Quarterly Report (10-q)

Date : 11/14/2019 @ 6:32PM
Source : Edgar (US Regulatory)
Stock : TD Holdings Inc (GLG)
Quote : 1.88  0.05 (2.73%) @ 5:48PM

Quarterly Report (10-q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 001-36055

 

Bat Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   45-4077653

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Room 104, No. 33 Section D,

No. 6 Middle Xierqi Road,

Haidian District, Beijing, China

  100085
(Address of principal executive offices)   (Zip Code)

 

+86 (010) 59441080

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
Common Stock, par value $0.001   GLG   Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 13, 2019, 10,331,992 shares  of the Company’s Common Stock, $0.001 par value per share, were issued and outstanding.

 

 

 

 

      

PART 1. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BAT GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
ASSETS            
Cash   $ 1,496,797     $ 1,484,116  
Loans receivable from third parties     1,451,608       -  
Due from related parties     476,975       -  
Other current assets     177,345       87,922  
Total current assets     3,602,725       1,572,038  
                 
Investment security     200,000       -  
Investments in equity investees     840,536          
Investments in financial products     1,000,000       -  
Loan receivable from a third party, noncurrent     49,031          
Property and equipment, net     4,320       5,524  
Right-of-use lease assets, net     55,283       -  
Operating lease assets, net     2,529,976       1,634,018  
Total noncurrent assets     4,679,146       1,639,542  
                 
Total Assets   $ 8,281,871     $ 3,211,580  
                 
LIABILITIES AND EQUITY                
Advances from customers   $ 101,640     $ 6,208  
Third parties loans     2,136,363       218,100  
Due to related parties     16,345       -  
Advance of subscription from shareholders     588,000       -  
Other current liabilities     288,407       185,049  
Total current liabilities     3,130,755       409,357  
                 
Related party loan, noncurrent     148,495       -  
Total noncurrent liabilities     148,495       -  
                 
Total Liabilities     3,279,250       409,357  
                 
Commitments and Contingencies                
                 
Shareholders’ Equity                
Series A Preferred Stock (par value $0.001 per share, 1,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively; nil shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)     -       -  
Series B Preferred Stock (par value $0.001 per share, 5,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively; nil shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)     -       -  
Common stock (par value $0.001 per share, 100,000,000 shares authorized; 8,646,297 and 5,023,906 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively)*     8,646       5,024  
Additional paid-in capital     34,299,372       28,765,346  
Accumulated deficit     (28,719,598 )     (25,457,090 )
Accumulated other comprehensive loss     (585,313 )     (511,057 )
Total BAT Group, Inc.’s Shareholders’ Equity     5,003,107       2,802,223  
                 
Non-controlling loss     (486 )     -  
Total Equity     5,002,621       2,802,223  
Total Liabilities and Equity   $ 8,281,871     $ 3,211,580  

 

* Retrospectively restated for effect of reverse stock split.

 

See notes to the unaudited condensed consolidated financial statements.

 

1

 

 

BAT GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME

 

    For the
Three Months Ended
September 30,
    For the
Nine Months Ended
September 30,
 
    2019     2018     2019     2018  
                         
Income from operating leases   $ 564,614     $ 140,856     $ 1,505,508     $ 237,577  
                                 
Operating expenses                                
Operating lease expenses     344,310       -       877,320       -  
Depreciation expenses on operating lease assets     83,806       35,336       185,985       47,794  
Total lease expenses     428,116       35,336       1,063,305       47,794  
                                 
Selling, general, and administrative expenses     556,430       741,762       3,596,706       1,615,039  
Changes in fair value of noncurrent liabilities     -       -       -       166,540  
Impairment on operating lease assets     -       -       96,318       -  
Total operating expenses     984,546       777,098       4,756,329       1,829,373  
                                 
Other income (expenses), net                                
Interest income (expenses)     27,089       2,216       (12,173 )     2,531  
Total other income (expenses), net     27,089       2,216       (12,173 )     2,531  
                                 
Net loss from continuing operations before income taxes     (392,843 )     (634,026 )     (3,262,994 )     (1,589,265 )
                                 
Income tax expenses     -       (991 )     -       (1,011 )
Net loss from continuing operations     (392,843 )     (635,017 )     (3,262,994 )     (1,590,276 )
                                 
Net income from discontinued operations     -       -       -       10,072,629  
                                 
Net (loss) income     (392,843 )     (635,017 )     (3,262,994 )     8,482,353  
                                 
Less: Net income (loss) attributable to non-controlling interests     5       -       (486 )     -  
                                 
Net (loss) income attributable to BAT Group, Inc.’s Shareholders   $ (392,848 )   $ (635,017 )   $ (3,262,508 )   $ 8,482,353  
                                 
Comprehensive (loss) income                                
Net (loss) income   $ (392,843 )   $ (635,017 )   $ (3,262,994 )   $ 8,482,353  
Foreign currency translation adjustment     (57,232 )     211,638       (74,256 )     94,553  
Reclassified to net income from discontinued operations     -       -       -       (125,220 )
Total comprehensive (loss) income     (450,075 )     (423,379 )     (3,337,250 )     8,451,686  
Less: Total comprehensive loss attributable to non-controlling interests     5       -       (486 )     -  
Comprehensive (loss) income attributable to BAT Group, Inc.   $ (450,080 )   $ (423,379 )   $ (3,336,764 )   $ 8,451,686  
(Loss) income per share - basic and diluted   $ (0.05 )   $ (0.13 )   $ (0.46 )   $ 1.90  
Net loss per share from continuing operations – basic and diluted   $ (0.05 )   $ (0.13 )   $ (0.46 )   $ (0.36 )
Net income per share from discontinued operations – basic and diluted   $ -     $ -     $ -     $ 2.26  
                                 
Weighted Average Shares Outstanding-Basic and Diluted     8,646,297       4,919,122       7,122,560       4,458,093  

 

* Retrospectively restated for effect of reverse stock split.

  

See notes to the unaudited condensed consolidated financial statements. 

 

2

 

 

BAT GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

   

    For the Nine Months Ended September 30, 2019  
    Ordinary shares     Additional
paid-in
    Accumulated     Other Accumulated
other
comprehensive
    Non-
controlling
    Total   
    Shares*     Amount     capital     deficit     loss     interests     Equity  
                                           
Balance as at December 31, 2018     5,023,906     $ 5,024     $ 28,765,346     $ (25,457,090 )   $ (511,057 )   $ -     $ 2,802,223  
Issuance of common stocks to service providers     502,391       502       883,706       -       -       -       884,208  
Issuance of common stocks pursuant to registered direct offering, net of transaction cost     3,120,000       3,120       4,650,320       -       -       -       4,653,440  
Net loss     -       -       -       (3,262,508 )     -       (486 )     (3,262,994 )
Foreign currency translation adjustments     -       -       -       -       (74,256 )     -       (74,256 )
Balance as at September 30, 2019     8,646,297     $ 8,646     $ 34,299,372     $ (28,719,598 )   $ (585,313 )   $ (486 )   $ 5,002,621  

 

    For the Nine Months Ended September 30, 2018  
    Ordinary shares     Additional paid-in     Accumulated     Subscription
advanced from a
    Other Accumulated other comprehensive     Non-controlling     Total (Deficit)  
    Shares*     Amount     capital     deficit     shareholder     income (loss)     interests     Equity  
                                                 
Balance as at December 31, 2017     3,850,183     $ 3,850     $ 71,439,432     $ (81,534,396 )   $ 699,974     $ 4,818,653     $           -     $ (4,572,487 )
Issuance of common stocks and warrants to two managements     40,000       40       699,934       -       (699,974 )     -       -       -  
Issuance of common stocks in connection with class action settlement     190,000       190       1,477,351       -       -       -       -       1,477,541  
Issuance of common stocks in connection with private placements     838,939       839       3,264,531       -       -       -       -       3,265,370  
Disposition of CCC BVI                     (48,430,149 )     48,430,149       -       (4,912,716 )             (4,912,716 )
Net income     -       -       -       8,482,353       -       -       -       8,482,353  
Foreign currency translation adjustments     -       -       -       -       -       (30,667 )     -       (30,667 )
Balance as at September 30, 2018     4,919,122     $ 4,919     $ 28,451,099     $ (24,621,894 )   $ -     $ (124,730 )   $ -     $ 3,709,394  

 

* Retrospectively restated for effect of reverse stock split.

 

See notes to the unaudited condensed consolidated financial statements.

 

3

 

 

BAT GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

 

    For the Three Months Ended September 30, 2019  
    Ordinary shares     paid-in
Additional
    Accumulated     Other Accumulated
other
comprehensive
    Non-
controlling
    Total  
    Shares*     Amount     capital     deficit     loss     interests     Equity  
                                           
Balance as at June 30, 2019     8,646,297     $ 8,646     $ 34,299,372     $ (28,326,750 )   $ (528,081 )   $ (491 )   $ 5,452,696  
Net (loss) income     -       -       -       (392,848 )     -       5       (392,843 )
Foreign currency translation adjustments     -       -       -       -       (57,232 )     -       (57,232 )
Balance as at September 30, 2019     8,646,297     $ 8,646     $ 34,299,372     $ (28,719,598 )   $ (585,313 )   $ (486 )   $ 5,002,621  

 

    For the Three Months Ended September 30, 2018  
    Ordinary shares     paid-in
Additional
    Accumulated     Subscription
advanced
from a
    Other Accumulated
other
comprehensive
    Non-
controlling
    Total  
    Shares*     Amount     capital     deficit     shareholder     income (loss)     interests     Equity  
                                                 
Balance as at June 30, 2018     4,889,122     $ 4,889     $ 27,926,155     $ (23,986,877 )   $ 524,974     $ (336,368 )   $             -     $ 4,132,773  
Issuance of common stocks and warrants to a management     30,000       30       524,944       -       (524,974 )     -       -       -  
Net loss     -       -       -       (635,017 )     -       -       -       (635,017 )
Foreign currency translation adjustments     -       -       -       -       -       211,638       -       211,638  
Balance as at September 30, 2018     4,919,122     $ 4,919     $ 28,451,099     $ (24,621,894 )   $ -     $ (124,730 )   $ -     $ 3,709,394  

 

* Retrospectively restated for effect of reverse stock split.

 

See notes to the unaudited condensed consolidated financial statements. 

