Business Description
Hotapp
International Inc., formerly Fragmented Industry Exchange Inc.,
(the “Company” or “Group”) was incorporated
in the State of Delaware on March 7, 2012 and established a fiscal
year end of December 31. The Company’s initial business plan
was to be a financial acquisition intermediary which would serve
buyers and sellers for companies that are in highly fragmented
industries. The Company determined it was in the best interest of
the shareholders to expand its business plan. On October 15, 2014,
through a sale and purchase agreement (the “Purchase
Agreement”) the Company acquired all the issued and
outstanding stock of HotApps International Pte Ltd (
“HIP”) from Singapore eDevelopment Limited
(“SeD”). HIP owned certain intellectual property
relating to instant messaging for portable devices
(“HotApp”). HotApp is a cross-platform mobile
application that incorporates instant messaging and ecommerce. It
provides a messaging and calling services for HotApp users (text,
photo, audio). HotApp can be used on any mobile platform (i.e. IOS
Online or Android).
Pursuant
to the Purchase Agreement, the Company issued SeD 1,000,000 shares
of common stock and 13,800,000 shares of newly created convertible
preferred stock. See Note 6 to the Financial Statements for a
further description of this transaction.
As of
December 31, 2016, details of the Company’s subsidiaries are
as follows:
Subsidiaries
|
Date of
Incorporation
|
Place of
Incorporation
|
Percentage of
Ownership
|
1st
Tier Subsidiary:
|
|
|
|
HotApps
International Pte Ltd (“HIP”)
|
May
23, 2014
|
Republic of
Singapore
|
100%
by Company
|
2nd
Tier Subsidiaries:
|
|
|
|
HotApps Call Pte
Ltd
|
September 15,
2014
|
Republic of
Singapore
|
100%
owned by HIP
|
HotApps
Information Technology Co Ltd
|
November 10,
2014
|
People’s
Republic of China
|
100%
owned by HIP
|
HotApp
International Limited*
|
July
8, 2014
|
Hong
Kong (Special Administrative Region)
|
100%
owned by HIP
|
* On
March 25, 2015, HotApps International Pte Ltd acquired 100% of
issued share capital in HotApp International Limited.
The
Group has relied significantly on SeD as its principal sources of
funding during the year. The Board has, in the meantime, reviewed
and approved the restructuring of HotApp, by which has since
reduced by half its personnel resources as compared to 2015. HotApp
has revamped its business model and technology platform to focus on
business-to-business (“B2B”) services, built around
enterprise communications and workflow. Its product line will
target these industries: (i) network and direct marketing; (ii)
enterprise Voice-over-IP; (iii) enterprise messaging; (iv) real
estate; (v) social media; (vi) e-commerce; (vii) investor
relations; (viii) healthcare and wellness; and (ix) hospitality,
combining HotApp applications with hotel-room management. This
strategic shift is intended to create commercial value with a
sharper focus.
Our Business
HotApp,
our software application is a community communications ecosystem
(the “Platform”), connecting users who wish to seek out
both local and global communities (“Users” or
“Communities”) and equipping them with necessary tools
to communicate effectively across borders. HotApp will monetize the
relationship between brands, Online-2-Offline (“O2O”)
operators and service providers (collectively,
“Enterprises”) and the HotApp Communities, and in the
process mediate something of value to both parties.
With
our platform users can discover and build their own communities and
create valuable content. Our platform tools empower these
communities to share their thoughts and words across multiple
channels. As these communities grow, they provide the critical mass
that attracts enterprises. Enterprises in turn enhance user
experience with premium contents, all of which are facilitated by
the transactions of every stakeholder via e-commerce.
Trends in the Market and Our Opportunity
Mobile
phone messaging apps will be used by more than 1.4 billion
consumers in 2015, up 31.6% from the previous year, according to a
November 2015 forecast for these services by eMarketer, a leading
research company for digital business professionals. eMarketer also
stated that worldwide, 75% of smartphone users will use an
over-the-top (OTT) mobile messaging app at least once a month in
2015. The growth in popularity of messaging apps is projected to
continue, and eMarketer predicts that by 2018, the number of chat
app users worldwide will reach 2 billion and represent 80% of
smartphone users.
Based
upon the above trends, we believe significant opportunities exist
for:
●
|
Enterprises
deploying messaging platform to effectively engage different
stakeholders.
|
●
|
Continuing
growth in demand for OTT Services encapsulated within a single
mobile app with a clear intent and objectives fulfilling the
communication need for specific communities and
industries.
|
●
|
Enterprises
to increase usage of OTT Services, such as adoption of Enterprise
messaging Apps alongside with using of email, video and audio
conferencing, collaboration through cloud services, as a new medium
for different stakeholder engagement including customers, to
promote and market their products and services (Collaboration
Framework). HotApp’s approach in white labelling for the
enterprises will augment and fill this demand in the market. White
label refers to packaging HotApp solution under brand name of
clients with some content being customized only for
clients.
|
●
|
Industries
such as Network Marketing and Hospitality and Franchising
businesses are utilizing OTT Services to reach out effectively to
their marketing network on a global basis.
|
Our Plan of Operations and Growth Strategy
We
believe that we have significant opportunities to further enhance
the value we deliver to our Users. We intend to pursue the
following growth strategy:
●
|
Position
HotApp as an open platform to be ready for integration with third
party technology partnerships such as Payment Services, Loyalty
Programs, e-commerce.
|
●
|
Engage
Mobile App Integration Opportunities for Enterprises globally
through “Powered by HotApp” initiatives, enabling
Offline businesses to go On Line (O2O) with HotApp technology
support. Powered by HotApp, is a business initiative from HotApp
International, that offers modules in HotApp technology for service
and customization, targeting vertical industry such as Hospitality
and Real Estate Agencies.
|
●
|
Identify
Strategic Partnership Opportunities globally through
“
Powered by
HotApp
” initiatives, enabling Offline businesses to go
On Line (O2O) with HotApp technology support.
|
●
|
Establish
community and business partnerships (collectively, “HotApp
Partnerships”) to expand our user base and
engagement.
|
In 2016, we have taken the following steps to implement our
business plan
:
●
|
Revamp
HotApp into modular Software Development Kit (SDK) to open up
HotApp architecture for 3rd party technology partner
integration.
|
●
|
In
progress to develop HotApp Enterprise and secure messaging
function.
|
Achieved and Target Milestones:
In 2016, we have achieved the following milestones:
●
|
Delivered
Hotapp services to businesses making use of the HotApp Platform in
areas of Hospitality eCommerce and Real Estate Agent
Management.
|
●
|
Built a
modular framework for ease of adaptation to white label projects
particularly in the Network Marketing Industry.
|
●
|
Restructured
R&D organization with lower cost of development in China and
set up a consultative integration team in Hong Kong, ready for
HotApp Enterprise deployment.
|
Over the next twelve months we plan to
●
|
Further
enhance our Enterprise Messaging and Collaboration
Framework.
|
●
|
Strengthen
backend integration for Network Marketing
Organizations.
|
●
|
Identify
technology and commercialization strategic alliance.
|
Our Business Model and User Monetization Plan
We plan
to generate revenue through the following;
●
Licensing of HotApp
Enterprise to organizations.
●
Providing
customization and services for enterprises.
●
Providing white
label solutions.
Our User Acquisition, Retention and Engagement
Approach
Our
marketing strategy begins with 3 key principles in mind:
“attraction, retention, and acquisition.” It couples
with our contextually-cultural localization plan targeting our 3
unique segments (ie users, communities and enterprise) which forms
our overarching marketing strategy for HotApp.
