DUBAI, UAE, March 11, 2024 /PRNewswire/ -- Blue Hat Interactive Entertainment Technology Ltd. (NASDAQ: BHAT) and GTC Group LLC-FZ, a leading Dubai-based financial derivatives trading services company, have officially signed a strategic partnership agreement. It marks a strong alliance between the two parties in the field of financial technology. According to the agreement, BHAT will formally enter the field of financial services such as commodities, foreign exchange, stocks, indices, etc., while GTC GROUP ...

PART I [ITEM 3. KEY INFORMATION](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data for the fiscal years 2020, 2021, and 2022, showing a significant decline in revenue and a shift from net income to substantial net losses, alongside a comprehensive list of risk factors. Selected Consolidated Financial Data (2020-2022) | Financial Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Revenues** | $7,376,009 | $15,155,074 | $24,599,923 | | **Gross Profit** | $3,998,349 | $6,482,924 | $13,420,020 | | **Income (Loss) from Operations** | ($7,999,806) | ($60,957,583) | $10,204,409 | | **Net Income (Loss)** | ($9,405,082) | ($60,054,620) | $8,281,017 | | **Basic EPS from cont. operation ($)** | (1.23) | (11.60) | 2.09 | Selected Consolidated Cash Flow Data (2020-2022) | Cash Flow Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash (used in)/from operating activities** | ($1,598,493) | ($22,284,750) | $5,052,415 | | **Net cash used in investing activities** | $6,336 | ($4,498,355) | ($10,761,890) | | **Net cash generated from financing activities** | $2,530,674 | $7,574,848 | $2,493,110 | | **Cash and cash equivalents at end of period** | $76,535 | $135,562 | $15,752,704 | - The company identifies **significant business risks**, including its limited operating history, high market competition, dependence on its distribution network, and business seasonality[13](index=13&type=chunk) - A key structural risk is the company's dependence on **Contractual Arrangements** with its **Variable Interest Entities (VIEs)**, Blue Hat Fujian and Fujian Roar Game, to conduct business in China, which may not be as effective as direct ownership and is subject to scrutiny by PRC authorities[13](index=13&type=chunk)[15](index=15&type=chunk)[28](index=28&type=chunk) - The company faces **substantial risks related to operating in China**, including changes in economic, political, and legal systems, **greater oversight by the Cyberspace Administration of China (CAC)** over data security, and **potential delisting** from U.S. exchanges under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB cannot inspect its auditor[15](index=15&type=chunk)[51](index=51&type=chunk)[76](index=76&type=chunk) - The company has identified **three material weaknesses** in its internal control over financial reporting as of December 31, 2022: (i) **insufficient personnel with U.S. GAAP knowledge**, (ii) **ineffective oversight by governance**, and (iii) **inadequate design of internal controls** over financial statement preparation[86](index=86&type=chunk)[295](index=295&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=34&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, corporate structure, and business operations, including its focus on AR interactive entertainment, recent expansion into IDC and commodity trading, and the extensive PRC legal and regulatory framework governing its activities. - The company operates its core business in China through **two Variable Interest Entities (VIEs)**, Fujian Blue Hat Interactive Entertainment Technology Ltd. and Fujian Roar Game Technology Co., Ltd., which are controlled via a series of **contractual arrangements** rather than direct ownership due to PRC restrictions on foreign investment[101](index=101&type=chunk)[105](index=105&type=chunk) - The company's primary business is the production, development, and operation of **augmented reality (AR) interactive entertainment**, including games, toys, and educational materials, with recent expansion into the **Internet Data Center (IDC) business** and **commodity trading**[111](index=111&type=chunk)[123](index=123&type=chunk) - As of April 27, 2023, the company's intellectual property portfolio included **224 authorized patents**, **14 PCT international patent applications**, **794 artistic copyrights**, **94 registered trademarks**, and **134 software copyrights**[111](index=111&type=chunk)[127](index=127&type=chunk) - The company's corporate structure is a **multi-layered holding structure**: Blue Hat Interactive Entertainment Technology (Cayman Islands) owns Blue Hat BVI, which owns Blue Hat HK, which in turn owns the WFOE (Xiamen Duwei Consulting), and the **WFOE controls the VIEs** (Fujian Blue Hat and Fujian Roar Game) through contractual arrangements[100](index=100&type=chunk)[101](index=101&type=chunk)[175](index=175&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=56&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's discussion and analysis of the company's financial performance, highlighting a 51.3% decrease in revenue in FY2022, a shift to significant net losses, and details on liquidity, capital