 

4

 

 

BAT GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the
Nine Months Ended
September 30,
 
    2019     2018  
             
Cash Flows from Operating Activities:            
Net (loss) income   $ (3,262,994 )   $ 8,482,353  
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation of operating lease assets     185,985       58,854  
Depreciation of property and equipment     1,741       572  
Impairment on an operating lease asset     96,318       -  
(Gain) loss on disposal of operating lease asset     (7,851 )     12,202  
Restricted shares issued to service providers     884,209       -  
Gain on disposal of discontinued operations     -       (9,794,873 )
Shares issued for settlement against legal proceedings     -       943,860  
Changes in fair value of noncurrent liabilities     -       166,540  
Changes in operating assets and liabilities:                
Other current assets     (95,824 )     (1,047,300 )
Right-of-use lease assets, net     (57,497 )        
Advances from customers     99,490       -  
Due to related parties     17,000       -  
Other current liabilities     155,561       92,668  
Other noncurrent liabilities     -       (1,311,000 )
Net cash provided by operating activities from discontinued operations     -       1,769,566  
Net Cash Used in Operating Activities     (1,983,862 )     (626,558 )
                 
Cash Flows from Investing Activities:                
Purchases of property and equipment     (707 )     (5,945 )
Purchases of operating lease assets     (2,079,115 )     (1,882,476 )
Proceeds from disposal of operating lease assets     335,111       122,481  
Investment in one investment security     (200,000 )     -  
Investments in equity investees     (884,225 )     -  
Investments in financial products     (1,000,000 )     -  
Due from a related party     (18,299 )        
Loans to third parties     (1,540,758 )     (1,473,458 )
Proceeds from disposal of discontinued operations     -       500,000  
Cash in connection with discontinued operations     -       (499,496 )
Net cash used in investing activities from discontinued operations     -       (1,270,070 )
Net Cash Used in by Investing Activities     (5,387,993 )     (4,508,964 )
                 
Cash Flows from Financing Activities:                
Borrowings from third parties     2,294,781       1,473,458  
Repayments of borrowings to third parties     (291,401 )     -  
Borrowings from a related party     154,482       153,485  
Advance of subscription fees from shareholders     588,000       -  
Cash raised in registered direct offering, net of transaction costs     4,653,440       -  
Cash raised in private placement of common stocks     -       3,265,370  
Net Cash Provided by Financing Activities     7,399,262       4,892,313  
                 
Effect of Exchange Rate Changes on Cash     (14,726 )     (277,787 )
                 
Net (Decrease) Increase in Cash     12,681       (520,996 )
Cash at Beginning of Period     1,484,116       1,359,630  
Cash at End of Period   $ 1,496,797     $ 838,634  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest expense   $ 20,621     $ -  
                 
Supplemental disclosure of Non-cash financing activities                
Right-of-use assets obtained in exchange for operating lease obligations   $ 64,241     $ -  

 

 

See notes to the unaudited condensed consolidated financial statements.

 

5

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

 

Bat Group, Inc. (formerly known as China Commercial Credit, Inc. or China Bat Group, Inc. ) (“GLG” or “the Company”), is a holding company that was incorporated under the laws of the State of Delaware on December 19, 2011. On January 11, 2019, the Company filed a Certificate of Amendment of the Certificate of Incorporation with the Secretary of State of Delaware to effect a name change to China Bat Group, Inc. and on June 3, 2019, the Company further changed its name to Bat Group, Inc.

 

On March 22, 2018, the Company formed HC High Summit Holding Limited (“HC High BVI”), a wholly owned subsidiary, in British Virgin Island (“BVI”). HC High BVI is authorized to issue a maximum of 50,000 shares of one class, at par value of $1.00 per share.

 

On April 16, 2018, HC High BVI formed a wholly owned subsidiary, HC High Summit Limited (“HC High HK”) in Hong Kong. On April 17, 2018, the Company, through HC High HK, established Hao Limo Technology (Beijing) Co. Ltd. (“Hao Limo”).

 

On May 17, 2018, Hao Limo entered into a series of agreements (the “Tianxing VIE Agreements”) with Beijing Tianxing Kunlun Technology Co. Ltd. (“Beijing Tianxing”) and Shun Li and Jialin Cui, the shareholders of Beijing Tianxing. The Tianxing VIE Agreements are designed to provide Hao Limo with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing Tianxing, including absolute control rights and the rights to the management, operations, assets, property and revenue of Beijing Tianxing. The purpose of the VIE Agreements is solely to give Hao Limo the exclusive control over Beijing Tianxing’s management.

 

As of September 30, 2019, Beijing Tianxing has six wholly owned subsidiaries, including:

 

Beijing Tianrenshijia Apparel Co., Ltd.
Beijing Blue Light Marching Technology Co., Ltd. (Formerly known as “Beijing Tongxingyi Feed Co., Ltd.”)
Beijing Eighty Weili Technology Co., Ltd.
Beijing Bat Riding Technology Co., Ltd (Formerly known as “Beijing Saikesheng Garments Co., Ltd.”)
Beijing Blue Light Riding Technology Co., Ltd. (Formerly known as “Beijing Yimingzhu Restaurant Management Co., Ltd.’), and
Car Master (Beijing) Information Consulting Co., Ltd.

 

In addition, the Company has one subsidiary over which the Company has 60% ownership, Beijing Blue Light Super Car Technology Co., Ltd (Formerly known as “Beijing Keao Jiye Commercial Co., Ltd.”). The remaining 40% of ownership interest is owned by an employee of the Company.

 

Each of these subsidiaries owns a license to hold cars in Beijing or Zhejiang, and was either inactive or generated minimal revenues for the nine months ended September 30, 2019 and 2018.

 

The Company, its subsidiaries and VIE are primarily engaged in operating leasing business of used luxurious cars in China, after it disposed its direct loans, loan guarantees and financial leasing services to small-to-medium sized businesses, farmers and individuals (the “Micro-lending Business”) in July 2018. The Company rents out its owned luxurious pre-owned automobiles to customers for short period, normally within 7 days. The Company conducted this business under the brand name “Batcar” through the Company’s VIE entity, Beijing Tianxing Kunlun Technology Co. Ltd (“Beijing Tianxing”).

 

VIE AGREEMENTS WITH BEIJING YOUJIAO AND TERMINATION OF VIE AGREEMENTS WITH BEIJING YOUJIAO

 

On June 19, 2018, Hao Limo entered into a series of agreements (the “Youjiao VIE Agreements”) with Beijing Youjiao and Aizhen Li. The Youjiao VIE Agreements were designed to provide Hao Limo with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Beijing Youjiao, including absolute control rights and the rights to the management, operations, assets, property and revenue of Beijing Youjiao. On November 8, 2018, Hao Limo entered into certain termination agreement with Beijing Youjiao and Aizhen Li to terminate.

 

6

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

DISPOSITION OF GLG BVI

 

On June 19, 2018, the Company, HK Xu Ding Co, Limited, a private limited company duly organized under the laws of Hong Kong (the “Purchaser”) and CCCR International Investment Ltd., a business company incorporated in the British Virgin Islands with limited liability which was previously 100% owned by the Company (“GLG BVI”) entered into certain Share Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Purchaser agreed to purchase GLG BVI in exchange of cash purchase price of $500,000.

 

GLG BVI is the sole shareholder of GLG International Investment Ltd. (“GLG HK”), a company incorporated under the laws of the Hong Kong S.A.R. of the PRC, which is the sole shareholder of WFOE. WFOE, via a series of contractual arrangements, controls Wujiang Luxiang. GLG HK is the sole shareholder of PFL.

 

Upon closing of the disposition on June 21, 2018, the Purchaser became the sole shareholder of GLG BVI and as a result, assume all assets and obligations of all the subsidiaries and VIE entities owned or controlled by GLG BVI, including but not limited to Wujiang Luxiang and PFL.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Basis of presentation and principle of consolidation

 

The interim unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

The unaudited interim financial information as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 have been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. As of September 30, 2019, the Company has one VIE –Beijing Tianxing, and Beijing Tianxing has seven subsidiaries, each of which is entitled to a license to hold cars in Beijing. The unaudited interim financial information should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2018, which was filed with the SEC on April 5, 2019.

 

In the opinion of management, all adjustments (including normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited financial position as of September 30, 2019, its unaudited results of operations for the three and nine months ended September 30, 2019 and 2018, and its unaudited cash flows for the three and nine months ended September 30, 2019 and 2018, as applicable, have been made. The unaudited interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

(b) Consolidation of Variable Interest Entity

 

The Company had Beijing Tianxing as its only one VIE as of September 30, 2019 and December 31, 2018. Material terms of each of the Tianxing VIE Agreements are described below:

 

Exclusive Business Cooperation Agreement

 

Pursuant to the Exclusive Business Cooperation Agreement between Beijing Tianxing and Hao Limo, Hao Limo provides Beijing Tianxing with technical support, consulting services and management services on an exclusive basis, utilizing its advantages in technology, human resources, and information. Additionally, Beijing Tianxing granted an irrevocable and exclusive option to Hao Limo to purchase from Beijing Tianxing, any or all of Beijing Tianxing’s assets at the lowest purchase price permitted under the PRC laws. Should Hao Limo exercise such option, the parties shall enter into a separate asset transfer or similar agreement. For services rendered to Beijing Tianxing by Hao Limo under this agreement, Hao Limo is entitled to collect a service fee calculated based on the time of services rendered multiplied by the corresponding rate, plus amount of the services fees or ratio decided by the board of directors of Hao Limo based on the value of services rendered by Hao Limo and the actual income of Beijing Tianxing from time to time, which is substantially equal to all of the net income of Beijing Tianxing.

  

7

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Exclusive Business Cooperation Agreement shall remain in effect for ten years unless it is terminated by Hao Limo with 30-day prior written notice. Beijing Tianxing does not have the right to terminate the agreement unilaterally. Hao Limo may unilaterally extend the term of this agreement with prior written notice.

 

Share Pledge Agreement

 

Under the Share Pledge Agreement among Beijing Tianxing, the shareholders of Beijing Tianxing, and Hao Limo, the shareholders of Beijing Tianxing pledged all of her equity interests in Beijing Tianxing to Hao Limo to guarantee the performance of Beijing Tianxing’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in any event of default, as set forth in the Share Pledge Agreement, including that Beijing Tianxing or the shareholders of Beijing Tianxing breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, Hao Limo, as pledgee, will be entitled to certain rights, including, but not limited to, the right to dispose of the pledged equity interest in accordance with applicable PRC laws. Hao Limo shall have the right to collect any and all dividends declared or generated in connection with the equity interest during the term of pledge.

