were as
follows:
|
Period
Ended
March
31, 2020
|
Period
Ended
January 14,
2019
|
|
|
|
Revenues:
|
|
|
Project
fee-others
|
$-
|
$-
|
|
-
|
-
|
|
|
|
Cost of revenues
|
-
|
-
|
|
|
|
Gross profit
|
$-
|
$-
|
|
|
|
Operating
expenses:
|
|
|
Depreciation
|
-
|
48
|
General
and administrative
|
-
|
3,662
|
Total operating expenses
|
-
|
3,710
|
|
|
|
(Loss) from operations
|
-
|
(3,710)
|
|
|
|
Other
income (expenses):
|
|
|
Other
sundry income
|
-
|
-
|
Foreign
exchange (loss)
|
-
|
(2)
|
Total other (expenses) income
|
-
|
(2)
|
|
|
|
Loss from discontinued operations
|
$-
|
$(3,712)
|
15
Note 7. COMMITMENTS AND CONTINGENCIES
On May
9, 2016, the Company entered into a lease agreement for 1,231
square feet of office space in Guangzhou, China. The lease
commenced on May 9, 2016 and run through May 8, 2018 with monthly
payments of $2,330. The Company renewed the lease agreement with
monthly payments of $2,447. The Company was required to put up a
security deposit of $4,491. For the year ended December 31, 2018,
the Company recorded rent expense of $28,897 for Guangzhou office.
On January 14, 2019, the sale of our operations in Guangzhou
closed. Accordingly, we no longer have this office space or any
continuing obligations for this rent.
Note 8. RELATED PARTY BALANCES AND TRANSACTIONS
SeD is
the Company’s majority stockholder. Chan Heng Fai, the
Executive Chairman and Acting Chief Executive Officer 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 stockholder of SeD. Lui Wai Leung Alan, the
Company’s Chief Financial Officer, is also the Chief
Financial Officer of SeD. As of the date of this report, the
Company has not entered into any employment arrangement with any
director or officer.
As of
March 31, 2020, the Company has amount due to SeD of $1,330,765, an
amount due to a director of $5,050, plus an amount due to an
affiliate of $97 and an amount due from an affiliate of $2,106. The
Company has made full impairment provision for the amount due from
the affiliate. As of December 31, 2019, the Company has amount due
to SeD of $1,396,426, an amount due to a director of $5,343, plus
an amount due to an affiliate of $102 and an amount due from an
affiliate of $2,228. The Company has made full impairment provision
for the amount due from the affiliate.
The
account receivable as of March 31, 2020 includes a trade receivable
from an affiliate by common ownership amounting to $39,427
resulting from the revenue earned from that affiliate during the
year 2017, and the company has put up a full allowance for the said
amount.
On
October 25, 2018, HotApps International Pte. Ltd.
(“HIP”) 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 HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of HotApps Information Technology Co. Ltd.,
also known as Guangzhou HotApps Technology Ltd. (“Guangzhou
HotApps”). Guangzhou HotApps was a wholly owned subsidiary of
HIP, which was primarily engaged in engineering work for software
development, mainly voice over internet protocol. Guangzhou HotApps
was also involved in a number of outsourcing projects, including
projects related to real estate and lighting.
The
parties to the Equity Purchase Agreement agreed that the purchase
price for this transaction would be $100,000, which would be paid
in the form of a two-year, interest free, unsecured, demand
promissory note in the principal amount of $100,000, and that such
note would be due and payable in full in two years. The closing of
the Equity Purchase Agreement was subject to certain conditions;
these conditions were met and the transaction closed on January 14,
2019.
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 stockholder of
Singapore eDevelopment Limited, the majority stockholder of the
Company. Mr. Chan is also the Chief Executive Officer and Chairman
of DSS International and a significant stockholder 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
stockholder of Document Security Systems. Lum Kan Fai, a member of
the Board of Directors of the Company, is also an employee of DSS
International.