This
breaks our market penetration exercise into 3 phases. When HotApp
first enters the market, we will focus on attracting our key
segment, and after the initial attraction, we retain these users
within our ecosystem, and finally in the final phase convert these
users as our own ambassadors as they share their success with
HotApp, continuously supporting and growing our user
base.
Our
marketing objectives for each segment will always be contextually
driven to be relevant, tailored to fit local culture, and marketed
as part of the local community.
We
recognize that each target segment and the participants within have
their unique differences and requirements. We will
develop and market each core module differently, focusing on each
user-base segment’s unique requirements.
This
will break local bias against a foreign based mobile application,
and win local trailblazers and influencers alike, who will generate
new and relevant content that will in-turn pull in new users who
want to discover and contribute towards our society of
communities.
We
intend to focus our efforts primarily in the Healthcare,
Hospitality, and Small Media Enterprises in Asia, particularly Hong
Kong and China.
Our Competition and Industries We Operate In
The
Messaging and Social Media market is a highly competitive market
segment with ever increasing number of new entrants and several
dominant incumbents, such as Facebook, WeChat, Line and
others. Some of these players have significant
comparative and absolute advantages over us as a new market
entrant. In the Enterprise Market, new players like
Slack are aggressively picking up market share while incumbents
like Facebook and WeChat are aggressively entering into the
Enterprise Market. We face significant competitions from companies
that:
●
|
have a
more established customer base;
|
●
|
offer
more services from their established customer base;
|
●
|
offer
full-featured products that replicate the range of communications
and related capabilities we provide;
|
●
|
develop
branded applications for specific communities and enterprises, that
provide social, collaboration or other communications
functionality; and
|
●
|
provide
traditional, online, and mobile media for marketers to reach their
audiences and/or develop tools and systems for managing and
optimizing advertising campaigns.
|
Our Challenges
Our
ability to execute our growth strategies is subject to risks and
uncertainties, including those relating to our ability
to:
●
|
Raise
additional funding for the continuous development of our technology
and project and to pursue our business strategy;
|
●
|
Maintain
the trusted status of our ecosystem;
|
●
|
Grow
and maintain our high value user base, enhance User engagement and
create value services for communities and enterprises;
|
●
|
Market
and profit from our service offerings, monetize our user base and
achieve profitability;
|
●
|
Adapt
to the dynamic social networking market despite our short operating
history;
|
●
|
Maintain
brand awareness and loyalty, prevent misuse of our Platform and
maintain our brand image and reputation;
|
●
|
Compete
effectively for users acquisition and user engagement;
|
●
|
Keep up
with technological developments and evolving user
expectations;
|
●
|
Effectively
manage our growth and control our costs and expenses;
|
●
|
Address
privacy concerns relating to our services and the use of user
information;
|
●
|
Identify
a management team with owner mentality and proven track record;
and
|
●
|
Changing
consumer habit for those using competitive platform.
|
Please
see “Risk Factors” and other information included in
this report for a detailed discussion on the above and other
challenges and risks.
Our Key Competitive Strengths
We
believe building the following will provide us with some key
competitive strengthens:
●
|
Understanding
local market needs -
|
|
Establish
brand presence for local enterprises and communities based on
established HotApp Platform.
|
●
|
Ready
to deploy Platform -
|
|
Our
“Powered by HotApp” initiative create unique value
proposition for HotApp clients and community by integrating
best-of-breed technology and defining clear business/
commercialization model for go-to-market.
|
●
|
Focus
in Community Building -
|
|
Our
local marketing team and consultants are built to work hand-in-hand
with community operators to localize the HotApp for the local
community.
|
●
|
HotApp
ecosystem -
|
|
To work
closely with technology developers to further enhance the HotApp
ecosystem to better fit local needs.
|
Our Technology
Based
on our core HotApp’s infrastructure engine, we are building
up additional functions on top of this stable and scalable
infrastructure. The system architecture is designed in modular form
so that we continue to add new applications modules while we are
growing our customer base. In addition, we shall also be able to
incorporate third party application module effectively to continue
building localized HotApp services.
Our key
aspects or strengths of our technology include:
●
|
Scalable
infrastructure;
|
●
|
Modular
design to add on and modify individual Hot App
offering;
|
●
|
Quick
adaptation to third party services, such as payment and loyalty
program; and
|
●
|
Dedicated
to continuous improvement of user experience in local
context.
|
Regulatory Matters
We are
subject to the laws and regulations of those jurisdictions in which
we plan to conduct our services, including the Peoples’
Republic of China (“PRC”) which are generally
applicable to business operations, such as business licensing
requirements, income taxes and payroll taxes. In general, the
development and operation of our business is not subject to special
regulatory and/or supervisory requirements. Please see
“Risk Factors” and other information included in this
report for further discussion on the above matters.
Foreign Exchange Regulation
The
principal regulations governing foreign currency exchange in the
PRC are the Foreign Exchange Administration Regulations. Under the
PRC foreign exchange regulations, payments of current account
items, such as profit distributions and trade and service-related
foreign exchange transactions, may be made in foreign currencies
without prior approval from SAFE by complying with certain
procedural requirements. By contrast, approval from or registration
with appropriate government authorities is required where RMB is to
be converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of foreign
currency-denominated loans or foreign currency is to be remitted
into China under the capital account, such as a capital increase or
foreign currency loans to our PRC subsidiaries.
Employees and Employment Agreements
As at
the beginning of the second quarter of 2016, we had 10 full-time
staff. We had 17 full-time staff at end of 2016 which we intend to
maintain with moderate increases in the number of employees in line
with business activities and if our finance permits. The Company
has employees under written contracts that provide for at will
termination and include confidentiality clauses.
The
Company hired Mr. Lum Kan Fai on June 1, 2015 and Mr. Lum has
served as a member of the Company’s Board of Directors and as
the Company’s Chief Technology Officer since June 16,
2015.
Insurance
We do
not maintain property insurance, business interruption insurance or
general third-party liability insurance, nor do we maintain product
liability or key-man insurance.
An
investment in our common stock involves a high degree of risk.
Investors should carefully consider the following factors and other
information before deciding to invest in our Company. If any of the
following risks actually occur, our business, financial condition,
results of operations and prospects for growth would likely suffer.
As a result, you could lose all or part of your
investment.
Our business is subject to numerous risk factors, including the
following:
RISKS RELATED TO OUR FINANCIAL CONDITION
There is substantial doubt about the company’s ability to
continue as a going concern.
The
report of Rosenberg Rich Baker Berman & Company, our
independent registered public accounting firm, with respect to our
financial statements at December 31, 2016 contains an explanatory
paragraph as to our potential inability to continue as a going
concern. As a result, this may adversely affect our
ability to obtain new financing on reasonable terms or at all.
Investors may be unwilling to invest in a company that will not
have the funds necessary to continue to deploy its business
strategies.
Failure to raise additional capital to fund future operations could
harm our business and results of operations.
As
reflected on our audited consolidated financial statements for the
year ended December 31, 2016 contained herein, we have incurred net
losses, net cash used in operating activities and have working
capital deficit of $544,411 at December 31, 2016. We will require
additional financing in order to maintain our corporate existence
and to implement our business plans and strategy. The timing and
amount of our capital requirements will depend on a number of
factors, including our initial operational results with respect to
user acceptance of our HotApp product, the need for other
expenditures, and competitive pressures. If additional funds are
raised through the issuance of equity or convertible debt
securities, the percentage ownership of our then-existing
stockholders will likely be reduced significantly. We cannot make
assurances that any financing will be available on terms favorable
to us or at all. If adequate funds are not available on acceptable
terms, our ability to fund our business strategy, ongoing
operations, take advantage of unanticipated opportunities, and in
turn our business, financial condition and results of operations
will be significantly and adversely affected.