 

The Share Pledge Agreement shall be effective until all payments due under the Exclusive Business Cooperation Agreement have been paid by Beijing Tianxing. Hao Limo shall cancel or terminate the Share Pledge Agreement upon Beijing Tianxing’s full payment of fees payable under the Exclusive Business Cooperation Agreement.

 

Exclusive Option Agreement

 

Under the Exclusive Option Agreement, the shareholders of Beijing Tianxing irrevocably granted Hao Limo (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in Beijing Tianxing. The option price is equal to the capital paid in by the shareholders of Beijing Tianxing subject to any appraisal or restrictions required by applicable PRC laws and regulations.

 

The agreement remains effective for a term of ten years and may be renewed at Hao Limo’s election.

 

Power of Attorney

 

Under the Power of Attorney, the shareholders of Beijing Tianxing authorized Hao Limo to act on her behalf as her exclusive agent and attorney with respect to all rights as shareholder, including but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association of Beijing Tianxing, including but not limited to the sale or transfer or pledge or disposition of shares held by the shareholders of Beijing Tianxing in part or in whole; and (c) designating and appointing on behalf of the shareholders of Beijing Tianxing the legal representative, the executive director, supervisor, the chief executive officer and other senior management members of Beijing Tianxing.

 

Although it is not explicitly stipulated in the Power of Attorney, the term of the Power of Attorney shall be the same as the term of that of the Exclusive Option Agreement.

 

This Power of Attorney is coupled with an interest and shall be irrevocable and continuously valid from the date of execution of this Power of Attorney, so long as the shareholders of Beijing Tianxing is a shareholder of Beijing Tianxing.

 

Timely Reporting Agreement

 

To ensure Beijing Tianxing promptly provides all of the information that Hao Limo and the Company need to file various reports with the SEC, a Timely Reporting Agreement was entered between Beijing Tianxing and the Company.

 

Under the Timely Reporting Agreement, Beijing Tianxing agreed that it is obligated to make its officers and directors available to the Company and promptly provide all information required by the Company so that the Company can file all necessary SEC and other regulatory reports as required.

  

8

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Although it is not explicitly stipulated in the Timely Reporting Agreement, the parties agreed its term shall be the same as that of the Exclusive Business Cooperation Agreement. The Tianxing VIE Agreements became effective immediately upon their execution.

 

VIE is an entity that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE. Hao Limo is deemed to have a controlling financial interest and be the primary beneficiary of Beijing Tianxing, because it has both of the following characteristics:

 

1. power to direct activities of a VIE that most significantly impact the entity’s economic performance, and

 

2. obligation to absorb losses of the entity that could potentially be significant to the VIE or right to receive benefits from the entity that could potentially be significant to the VIE.

 

Pursuant to the VIE Agreements, Beijing Tianxing pays service fees equal to all of its net income to Hao Limo. At the same time, Hao Limo is entitled to receive all of expected residual returns. The VIE Agreements are designed so that Beijing Tianxing operates for the benefit of the Company. Accordingly, the accounts of Beijing Tianxing are consolidated in the accompanying financial statements pursuant to ASC 810-10, Consolidation. In addition, their financial positions and results of operations are included in the Company’s unaudited condensed consolidated financial statements.

 

In addition, as all of these VIE agreements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these VIE agreements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these VIE agreements, it may not be able to exert effective control over Beijing Tianxing and its ability to conduct its business may be materially and adversely affected.

 

All of the Company’s main current operations are conducted through Beijing Tianxing and its subsidiaries since June 2018. Current regulations in China permit Beijing Tianxing to pay dividends to the Company only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of Beijing Tianxing to make dividends and other payments to the Company may be restricted by factors including changes in applicable foreign exchange and other laws and regulations.

  

9

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The following financial statement balances and amounts only reflect the financial position and financial performances of Beijing Tianxing, which were included in the consolidated financial statements as of September 30, 2019 and December 31, 2018:

  

    September 30,     December 31,  
    2019     2018  
             
ASSETS            
Cash   $ 1,121,326     $ 991,385  
Loans receivable from third parties     952,608       -  
Due from GLG and Hao Limo*     372,470       -  
Due from related parties     476,975       -  
Other current assets     219,629       87,922  
Investment in equity investees     840,536       -  
Operating lease assets, net     2,529,976       1,634,018  
Other noncurrent assets     53,351       5,524  
Total Assets   $ 6,566,871     $ 2,718,849  
                 
LIABILITIES                
Advances from customers   $ 101,640     $ 6,209  
Other current liabilities     215,329       102,549  
Third parties loans     2,255,439       218,100  
Due to GLG and Hao Limo **     5,073,533       2,937,927  
Total Liabilities   $ 7,645,941     $ 3,264,785  

 

* Receivable due from GLG and Hao Limo is eliminated upon consolidation. 

** Payable due to GLG and Hao Limo is eliminated upon consolidation.

  

   

For the

Three Months Ended

September 30,

   

For the

Nine Months Ended

September 30,

 
    2019     2018     2019     2018  
                         
Revenue   $ 564,614     $ 140,856     $ 1,505,508     $ 237,577  
Operating expenses   $ (674,943 )   $ (270,403 )   $ (2,568,958 )   $ (359,412 )
Net loss   $ (83,225 )   $ (385,469 )   $ (1,076,259 )   $ (377,462 )

  

   

For the

Nine Months Ended

September 30,

 
    2019     2018  
             
Net Cash Provided by Operating Activities   $ 1,707,853       1,806,279  
Net Cash Used in by Investing Activities     (3,670,694 )     (1,796,637 )
Net Cash Provided by Financing Activities     2,127,225       -  
Effect of Exchange Rate Changes on Cash     (34,443 )     (3,793 )
Net Increase in Cash     129,941       5,849  
Cash at Beginning of Period     991,385       -  
Cash at End of Period   $ 1,121,326     $ 5,849  

 

10

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(c) Use of estimates

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. Significant accounting estimates reflected in the financial statements include: (i) useful lives and residual value of long-lived assets; (ii) the impairment of long-lived assets; (iii) the valuation allowance of deferred tax assets; and (iv) contingencies and litigation.

 

(d) Foreign currency translation

 

The reporting currency of the Company is United States Dollars (“US$”), which is also the Company’s functional currency. The PRC subsidiaries and VIEs maintain their books and records in its local currency, the Renminbi Yuan (“RMB”), which is their functional currencies as being the primary currency of the economic environment in which these entities operate.

 

For financial reporting purposes, the financial statements of the PRC subsidiaries and VIEs prepared using RMB, are translated into the Company’s reporting currency, US$, at the exchange rates quoted by www.oanda.com. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders’ equity is translated at historical exchange rates, except for the change in accumulated deficit during the year which is the result of the income statement translation process. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity.

 

    September 30,     December 31,  
    2019     2018  
             
Balance sheet items, except for equity accounts     7.1383       6.8776  

 

   

For the

Three Months Ended

September 30,

   

For the

Nine Months Ended

September 30,

 
    2019     2018     2019     2018  
                         
Items in the statements of operations and comprehensive (loss) income, and statements of cash flows     7.0163       6.8048       6.8634       6.5153  

 

Transactions denominated in currencies other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the unaudited condensed consolidated statements of comprehensive income (loss).

 

(e) Fair value measurement

 

The Company has adopted ASC Topic 820, Fair Value Measurement and Disclosure, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

11

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The carrying value of financial items of the Company, including cash and cash equivalents, loan receivable due from third parties, due from related parties and third parties loans, approximate their fair values due to their short-term nature and are classified within Level 1 of the fair value hierarchy. Noncurrent loan receivable due from a third party, a related party loan, and investments in financial products are held to their maturities and are carried at amortized cost, which approximates fair value.

 

During the three months and nine months ended September 30, 2018, the Company recorded $nil and $166,540 in “Changes in fair value of noncurrent liabilities”. This is related to distribution of the Settlement Shares to the class plaintiffs approved by the Court in December 2017. On January 19, 2018 and April 10, 2018, the Company issued 712,500 and 237,500 class settlement shares, at the market share price of $1.68 and $1.18 per share, respectively. As the Company is a public entity with quoted market price, the fair value of other noncurrent liabilities were classified as level 1. The expenses were accrued by reference to the quoted market share price per share on each reporting date.

 

The inputs used to measure the estimated fair value of warrants are classified as Level 3 fair value measurement due to the significance of unobservable inputs using company-specific information. The valuation methodology used to estimate the fair value of warrant liabilities is discussed in Note 12.

  

(f) Investment security

 

Investment security represents the Company’s investment in one equity investee that is not accounted for under the equity method or cost method.

 

Beginning on January 1, 2019, the Company adopted ASU 2016-01, “Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” including related technical corrections and improvements issued within ASU 2018-13. ASU 2016-01 amended various aspects of the recognition, measurement, presentation, and disclosure for financial instruments, and simplified the impairment assessment and enhanced the disclosure requirements of equity investments.

 

Prior to the adoption of ASU 2016-01, the cost method was used to account for certain equity investments in privately held companies over which the Company neither has control nor significant influence through investments in common stock or in-substance common stock. Upon the adoption of ASU 2016-01, the Company no longer accounts for these equity securities using the cost method. Beginning on January 1, 2019, the Company elected to record a majority of equity investments in privately held companies using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer that were completed on or after January 1, 2019. As of September 30, 2019 and December 31, 2018, the Company had investment security of $200,000 and $nil, respectively.

 

(g) Investment in an equity investee

 

The Company applies the equity method to account for equity investments in common stock according to ASC 323 “Investments — Equity Method and Joint Ventures,” over which it has significant influence but does not own a majority equity interest or otherwise control.

 

Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements in accumulated other comprehensive income is recognized in other comprehensive income. The Company records its share of the results of the equity investees on a one quarter in arrears basis. The excess of the carrying amount of the investment over the underlying equity in net assets of the equity investee represents goodwill and intangible assets acquired. When the Company’s share of losses in the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.

 

The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other-than-temporary. The primary factors the Company considers in its determination include the financial condition, operating performance and the prospects of the equity investee; other company specific information such as recent financing rounds; the geographic region, market and industry in which the equity investee operates; and the length of time that the fair value of the investment is below its carrying value. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.

 

As of September 30, 2019, the Company had investments aggregating $840,536 in three equity investees, over which the Company owned more than 20% but less than 50% equity interests and exercised significant influence.