resources, and contractual obligations. Revenue Breakdown by Category (FY2022 vs. FY2021) | Revenue Category | FY 2022 | FY 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interactive toys - animation series | $9,061 | $657,619 | ($648,558) | (98.62)% | | Interactive toys - game series | $155,559 | $8,723,480 | ($8,567,921) | (98.22)% | | Mobile games | $5,181,410 | $4,165,456 | $1,015,954 | 24.39% | | Information service | $884,329 | $1,608,519 | ($724,190) | (45.02)% | | Commodity Trading | $1,145,650 | $0 | $1,145,650 | N/A | | **Total revenues** | **$7,376,009** | **$15,155,074** | **($7,779,065)** | **(51.33)%** | - **Total revenues decreased by 51.33%** in FY2022, mainly due to the **significant negative impact of COVID-19** on the interactive toy business, which saw a **combined revenue drop of over $9.2 million**, while a **new commodity trading business** was introduced in Q4 2022, generating **$1.15 million in revenue**[184](index=184&type=chunk)[194](index=194&type=chunk)[197](index=197&type=chunk) - **Operating expenses decreased significantly to $12.00 million** in FY2022 from $67.44 million in FY2021, primarily due to a **$25.66 million decrease in G&A expenses**, an **$8.71 million decrease in R&D expenses**, and a **reduction in impairment loss from $18.44 million to $33,397**[201](index=201&type=chunk) - The company's **liquidity is under pressure**, with a **working capital of $4.12 million** and **cash equivalents of only $76,535** as of December 31, 2022, having generated a **net loss of $9.41 million** in FY2022[213](index=213&type=chunk) Contractual Obligations as of December 31, 2022 | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Loan obligations | $1,261,944 | $1,261,944 | $0 | $0 | $0 | | Operating lease obligations | $42,302 | $11,261 | $31,041 | $0 | $0 | | Convertible notes payable | $1,393,499 | $0 | $1,393,499 | $0 | $0 | | Long-term loans - related party | $914,771 | $0 | $0 | $914,771 | $0 | | **Total** | **$3,777,459** | **$1,438,148** | **$1,424,540** | **$914,771** | **$0** | [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=69&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership and workforce, including director and executive officer compensation, board structure, and significant share ownership by management and principal shareholders. - As of December 31, 2022, the company had **27 full-time employees**, **all located in China**[241](index=241&type=chunk) Director and Executive Officer Compensation (FY2022) | Name | Position | Total Compensation (Cash) | | :--- | :--- | :--- | | Xiaodong Chen | CEO and Director | $98,738 | | Caifan He | CFO and Director | $69,635 | | Qinyi Fu | Independent Director | $10,000 | | Jun Ouyang | Independent Director | $10,000 | | Huibin Shen | Independent Director | $10,000 | | Can Su | Independent Director | $10,000 | - The company's officers, directors, and principal shareholders collectively control a **significant portion of the company**, with CEO Xiaodong Chen beneficially owning **13.23% of outstanding shares** and all directors and executive officers as a group owning **14.25%** as of December 31, 2022[85](index=85&type=chunk)[245](index=245&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=75&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details transactions with related parties, primarily focusing on loans from the CEO, Xiaodong Chen, to the company and his role as a guarantor for certain company loans. - As of December 31, 2022, the company had an **outstanding loan payable to its CEO, Xiaodong Chen, amounting to $935,878**, with the loans being **unsecured, interest-free**, and **$914,771 due on January 31, 2026**[246](index=246&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=76&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of audited consolidated financial statements in Item 18, states the absence of material legal proceedings, and clarifies the company's dividend policy. - The company has **never declared or paid a dividend** and intends to retain all future earnings to fund business development and expansion[250](index=250&type=chunk) - The company is **not currently a party to any legal proceedings** that would have a material adverse effect on its business or financial position[249](index=249&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=77&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides details on the company's share capital, memorandum and articles of association, and material tax considerations, including its status as a Cayman Islands exempted company and its expected non-PFIC classification. - The company is an **exempted company incorporated in the Cayman Islands**, and its **corporate affairs are governed by Cayman Islands law**, which provides **different shareholder rights** compared to U.S. jurisdictions[252](index=252&type=chunk)[264](index=264&type=chunk) - Based on current and expected income and assets, the company **does not presently expect to be classified as a Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes for the current taxable year or the foreseeable