Business Context and Reporting Period
Company: Color Star Technology Co., Ltd. (formerly Huitao Technology Co., Ltd.)
Filing Type: Form 6-K
Reporting Period: June 2020 (Event date: June 25, 2020)
Context: The Company reported the completion of a strategic divestiture of its wholly-owned subsidiary, Sunway Kids International Education Group Ltd. ("Sunway Kids"), due to operational disruptions caused by the COVID-19 pandemic.
Key Financial Metrics and Transaction Details
Transaction Value: $2.4 million total cash consideration for the sale of Sunway Kids.
Payment Structure:
- $400,000 paid within one month of closing.
- $2,000,000 payable in monthly installments of $200,000 over 10 months.
- Earn-out Obligation: The Company waived all future earn-out payments to former Sunway Kids shareholders as the subsidiary could not achieve projected financial results.
- Liabilities: The Purchaser assumed all assets and liabilities of Sunway Kids and its variable interest entities (VIEs) upon closing.
Material Changes Versus Prior Period
Corporate Structure: The Company divested its entire interest in Sunway Kids, changing from a parent company controlling the subsidiary to a structure where the Purchaser is the sole shareholder of Sunway Kids.
Operational Status: Sunway Kids ceased to be a consolidated entity of Color Star Technology due to the inability to conduct normal operations during the pandemic.
Contractual Obligations: The Share Exchange Agreement was amended to eliminate earn-out payments, representing a significant change from the original December 31, 2019 agreement.
Guidance, Outlook, and Risks
Management Commentary: Management determined that achieving projected financial results for Sunway Kids was "very difficult" due to the COVID-19 pandemic, necessitating the divestiture and waiver of earn-outs.
Closing Conditions: The transaction closed on June 25, 2020, subject to conditions including payment of the purchase price, receipt of a valuation report from APA Consulting and Appraisal, and necessary governmental consents.
Risks: The filing highlights the operational risk posed by the pandemic to the education sector, which directly led to the asset disposal.
Investor Verification Checklist
- Verify the receipt of the initial $400,000 payment and the schedule for the remaining $2.0 million installments.
- Confirm the valuation report from APA Consulting and Appraisal referenced in the closing conditions.
- Review the amended Share Exchange Agreement (Exhibit 99.1) to confirm the full waiver of earn-out liabilities.
- Assess the impact of removing Sunway Kids' assets and liabilities from the Company's consolidated balance sheet on future financial statements.
- Monitor the Company's remaining business operations post-divestiture, as the filing does not detail the core business strategy without the subsidiary.