   

12

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(h) Investments in financial products

 

Investments in financial products consist primarily of investments in three-year close-ended financial products operated by a private equity fund (“PE fund”). The financial products bear variable return rate and redeemable on each anniversary after the Company entered into the agreement. Upon the adoption of ASU 2016-01, the Company carries these investments in PE fund using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer that were completed on or after January 1, 2019.

 

The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these investments in financial products.

 

(i) Operating lease asset, net

 

Operating lease asset, net, represents the automobiles that are underlying our automotive lease contracts and is reported at cost, less accumulated depreciation and net of impairment charges and origination fees or costs. Depreciation of vehicles is recorded on a straight-line basis to an estimated residual value over the useful life of nine years. We periodically evaluate our depreciation rate for leased vehicles based on expected residual values and adjust depreciation expense over the remaining life of the lease if deemed necessary.

 

We have significant investments in the residual values of the assets in our operating lease portfolio. The residual values represent an estimate of the values of the assets at the end of the lease contracts. At contract inception, we determine pricing based on the projected residual value of the lease vehicle. This evaluation is primarily based on a proprietary model, which includes variables such as age, expected mileage, seasonality, segment factors, vehicle type, economic indicators, production cycle, automotive manufacturer incentives, and shifts in used vehicle supply. This internally-generated data is compared against third-party, independent data for reasonableness. Realization of the residual values is dependent on our future ability to market the vehicles under the prevailing market conditions. Over the life of the lease, we evaluate the adequacy of our estimate of the residual value and make adjustments to the depreciation rates to the extent the expected value of the vehicle at lease termination changes. In addition to estimating the residual value at lease termination, we also evaluate the current value of the operating lease asset and test for impairment to the extent necessary when there is an indication of impairment based on market considerations and portfolio characteristics. Impairment is determined to exist if fair value of the leased asset is less than carrying value and it is determined that the net carrying value is not recoverable. The net carrying value of a leased asset is not recoverable if it exceeds the sum of the undiscounted expected future cash flows expected to result from the lease payments and the estimated residual value upon eventual disposition. If our operating lease assets are considered to be impaired, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value as estimated by discounted cash flows. For the three and nine months ended September 30, 2019, we accrued impairment of $nil and $96,318 for an operating lease asset. We accrue rental income on our operating leases when collection is reasonably assured.

 

(j) Income from operating lease

 

Income from operating lease represents lease origination fees and rental fee, netting off lease origination costs. In accordance with ASC 842, Leases, the Company recognized the income from operating lease on a straight-line basis over the scheduled lease term. For the three and nine months ended September 30, 2019, the Company generated income from operating lease of $564,614 and $1,505,508, respectively.

 

(k) Income taxes

 

The Company accounts for income taxes in accordance with the U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.

 

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable that taxable income to be utilized with prior net operating loss carried forward. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

 

13

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company did not have unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of September 30, 2019 and December 31, 2018. As of September 30, 2019, income tax returns for the tax years ended December 31, 2014 through December 31, 2018 remain open for statutory examination by PRC tax authorities.

 

(l) (Loss) Income per share

 

Basic (loss) income per share is computed by dividing the net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share is the same as basic (loss) income per share due to the lack of dilutive items in the Company for the three and nine months ended September 30, 2019 and 2018. The number of warrants is excluded from the computation because of its anti-dilutive effect.

  

(m) Share-based awards

 

Share-based awards granted to the Company’s nonemployees are measured at fair value on grant date and share-based compensation expense is recognized (i) immediately at the grant date if no vesting conditions are required, or (ii) using the accelerated attribution method, net of estimated forfeitures, over the requisite service period. The fair value of restricted shares is determined with reference to the fair value of the underlying shares.

 

At each date of measurement, the Company reviews internal and external sources of information to assist in the estimation of various attributes to determine the fair value of the share-based awards granted by the Company, including but not limited to the fair value of the underlying shares, expected life, expected volatility and expected forfeiture rates. The Company is required to consider many factors and make certain assumptions during this assessment. If any of the assumptions used to determine the fair value of the share-based awards changes significantly, share-based compensation expense may differ materially in the future from that recorded in the current reporting period.

 

(n) Warrants

 

The Company issued warrants to four individuals in private placements and to three external investors in registered direct offering, through which the Company issued both common shares and warrants as separable units, and both instrument is registered when issued. Warrants requiring share settlement are classified as equity.

 

The capital raised from the private placement is allocated between the fair value of the common stocks and warrants. The Company determined the fair value of warrants by application of the Black-Scholes-Merton formula.

 

(o) Reclassification

 

Certain items in the financial statements of comparative period have been reclassified to conform to the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended December 31, 2018, which was filed with the SEC on April 5, 2019, primarily for the effects of discontinued operations.

 

14

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(p) Recent accounting pronouncement

 

Recently announced accounting standards

 

In April 2019, the FASB issued ASU 2019-04 “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” Apart from the amendments to ASU 2016-13 as mentioned below, the ASU also included subsequent amendments to ASU 2016-01, which we adopted in January 1, 2018. The guidance in relation to the amendments to ASU 2016-01 is effective for us for the year ending December 31, 2020 and interim reporting periods during the year ending December 31, 2020. Early adoption is permitted.

 

In October 2018, the FASB issued ASU2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASU 2018-17 expands the accounting alternative that allows private companies the election not to apply the variable interest entity guidance to qualifying common control leasing arrangements. ASU 2018-17 broadens the scope of the private company alternative to include all common control arrangements that meet specific criteria (not just leasing arrangements). ASU 2018-17 also eliminates the requirement that entities consider indirect interests held through related parties under common control in their entirety when assessing whether a decision-making fee is a variable interest. Instead, the reporting entity will consider such indirect interests on a proportionate basis. The amendments are effective for public business entities for fiscal years ending after December 15, 2019. Early adoption is permitted. The Company is currently assessing the timing and impact of adopting the updated provisions to its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance if effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently assessing the timing and impact of adopting the updated provisions to its consolidated financial statements.

 

The Company does not believe other recently issued but not yet effective accounting standards would have a material effect would have a material effect on the consolidated financial position, statements of operations and cash flows.

 

Recently adopted accounting standards

 

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). The new guidance permits, but does not require, companies to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the “Act”) on items within accumulated other comprehensive income to retained earnings. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard in the first quarter of 2019 and did not elect to reclassify the stranded tax effects of the Act on items within accumulated other comprehensive income to retained earnings. The Company uses the portfolio method for releasing the stranded tax effects from accumulated other comprehensive income.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. We adopted the new guidance beginning on January 1, 2019. The adoption of this guidance did have a material impact on our financial position, results of operations and cash flows.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting.

 

15

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (ASC Topic 840) if the optional transition method is elected. The new accounting standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. We adopted this accounting standard effective January 1, 2019, using the optional transition method with no restatement of comparative periods. Therefore, the comparative information has not been adjusted and continues to be reported under ASC Topic 840. Our adoption of the new standard did not result in a cumulative effect adjustment to retained earnings.

 

We elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of our existing leases. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and we did not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components of leases for the majority of our classes of underlying assets. Consequently, on adoption and as of September 30, 2019, recognized right-of-use lease assets, net of $55,283 and operating lease liabilities of $nil (Note 16).

 

3. LIQUIDITY

 

In assessing the Company’s liquidity and its ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements and operating expenses obligations.

 

As of September 30, 2019, the Company had cash balance of $1,496,797 and a positive working capital of $471,970. The management estimated the operating expenses obligation for the next twelve months after issuance of the financial statements to be $4.1 million, which will be partially covered by the cash flows of $2.8  million generated from our luxurious car leasing business with our increased investments in luxurious used cars, and collection of $1 million from our investments in financial products, and collection of $0.5 million from related parties. The Company plans to fund its operations through revenue generated from its operating lease income, private placements from investors, and financial support commitments from the Company’s Chief Executive Officer and shareholder. The Company’s ability to fund these needs will depend on its future performance, which will be subject in part to general economic, competitive and other factors beyond its control. Based on the current operating plan, the management believes that the Company will continue as a going concern  in the following 12 months.

   

4. RISKS

 

(a) Credit risk

 

Assets that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents. The maximum exposure of such assets to credit risk is their carrying amount as at the balance sheet dates. As of September 30, 2019, approximately $341,297 was deposited with a bank in the United States which was insured by the government up to $250,000. As of September 30, 2019 and December 31, 2018, approximately $1,155,500 and $1,067,657, respectively, were primarily deposited in financial institutions located in Mainland China, which were uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily place cash deposits with large financial institutions in China which management believes are of high credit quality.

 

The Company’s operations are carried out in Mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining resources, among other factors.

 

16

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4. RISKS (CONTINUED)

 

(b) Liquidity risk

 

The Company is also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, the Company will turn to other financial institutions and the owners to obtain short-term funding to meet the liquidity shortage.

 

(c) Foreign currency risk

 

Substantially all of the Company’s operating activities and the Company’s major assets and liabilities are denominated in RMB, except for the cash deposit of approximately$341,297 which was in U.S. dollars as of September 30, 2019, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the Peoples’ Bank of China (“PBOC”) or other authorized financial institutions at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Where there is a significant change in value of RMB, the gains and losses resulting from translation of financial statements of a foreign subsidiary will be significant affected.

 

(d) VIE risk

 

It is possible that the VIE Agreements among Beijing Tianxing, Hao Limo, and the Beijing Tianxing Shareholders would not be enforceable in China if PRC government authorities or courts were to find that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company were unable to enforce these contractual arrangements, the Company would not be able to exert effective control over the VIE. Consequently, the VIE’s results of operations, assets and liabilities would not be included in the Company’s consolidated financial statements. If such were the case, the Company’s cash flows, financial position, and operating performance would be materially adversely affected. The Company’s contractual arrangements with Beijing Tianxing, Hao Limo, and the Beijing Tianxing Shareholders are approved and in place. Management believes that such contracts are enforceable, and considers the possibility remote that PRC regulatory authorities with jurisdiction over the Company’s operations and contractual relationships would find the contracts to be unenforceable.

 

The Company’s operations and businesses rely on the operations and businesses of Beijing Tianxing, the VIE of the Company, which holds certain recognized revenue-producing assets including the luxury used cars. The VIE also has an assembled workforce, focused primarily on promotion and marketing, whose costs are expensed as incurred. The Company’s operations and businesses may be adversely impacted if the Company loses the ability to use and enjoy assets held by its VIE.