RISKS RELATED TO OUR BUSINESS
Lack of commercial acceptability.
Our
HotApp cross-platform messaging and social media mobile application
was launched in China in the first quarter of 2015. To date, we
have a limited user base and limited indications of commercial
acceptability. While we believe that our product will be
commercially received, we cannot predict if our product will be a
commercial success.
Our new product could fail to attract or retain users or generate
revenue.
Our
ability to retain, increase, and engage our user base and to
monetize existing and new users depends heavily on our ability to
create successful new products, both independently and in
conjunction with developers or other third parties. In
October 2014, we acquired HotApps International Pte. Ltd and its
HotApp mobile application. Since our commercial launch
of the application, our user base has been limited and we have
not yet been able to monetize our application. We may
not be successful in our efforts to generate meaningful revenue
from HotApp over the long term. If HotApp fails to engage users,
marketers, or developers, or if we are unsuccessful in our
monetization efforts, we may fail to attract or retain users or to
generate sufficient revenue, operating margin, or other value to
justify our investments, and our business may be adversely
affected.
Our Company cannot predict if it can achieve profitable
operations.
The
Company has only had limited operations to date and requires
significant additional financing to reach its projected milestones,
which includes further product development, product marketing and
general overhead expenditures. While the Company considers its
business to be highly prospective, nonetheless it may be difficult
for the Company to attract funding necessary to reach its projected
milestones. Moreover, even if it achieves its projected milestones,
the Company cannot predict whether it will reach profitable
operations.
Our business is highly competitive. Competition presents an ongoing
threat to the success of our business.
We face
significant competition in every aspect of our business, including
from companies that provide tools to facilitate the sharing of
information, companies that enable marketers to display advertising
and companies that provide development platforms for applications
developers. We compete with companies that offer full-featured
products that replicate the range of communications and related
capabilities we provide. We also compete with companies that
develop applications, particularly mobile applications, that
provide social or other communications functionality, such as
messaging, photo- and video-sharing, and micro-blogging, and
companies that provide web- and mobile-based information and
entertainment products and services that are designed to engage
users and capture time spent online and on mobile devices. In
addition, we face competition from traditional, online, and mobile
businesses that provide media for marketers to reach their
audiences and/or develop tools and systems for managing and
optimizing advertising campaigns.
Most,
if not all, of our current and potential competitors may have
significantly greater resources or better competitive positions in
certain product segments, geographic regions or user demographics
than we do. These factors may allow our competitors to respond more
effectively than us to new or emerging technologies and changes in
market conditions.
Our
competitors may develop products, features, or services that are
similar to ours or that achieve greater acceptance, may undertake
more far-reaching and successful product development efforts or
marketing campaigns, or may adopt more aggressive pricing policies.
Certain competitors could use strong or dominant positions in one
or more markets to gain competitive advantage against us in our
target market or markets. As a result, our competitors
may acquire and engage users or generate revenue at the expense of
our own efforts, which may negatively affect our business and
financial results.
We
believe that our ability to compete effectively depends upon many
factors both within and beyond our control, including:
●
|
the
popularity, usefulness, ease of use, performance, and reliability
of our products compared to our competitors' products, particularly
with respect to mobile products;
|
●
|
the
size and composition of our user base;
|
●
|
the
engagement of our users with our products and competing
products;
|
●
|
the
timing and market acceptance of products, including developments
and enhancements to our or our competitors' products;
|
●
|
our
ability to monetize our products;
|
●
|
customer
service and support efforts;
|
●
|
acquisitions
or consolidation within our industry, which may result in more
formidable competitors;
|
●
|
our
ability to attract, retain, and motivate talented employees,
particularly software engineers, designers, and product
managers;
|
●
|
our
ability to cost-effectively manage and grow our operations;
and
|
●
|
our
reputation and brand strength relative to those of our
competitors.
|
We are a development stage company and we may never generate
significant revenues which could cause our business to
fail.
We are
a development stage company and have generated limited revenues as
of the date of this Report. Since inception, the Company has
incurred net losses of $4,628,976 and has net working capital
deficit of $544,411 at December 31, 2016. We expect to operate with
net losses for the next financial year-ending December 31, 2017 or
longer. We cannot predict the extent of these future net losses, or
when we may attain profitability, if at all. If we are unable to
generate significant revenue or attain profitability, we will not
be able to sustain operations and will have to curtail
significantly or cease operations.
We have a limited operating history that investors can use to
evaluate us, and the likelihood of our success must be considered
in light of the problems, expenses, difficulties, complications and
delays frequently encountered by a small developing
company.
We were
incorporated in Delaware on March 7, 2012. We have no significant
financial resources and have recorded minimal revenues. The
likelihood of our success must be considered in light of the
problems, expenses, difficulties, complications and delays
frequently encountered by a small developing company starting a new
business enterprise and the highly competitive environment in which
we will operate. Since we have a limited operating history, we
cannot assure you that our business will be profitable or that we
will ever generate sufficient revenues to meet our expenses and
support our anticipated activities.
We cannot assure investors that we will effectively manage our
growth.
With
the change in market place, our management team had been closely
monitoring the human resources requirement to ensure balance of
resources in development and marketing. We have reduced our
headcounts from 31 as of December 31, 2015 to 10 as at the
beginning of the second quarter 2016. We expect headcounts to
maintain current levels with moderate increases in line with
business activities for the foreseeable future. The growth and
expansion of our business and products create significant
challenges for our management, operational, and financial
resources, including managing multiple relations with users,
marketers, developers, and other third parties. In the event of
continued growth of our operations or in the number of our
third-party relationships, our information technology systems or
our internal controls and procedures may not be adequate to support
our operations. In addition, some members of our management do not
have significant experience managing a large global business
operation, so our management may not be able to manage such growth
effectively. To effectively manage our growth, we must continue to
improve our operational, financial, and management processes and
systems and to effectively expand, train, and manage our employee
base. As our organization continues to grow, and we are required to
implement more complex organizational management structures, we may
find it increasingly difficult to maintain the benefits of our
corporate culture, including our ability to quickly develop and
launch new and innovative products. This could negatively affect
our business performance.
The loss of one or more of our key personnel, or our failure to
attract and retain other highly qualified personnel in the future,
could harm our business.
We
currently depend on the continued services and performance of our
key personnel, including Mr. Chan Heng Fai and Mr. Lum Kan Fai.
In addition, many of our key technologies and systems are
custom-made for our business by our personnel. The loss of key
personnel, including members of management as well as key
engineering, product development, marketing, and sales personnel,
could disrupt our operations and have an adverse effect on our
business.
Our
success also depends upon our ability to attract and retain the
personnel we need to maintain our competitive position. In
particular, we intend to continue to hire a significant number of
technical personnel in the foreseeable future, and we expect to
face significant competition from other companies in hiring such
personnel. Our ability to hire and retain qualified personnel could
be impaired by any diminution of our reputation, decrease in
compensation levels relative to our competitors, modifications of
our compensation philosophy or competitor hiring programs. If we
cannot attract, hire and retain qualified personnel, our business,
financial condition and results of operations would be adversely
affected.