Since
the completion of the sale of all of the issued and outstanding
shares of HotApps Information Technology Co. Ltd. (also known as
Guangzhou HotApps Technology Ltd.) on January 14, 2019, we have not
paid any employees, and our largest stockholder, SeD, has provided
staff without charge to our Company. We intend to outsource many
functions of our business for the immediate future.
Note 9. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date these
financial statements were issued and determined that there are no
reportable subsequent events.
16
ITEM
2. 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.
The coronavirus or other adverse public health developments could
have a material and adverse effect on our business operations,
financial condition and results of operations
In December 2019, a novel strain of coronavirus was first
identified in Wuhan, Hubei Province, China, and has since spread to
a number of other countries, including the United States. The
coronavirus’ far-reaching impact on the global economy could
negatively affect various aspects of our business. In addition, the
coronavirus could directly impact the ability of our staff and
service providers to continue to work, and our ability to conduct
our operations in a prompt and efficient manner. Accordingly, the
coronavirus may cause the completion of important stages in our
projects to be delayed. The extent to which the coronavirus may
impact our business will depend on future developments, which are
highly uncertain and cannot be predicted.
Background and 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. Our Board determined it was in the best interest of the
Company to expand our business plan. On October 15, 2014, through a
sale and purchase agreement, the Company acquired all the issued
and outstanding stock of HotApps International Pte Ltd
(“HIP”) from Singapore eDevelopment Limited
(“SeD”). SeD is presently our largest stockholder. HIP
owned certain intellectual property relating to instant messaging
for portable devices (referred to herein as the “HotApp
Application”).
The
HotApp Application is a cross-platform mobile application that
incorporates instant messaging and ecommerce. This application can
be used on any mobile platform (i.e. IOS Online or Android). The
HotApp Application offered messaging and calling services for
HotApp Application users (text, photo, audio); however, the
messaging and calling services we offered were terminated in
2017.
17
On
December 29, 2017, our Board approved a change of the
Company’s name from “HotApp International, Inc.”
to “HotApp Blockchain Inc.” to reflect the
Board’s determination that it was in the best interest of the
Company to expand its activities to include the development and
commercialization of blockchain-related technologies. One area we
are presently exploring is providing technology consulting for
security token offerings (“STO”). Such services, which
have not yet commenced commercially, would include STO white paper
development, technology design and web development. We intend to
outsource certain aspects of these projects to potential partners
we have identified. We have no plans to launch our own token
offering, but rather may develop technologies that could facilitate
such offerings by other companies.
We
believe that the increasing acceptance of distributed ledger
technologies by potential customers will benefit us. The growth of
network marketing throughout the world would impact our
technologies that target that industry. In this rapidly evolving
field, however, technology is advancing quickly and it is possible
that our competitors could create products that gain market
acceptance before our products.
In
2018, one of our main developments was a broadening of our scope of
planned operations into a digital transformation technology
business. As a digital transformation technology business, we are
committed to enabling enterprises we work with to engage in a
digital transformation by providing consulting, implementation and
development services with various technologies, including instant
messaging, blockchain, e-commerce, social media and payment
solutions. We continue to be involved in mobile application product
development and other businesses, providing information technology
services to end-users, service providers and other commercial users
through multiple platforms.
We are
focused on serving business-to-business (B2B) needs in e-commerce,
collaboration and supply chains. We 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. Enterprises can in turn enhance the user experience with
premium content, all of which are facilitated by the transactions
of every stakeholder via e-commerce.
Our
technology platform consists of instant messaging systems, social
media, e-commerce and payment systems, network marketing platforms
and e-real estate. We are focused on business-to-business solutions
such as enterprise messaging and workflow. We have successfully
implemented several strategic platform developments for clients,
including a mobile front-end solution for network marketing, a
hotel e-commerce platform for Asia and a real estate agent
management platform in China. We have also enhanced our
technological capability from mobile application development to
include blockchain architectural design, allowing mobile-friendly
front-end solutions to integrate with software platforms. Our main
digital assets at the present time are our applications. Our
emphasis will be on developing solutions and providing
services.