future[97](index=97&type=chunk)[272](index=272&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=86&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to several market risks, including interest rate, credit, liquidity, and significant foreign exchange risk due to its RMB-denominated operations and U.S. dollar reporting currency. - The company faces **significant foreign exchange risk** as **almost all of its consolidated revenues, costs, and assets are denominated in RMB**, while its **reporting currency is the U.S. dollar**, meaning **fluctuations in the RMB/USD exchange rate can affect its reported financial results**[288](index=288&type=chunk) PART II [ITEM 15. CONTROLS AND PROCEDURES](index=87&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section addresses the company's internal controls, concluding that disclosure controls and procedures were not effective as of December 31, 2022, due to identified material weaknesses, which the company is actively remediating. - Management concluded that the company's **disclosure controls and procedures were not effective** as of December 31, 2022, due to identified **material weaknesses**[293](index=293&type=chunk) - **Three material weaknesses** in internal control over financial reporting were identified as of December 31, 2022: 1. **Insufficient personnel with U.S. GAAP accounting knowledge** 2. **Ineffective oversight of financial reporting and internal control by governance** 3. **Inadequate design of internal control over the preparation of financial statements**[295](index=295&type=chunk) [Corporate Governance and Accountant Services](index=90&type=section&id=ITEM%2016.%20%5BRESERVED%5D) This section covers various governance topics, including the identification of the audit committee financial expert, adoption of a Code of Business Conduct and Ethics, disclosure of principal accountant fees, and adherence to home country corporate governance practices. Principal Accountant Fees (Audit Alliance LLP) | Fee Category | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Audit fees | $160,000 | $160,000 | | Audit-related fees | $0 | $0 | | Tax fees | $0 | $0 | | All Other Fees | $0 | $0 | | **Total** | **$160,000** | **$160,000** | - The company **follows its home country (Cayman Islands) practice in lieu of Nasdaq rules** regarding **annual shareholder meetings** and certain shareholder approval requirements for securities issuances, which may afford **less protection to shareholders**[303](index=303&type=chunk)[304](index=304&type=chunk) PART III [FINANCIAL STATEMENTS](index=92&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements for fiscal years 2020-2022, prepared under U.S. GAAP, including the independent auditor's report with a "Going Concern Uncertainty" paragraph due to recurring losses and negative operating cash flow. - The **independent auditor's report includes a 'Going Concern Uncertainty' paragraph** due to the company suffering **recurring losses from operations (approx. $9.41 million in 2022)** and **negative operating cash flow (approx. $1.60 million in 2022)**, which **raise substantial doubt about its ability to continue as a going concern**[317](index=317&type=chunk) Consolidated Balance Sheet Summary | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $21,532,070 | $21,704,144 | | **Total Assets** | $34,276,858 | $36,511,577 | | **Total Current Liabilities** | $17,408,208 | $18,281,724 | | **Total Liabilities** | $19,747,519 | $18,861,371 | | **Total Equity** | $14,529,339 | $17,650,206 | - As of December 31, 2022, the company had **significant accounts receivable of $13.5 million (net)** and **other receivables of $4.7 million (net)**[320](index=320&type=chunk) - For the year ended December 31, 2022, **two customers accounted for 30.1% and 16.98% of the Company's total revenues**, indicating **significant customer concentration risk**[437](index=437&type=chunk)

[Securities Purchase Agreement](index=2&type=section&id=Securities%20Purchase%20Agreement) [Recitals](index=2&type=section&id=RECITALS) This section outlines the agreement's background, signed on March 27, 2023, for Blue Hat to sell up to 4,000,000 common shares at $0.50 to F&P Capital under Securities Act exemptions - The agreement was signed on **March 27, 2023**, between Blue Hat Interactive Entertainment Technology (the Company) and F&P Capital Management Company Limited (the Purchaser)[3](index=3&type=chunk) Share Issuance Details | Item | Content | | :--- | :--- | | Shares Issued | Common Stock | | Quantity Issued | Up to 4,000,000 shares | | Price Per Share | $0.50 | | Price Basis | 90% discount to 20-day VWAP | | Legal Basis | Registration exemption under Section 4(a)(2) and/or Regulation S of the 1933 Securities Act | - The Purchaser is defined as a **'non-U.S. person'** under Regulation S, acquiring shares solely for personal investment purposes[5](index=5&type=chunk) [Article I Purchase and Sale of the Shares](index=4&type=section&id=ARTICLE%20I%20Purchase%20and%20Sale%20of%20the%20Shares) This article details the purchase and sale terms, where the Purchaser agrees to buy 4,000,000 common shares at $0.50 each for a total of $2,000,000, with closing contingent on