We may incur significant costs to be a public company to ensure
compliance with U.S. corporate governance and accounting
requirements and we may not be able to absorb such
costs.
We may
incur significant costs associated with our public company
reporting requirements, costs associated corporate governance
requirements, including requirements under the Sarbanes-Oxley Act
of 2002 and other rules implemented by the Securities and Exchange
Commission. We expect these costs to approximate at
least $50,000 per year, consisting of $25,000 in legal, $20,000 in
audit and $5,000 for financial printing and transfer agent fees. We
expect all of these applicable rules and regulations to
significantly increase our legal and financial compliance costs and
to make some activities more time consuming and
costly. We may not be able to cover these costs from our
operations and may need to raise or borrow additional
funds. We also expect that these applicable rules and
regulations may make it more difficult and more expensive for us to
obtain director and officer liability insurance and we may be
required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us
to attract and retain qualified individuals to serve on our board
of directors or as executive officers. We are currently evaluating
and monitoring developments with respect to these newly applicable
rules, and we cannot predict or estimate the amount of additional
costs we may incur or the timing of such costs. In
addition, we may not be able to absorb these costs of being a
public company which will negatively affect our business
operations.
However,
for as long as we remain an "emerging growth company" as defined in
the Jumpstart Our Business Startups Act of 2012, we intend to take
advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not
"emerging growth companies" including, but not limited to, not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. We intend to take advantage of these reporting
exemptions until we are no longer an "emerging growth
company."
We will
remain an "emerging growth company" for up to five years, although
if the market value of our common stock that is held by
non-affiliates exceeds $700 million as of any June 30 before that
time, we would cease to be an "emerging growth company" as of the
following December 31.
We are an "emerging growth company" and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
An
"emerging growth company," as defined in the Jumpstart our Business
Startups Act of 2012, and we may take advantage of certain
exemptions from various reporting requirements that are applicable
to other public companies, including, but not limited to, not being
required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our
common stock less attractive because we will rely on these
exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
Singapore eDevelopment Limited owns a significant amount of the
outstanding common stock and could take actions detrimental to
investments for which there would be no remedy.
Singapore
eDevelopment Limited beneficially owns approximately 98.17% of the
outstanding common stock as of the date of this filing. Through
this ownership, the shareholder has the ability to substantially
influence the board, management, policies, and business
operations. In addition, the rights of the holders
of our common stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may
be issued in the future. Because of the
shareholdings of the shareholder may cause the company to engage in
business combinations without having to seeking shareholder
approval.
Such
concentration of ownership also may have the effect of delaying or
preventing a change in control, which may be to the benefit of this
one shareholder but not in the interest of the other investors.
Additionally, as investors one would not be able to obtain the
necessary shareholder vote to affect any change in the course of
our business. This lack of shareholder control could prevent
investors from removing from the Board of Directors any directors
who are not managing the company with sufficient skill to make it
profitable, which could prevent us from becoming
profitable.
Because our management is inexperienced in operating our business,
our business plan may fail.
Our
management does not have any specific experience in implementing
the commercial launch of a mobile
application. With no direct experience in this
area, our management may not be fully aware of many of the specific
requirements related to working within this industry. As a result,
our management may lack certain skills that are advantageous in
managing our company. Consequently, our operations, earnings, and
ultimate financial success could suffer irreparable harm due to
management’s lack of experience in this
industry.
We may face liability for information displayed on or accessible
via our website, and for other content and commerce-related
activities, which could reduce our net worth and working capital
and increase our operating losses.
We
could face claims for errors, defamation, negligence or copyright
or trademark infringement based on the nature and content of
information displayed on or accessible via our website, which could
adversely affect our financial condition. Even to the extent that
claims made against us do not result in liability, we may incur
substantial costs in investigating and defending such
claims.
Our
insurance, if any, may not cover all potential claims to which we
are exposed or may not be adequate to indemnify us for all
liabilities that may be exposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage
would reduce our net worth and working capital and increase our
operating losses.
We expect our quarterly results to fluctuate which may adversely
affect our stock price.
We
expect that our quarterly results will fluctuate
significantly. Due to the recent acquisition of HotApp
International Limited, our period-to-period comparisons of
operating results are not meaningful indicators of future results.
Additionally, if our operating results in one or more quarters do
not meet securities analysts' or your expectations, the price of
our common stock could decrease.
If our costs and expenses are greater than anticipated and we are
unable to raise additional working capital, we may be unable to
fully fund our operations and to otherwise execute our business
plan.
We do
not currently have sufficient funds, or any agreements for
additional funds, for us to continue our business for the next 12
months. Should our costs and expenses prove to be
greater than we currently anticipate, or should we change our
current business plan in a manner that will increase or accelerate
our anticipated costs and expenses, the depletion of our working
capital would be accelerated. To the extent it becomes necessary to
raise additional cash in the future as our current cash and working
capital resources are depleted, we will seek to raise it through
the public or private sale of debt or equity securities, funding
from joint-venture or strategic partners, debt financing or
short-term loans, or a combination of the foregoing. We also may
seek to satisfy indebtedness without any cash outlay through the
private issuance of debt or equity securities. We currently do not
have any binding commitments for, or readily available sources of,
additional financing. We cannot give you any assurance that we will
be able to secure the additional cash or working capital we may
require to continue our operations.
If we require additional capital and even if we are able to raise
additional financing, we might not be able to obtain it on terms
that are not unduly expensive or burdensome to the company or
disadvantageous to our existing shareholders.
If we
require additional capital and even if we are able to raise
additional cash or working capital through the public or private
sale of debt or equity securities, funding from joint-venture or
strategic partners, debt financing or short-term loans, or the
satisfaction of indebtedness without any cash outlay through the
private issuance of debt or equity securities, the terms of such
transactions may be unduly expensive or burdensome to the Company
or disadvantageous to our existing shareholders. For example, we
may be forced to sell or issue our securities at significant
discounts to market, or pursuant to onerous terms and conditions,
including the issuance of preferred stock with disadvantageous
dividend, voting or veto, board membership, conversion, redemption
or liquidation provisions; the issuance of convertible debt with
disadvantageous interest rates and conversion features; the
issuance of warrants with cashless exercise features; the issuance
of securities with anti-dilution provisions; and the grant of
registration rights with significant penalties for the failure to
quickly register. If we raise debt financing, we may be required to
secure the financing with all of our business assets, which could
be sold or retained by the creditor should we default in our
payment obligations.
We may not timely and effectively scale and adapt our existing
technology and network infrastructure to ensure that our services
and solutions are accessible within an acceptable load time.
Additionally, other catastrophic occurrences beyond our control
could interfere with access to our services.
A key
element to our continued growth is the ability of our users (whom
we define as anyone who download and use) in all geographies to
access our services and solutions within acceptable load times. We
may in the future experience, service disruptions, outages and
other performance problems due to a variety of factors, including
infrastructure changes, human or software errors, and denial of
service or fraud or security attacks. In some instances, we may not
be able to identify the cause or causes of these website
performance problems within an acceptable period of
time. If our services are unavailable when users attempt
to access them as quickly as users expect, users may seek other
services to obtain the information for which they are looking, and
may not return to our use our services as often in the future, or
at all. This would negatively impact our ability to attract users
and increase engagement of our users. We expect to continue to make
significant investments to maintain and improve mobile application
performance and to enable rapid releases of new features and
products. To the extent that we do not effectively address capacity
constraints, upgrade our systems as needed and continually develop
our technology and network architecture to accommodate actual and
anticipated changes in technology, our business and operating
results may be harmed.