 

5. LOANS RECEIVABLE FROM THIRD PARTIES

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
Loans receivable from third parties   $ 1,500,639     $ -  
Less: loan receivable from third parties, current     1,451,608       -  
Loan receivable from a third party, noncurrent   $ 49,031     $ -  

 

During the three and nine months ended September 30, 2019, the Company entered into loan agreements with three and seven third parties, respectively. Pursuant to the loan agreements, the Company disbursed loans aggregating approximately $1.5 million to these third parties, to be matured in September 2019 through August 2021. The Company charged the third parties interest rates ranging between 9% and 16% per annum. Principal and interest are repaid on maturity of the loan. For the four loans matured in September 2019, which are aggregating approximately $1.3 million, the Company has agreed to extend the loans for another twelve month.

 

As of September 30, 2019, the Company recorded a balance of interest receivable of $54,182 within the account of “other current assets” of the unaudited condensed consolidated balance sheets.

 

17

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   

6. INVESTMENT SECURITY

 

As of September 30, 2019, the Company had investment security of $200,000 in one privately held company over which the Company owns 4.22% shareholding. The Company neither has control nor significant influence through investments in common stock or in-substance common stock. As of September 30, 2019, the equity investee was in setup stage, which had cash injected from its shareholders and common stocks on their balance sheets, and had no revenues but expenses for the period from its inception to September 30, 2019. 

 

The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of the equity security. For the three and nine months ended September 30, 2019, no impairment or downward adjustments were made to the investment security.

 

7. INVESTMENTS IN EQUITY INVESTEES

 

As of September 30, 2019, the Company had investments aggregating $840,536 in three equity investees. The Company owned 40% equity interests in each of the equity investees and exercised significant influence over the equity investees, respectively.

 

The Company’s investments in equity investees were comprised of the following:

 

    September 30, 2019  
    Balance     % of ownership  
    (Unaudited)        
             
Chengdu Jianluo Technology Co., Ltd.   $ 280,179       40 %
Shanghai Huxin Technology Co., Ltd.     280,179       40 %
Shanghai Yaoku Technology Co., Ltd.     280,178       40 %
                 
    $ 840,536          

 

The equity investees were newly set up and has not commenced operations as of September 30, 2019. As of September 30, 2019, the equity investees had cash injected from its shareholders and common stocks on their balance sheets, and had no revenues or net income (loss) for the period from its inception to September 30, 2019. The Company expected these equity investees to commence operations during the three months ended December 31, 2019.

 

8. INVESTMENTS IN FINANCIAL PRODUCTS

 

On May 28, 2019, the Company entered in a financial product investment agreement with a private equity fund (“PE fund”) with a total investing amount of $1,000,000. The balance of investments in financial products consisted investments in three-year close-ended financial products operated by this PE fund. The financial products bear variable return rate and was redeemable on each anniversary after the Company entered into the agreement.

 

The Company elected to account for these investments in PE fund using the measurement alternative at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer that were completed on or after January 1, 2019.

 

The Company’s impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these investments in financial products. For the three and nine months ended September 30, 2019, no impairment or downward adjustments were made to the investments in PE fund.

 

18

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9. OPERATING LEASE ASSETS, NET

 

As of September 30, 2019, the Company had investments in eleven used luxurious cars. During the nine months ended September 30, 2019, the Company disposed of three used luxurious cars with original amount aggregating $792,626, and accumulated depreciation expenses aggregating $19,094. The Company earned a gain of $7,851 from the disposal.

 

As of September 30, 2019 and December 31, 2018, the Company, by reference to the market price, determined the fair value of two and one used luxurious cars was below the original carrying amount of the leased asset and had accumulated impairment of $262,202 and $177,630, respectively. As a result, the Company accrued additional impairment of $nil and $96,318 for these operating lease assets for the three and nine months ended September 30, 2019. 

 

As of the September 30, 2019, the balance of the used luxurious cars is comprised of the following:

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
Used luxurious cars   $ 2,780,772     $ 1,728,538  
Less: accumulated depreciation     (250,796 )     (94,520 )
    $ 2,529,976     $ 1,634,018  

 

For the three months ended September 30, 2019 and 2018, the Company charged depreciation expenses of $83,806 and $46,396 on used luxurious cars, respectively. For the nine months ended September 30, 2019 and 2018, the Company charged depreciation expenses of $185,985 and $58,854 on the luxurious cars, respectively.

 

As of September 30, 2019, all used luxurious cars was pledged for borrowings from third parties.

  

10. THIRD PARTIES LOANS

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
             
Third parties loans   $ 2,136,363     $ 218,100  

 

As of September 30, 2019 and December 31, 2018, the Company had borrowings of $2,136,363 and $218,100 from seven and two third parties. The borrowings were due in October 2019 through September 2020. The interest rate charged on the borrowings ranged between 7% and 10.5%. For the three months ended September 30, 2019 and 2018, the Company charged interest expenses of $45,943 and $nil on the borrowings, respectively. For the nine months ended September 30, 2019 and 2018, the Company charged interest expenses of $83,487 and $nil on the borrowings, respectively.

 

11. OTHER CURRENT LIABILITIES

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
             
Deposit payable   $ 83,616     $ 35,565  
Accrued litigation fees     82,500       82,500  
Accrued interest expenses     81,169       722  
Accrued payroll     20,329       17,983  
Other tax payable     9,326       7,817  
Others     11,467       40,462  
Other current liabilities   $ 288,407     $ 185,049  

 

19

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. CAPITAL TRANSACTIONS

 

Common Stock

 

The Company is authorized to issue up to 100,000,000 shares of Common Stock.

 

As of December 31, 2018, there were 25,119,532 shares of common stock issued and outstanding. On January 11, 2019, the Company filed a Certificate of Amendment of the Certificate of Incorporation with the Secretary of State of Delaware to effect a 1 for 5 reverse stock split (the “Reverse Split”) of the shares of the Company’s issued and outstanding common stock, par value $0.001. As a result of the Reverse Split, all references to numbers of common shares and per-share data in the accompanying unaudited condensed consolidated financial statements have been adjusted to reflect such issuance of shares on a retrospective basis. As such, the 25,119,532 shares issued and outstanding as of December 31, 2018 decreased to 5,023,906 shares.

 

On March 8, 2019, the Company issued 502,391 restricted shares to its service providers as compensation for various services provided for the three months ended March 31, 2019, including asset management consulting services, tax consulting services, customer relationship services, valuation services and IT services. The restricted shares are fully vested while the transferability is restricted until September 5, 2019. The fair value of the services provided was in in the total amount of $884,208, at a per share price at the market price of the grant date. A summary of RSU activity for the nine months ended September 30, 2019 is as follows:

 

    Number of Shares     Weighted-Average Grant Date Fair Value  
Balance of RSUs outstanding at December 31, 2018     -       -  
Grants of RSUs     502,391       1.76  
Vested RSUs     (502,391 )     1.76  
Forfeited RSUs     -       -  
Balance of unvested RSUs at September 30, 2019   $ -     $ -  

 

Registered direct offering 

 

On April 11, 2019, the Company and certain institutional investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors an aggregate of 1,680,000 shares of common stock in a registered direct offering and warrants to purchase up to approximately 1,680,000 shares of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $3.7 million. The warrants will be exercisable immediately following the date of issuance and have an exercise price of $2.20. The warrants will expire 5 years from the earlier of the date on which the shares of Common Stock issuable upon exercise of the warrants may be sold pursuant to an effective registration statement or may be exercised on a cashless basis and be immediately sold pursuant to Rule 144. The purchase price for each share of Common Stock and the corresponding warrant is $2.20. Each warrant is subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants contain a mandatory exercise right for the Company to force exercise of the warrants if the Company’s common stock trades at or above $6.60 for 20 consecutive trading days provided, among other things, that the shares issuable upon exercise of the warrants are registered or could be sold pursuant to Rule 144 and the daily trading volume exceeds 200,000 shares per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.

 

On May 20, 2019, the Company and certain institutional investors entered into a securities purchase agreement, pursuant to which the Company agreed to sell to such investors an aggregate of 1,440,000 shares of common stock in a registered direct offering and warrants to purchase up to approximately 1,080,000 shares of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $1.5 million. The warrants will be exercisable after 6 months of the date of issuance and have an exercise price of $1.32. The warrants will expire 5.5 years from the date of issuance. Each warrant is subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants contain a mandatory exercise right for the Company to force exercise of the warrants if the Company’s common stock trades at or above $3.96 for 20 consecutive trading days provided, among other things, that the shares issuable upon exercise of the warrants are registered or could be sold pursuant to Rule 144 and the daily trading volume exceeds 200,000 shares per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.

 

As of September 30, 2019 and December 31, 2018, the Company had 8,646,297 shares and 5,023,906 shares issued and outstanding, respectively.

 

In addition, with the registered direct offering and warrants to purchase up to approximately 1,080,000 shares on May 20, 2019, the Company agreed to reduce the exercise of the warrants issued on April 15, 2019 from $2.20 to $1.32 (“Replacement Warrants”). However, the Company’s issuance of the Replacement Warrants had resulted in noncompliance of Nasdaq Listing Rules 5635(d)(1) and 5635(d)(2), subjecting the Company to a potential delisting from the Nasdaq Capital Market in the event the deficiency is not cured.

 

On August 30, 2019, the Company and the Purchasers entered into an amendment and exchange agreement (the “Exchange Agreement”), pursuant to which the Company shall issue to the Purchasers exchange warrants (the “Exchange Warrants”) to purchase up to 1,680,000 shares of Common Stock with an exercise price of $2.20 in exchange for the cancellation and termination of the Replacement Warrants.

 

20

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12. CAPITAL TRANSACTION (CONTINUED)

 

Warrants

 

A summary of warrants activity for the nine months ended September 30, 2019 was as follows:

 

   

Number of

shares

   

Weighted

average life

 

Expiration

dates

               
Balance of warrants outstanding as of December 31, 2018     273,370     3.94 years    
Grants of Warrants on April 11, 2019     1,680,000     5 years   April 15, 2024
Grants of Warrants on May 20 2019     1,080,000     5.5 years   November 23, 2024
Balance of warrants outstanding as of September 30, 2019     3,033,370     4.63 years    

 

In connection with the direct offering closed on April 11, 2019, the Company issued warrants to investors to purchase a total of 1,680,000 ordinary shares with a warrant term of five (5) years. The warrants have an exercise price of $2.20 per share. On May 20, 2019, the exercise price was reduced to $1.32, and on August 30, 2019 the exercise price was revised to $2.20.

