Business Context and Reporting Period
This Form 6-K is filed by Huitao Technology Co., Ltd. (the "Company") for the month of February 2020. The filing reports the consummation of the acquisition of Sunway Kids International Education Group Ltd. ("Sunway Kids") on February 14, 2020. Sunway Kids is an education and health service provider for day-care and preschools in China, utilizing AI, robotics, and SaaS systems.
Key Financial Metrics
The filing provides unaudited financial data for Sunway Kids as of December 31, 2019, but does not provide consolidated financial statements, cash flow, debt, or liquidity metrics for the Company itself.
- Sunway Kids Revenue (as of Dec 31, 2019): Approximately $935,000
- Sunway Kids Net Income (as of Dec 31, 2019): Approximately $263,000
- Acquisition Consideration: 1,989,262 ordinary shares of the Company issued to sellers.
- Company Financials: The filing text does not provide a clear value for the Company's consolidated revenue, profit, cash flow, margins, debt, or liquidity.
Material Changes
The primary material change is the closing of the Sunway Kids acquisition. Key details include:
- Transaction Closing: Consummated on February 14, 2020, following an amendment to the Share Exchange Agreement on February 11, 2020.
- Amendment Terms: The amendment adjusted the cash consideration to be payable according to an earn-out schedule and modified certain closing deliverables.
- Restrictions: Sellers entered into a 6-month lock-up agreement prohibiting the sale or transfer of Company shares. Key Sunway Kids management entered into non-competition and non-solicitation agreements.
- Strategic Shift: Management expects to focus on expanding the Sunway Kids business due to continuous revenue decline in the Company's concrete business.
Guidance, Outlook, and Risks
Outlook and Management Commentary: Management cites China's two-child policy, rising disposable income, and the fragmented nature of the preschool education market as drivers for growth. The Company intends to leverage branding and franchising trends to expand Sunway Kids.
Risks and Contingencies:
- Unaudited Data: Sunway Kids' financial figures are unaudited by a PCAOB-registered accounting firm.
- Core Business Decline: The Company explicitly notes a continuous revenue decline in its existing concrete business.
- Regulatory Structure: Sunway Kids operates through a complex structure involving a British Virgin Islands holding company, a Hong Kong subsidiary, and a Variable Interest Entity (VIE) structure in China.
Investor Verification Checklist
- Verify the unaudited nature of Sunway Kids' $935,000 revenue and $263,000 net income figures.
- Review the specific terms of the earn-out schedule for cash consideration mentioned in the Amendment (Exhibit 99.1).
- Assess the magnitude of the revenue decline in the Company's concrete business relative to the new acquisition.
- Confirm the regulatory risks associated with the VIE structure used for Sunway Kids' operations in China.
- Monitor the 6-month lock-up period expiration for the sellers of Sunway Kids.