Our
systems are also vulnerable to damage or interruption from
catastrophic occurrences such as earthquakes, floods, fires, power
loss, telecommunication failures, terrorist attacks and other
similar events. Despite any precautions we may take, the occurrence
of a natural disaster or other unanticipated problems could result
in lengthy interruptions in our services.
We do
not carry business interruption insurance sufficient to compensate
us for the potentially significant losses, including the potential
harm to the growth of our business that may result from
interruptions in our service as a result of system
failures.
If our security measures are compromised, or if our websites are
subject to attacks that degrade or deny the ability of members or
customers to access our solutions, or if our member data is
compromised, members and customers may curtail or stop use of our
solutions.
Our
application will involve the collection, processing, storage,
sharing, disclosure and usage of members’ and
customers’ information and communications, some of which may
be private. We are vulnerable to computer viruses, break-ins,
phishing attacks, attempts to overload our servers with
denial-of-service or other attacks and similar disruptions from
unauthorized use of our computer systems, any of which could lead
to interruptions, delays, or website shutdowns, causing loss of
critical data or the unauthorized disclosure or use of personally
identifiable or other confidential information. If we experience
compromises to our security that result in website performance or
availability problems, the complete shutdown of our websites, or
the loss or unauthorized disclosure of confidential information,
such as credit card information, our members or customers may be
harmed or lose trust and confidence in us, and decrease the use of
our website and services or stop using our services in their
entirety, and we would suffer reputational and financial
harm.
In
addition, we could be subject to regulatory investigations and
litigation in connection with a security breach or related issue,
and we could also be liable to third parties for these types of
breaches. Such litigation, regulatory investigations and our
technical activities intended to prevent future security breaches
are likely to require additional management resources and
expenditures. If our security measures fail to protect this
information adequately or we fail to comply with the applicable
credit card association operating rules, we could be liable to both
our customers for their losses, as well as the vendors under our
agreements with them. In addition, we could be subject to fines and
higher transaction fees, we could face regulatory action, and our
customers and vendors could end their relationships with us. Any of
which could harm our business and financial results.
Public scrutiny of internet privacy and security issues may result
in increased regulation and different industry standards, which
could deter or prevent us from providing our current products and
solutions to our members and customers, thereby harming our
business.
The
regulatory framework for privacy and security issues worldwide is
evolving and is likely to remain in flux for the foreseeable
future. Practices regarding the collection, use, storage, display,
processing, transmission and security of personal information by
companies offering online services have recently come under
increased public scrutiny. The U.S. government, including the White
House, the Federal Trade Commission, the Department of Commerce and
many state governments, are reviewing the need for greater
regulation of the collection, use and storage of information
concerning consumer behavior with respect to online services,
including regulation aimed at restricting certain targeted
advertising practices and collection and use of data from mobile
devices. The FTC in particular has approved consent decrees
resolving complaints and their resulting investigations into the
privacy and security practices of a number online, social media
companies. Similar actions may also impact us
directly.
Our
business, including our ability to operate and expand
internationally or on new technology platforms, could be adversely
affected if legislation or regulations are adopted, interpreted, or
implemented in a manner that is inconsistent with our current
business practices that may require changes to these practices, the
design of our websites, mobile applications, products, features or
our privacy policy. In particular, the success of our business is
expected to be driven by our ability to responsibly use the data
that our members share with us. Therefore, our business could be
harmed by any significant change to applicable laws, regulations or
industry standards or practices regarding the storage, use or
disclosure of data our members choose to share with us, or
regarding the manner in which the express or implied consent of
consumers for such use and disclosure is obtained. Such changes may
require us to modify our products and features, possibly in a
material manner, and may limit our ability to develop new products
and features that make use of the data that we collect about our
members.
We will rely on outside firms to host our servers and to provide
telecommunication connections, and a failure of service by these
providers could adversely affect our business and
reputation.
We will
rely upon third party providers to host our number of our servers
and provide telecommunication connections. In the event that these
providers experience any interruption in operations or cease
operations for any reason or if we are unable to agree on
satisfactory terms for continued hosting relationships, we would be
forced to enter into a relationship with other service providers or
assume hosting responsibilities ourselves. If we are forced to
switch hosting facilities, we may not be successful in finding an
alternative service provider on acceptable terms or in hosting the
computer server ourselves. We may also be limited in our remedies
against these providers in the event of a failure of service. A
failure or limitation of service or available capacity by any of
these third party providers could adversely affect our business and
reputation.
We could experience unforeseen difficulties in building and
operating key portions of our technical
infrastructure.
We have
designed and built our own data centers and key portions of our
technical infrastructure through which we serve our products, and
we plan to continue to significantly expand the size of our
infrastructure primarily through data centers and other projects.
The infrastructure expansion we are undertaking is complex, and
unanticipated delays in the completion of these projects or
availability of components may lead to increased project costs,
operational inefficiencies, or interruptions in the delivery or
degradation of the quality of our products. In addition, there may
be issues related to this infrastructure that are not identified
during the testing phases of design and implementation, which may
only become evident after we have started to fully utilize the
underlying equipment, that could further degrade the user
experience or increase our costs.
Our products and internal systems rely on software that is highly
technical, and if it contains undetected errors, our business could
be adversely affected.
Our
products and internal systems rely on software, including software
developed or maintained internally and/or by third parties that is
highly technical and complex. In addition, our products and
internal systems depend on the ability of such software to store,
retrieve, process, and manage immense amounts of data. The software
on which we rely has contained, and may now or in the future
contain, undetected errors, bugs, or vulnerabilities. Some errors
may only be discovered after the code has been released for
external or internal use. Errors or other design defects within the
software on which we rely may result in a negative experience for
users and marketers who use our products, delay product
introductions or enhancements, result in measurement or billing
errors, or compromise our ability to protect the data of our users
and/or our intellectual property. Any errors, bugs, or defects
discovered in the software on which we rely could result in damage
to our reputation, loss of users, loss of revenue, or liability for
damages, any of which could adversely affect our business and
financial results.
A significant or prolonged economic downturn would have a material
adverse effect on our results of operations.
Our
results of operations are expected to affect by the level of
business activity of our users many of whom are expected to be
businesses. These businesses, in turn can be affected by general
economic conditions and the level of economic activity in the
industries and markets that they serve. On an aggregate
basis, our clients may be less likely to hire as many senior
executives or consultants during economic downturns and periods of
economic uncertainty. To the extent our clients delay or reduce
hiring senior executives or consultants due to an economic downturn
or economic uncertainty, our results of operations will be
adversely affected. A continued economic downturn or period of
economic uncertainty and a decline in the level of business
activity of our clients would have a material adverse effect on our
business, financial condition and results of
operations.
Any intellectual property rights we develop will be valuable and
any inability to protect them could reduce the value of our
products, services and brand.
Any
trademarks, trade secrets, copyrights and other intellectual
property rights that we develop will be important assets to us.
There can be no assurance that the protections provided by these
intellectual property rights will be adequate to prevent our
competitors from misappropriating our technology or that our
competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. There are
events that are outside our control that could pose a threat to our
intellectual property rights. Additionally, protecting our
intellectual property rights is costly and time consuming. Any
increase in the unauthorized use of our intellectual property could
make it more expensive to do business and harm our operating
results.
We may be subject to intellectual property rights claims in the
future, which may be costly to defend, could require the payment of
damages and could limit our ability to use certain technologies in
the future.