 

In connection with the direct offering closed on May 20, 2019, the Company issued warrants to investors to purchase a total of 1,080,000 ordinary shares with a warrant term of five and a half (5.5) years. The warrants have an exercise price of $1.32 per share.

 

Both warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants did not meet the definition of liabilities or derivatives, and as such they are classified as an equity.

 

On April 11, 2019 and May 20, 2019, the Company estimated fair value of the both warrants at $1,638,000 and $762,480, respectively, using the Black-Scholes valuation model, which took into consideration the underlying price of ordinary shares, a risk-free interest rate, expected term and expected volatility. As a result, the valuation of the warrant was categorized as Level 3 in accordance with ASC 820, “Fair Value Measurement”. 

 

On August 30, 2019, the Company updated the estimation of fair value of warrants issued on April 11, 2019 as a result of the change in exercise price of the warrants from $1.32 to $2.20. Accordingly the fair value of the Replacement Warrant decreased from $1,638,000 to $1,357,440.

 

The key assumption used in estimates are as follows:

 

    April 11,     August 30,     May 20,  
    2019     2019     2019  
          (Replacement Warrants)        
                   
Terms of warrants     60 months       55.3 months       66 months  
Exercise price     1.32       2.20       1.32  
Risk free rate of interest     2.77 %     2.77 %     2.77 %
Dividend yield     0.00 %     0.00 %     0.00 %
Annualized volatility of underlying stock     55.6 %     63.45 %     57.04 %

 

21

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

13. EARNINGS (LOSS) PER SHARE

 

The following table sets forth the computation of basic and diluted loss per common share for the three and nine months ended September 30, 2019 and 2018, respectively:

 

   

For the

Three Months Ended

September 30,

   

For the

Nine Months Ended

September 30,

 
    2019     2018     2019     2018  
                         
Net (loss) income   $ (392,843 )   $ (635,017 )   $ (3,262,994 )   $ 8,482,353  
                                 
Weighted Average Shares Outstanding-Basic and Diluted     8,646,297       4,919,122       7,122,560       4,458,093  
(Loss) income per share - basic and diluted   $ (0.05 )   $ (0.13 )   $ (0.46 )   $ 1.90  
Net loss per share from continuing operations – basic and diluted   $ (0.05 )   $ (0.13 )   $ (0.46 )   $ (0.36 )
Net income per share from discontinued operations – basic and diluted   $ -     $ -     $ -     $ 2.26  

 

On January 11, 2019, the Company amended the certificate of incorporation to effect a one-for-five reverse stock split of our issued and outstanding shares of common stock. All references to numbers of common shares and per-share data in the accompanying unaudited condensed consolidated financial statements have been adjusted to reflect such issuance of shares on a retrospective basis. As such, the weighted average shares outstanding – basic and diluted of 24,595,612 shares issued and outstanding as for the three months ended September 30, 2018 decreased to 4,919,122 shares, and the weighted average shares outstanding – basic and diluted of 22,290,464 shares issued and outstanding as for the nine months ended September 30, 2018 decreased to 4,458,093 shares issued and outstanding.

 

Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share is the same as basic loss per share due to the lack of dilutive items in the Company for the three and nine months ended September 30, 2019 and 2018. The number of warrants is excluded from the computation as the anti-dilutive effect.

  

14. INCOME TAXES

 

The United States of America

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law, which has made significant changes to the Internal Revenue Code. Those changes include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017. Accordingly, the Company reevaluated its deferred tax assets on net operating loss carryforward in the U.S and concluded there was no effect on the Company’s income tax expenses as the Company has no deferred tax assets generated since inception.

 

PRC

 

Effective January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”) are subject to a uniform tax rate of 25%. Under the PRC tax law, companies are required to make quarterly estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities.

 

The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the three and nine months ended September 30, 2019 and 2018, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future income to realize the deferred tax assets. As of September 30, 2019 and December 31, 2018, the Company had deferred tax assets of $2,462,039 and $1,714,344, respectively. The Company maintains a full valuation allowance on its net deferred tax assets as of September 30, 2019.

 

22

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

14. INCOME TAXES (CONTINUED)

 

The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.

 

The Company does not have any current and deferred tax expenses for the three and nine months ended September 30, 2019 and 2018.

 

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. The Company is subject to income taxes in the PRC. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as of September 30, 2019 and December 31, 2018 and the Company does not believe that its unrecognized tax benefits will change over the next twelve months.

  

15. RELATED PARTY TRANSACTIONS AND BALANCES

 

1) Nature of relationships with related parties

 

Name   Relationship with the Company

Chengdu Jianluo Technology Co., Ltd.

(“Chengdu Jianluo”)

  An associate of the Company, over which the Company has 40% equity interest and exercises significant influence

Shanghai Huxin Technology Co., Ltd.

(“Shanghai Huxin”)

  An associate of the Company, over which the Company has 40% equity interest and exercises significant influence
Jiaxi Gao   Chief Executive Office of the Company
Tao Sun   Senior Management of the Company

Shun Li

  Senior Management of the Company

 

2) Balances with related parties

 

Due from related parties

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
             
Chengdu Jianluo (i)   $ 459,591     $ -  
Shanghai Huxin (ii)     17,384       -  
Total Due from related parties   $ 476,975     $ -  

 

(i) The balance due from Chengdu Jianluo consisted of receivables for transfers of two used luxurious cars at consideration aggregating $459,381.

 

(ii) The balance due from Shanghai Huxin represented a loan due from the related party. The balance is collected on demand, and no interest income is charged to the associate.

 

23

 

 

BAT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

15. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED)

 

Due to related parties

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
             
Chengdu Jianluo   $ 8,405     $ -  
Jiaxi Gao     7,940       -  
Total Due to related parties   $ 16,345     $ -  

 

The balances due to both related parties represent the operating expenses paid by the related parties on behalf of the Company. The balances are payable on demand. The balances are interest free.

 

Related party loan, noncurrent

 

    September 30,     December 31,  
    2019     2018  
    (Unaudited)        
                 
Tao Sun   $ 148,495     $          -  

 

The balance of related party loan was payable in September 2022, with an interest rate of 7.5%.

 

3) Transactions with related parties

 

On March 8, 2019, the Company issued 133,333 restricted shares to Mr. Shun Li for his management consulting services provided during January 15, 2019 and March 31, 2019. The restricted shares are fully vested while the transferability is restricted until September 5, 2019. The fair value of the services provided was in in the total amount of $234,666, at a per share price at the market price of the grant date.

 

In July 2019, the Company transferred two used luxurious cars to Chendu Jianluo in exchange for consideration of $459,381. The original amount of the car aggregated $470,420, and the accumulated depreciation expenses aggregated $11,039. The Company did not has any gain or loss from the transfer.

 

On September 2, 2019, the Company entered into a loan agreement with Mr. Tao Sun to borrow $148,495 for a period from September 16, 2019 through September 15, 2022. The interest rate charged on the borrowing was 7.5%. For the three and nine months ended September 30, 2019, the Company was charged interest expenses of $933.

 

16. COMMITMENTS AND CONTINGENCIES

 

1) Lease Commitments

 

During the three and nine months ended September 30, 2019, we entered into one and three additional lease contracts, all of which with a lease term of 12 months. As of September 30, 2019, we had four office lease agreements with fixed monthly rental fee with third parties which expires through September 2020.  None of these lease agreements provided either the Company or the lessor with an option to extend or terminate the lease agreements, nor agreed any residual value guarantee or restrictions or covenants.

 

As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use lease asset. Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess: (a) whether its expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases. As of September 30, 2019, the Company had one lease agreement with a lease term of 24 months from its inception, with prepayments of remaining lease liabilities. Consequently, ROU assets and lease liabilities shall be recognized on adoption of ASC 842. As of September 30, 2019, the Company recognized ROU assets of $55,283 and operating lease liabilities of $nil, respectively.

 

24

 

 

BAT GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16. COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

The following table sets forth the Company’s contractual obligations as of September 30, 2019 in future periods:

 

    Rental payments  
       
Three months ended December 31, 2019   $ 11,683  
Year ending December 31, 2020     -  
Total   $ 11,683  

 

Rent expense for the three months ended September 30, 2019 and 2018 was $14,321 and $16,234, respectively. Rent expense for the nine months ended September 30, 2019 and 2018 was $59,070 and $42,623, respectively.

 

2) Contingencies

 

a) 2014 Class Action litigation

 

On August 6, 2014, a purported shareholder Andrew Dennison filed a putative class action complaint in the United States District Court District of New Jersey (the “N.J. district court”) relating to a July 25, 2014 press release about the Company’s progress in recovering a significant portion of the $5.4 million the Company paid in the first quarter of 2014 on behalf of loan guarantee customers. The action, Andrew Dennison v. Bat Group, Inc., et al., Case No. 2:2014-cv-04956, alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Xiangdong Xiao, and John F. Levy violated the federal securities laws by misrepresenting in prior public filings certain material facts about the risks associated with its loan guarantee business. On October 2, 2014, purported shareholders Zhang Yun and Sanjiv Mehrotra (the “Yun Group”) asserted substantially similar claims against the same defendants in a putative class action captioned Zhang Yun v. Bat Group, Inc., et al., Case No. 2:14-cv-06136 (D. N.J.). Neither complaint states the amount of damages sought.

 

On or about October 6, 2014, Dennison, the Yun Group and another purported shareholder, Jason Stark, filed motions to consolidate the cases, be appointed as lead plaintiff and to have their respective counsel appointed as lead counsel.

 

On October 31, 2014, the N.J. district court entered an order consolidating the cases under the caption “In re China Commercial Credit Inc. Securities Litigation” and appointing the Yun Group as lead plaintiff (“Class Plaintiff”) and the Yun Group’s counsel as lead counsel. On November 18, 2014, the Yun Group and the Company, which at that point was the only defendant served, entered into a stipulation to transfer of the case to the Southern District of New York. On December 18, 2014, Mr. Levy, who had by then been served, joined in the stipulation.

 

On December 29, 2014, the N.J. district court entered an order transferring the action. The transfer was effected on January 22, 2015, and assigned docket number 1:15-cv-00557-ALC (S.D.N.Y.) (the “Securities Class Action”). Under the schedule stipulated by the parties, the Yun Group was to file an amended complaint within 60 days of the date that the transfer was effected, and the defendants’ date to answer or move was within 60 days of that filing.