full payment receipt and share delivery Transaction Terms | Item | Amount/Quantity | | :--- | :--- | | Shares Purchased | 4,000,000 shares | | Price Per Share | $0.50 | | Total Purchase Price | $2,000,000 | - The transaction's closing is contingent upon the Company's receipt of the **full purchase price**[8](index=8&type=chunk)[9](index=9&type=chunk) - The agreement provides specific bank account details for the Company to receive payments in both **RMB and USD**[10](index=10&type=chunk)[11](index=11&type=chunk) [Article II Representations and Warranties](index=6&type=section&id=ARTICLE%20II%20Representations%20and%20Warranties) This article details mutual representations and warranties, with the Company affirming its legal standing, authority, and SEC compliance, while the Purchaser confirms its non-U.S. person status, investment intent, and understanding of resale restrictions [Section 2.1 Representations and Warranties of the Company and its Subsidiaries](index=6&type=section&id=Section%202.1%20Representations%20and%20Warranties%20of%20the%20Company%20and%20its%20Subsidiaries) The Company provides extensive representations and warranties regarding its legal status, authority, capital structure, SEC filings accuracy, absence of material adverse events, asset ownership, legal compliance, and non-investment company status - The Company warrants its **legal formation, valid existence**, and full authority to enter into and perform this agreement[12](index=12&type=chunk)[14](index=14&type=chunk) - The Company confirms all required **SEC filings (Commission Documents)** were submitted without material misstatements or omissions at the time of filing[20](index=20&type=chunk)[21](index=21&type=chunk) - The Company guarantees its operations comply with **U.S. federal and state laws**, and this agreement's execution will not materially conflict with its charter, material contracts, or applicable laws[28](index=28&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - The Company affirms it is **not an 'investment company'** as defined by the 1940 Investment Company Act and will conduct business to avoid such classification[39](index=39&type=chunk)[40](index=40&type=chunk) - The Company confirms its accounting firm, **Audit Alliance LLP**, is a public accounting firm registered as required by the Exchange Act[46](index=46&type=chunk) [Section 2.2 Representations and Warranties of the Purchaser](index=20&type=section&id=Section%202.2%20Representations%20and%20Warranties%20of%20the%20Purchaser) The Purchaser provides representations and warranties, confirming its non-U.S. person status, investment intent, understanding of unregistered stock resale restrictions, independent risk assessment, and absence of public solicitation - The Purchaser declares itself a **'non-U.S. person'** under Regulation S, acquiring shares solely for investment, not for distribution[49](index=49&type=chunk)[63](index=63&type=chunk) - The Purchaser understands the shares are **unregistered under the Securities Act** and subject to resale restrictions, requiring a valid registration statement or exemption (e.g., Rule 144 or Regulation S)[51](index=51&type=chunk)[55](index=55&type=chunk)[61](index=61&type=chunk) - The Purchaser confirms its investment decision is based on **independent evaluation**, with opportunities to obtain information and ask questions of Company management[53](index=53&type=chunk)[64](index=64&type=chunk) - The Purchaser acknowledges no **public solicitation or advertising** was used in connection with this offering[59](index=59&type=chunk)[60](index=60&type=chunk) [Article III Covenants](index=28&type=section&id=ARTICLE%20III%20Covenants) This article outlines the Company's post-agreement covenants, including SEC notification, price non-manipulation, use of proceeds for working capital, maintaining reporting status, and timely Form 6-K filing - The Company commits to undertaking all necessary actions and filings for this transaction as required by **securities regulations**[68](index=68&type=chunk)[69](index=69&type=chunk) - The Company pledges not to directly or indirectly engage in any actions intended to **stabilize or manipulate** its securities price[74](index=74&type=chunk) - Net proceeds from the share sale will be used for **working capital and general corporate purposes**, explicitly prohibiting use for stock redemption, pending litigation, or FCPA violations[76](index=76&type=chunk)[77](index=77&type=chunk) - The Company will maintain its **reporting issuer status** under the Exchange Act and timely file all required reports until the Purchaser sells all shares[78](index=78&type=chunk)[79](index=79&type=chunk) - If required, the Company will file a **Form 6-K** with the SEC within four business days of the agreement, disclosing the transaction's terms[80](index=80&type=chunk) [Article IV Conditions](index=32&type=section&id=ARTICLE%20IV%20CONDITIONS) This article specifies closing conditions for both parties, including accurate representations, fulfilled obligations, receipt of payment, board resolutions, Nasdaq listing, and absence of prohibitive injunctions - The Company's