Companies
in the Internet, technology and media industries own large numbers
of patents, copyrights, trademarks and trade secrets and frequently
enter into litigation based on allegations of infringement or other
violations of intellectual property rights. As our product usage
becomes more wide-spread, the possibility of intellectual property
rights claims increases. Our technologies may not be able to
withstand any third-party claims or rights against their use. Any
intellectual property claims, with or without merit, could be time
consuming, expensive to litigate or settle and could divert
management resources and attention. An adverse determination also
could prevent us from offering our products and services to others
and may require that we procure substitute products or services for
these members.
With
respect to any intellectual property rights claim, we may have to
pay damages or stop using technology found to be in violation of a
third party’s rights. We may have to seek a license for the
technology, which may not be available on reasonable terms and may
significantly increase our operating expenses. The technology also
may not be available for license to us at all. As a result, we also
may be required to develop alternative non-infringing technology,
which could require significant effort and expense. If we cannot
license or develop technology for any infringing aspects of our
business in the future, we may be forced to limit our product and
service offerings and may be unable to compete effectively. Any of
these results could harm our brand and operating
results.
RISKS RELATED TO DOING BUSINESS IN THE PEOPLES REPUBLIC OF CHINA
(“PRC”)
Regulations on Tax
PRC Enterprise Income Tax
The PRC
enterprise income tax, or EIT, is calculated based on the taxable
income determined under the applicable EIT Law and its
implementation rules, which became effective on January 1, 2008.
The EIT Law imposes a uniform enterprise income tax rate of 25% on
all resident enterprises in China, including foreign-invested
enterprises.
The EIT
Law and its implementation rules permit certain High and New
Technologies Enterprises, or HNTEs, to enjoy a reduced 15%
enterprise income tax rate subject to these HNTEs meeting certain
qualification criteria. In addition, the relevant EIT laws and
regulations also provide that entities recognized as Software
Enterprises are able to enjoy a tax holiday consisting of a
2-year-exemption commencing from their first profitable year and a
50% reduction in ordinary tax rate in the subsequent three years,
while entities qualified as Key Software Enterprises can enjoy a
preferential EIT rate of 10%. A number of our PRC subsidiaries and
operating entities enjoy these types of preferential tax treatment.
See “Taxation — People’s Republic of China
Taxation.”
According
to Circular 82, a Chinese-controlled offshore incorporated
enterprise will be regarded as a PRC tax resident by virtue of
having a “de facto management body” in China and will
be subject to PRC enterprise income tax on its worldwide income
only if all of the following criteria are met:
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the
primary location of the day-to-day operational management is in the
PRC;
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decisions
relating to the enterprise’s financial and human resource
matters are made or are subject to approval by organizations or
personnel in the PRC;
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the
enterprise’s primary assets, accounting books and records,
company seals, and board and shareholders meeting minutes are
located or maintained in the PRC; and
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50% or
more of voting board members or senior executives habitually reside
in the PRC.
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We do
not believe that we meet any of the conditions outlined in the
immediately preceding paragraph.
Under
Circular 698, if a non-resident enterprise transfers the equity
interests of a PRC resident enterprise indirectly by disposition of
the equity interests of an overseas non-public holding company and
such overseas holding company is located in a tax jurisdiction
that: (i) has an effective tax rate less than 12.5%, or (ii) does
not tax foreign income of its residents, the non-resident
enterprise, being the transferor, must report such disposition to
the PRC competent tax authority of the PRC resident enterprise. The
PRC tax authority may disregard the existence of the overseas
holding company if it lacks a reasonable commercial purpose and was
established for the purpose of reducing, avoiding, or deferring PRC
tax. As a result, gains derived from such disposition may be
subject to a PRC withholding tax rate of up to 10%. Circular 698
also provides that, where a non-PRC resident enterprise transfers
its equity interests in a PRC resident enterprise to its related
parties at a price which is not on an arm’s length basis and
results in reducing the taxable income, the relevant tax authority
has the power to make a reasonable adjustment as to the taxable
income of the transaction. Circular 698 was retroactively effective
on January 1, 2008. On March 28, 2011, the State
Administration of Taxation released SAT Public Notice 24 to clarify
several issues related to Circular 698. SAT Public Notice 24 became
effective on April 1, 2011. According to SAT Public Notice 24,
the term “effective tax” refers to the effective tax on
the gain derived from disposition of the equity interests of an
overseas holding company; and the term “does not impose
income tax” refers to cases where the gains derived from
disposition of the equity interests of an overseas holding company
is not subject to income tax in the country or region where the
overseas holding company is a resident. There is uncertainty as to
the application of Circular 698.
PRC Business Tax
Pursuant
to applicable PRC tax regulations, any entity or individual
conducting business in the service industry is generally required
to pay a business tax at the rate of 5% on the revenues generated
from providing such services. However, if the services provided are
related to technology development and transfer, such business tax
may be exempted subject to approval by the relevant tax
authorities.
In
November 2011, the Ministry of Finance and the State Administration
of Taxation promulgated the Pilot Plan for Imposition of
Value-Added Tax to Replace Business Tax. Pursuant to this plan and
relevant notices, from August 1, 2013, a value-added tax will
generally be imposed to replace the business tax in the transport
and shipping industry and some of the modern service industries on
a nationwide basis. A value-added tax, or VAT, rate of 6% applies
to revenue derived from the provision of some modern services.
Unlike business tax, a taxpayer is allowed to offset the qualified
input VAT paid on taxable purchases against the output VAT
chargeable on the modern services provided. Accordingly, although
the 6% VAT rate is higher than the previously applicable 5%
business tax rate, no materially different tax cost to us has
resulted or do we expect to result from the replacement of the
business tax with a VAT on our services.
Regulations Relating to Foreign Exchange and Dividend
Distribution
Foreign Exchange Regulation
The
principal regulations governing foreign currency exchange in China
are the Foreign Exchange Administration Regulations. Under the PRC
foreign exchange regulations, payments of current account items,
such as profit distributions and trade and service-related foreign
exchange transactions, may be made in foreign currencies without
prior approval from SAFE by complying with certain procedural
requirements. By contrast, approval from or registration with
appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay
capital expenses such as the repayment of foreign
currency-denominated loans or foreign currency is to be remitted
into China under the capital account, such as a capital increase or
foreign currency loans to our PRC subsidiaries.
Regulation of Dividend Distribution
The
principal laws, rules and regulations governing dividend
distribution by foreign-invested enterprises in the PRC are the
Company Law of the PRC, as amended, the Wholly Foreign-owned
Enterprise Law and its implementation regulations and the
Chinese-foreign Equity Joint Venture Law and its implementation
regulations. Under these laws, rules and regulations,
foreign-invested enterprises may pay dividends only out of their
accumulated profit, if any, as determined in accordance with PRC
accounting standards and regulations. Both PRC domestic companies
and wholly-foreign owned PRC enterprises are required to set aside
as general reserves at least 10% of their after-tax profit, until
the cumulative amount of such reserves reaches 50% of their
registered capital. A PRC company is not permitted to
distribute any profits until any losses from prior fiscal years
have been offset. Profits retained from prior fiscal years may be
distributed together with distributable profits from the current
fiscal year.
Labor Laws and Social Insurance
Pursuant
to the PRC Labor Law and the PRC Labor Contract Law, employers must
execute written labor contracts with full-time employees. All
employers must comply with local minimum wage standards. Violations
of the PRC Labor Contract Law and the PRC Labor Law may result in
the imposition of fines and other administrative and criminal
liability in the case of serious violations.
