Net Income Performance Guarantees in Place of Up to a Total of RMB80 Million (USD11.75 Million) Over Three Years
Blue Hat Interactive Entertainment Technology (“Blue Hat” or the “Company”) (NASDAQ: BHAT), a leading producer, developer and operator of augmented reality (“AR”) interactive entertainment games, toys and educational materials in China, today announced the entry of a definitive agreement in connection with the acquisition of 51% of Fuzhou Csfctech Co., Ltd. (“Csfctech”) and its two subsidiaries. The Company had previously announced a signing of a letter of intent (Letter of Intent – December 2019) and provided an update on its progress (Update on Acquisition Progress – September 2020). The closing of the acquisition is expected to be on or around December 31, 2020.
Csfctech is a developer and distributor of mobile games in China, including operation center in mainland China, anchor studio, overseas business sector and extensive entertainment sector. Csfctech has an international user base across Mainland China, Japan, Taiwan, the United Arab Emirates and Africa. Its business covers more than 100 games on a number of available platforms.
Transaction Terms
- The total transaction value is RMB51.2 Million (equivalent to USD7.7736 million based on current exchange ratios.
- The transaction is to be paid through a combination of cash plus newly issued shares of Blue Hat’s ordinary shares, calculated on the weighted average volume price of 20 trading days prior to closing, with the share component not to be priced lower than the Company’s Initial Public Offering price of $4.00.
- There is a performance guarantee where the terms of the agreement will be amended if Csfctech does not achieve certain audited net profit for the calendar year ending December 31 based upon the following criteria:
o 2020: RMB 15 Million (equivalent to USD 2.2 million);
o 2021: RMB 25 million (equivalent to USD 3.67 million); and
o 2022: RMB 40 million (equivalent to USD 5.88 million).
- The transaction has been valued at 4X the average of the three performance guarantee targets of Csfctech as referenced above.
- The original shareholders of Csfctech shall bear joint liability for performance and debt obligations.
Management Commentary
Mr. Xiaodong Chen, CEO of the Company, stated, “This is a milestone agreement for Blue Hat and we are pleased to move forward with the official signing of the definitive agreement. This will broaden our interactive gaming portfolio and allow our Company to increase sales even further through the expansion of available distribution platforms. We were extremely diligent in working to move forward on this acquisition throughout a challenging 2020, and by the end of the year expect to close and acquire a company that will greatly strengthen our mobile games business under favorable terms in both valuation and performance incentives. We feel that the benefits of our combined companies will help to drive greater brand awareness for Blue Hat and each of our lines of business in mobile games, AR toys and AR education.”
Mr. Jinlin Zhan, the founder of Csfctech stated, “This is an excellent combination. Csfctech Competition, our subsidiary, has a self-developed game platform supporting multi-terminal online and mobile games. We have a strong background of R&D and game development to go along with a rich variety of games with independent intellectual properties.”
Mr. Zhan continued, “We believe the synergies created by our combination will be accelerated by integrating our R&D and strong game operation and distribution platforms, and ultimately optimize our product mix and increase our profitability. This transaction will have long-term market value for both companies.”
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