obligation to sell shares is conditional on the Purchaser's **accurate representations**, fulfillment of obligations, receipt of purchase price, and absence of prohibitive court or governmental injunctions[81](index=81&type=chunk)[82](index=82&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - The Purchaser's obligation to buy shares is conditional on the Company's **accurate representations**, fulfillment of obligations, board resolutions, Nasdaq Capital Market listing, and absence of prohibitive injunctions[87](index=87&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) [Article V Stock Certificate Legend](index=36&type=section&id=ARTICLE%20V%20Stock%20Certificate%20Legend) This article mandates a restrictive legend on stock certificates, warning that the securities are unregistered under the 1933 Securities Act and issued via Regulation S exemption, thus limiting U.S. resale without registration or an exemption opinion - Stock certificates must bear a **restrictive legend** explicitly stating the securities are unregistered under the 1933 Securities Act[95](index=95&type=chunk)[96](index=96&type=chunk) - The legend emphasizes that securities are issued under a **Regulation S exemption**, restricting U.S. transfers unless registered or an exemption opinion is obtained[96](index=96&type=chunk)[97](index=97&type=chunk) [Article VI Indemnification](index=38&type=section&id=ARTICLE%20VI%20Indemnification) This article defines mutual indemnification for losses arising from material misrepresentations or breaches, capping total liability at the purchase price and detailing claim procedures - Both parties agree to indemnify the other for losses resulting from **material misrepresentations, warranties, or covenants breaches** by the indemnifying party[99](index=99&type=chunk)[100](index=100&type=chunk) - The maximum aggregate liability for any indemnifying party is capped at the **Purchaser's total purchase price ($2,000,000)**[101](index=101&type=chunk) - The agreement details specific indemnification procedures, including **notice to the indemnifying party**, defense participation, and settlement processes[102](index=102&type=chunk)[103](index=103&type=chunk) [Article VII Miscellaneous](index=42&type=section&id=ARTICLE%20VII%20Miscellaneous) This article covers general provisions, including cost allocation, New York jurisdiction for disputes, governing law, entire agreement clause, notice delivery, assignment restrictions, termination by mutual consent, and English version precedence - Parties agree to the **exclusive jurisdiction** of U.S. federal courts in the Southern District of New York and New York State courts in New York County for dispute resolution[110](index=110&type=chunk)[111](index=111&type=chunk) - This agreement is governed by and construed under the **internal laws of the State of New York**, without regard to conflict of laws principles[123](index=123&type=chunk) - The agreement may be terminated prior to closing by **mutual written consent** of the Purchaser and the Company[127](index=127&type=chunk) - The agreement is executed in **English and Chinese**, both equally binding, with the English version prevailing in case of conflict[127](index=127&type=chunk) [Exhibit A Non-U.S. Person Representations](index=60&type=section&id=EXHIBIT%20A%20NON%20U.S.%20PERSON%20REPRESENTATIONS) This exhibit details the Purchaser's representations as a non-U.S. person, confirming offshore status during the offering, investment intent, and commitment to comply with Regulation S or U.S. securities laws for future resales - The Purchaser declares that both it and its beneficial owners were **outside the United States** at the time of the offer and acceptance[134](index=134&type=chunk) - The Purchaser commits that all subsequent offers and sales of shares will occur **outside the U.S. (under Regulation S)**, pursuant to an effective registration statement, or under an available registration exemption[136](index=136&type=chunk)[137](index=137&type=chunk) - The Purchaser confirms sufficient **financial and investment knowledge** to evaluate and bear the investment risks, including the potential loss of the entire investment[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) [Exhibit B List of Purchasers](index=66&type=section&id=EXHIBIT%20B%20LIST%20OF%20PURCHASERS) This exhibit identifies the sole purchaser, F&P Capital Management Company Limited of Shenzhen, China, and details its purchase of 4,000,000 common shares Purchaser Information | Purchaser Name | Shares Purchased | Address | | :--- | :--- | :--- | | F&P Capital Management Company Limited | 4,000,000 shares | 25th Floor, Block A, Shenye Tairan Building, Futian Districts, Shenzhen, China |

Fujian Blue Hat Interactive Entertainment Technology Ltd. (NASDAQ:BHAT) Q4 2020 Results Conference Call April 8, 2021 8:30 AM ET Company Participants Adam Prior - The Equity Group Inc. Lucy Ma - Associate Xiaodong Chen - CEO Caifan He - CFO Operator Greetings, and welcome to the Blue Hat Interactive 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentations. [Operator Instructions] As a reminder this conference call is b ...