In
addition, according to the PRC Social Insurance Law, employers in
China must provide employees with welfare schemes covering pension
insurance, unemployment insurance, maternity insurance,
work-related injury insurance, medical insurance and housing
funds.
Regulations on Anti-Monopoly Law
The PRC
Anti-Monopoly Law, which took effect on August 1, 2008,
prohibits monopolistic conduct, such as entering into monopoly
agreements, abuse of dominant market position and concentration of
undertakings that have the effect of eliminating or restricting
competition.
Regulation of Advertising Services
The
principal regulations governing advertising businesses in China
are:
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The
Advertising Law of the PRC (1994);
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The
Advertising Administrative Regulations (1987);
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The
Implementing Rules for the Advertising Administrative Regulations
(2004); and
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The
Administration Rules of Foreign-invested Advertising Enterprises
(2008).
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These
laws, rules and regulations require companies such as ours that
engage in advertising activities to obtain a business license that
explicitly includes advertising in the business scope from the SAIC
or its local branches.
Applicable
PRC advertising laws, rules and regulations contain certain
prohibitions on the content of advertisements in China (including
prohibitions on misleading content, superlative wording, socially
destabilizing content or content involving obscenities,
superstition, violence, discrimination or infringement of the
public interest). Advertisements for anesthetic, psychotropic,
toxic or radioactive drugs are prohibited, and the dissemination of
advertisements of certain other products, such as tobacco, patented
products, pharmaceuticals, medical instruments, agrochemicals,
foodstuff, alcohol and cosmetics, are also subject to specific
restrictions and requirements.
Advertisers,
advertising operators and advertising distributors, including the
businesses that certain of the variable interest entities operate,
are required by applicable PRC advertising laws, rules and
regulations to ensure that the content of the advertisements they
prepare or distribute are true and in compliance with applicable
laws, rules and regulations. Violation of these laws, rules and
regulations may result in penalties, including fines, confiscation
of advertising income, orders to cease dissemination of the
advertisements and orders to publish an advertisement correcting
the misleading information. In circumstances involving serious
violations, the SAIC or its local branches may revoke the
violator’s license or permit for advertising business
operations. In addition, advertisers, advertising operators or
advertising distributors may be subject to civil liability if they
infringe the legal rights and interests of third parties, such as
infringement of intellectual proprietary rights, unauthorized use
of a name or portrait and defamation.
Although
advertising services are no longer categorized as a prohibited or
restricted area for foreign investment, the Administration Rules of
Foreign-invested Advertising Enterprises issued on August 22, 2008
by the SAIC and the Ministry of Commerce, or the MOFCOM, require
all foreign investors of advertising enterprises to have a track
record in, and mainly engage in, advertising businesses overseas.
The establishment of a foreign-invested advertising enterprise is
also subject to pre-approval by the SAIC or its local
branch.
Regulation of Online and Mobile Commerce
China’s
online and mobile commerce industry is at an early stage of
development and there are few PRC laws, regulations or rules
specifically regulating this industry. The SAIC adopted the Interim
Measures for the Administration of Online Commodities Trading and
Relevant Services on May 31, 2010 and replaced those measures with
the Administrative Measures for Online Trading on January 26,
2014, which became effective on March 15, 2014. The SAIC also
issued the Opinions on Strengthening the Administration of Online
Group Buying Operations on March 12, 2012 to subject group
buying website operators to the foregoing measures, especially
those relating to marketplace platform service providers. These
newly issued measures impose more stringent requirements and
obligations on the online trading or service operators as well as
the marketplace platform providers. For example, the marketplace
platform providers are obligated to examine the legal status of
each third-party merchant selling products or services on the
platform and display on a prominent location on the web page of
such merchant the information stated in the merchant’s
business license or a link to such business license, and a group
buying website operator must only allow a third-party merchant with
a proper business license to sell products or services on its
platform. Where the marketplace platform providers also act as
online distributors, these marketplace platform providers must make
a clear distinction between their online direct sales and sales of
third-party merchant products on the marketplace
platform.
Regulation of Internet Content
The PRC
government has promulgated measures relating to Internet content
through various ministries and agencies, including the MIIT, the
News Office of the State Council, the Ministry of Culture and the
General Administration of Press and Publication. In addition to
various approval and license requirements, these measures
specifically prohibit Internet activities that result in the
dissemination of any content which is found to contain pornography,
promote gambling or violence, instigate crimes, undermine public
morality or the cultural traditions of the PRC or compromise State
security or secrets. ICPs must monitor and control the information
posted on their websites. If any prohibited content is found, they
must remove such content immediately, keep a record of it and
report to the relevant authorities. If an ICP violates these
measures, the PRC government may impose fines and revoke any
relevant business operation licenses.
Regulation of Internet Security
The
Decision in Relation to Protection of the Internet Security enacted
by the Standing Committee of the National People’s Congress
of China on December 28, 2000 provides that the following
activities conducted through the Internet are subject to criminal
punishment:
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gaining
improper entry into a computer or system of strategic
importance;
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disseminating
politically disruptive information or obscenities;
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leaking
State secrets;
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spreading
false commercial information; or
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infringing
intellectual property rights.
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The
Administrative Measures on the Security Protection of Computer
Information Network with International Connections, issued by the
Ministry of Public Security on December 16, 1997 and amended on
January 8, 2011, prohibit the use of the Internet in a manner that
would result in the leakage of State secrets or the spread of
socially destabilizing content. If a value-added telecommunications
services license holder violates these measures, the Ministry of
Public Security and the local security bureaus may revoke its
operating license and shut down its websites.
Regulation Relating to Privacy Protection
Under
the ICP Measures, ICPs are prohibited from producing, copying,
publishing or distributing information that is humiliating or
defamatory to others or that infringes upon the lawful rights and
interests of others. Depending on the nature of the violation, ICPs
may face criminal charges or sanctions by PRC security authorities
for such acts, and may be ordered to suspend temporarily their
services or have their licenses revoked.
Under
the Several Provisions on Regulating the Market Order of Internet
Information Services, issued by the MIIT on December 29, 2011, ICPs
are also prohibited from collecting any user personal information
or providing any such information to third parties without the
consent of a user. ICPs must expressly inform the users of the
method, content and purpose of the collection and processing of
such user personal information and may only collect such
information necessary for its services. ICPs are also required to
properly maintain the user personal information, and in case of any
leak or likely leak of the user personal information, ICPs must
take remedial measures immediately and report any material leak to
the telecommunications regulatory authority.
In
addition, the Decision on Strengthening Network Information
Protection promulgated by the Standing Committee of the National
People’s Congress on December 28, 2012 emphasizes the need to
protect electronic information that contains individual
identification information and other private data. The decision
requires ICPs to establish and publish policies regarding the
collection and use of personal electronic information and to take
necessary measures to ensure the security of the information and to
prevent leakage, damage or loss. Furthermore, MIIT’s Rules on
Protection of Personal Information of Telecommunications and
Internet Users promulgated on July 16, 2013 contain detailed
requirements on the use and collection of personal information as
well as the security measures to be taken by ICPs.
The PRC
government retains the power and authority to order ICPs to provide
an Internet user’s personal information if such user posts
any prohibited content or engages in any illegal activities through
the Internet.