 

On April 7, 2015, the Class Plaintiff filed a Second Amended Class Action Complaint (the “CAC”). The CAC also asserts securities law claims against defendants Axiom Capital Management, Inc., Burnham Securities Inc. and ViewTrade Securities, Inc. (collectively, the “Underwriter Defendants”). The CAC alleges that the Company engaged in a fraudulent scheme by engaging in undisclosed and improper lending practices and made misleading representations regarding its underwriting policies, the loan portfolio quality, the loan loss allowance, compliance with U.S. GAAP and its internal control systems. In accordance with the Court’s procedures, the Company and Mr. Levy and the Underwriter Defendants requested a Pre-Motion Conference in anticipation of filing a motion to dismiss the CAC, which was held on June 25, 2015. At the conference, the Court adjourned the date to answer or move in order to provide the Class Plaintiff with time to serve certain overseas defendants. After the conference, the Class Plaintiff voluntarily dismissed Jianming Yin, Jinggen Ling and Xiangdong Xiao from the action, and Long Yi agreed to waive service, which left Huichun Qin as the sole remaining defendant to serve.

 

On November 22, 2016, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) to settle the Securities Class Action. The Stipulation resolved the claims asserted against the Company and certain of its current and former officers and directors in the Securities Class Action without any admission or concession of wrongdoing or liability by the Company or the other defendants. The Stipulation also provides, among other things, a settlement payment by the Company of $245,000 in cash and the issuance of 950,000 shares of its common stock (the “Settlement Shares”) to the plaintiff’s counsel and class members. The terms of the Stipulation were subject to approval by the Court following notice to all class members. The issuance of the Settlement Shares are exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. A fairness hearing was held on May 30, 2017, and the Court approved the settlement.

 

25

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16. COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

On December 22, 2017, the Court entered a distribution order approving the distribution of the Settlement Stock to the class plaintiffs. The $245,000 cash portion of the settlement has been paid in full. The 712,500 Class Settlement Shares were issued on or about January 19, 2018. The settlement has been finalized, and that thereafter there are no remaining claims outstanding as against the Company with respect to this litigation. On April 10, 2018, the 237,500 of plaintiff attorney fee shares were issued to plaintiff’s attorney’s broker account.

 

Two of the Underwriter Defendants, Axiom Capital Management, Inc., and ViewTrade Securities, Inc., have asserted their respective rights to indemnification under the Underwriting Agreements entered into in connection with the Company’s initial public offering and secondary offering. On or about March 16, 2016, CCCR entered into an Advance Funding and Escrow Agreement (“Advance Funding Agreement”), under which the CCCR agreed to deposit shares into escrow to fund the advancement obligation, with the initial deposit to be 637,592 shares which was valued at Two Hundred Thousand Dollars ($200,000), based upon 80% of the 30 day volume weighted average trading price for each of the 30 consecutive trading days prior to the date of the agreement. As of the completion of the settlement, an aggregate of 527,078 shares are unused in the escrow account and the Underwriter Defendants acknowledged there is no additional payment of fees and expenses owed to the Underwriter Defendants and the Advance Funding Agreement shall be terminated. The Company has instructed the transfer agent to cancel the 527,078 shares and return them to authorized shares. As of the date of this Form 10-Q, the Company is working with its counsel and the escrow agent to complete such cancelation.

 

b) 2015 Derivative Action

 

On February 3, 2015, a purported shareholder Kiran Kodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned Kiran Kodali v. Huichun Qin, et al., Case No. 15-cv-806. The action alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Chunfang Shen, John F. Levy, Xiaofang Shen and Chunjiang Yu violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints. Kodali did not serve a demand upon the Company and alleges that demand is excused. The Company and Mr. Levy are the only defendants who have been served. An amended derivative complaint was filed on April 20, 2015.

 

On May 29, 2015, the Court “so ordered” a stipulation among Kodali, the Company, and Mr. Levy staying all proceedings in the derivative case, except for service of process on individual defendants, until the earlier of thirty days of termination of the stipulation, dismissal of the class action with prejudice or the date any of the defendants in the class action file an answer to the CAC.

 

The Company intends to vigorously defend against it. At this stage of the proceedings, the Company is not able to estimate the probability of success or loss. The Court ordered GLG to answer or otherwise move with respect to this action on or before November 13, 2017. Thereafter, GLG and Mr. Levy submitted a pre-motion letter to the Court requesting permission to move to dismiss the derivative complaint; submission of this letter stayed the proceedings pending the Court’s review thereof. The Court held a hearing on this pre-motion letter on January 22, 2018, denying permission to file a motion to dismiss the complaint without prejudice and setting forth a schedule under which Kodali must serve the remaining defendants in the derivative litigation. On or about August 22, 2018, our new litigation counsel noticed their appearance in the Action. The parties filed a Joint Status Report on August 22, 2018, advising the Court that the parties continued to have discussions regarding a potential resolution of the matter. The parties have come to a potential agreement regarding a monetary settlement. However, the parties continued to discuss the non-monetary aspects of a potential resolution. On January 18, 2019, the parties to the derivative action entered into a Stipulation of Settlement and Plaintiff filed an Unopposed Motion for Preliminary Approval of Proposed Derivative Settlement (“Motion”). On April 4, 2019, the Court preliminarily approved the Stipulation and settlement set forth therein, including the terms and conditions for settlement and dismissal with prejudice of the Derivative Action, subject to further consideration at the Settlement Hearing to be held on July 11, 2019 at the United States District Court for the Southern District of New York.

 

26

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16. COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

On July 16, 2019, the Company received a copy of the final order and judgment that the Court entered on July 11, 2019, approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the Derivative Action as to the Company and the Individual Defendants, and the Company agrees to adopt or maintain certain corporate governance reforms for at least three years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Individual Defendants’ insurance carriers to plaintiffs’ counsel. 

 

c) 2017 Class Action

 

The Company and its directors were party to a lawsuit filed on September 1, 2017, by certain a stockholder of the Company on behalf of himself and similarly situated stockholders of the Company GLG in the Chancery Court of the State of Delaware (the “Delaware Chancery Court”) (Case No. 2017-0633-JTL) (the “Action”), Plaintiff stockholders which sought injunctive relief, costs, and attorney’s fees. Plaintiff’s Verified Class Action Complaint (“Complaint”) alleged that the Company’s directors breached their fiduciary duties to the Company’s stockholders by failing to disclose all necessary material information relating to the Company’s entry into an Exchange Agreement (“Exchange Agreement”) with Sorghum Investment Holdings Limited (“Sorghum”) on August 9, 2017, and preventing the Company’s stockholders from casting a fully informed vote on the Company’s acquisition of Sorghum, and other proposals contained in the Company’s preliminary proxy statement, dated August 14, 2017 (“Preliminary Proxy Statement”).

 

On October 10, 2017, the Company filed Amendment No. 1 to its Preliminary Proxy Statement (the “Amended Preliminary Proxy”) with the U.S. Securities and Exchange Commission (the “Commission”) in response to the Commission’s September 8, 2017 comment letter (“Comment Letter”). After reviewing the Amended Preliminary Proxy, Plaintiff determined that the Company’s Amended Preliminary Proxy rendered the claims asserted in Plaintiff’s Complaint moot and/or otherwise unsuitable for further pursuit. On October 19, 2017, the Company and Plaintiff entered into a stipulation (“Stipulation”) wherein Plaintiff agreed to voluntarily dismiss his claims against the Company, and its directors, with prejudice. The Delaware Chancery Court granted the Stipulation on October 20, 2017, and entered an Order dismissing the Action with prejudice. In accordance with the Order, the Company will advise the Delaware Chancery Court within fifteen (15) days of the earlier of (a) the stockholder vote on the Exchange Agreement relating to the proposals, or (b) the termination of the Exchange Agreement, and whether the parties to the Action have reached an agreement with respect to Plaintiff’s anticipated request for fees and expenses. Currently, no compensation in any form has passed from the Company, or its directors, to Plaintiff or Plaintiff’s attorneys in the Action, and the Company has not made a promise to give any such compensation. On or about November 6, 2017, the Company filed Amendment No. 2 to its Preliminary Proxy Statement with the Commission in further response to the Comment Letter. On December 29, 2017, the Company received notice from Sorghum notifying the Company that the Exchange Agreement is terminated. The Company advised Plaintiff of the termination of the Exchange Agreement on January 9, 2018.

 

d) 2017 Arbitration with Sorghum

 

On December 21, 2017, the Company delivered notice (“Notice”) to Sorghum notifying Sorghum that certain recent actions of Sorghum constituted breaches of Sorghum’s covenants under the Exchange Agreement. Specifically, we believe that Sorghum is in breach of Section 6.9 (a) and Section 6.11 (b) of the Exchange Agreement which required Sorghum to use commercially reasonable efforts and to cooperate fully with the other parties to consummate the transactions contemplated by the Exchange Agreement and to make its directors, officers and employees available in connection with responding in a timely manner to SEC comments. According to the terms of the Exchange Agreement, the Company is entitled to terminate the Exchange Agreement if the breach is not cured within twenty (20) days after the Notice is provided to Sorghum.