Revenue Growth - Total revenues increased by $5,302,951, or 28.6%, to $23,834,129 for the year ended December 31, 2019, compared to $18,531,178 for the year ended December 31, 2018[326]. - Total revenues increased by $4.4 million, or 31.0%, to $18.5 million for the year ended December 31, 2018, compared to $14.1 million for 2017[347]. - Revenue from interactive toys - game series increased by $4.3 million or 25.2% to $21.2 million, while revenue from interactive toys - animation series decreased by $361,966 or 69.3% to $160,672[329][331]. - Revenues from interactive toys - game series increased by $3.9 million, or 30.4%, from $13.0 million in 2017 to $16.9 million in 2018[349]. - Revenues from mobile games increased by $1.0 million, or 765.5%, from $128,000 in 2017 to $1.1 million in 2018[352]. - Mobile games revenue increased by $1.4 million or 126.8% to $2.5 million, driven by the popularity of the mobile game "Quan Min Dou Yu"[332]. Profitability - Gross profit increased by $3,879,827, or 31.2%, to $16,302,329, with a gross margin of 68.4% for the year ended December 31, 2019[337][338]. - The overall gross profit percentage increased from 67.0% in 2018 to 68.4% in 2019, attributed to higher revenues from interactive toys - game series[338]. - Net income increased by $1.2 million, or 14.6%, to $9.1 million for the year ended December 31, 2019, compared to $7.9 million for 2018[346]. - Gross profit increased by $3.6 million, or 40.5%, to $12.4 million for the year ended December 31, 2018, from $8.8 million for 2017[357]. - Gross profit margin for the year ended December 31, 2018, was 67.0%, compared to 62.5% for 2017[358]. - Net income rose by $2.8 million, or 54.5%, to $7.9 million in 2018 from $5.1 million in 2017[367]. Operating Expenses - Total operating expenses increased by $2.71 million or 66.1% to $6.82 million, primarily due to increases in general and administrative expenses and research and development expenses[341]. - Total operating expenses increased by $1.2 million, or 41.5%, from $2.9 million in 2017 to $4.1 million in 2018, driven by a $1.1 million rise in general and administrative expenses[361]. Research and Development - Research and development expenses increased by $744,362 or 259.5% to $1,031,204, focusing on developing a smart preschool platform and AR interactive toys[343]. - The company has invested significantly in research and development, maintaining two teams of 45 AR specialists focused on hardware and software design[388]. - The research and development process involves collaboration between the R&D team and the marketing team to identify market demands and product feasibility[389]. - The company plans to outsource external R&D teams to develop cutting-edge technologies to keep pace with industry growth[343]. - The standard research and development cycle for a new product is approximately eight months, with initial development taking two to three months for quality samples[390]. Tax and Income - Income tax expense decreased by $151,704 to $453,724 for the year ended December 31, 2019, due to a reduction in the statutory income tax rate from 25% to 15%[345]. - Income tax expense decreased by $350,000 from $955,000 in 2017 to $605,000 in 2018 due to a favorable income tax rate[366]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $12.3 million in 2019, primarily due to a net income of $9.1 million and various non-cash items totaling $1.8 million[377]. - Net cash used in investing activities was $19.1 million in 2019, mainly for business acquisitions and intangible assets[380]. - Net cash provided by financing activities was $10.6 million in 2019, primarily from $7.4 million in proceeds from the initial public offering[384]. - The company plans to continue capital expenditures to support expected business growth, focusing on working capital requirements[387]. Intellectual Property and Competitive Advantage - As of December 31, 2019, the company held 199 authorized patents, 37 patents pending, and 645 copyrights, contributing to its competitive advantages[392]. - The company is committed to aggressive protection of its intellectual property through patents, trademarks, and copyrights[392]. Future Outlook and Collaborations - The company collaborates with Fujian Normal University for the development of its Qi Platform, providing funding and utilizing university facilities[388]. - The company is currently advancing technologies such as photosensitive induction, gesture-sensor, infrared induction, and AR identification technologies[391]. - There are no known trends or uncertainties that could materially affect the company's revenue or profitability[393]. - The company has no off-balance sheet arrangements that would impact liquidity or capital resources[394]. Contractual Obligations - Future minimum payments under contractual obligations total $6,700,788, with $5,819,788 due within one year[395].