Regulation of Website and Mobile Interfaces
Under
PRC law, we are required to monitor our websites and the websites
hosted on our servers and mobile interfaces for items or content
deemed to be socially destabilizing, obscene, superstitious or
defamatory, as well as items, content or services that are illegal
to sell online or otherwise in other jurisdictions in which we
operate our marketplaces, and promptly take appropriate action with
respect to such items, content or services. We may also be subject
to potential liability for any unlawful actions of our customers or
users of our websites or mobile interfaces or for content we
distribute that is deemed inappropriate. It may be difficult to
determine the type of content that may result in liability to us,
and if we are found to be liable, we may be subject to fines, have
our relevant business operation licenses revoked, or be prevented
from operating our websites or mobile interfaces in
China.
In
addition, claims may be brought against us for defamation, libel,
negligence, copyright, patent or trademark infringement, tort
(including personal injury), other unlawful activity or other
theories and claims based on the nature and content of information
posted on our marketplaces, including product reviews and message
boards, by our buyers, sellers and other marketplace
participants.
Regardless
of the outcome of such a dispute or lawsuit, we may suffer from
negative publicity and reputational damage as a result of these
actions.
Regulation of Contractual Arrangements with our Variable Interest
Entities
If the
PRC government deems that the contractual arrangements in relation
to our variable interest entities do not comply with PRC
governmental restrictions on foreign investment, or if these
regulations or the interpretation of existing regulations changes
in the future, we could be subject to penalties or be forced to
relinquish our interests in those operations. Foreign
ownership of certain types of Internet businesses, such as Internet
information services, is subject to restrictions under applicable
PRC laws, rules and regulations. For example, foreign investors are
generally not permitted to own more than 50% of the equity
interests in a value-added telecommunication service provider. Any
such foreign investor must also have experience and a good track
record in providing value-added telecommunications services
overseas.
RISKS RELATED TO OUR COMMON STOCK
Should our stock become quoted on the OTC Markets and if we fail to
remain current on our reporting requirements, we could be removed
from the OTC Markets which would limit the ability of
broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary
market.
On June
9, 2015, the Financial Industry Regulatory Authority
(“FINRA”), cleared the Company’s request under
Rule 15c2-11 for an unpriced quotation on the OTC Bulletin Board
and in OTC Link under the symbol HTPN. Since that time, through the
date of this 10-K, the Company has not had any trading in its
stock.
Once publicly trading, the application of the “penny
stock” rules could adversely affect the market price of our
common shares and increase your transaction costs to sell those
shares.
The
Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a “penny stock,” for the
purposes relevant to us, as any equity security that has a market
price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules
require:
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that a
broker or dealer approve a person's account for transactions in
penny stocks; and
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the
broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
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In
order to approve a person's account for transactions in penny
stocks, the broker or dealer must:
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obtain
financial information and investment experience objectives of the
person; and
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make a
reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight
form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities
subject to the “penny stock” rules. This may make it
more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny
stocks.
We do not expect to pay dividends in the future; any return on
investment may be limited to the value of our common
stock.
We do
not currently anticipate paying cash dividends in the foreseeable
future. The payment of dividends on our common stock will depend on
earnings, financial condition and other business and economic
factors affecting it at such time as the board of directors may
consider relevant. Our current intention is to apply net earnings,
if any, in the foreseeable future to increasing our capital base
and development and marketing efforts. There can be no assurance
that the company will ever have sufficient earnings to declare and
pay dividends to the holders of our common stock, and in any event,
a decision to declare and pay dividends is at the sole discretion
of our Board of Directors. If we do not pay dividends, our common
stock may be less valuable because a return on your investment will
only occur if its stock price appreciates.
Our common stock price is likely to be highly volatile which may
subject us to securities litigation thereby diverting our resources
which may affect our profitability and results of
operation.
Once
listed, due to the nature of our company and its business, the
market price for our common stock is expected to be limited
and highly volatile. The following factors will add to our common
stock price's volatility:
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the
number of users of our application;
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actual
or anticipated variations in our quarterly operating
results;
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announcements
of acquisitions;
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additions
or departures of our key personnel; and.
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sales
of our common stock
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Some of
these factors are beyond our control. These factors may decrease
the market price of our common stock, regardless of our operating
performance. In the past, plaintiffs have initiated
securities class action litigation against a company following
periods of volatility in the market price of its
securities. We may be the target of similar litigation
in the future. Securities litigation could result in
substantial costs and liabilities and could divert
management’s attention and resources.
In
addition, as a result of the expected volatility in our stock,
investors may be unable to resell their shares at a fair price or
at a price lower than their entry price.
Expected Limited Trading Market For Our Common Stock.
If a
market for our common stock develops, it is expected to be limited
and thinly traded, and we can provide no assurance to investors
that a more robust market will develop. If a market for our common
stock does not develop, our shareholders may not be able to resell
the shares of our common stock they have purchased and they may
lose all of their investment.
By issuing preferred stock, we may be able to delay, defer, or
prevent a change of control.
Our
Articles of Incorporation permits us to issue, without approval
from our stockholders, a total of 15,000,000 shares of preferred
stock. Our Board of Directors can determine the rights,
preferences, privileges and restrictions granted to, or imposed
upon, the shares of preferred stock and to fix the number of shares
constituting any series and the designation of such
series. It is possible that our Board of Directors, in
determining the rights, preferences and privileges to be granted
when the preferred stock is issued, may include provisions that
have the effect of delaying, deferring or preventing a change in
control, discouraging bids for our common stock at a premium over
the market price, or that adversely affect the market price of and
the voting and other rights of the holders of our common
stock.
We have not voluntarily implemented various corporate governance
measures, in the absence of which stockholders may have more
limited protections against interested director transactions,
conflicts of interests and similar matters.
We have
not yet adopted any corporate governance measures and, since our
securities are not yet listed on a national securities exchange, we
are not required to do so. We have not adopted corporate governance
measures such as an audit or other independent committees of our
board of directors as we presently do not have any independent
directors. If we expand our board membership in future periods to
include additional independent directors, we may seek to establish
an audit and other committees of our board of directors. It is
possible that if our Board of Directors included independent
directors and if we were to adopt some or all of these corporate
governance measures, stockholders would benefit from somewhat
greater assurances that internal corporate decisions were being
made by disinterested directors and that policies had been
implemented to define responsible conduct. For example, in the
absence of audit, nominating and compensation committees comprised
of at least a majority of independent directors, decisions
concerning matters such as compensation packages to our senior
officers and recommendations for director nominees may be made by a
majority of directors who have an interest in the outcome of the
matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating
their investment decisions.
Securities analysts may not cover our common stock and this may
have a negative impact on our common stock’s market
price.
The
trading market for our common stock in the future may depend on the
research and reports that securities analysts publish about us or
our business. We do not have any control over these
analysts. There is no guarantee that securities analysts
will cover our common stock. If securities analysts do
not cover our common stock, the lack of research coverage may
adversely affect our common stock’s market price, if any. If
we are covered by securities analysts, and our stock is downgraded,
our stock price would likely decline. If one or more of
these analysts ceases to cover us or fails to publish regularly
reports on us, we could lose visibility in the financial markets,
which could cause our stock price or trading volume to
decline.
Your ability to bring an action against us or against our directors
and officers, or to enforce a judgment against us or them, may be
limited because we conduct substantially all of our operations in
China and all of our directors and officers reside outside of the
United States.
We
conduct substantially all of our operations in
China. Our CEO and director resides, and
substantially all of the assets of that person are located, outside
the United States. As a result, it may be difficult for you to
bring an action against us or against these individuals in the
United States in the event that you believe that your rights have
been infringed under the securities laws or otherwise. Even if you
are successful in bringing an action of this kind, the laws of
China may render you unable to enforce a judgment against assets or
the assets of a directors and officers.