In
January 2017, we entered into a revenue-sharing agreement with
iGalen, a network marketing company selling health products (SeD,
our majority stockholder, is also a significant stockholder of
iGalen). Under the agreement, we customized a secure app for
iGalen’s communication and management system. The app enables
mobile friendly backend access for iGalen Inc. members, among other
functions. We are continuing to improve this secure app. In
particular, we intend to utilize blockchain supply logistics to
improve its functions (the original iGalen app did not utilize the
latest distributed ledger technology). Once the improvements to
this technology are completed, and initially utilized by iGalen, We
intend to then attempt to sell similar services to other companies
engaged in network marketing, as members of our management have a
particular experience offering services to that industry and we
believe our solutions are particularly suited to that
industry’s needs. This app can be modified to meet the
specific needs of any network marketing company. We believe that
these technologies will, among other benefits, make it easier for
network marketing companies to securely and effectively manage
their systems of compensation. Our current plan is to commence
sales of this technology in 2020.
As of
March 31, 2020, 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
|
HWH
World Inc.
|
August
28, 2018
|
State
of Delaware, the United States of America
|
100% by
Company
|
2nd Tier Subsidiaries:
|
|
|
|
HWH
World Pte. Ltd.
|
September
15, 2014
|
Republic
of Singapore
|
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.
18
The
Group has relied significantly on SeD, our majority stockholder, as
its principal sources of funding during the period. SeD 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 stockholders 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.
Trends in the Market and Our Opportunity
We
believe that digital and mobile technologies are reshaping the B2B
marketplace. We believe that this is not only a technological
revolution, but rather a paradigm shift in how B2B buyers consume
content, make informed buying decisions and engage with sales
people.
A
report by Statista on B2B e-commerce in 2017 has estimated $2.3
trillion B2C sales online while for B2B it is $7.7 trillion (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; and
●
the simplified
ordering experiences: The wholesale customers on B2B portals find
simplified interface compared to a number of “bells and
whistles” required on the B2C e-commerce sites.
Mobile
phones are increasingly playing a critical role in the B2B customer
journey. In fact, 50% of B2B search queries today are made on
smartphones. Research from the Boston Consulting Group projects
that this figure will 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 OTT Services, such as adoption of Enterprise
messaging Apps alongside with using of email, video and audio
conferencing, collaboration through cloud services, as a new medium
for different stakeholder engagement including customers, to
promote and market their products and services (Collaboration
Framework). HotApp’s approach in white labelling for the
enterprises will augment and fill this demand in the market. White
label refers to packaging HotApp solution under brand name of
clients with some content being customized only for
clients.
●
Industries such as
Network Marketing and Hospitality and Franchising businesses are
utilizing Mobile friendly solutions to reach out effectively to
their marketing network on a global basis.
●
Application of
Block Chain technology is no longer confined in the Financial
industry, enterprises are looking block chain as a way to address
product diversion, counterfeiting and track and trace solution.
These applications become a major building block of B2B
commerce.
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;
●
identify strategic
partnership opportunities globally through “Powered by
HotApp” initiatives, enabling Mobile B2B commerce;
and
●
focus on network
marketing business support.
19
Results of Operations
Summary of Key Results
For the unaudited three months period ending March 31, 2020 and
2019
Revenue
The
Company had no revenue during the three months ended March 31, 2020
and 2019.
Cost of revenue
Total
cost of revenue for the three months ended March 31, 2020 and 2019
were $0
General and Administrative
General
and administrative expenses consist primarily of salary and
benefits, professional fees, rental expenses and maintenance
expenses of existing software framework. 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 March 31, 2020 and 2019 for continuing
operations were $18,049 and $151,205, respectively, of which $(179)
and $49,625 related to bad debt expense, respectively. Total
general and administrative expenses for the three months ended
March 31, 2020 and 2019 for discontinued operations were $0 and
$3,710, of which $0 and $48 were depreciation expenses,
respectively.