Financial Data and Key Metrics Changes - In Q4 2019, total revenues increased by 18.3% year-over-year to $11.8 million, with gross profit rising by 15.2% to $7.9 million [12] - Income from operations increased by 24.4% year-over-year to $6.2 million, and net income rose by 26.2% to $6.2 million [12] - For the full year 2019, total revenues were $26.8 million, an increase of 28.6% from $18.5 million in 2018 [12][13] - Gross profit for the fiscal year 2019 was $16.3 million, up 31.2% from $12.4 million in 2018, with a gross margin of 68.4% compared to 67% in 2018 [14][15] Business Line Data and Key Metrics Changes - Revenues from interactive toys in the games series category were $21.2 million for 2019, a 25.2% increase from $16.9 million in 2018 [13] - Revenues from mobile games reached $2.5 million, a significant increase of 126.8% from $1.1 million in 2018, driven by the popularity of the mobile game Quan Min Dou Yu [14] - Revenues from interactive toys in the animation series category decreased to $160,672, a drop of 69.3% from $522,638 in 2018, due to a strategic shift towards the games series category [13] Market Data and Key Metrics Changes - The AR Racer product has a user base of over 4 million, with significant numbers of players in China and international markets including Russia, Korea, UK, and Saudi Arabia [9] - The company is seeing encouraging progress in international expansion, with products gaining attention from international buyers [10] Company Strategy and Development Direction - The company is focusing on diversification by launching new smart education offerings alongside traditional toy and game lines [7] - International expansion remains a key goal, with ongoing discussions with major retailers in the U.S. following the issuance of a U.S. patent for AR Racer technology [10] - The company aims to grow its smart education products in preschools, targeting an increase from over 30 to at least 100 schools by the end of the year [24] Management's Comments on Operating Environment and Future Outlook - Management does not foresee a substantial impact from the coronavirus outbreak for the full year, although the first quarter is expected to be affected [20] - The company anticipates a rebound in sales as strict measures taken by the Chinese government are expected to restore normalcy in the second quarter [20] - The potential market size for educational products is significant, with around 300,000 preschools and 180 million children in China [24] Other Important Information - Total operating expenses for the fiscal year 2019 were $6.8 million, an increase of 64.6% from $4.1 million in 2018, primarily due to increases in selling, general and administrative, and research and development expenses [15][16] - Cash, cash equivalents, and restricted cash totaled $15.5 million as of December 31, 2019, including net proceeds of approximately $6.4 million from the IPO [17] Q&A Session Summary Question: How will the current virus outbreak affect Blue Hat's business? - Management believes the coronavirus outbreak will not have a substantial impact for the full year, but the first quarter will be affected, with expectations for a sales rebound in the second quarter [20] Question: What is the pipeline for new products and will there be delays due to the coronavirus? - New products are expected to launch at the end of Q2 or beginning of Q3, with a pipeline across all business lines including AR toys, games, and educational products [22] Question: What is the outlook for the educational business and its growth in 2020? - The company anticipates significant growth in the educational sector, aiming to expand from over 30 preschools to at least 100 by year-end, leveraging a large potential market [24]