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.




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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             Percentage of Ownership
                                                Incorporation
1st Tier Subsidiary:
HotApps International Pte May 23, 2014          Republic of          100% by Company
Ltd ("HIP")                                     Singapore
Crypto Exchange Inc.      December 15, 2017     State of Nevada, the 100% by Company
                                                United States of
                                                America
HWH World Inc.            August 28, 2018       State of Delaware,   100% by Company
                                                the United States of
                                                America
2nd Tier Subsidiaries:
HWH World Pte. Ltd.       September 15, 2014    Republic of          100% owned by HIP
                                                Singapore
HotApp International      July 8, 2014          Hong Kong (Special   100% owned by HIP
Limited*                                        Administrative
                                                Region)

* On March 25, 2015, HotApps International Pte Ltd acquired 100% of the issued and outstanding shares of HotApp International Limited.




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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.


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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.




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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.




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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.

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