Other (Expense) / Income
For the
three months ended March 31, 2020 and 2019, we have incurred
$(92,658) and $8,174 in foreign exchange (loss) gain, $0 and
$299,255 in gain on disposal of investment, and $1 and $9 in
interest income respectively for continuing operations. For the
three months ended March 31, 2020 and 2019, we have incurred $0 and
$(2) in unrealized foreign exchange gain(loss), respectively for
discontinued operations.
Liquidity and Capital Resources
At
March 31, 2020, we had cash of $51,768 and working capital deficit
of $1,213,588.
We had
a total stockholders’ deficit of $1,213,486 and an
accumulated deficit of $5,727,614 as of March 31, 2020 compared
with a total stockholders’ deficit of $1,272,320 and an
accumulated deficit of $5,616,908 as of December 31, 2019. This
difference is primarily due to the net effect of the net loss
incurred and the gain in the foreign currency translation during
the period.
For the
three months ended March 31, 2020, we recorded a net loss of
$110,706.
We had
net cash used in operating activities of $15,086 for the three
months ended March 31, 2020. We had a positive change of $3,141 due
to accounts payable and accrued expenses.
For the
three months ended March 31, 2019, we recorded a net income of
$152,521.
We had
net cash used in operating activities of $265,366 for the three
months ended March 31, 2019. We had a positive change of $481 due
to security deposit and other receivables, and a negative change of
$49,597 due to prepaid expenses. We had a negative change of
$100,000 due to promissory note, and a negative change of $11,017
due to accounts payable and accrued expenses.
20
For the
three months ended March 31, 2020, we had no net cash generated
from nor used in investing activities for the period.
For the
three months ended March 31, 2019, we spent $102 on other
investment and received a net cash inflow of $68,940 on the
disposal of subsidiary, resulting in net cash generated from
investing activities of $68,838 for the period.
For the
three months ended March 31, 2020, we had net cash provided by
financial activities of $10,823 due to advances from an
affiliate.
For the
three months ended March 31, 2019, we had net cash provided by
financial activities of $139,677 due to advances from an
affiliate.
As of
March 31, 2020, we do not have any fixed operating office lease
agreements.
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.
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.
21
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 are less than one year with
cancellable clause and are typically billed on a monthly basis. The
Company has generated $0 revenue in 2019 through March 31,
2020.
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
March 31, 2020, the aggregate amount of the transaction price
allocated to the remaining performance obligation is
$0.
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 condensed
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
March 31, 2019 or 2018, respectively.
Off-Balance Sheet Arrangements
As of
March 31, 2020, the Company did not have any off-balance sheet
arrangements.
ITEM 3.
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.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of our Quarterly Report on Form
10-Q, an evaluation was carried out by management, with the
participation of our Acting 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 March 31,
2020. 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 Acting Chief Executive Officer and Chief Financial
Officer, to allow timely decisions regarding required
disclosure.
22
During evaluation of disclosure controls and procedures as of March
31, 2020 conducted as part of our preparation of our interim
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
March 31, 2020, 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 quarterly 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 March 31,
2020. 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 March 31, 2020, 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 quarterly report filed on Form 10-Q 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 quarterly
report.
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
PART
II OTHER INFORMATION
ITEM 1. 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.
ITEM 1A. RISK FACTORS
Not applicable to a “smaller reporting company” as
defined in Item 10(f)(1) of Regulation S-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
The
following documents are filed as a part of this
report:
Exhibit Number
|
Description
|
Certification
of Acting Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Certification
of Chief Financial 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:
May 13, 2020
|
By:
|
/s/ Chan Heng
Fai
|
|
|
|
Chan Heng Fai
|
|
|
|
Acting
Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
|
Date:
May 13, 2020
|
By:
|
/s/ Lui
Wai Leung, Alan
|
|
|
|
Lui Wai
Leung, Alan
|
|
|
|
Chief
Financial Officer
(Principal
Financial Officer and
Principal
Accounting Officer)
|
|
|
|
|
|
25