 

27

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

16. COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

On January 25, 2018, the Company filed an arbitration demand (“Arbitration Demand”) with the American Arbitration Association (“AAA”) against Sorghum in connection with Sorghum’s breach of the Exchange Agreement. The  AAA has forwarded the Company’s Arbitration Demand to Sorghum, and Sorghum’s response to the Arbitration Demand was due on or before February 14, 2018. Sorghum has not provided a written response to the Company’s Arbitration Demand. In accordance with the Commercial Arbitration Rules of the AAA (“Rules”), Sorghum’s failure to respond is deemed as a general denial of the Company’s claims. On April 10, 2018, the AAA initially appointed Barbara Mentz, Esq. (“Arbitrator Mentz”) as arbitrator in accordance with the arbitration clause contained in the Exchange Agreement. On March 28, 2018, the AAA conducted an initial telephonic conference with Arbitrator Barbara Mentz, but neither Sorghum nor its counsel appeared for the call. On March 28, 2018, after the Company’s counsel appeared for the initial telephonic conference, Sorghum and its counsel contacted the AAA claiming that it was not in receipt of the AAA’s correspondence although the AAA forwarded its correspondence to Sorghum’s Chief Executive Officer’s active email. In response, the AAA scheduled another telephonic conference for April 9, 2018. All parties appeared at the April 9, 2018 conference, and approved Arbitrator Mentz’s appointment. On April 11, 2018, pursuant to the Rules, Sorghum filed its answer and counterclaim. The Company filed a written denial to Sorghum’s counterclaim on April 26, 2018. On May 2, 2018, the parties jointly requested an extension of time to file their respective proposals for resolution with the AAA, and Arbitrator Mentz granted the extension. On May 17, 2018, Sorghum requested another extension and Arbitrator Mentz granted the extension. In accordance with Arbitrator Mentz’s Order, the parties’ proposals was due May 31, 2018. On May 30, 2018, due to a delay in receiving additional evidence from a relevant third party, the Company requested an extension of time to file its proposal for resolution, which Arbitrator Mentz granted extending the deadline to June 7, 2018. To provide additional time to allow certain relevant documents to be translated due to the unavailability of the parties’ mutually accepted translator, the Company requested a final extension of time to June 14, 2018, to submit the parties’ proposal for resolution. Arbitrator Mentz granted the Company’s request. On June 14, 2018, the Company submitted its proposal for resolution to the AAA. On July 30, 2018, Arbitrator Mentz entered a reasoned award, accepting the Company’s proposal for resolution, awarding the Company damages of $1,436,521.50 against Sorghum and denying Sorghum’s Counterclaim against the Company in its entirety with prejudice. Sorghum has sought to vacate the arbitration award by filing a petition to vacate the arbitration award in the Supreme Court for the State of New York, New York County. The Court heard the Company and Sorghum’s arguments on May 1, 2019, and entered an order vacating the arbitration award. The Company vigorously opposed and moved to confirm the arbitration award on May 6, 2019. On June 5, 2019, the Company filed a notice of appeal with the New York Supreme Court Appellate Division First Department. The appeal is currently scheduled to be mediated on November 20, 2019.

 

e) 2018 Court Matter with Shanghai Nonobank Financial Information Service Co. Ltd.

 

On August 2, 2018, the Company became party to an action filed by Shanghai Nonobank Financial Information Service Co. Ltd. (“Plaintiff”) in the Supreme Court for the State of New York, New York County (“NY Supreme Court”) (Index No. 653834/2018) (the “Action”). Plaintiff’s complaint seeks to recover approximately $3.5 million of Plaintiff’s funds that were allegedly required to be held in escrow in New York pursuant to an agreement by and between Plaintiff, Yang Jie and Yi Lin  (the “Complaint”). Plaintiff has alleged that the funds were required to be held in escrow in a New York attorney trust account pending the alleged consummation of a merger between Plaintiff’s parent company and the Company. Plaintiff alleged two causes of action against the Company for fraud/fraudulent inducement and conversion. On August 30, 2018, the Company filed a motion to dismiss Plaintiff’s causes of action against the Company. The Court has scheduled oral arguments on the Company’s motion to dismiss for May 1, 2019.

 

On July 15, 2019, the Company received a copy of the decision and order the Court entered on July 12, 2019, granting the Company’s motion to dismiss the Complaint in its entirety as against the Company without prejudice, with costs and disbursements to the Company as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of the Company. 

 

28

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

17. DISPOSITION OF GLG BVI

 

On June 19, 2018, the Company, HK Xu Ding Co., Limited, a private limited company duly organized under the laws of Hong Kong (the “Purchaser”) and CCCR International Investment Ltd., a business company incorporated in the British Virgin Islands with limited liability (“GLG BVI”) entered into certain Share Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Purchaser agreed to purchase GLG BVI in exchange of cash purchase price of $500,000. The consideration was paid as of September 30, 2018.

 

GLG BVI is the sole shareholder of GLG International Investment Ltd. (“GLG HK”), a company incorporated under the laws of the Hong Kong S.A.R. of the People’s Republic of China (“PRC”), which is the sole shareholder of WFOE. WFOE, via a series of contractual arrangements, controls Wujiang Luxiang. GLG HK is the sole shareholder of PFL.

 

On July 10, 2018, the parties completed all the share transfer registration procedure as required by the laws of British Virgin Islands and all the other closing conditions have been satisfied, as a result, the Disposition contemplated by the Purchase Agreement is completed. Upon completion of the Disposition, the Purchaser became the sole shareholder of GLG BVI and as a result, assumed all assets and obligations of all the subsidiaries and VIE entities owned or controlled by GLG BVI. Upon the closing of the transaction, the Company does not bear any contractual commitment or obligation to the microcredit business or the employees of GLG BVI and its subsidiaries and VIEs, nor to the Purchaser.

 

On June 17, 2018, management was authorized to approve and commit to a plan to sell GLG BVI, therefore the major assets and liabilities relevant to the disposal are reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes, are reported as components of net income (loss) separate from the net loss of continuing operations in accordance with ASC 205-20-45. The assets relevant to the sale of GLG BVI with a carrying value of $6.2 million were classified as assets held for sale as of June 19, 2018. The liabilities relevant to the sale of GLG BVI with a carrying value of $10.5 million were classified as liabilities held for sale as of June 19, 2018. A net gain of $9.7 million was recognized as the net gain from disposal of discontinued operation in 2018.

 

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

 

As the transaction was closed on June 17, 2018, the Company had no assets and liabilities held for sale in the in the condensed consolidated balance sheet as of September 30, 2019 and December 31, 2018.

 

29

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

17. DISPOSITION OF GLG BVI (CONTINUED)

 

The following is a reconciliation of the amounts of major classes of income from operations classified as discontinued operations in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019 and 2018:

 

   

For the

Three Months Ended

September 30,

   

For the

Nine months Ended

September 30,

 
    2019     2018     2019     2018  
Discontinued Operations                        
Total interest and fees income   $ -     $ 6,213     $ -     $ 106,985  
Reversal of provision for loan losses and financing lease losses     -       87,318       -       417,600  
Reversal of provision of (Provision for) financial guarantee services     -       162       -       (104,229 )
Non-interest expenses     -       7,534       -       (142,600 )
Net gain from discontinued operations     -       9,794,873       -       9,794,873  
Net income from discontinued operations   $ -     $ 9,896,100     $ -     $ 10,072,629  

 

Total operating cash flows provided by discontinued operations for the nine months ended September 30, 2019 and 2018 were $nil and $1,769,566, respectively. For the nine months ended September 30, 2018, the operating cash flows provided by discontinued operations was mainly caused by net loss incurred by discontinued operations of $277,756 and increased receivables due from the Company of $1.2 million.

 

Total investing cash flows used in discontinued operations for the nine months ended September 30, 2019 and 2018 were $nil and $1,270,070. The cash provided by investing activities for the nine months ended September 30, 2018 was net effects of disbursement of loans to third parties of $3,391,907 against collection of $1,943,958 from third party customers of direct loan services.

 

18. NASDAQ  NOTIFICATION ON NON-COMPLIANCE

 

On June 12, 2019, the Company received a notification letter (the “Notification”) from the Nasdaq Listing Qualifications Staff of The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that did not meet the following requirements: (i) because the exercise price for the warrants issued on April 11, 2019 had been reduced from $2.20 to $1.32 on May 20, 2019, below the minimum price requirements set forth in Nasdaq Listing Rule 5635(d)(1), the Company was required to obtain shareholder approval as set forth in Nasdaq Listing Rule 5635(d)(2); (ii) Staff has determined to aggregate the offering pursuant to the Securities Purchase Agreement dated April 11, 2019 and the offering pursuant to the Securities Purchase Agreement dated May 20, 2019 for purposes of the Nasdaq’s shareholder approval rules; and (iii) the Company was also required to submit a Listing of Additional Shares Notification Form as set forth in Nasdaq Listing Rule 5250(e)(2)(D) 15 days prior to issuing any common stock, or any security convertible into common stock in a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis.

 

On August 30, 2019, the Company and the Purchasers entered into an amendment and exchange agreement (the “Exchange Agreement”), pursuant to which the Company shall issue to the Purchasers exchange warrants (the “Exchange Warrants”) to purchase up to 1,680,000 shares of Common Stock with an exercise price of $2.20 in exchange for the cancellation and termination of the Replacement Warrants.

 

On September 16, 2019, the Company received a written notification from the NASDAQ Stock Market Listing Qualifications Staff (the “Staff”) indicating that the Company has regained compliance with the shareholder approval requirements set forth in Listing Rule 5635(d) and the Listing of Additional Shares notification requirements under Listing Rule 5250(e)(2)(D) for continued listing on the NASDAQ Capital Market based on the Staff’s review of the Company’s submitted materials.

 

In addition, on July 3, 2019, the Company received a notification letter from the Nasdaq notifying the Company that the minimum bid price per share for its common shares has been below $1.00 for a period of 30 consecutive business days and the Company therefore no longer meets the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2). The notification received has no immediate effect on the listing of the Company’s common stock on Nasdaq. Under the Nasdaq Listing Rules, the Company has until December 30, 2019 to regain compliance. If at any time during such 180-day period the closing bid price of the Company’s common shares is at least $1 for a minimum of 10 consecutive business days, Nasdaq will provide the Company written confirmation of compliance.

 

If the Company does not regain compliance during such 180-day period, the Company may be eligible for an additional 180 calendar days, provided that the Company meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq except for Nasdaq Listing Rule 5550(a)(2), and provide a written notice of its intention to cure this deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

 

30

 

 

BAT GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

19. SUBSEQUENT EVENTS

 

(1) Entry into Share Purchase Agreement for Private Placement

 

On October 8, 2019, the Company entered into certain securities purchase agreements (“Reg. S SPAs”) with certain non-U.S. Persons (“Reg. S Investors”) as defined in Regulation S of the Securities Act of 1933 (the “Securities Act”), as amended pursuant to which the Company agreed to sell an aggregate of 1,685,000 shares of its common stock, par value $0.001 per share, at a per share purchase price of $0.35. The net proceeds to the Company from such Offering is approximately $588,000, which has been collected in September 2019 in advance.

 

On November 13, 2019, the Company issued 1,685,000 shares of Common Stock to the Reg. S Investors pursuant to the Reg. S SPAs, since all the closing conditions have been satisfied.

 

The issuance and sale are exempted from the registration requirements of the Securities Act pursuant to Regulation S promulgated thereunder.

 

(2) Entry into Share Purchase Agreement for Purchase of an Equity Investee

 

On October 14, 2019, the Company entered into certain share purchase agreements (the “SPA”) with Zhuji Xingmai Network Technology Co., Ltd. (the “Seller”), PRC, and Hangzhou Yihe Network Technology Co., Ltd. (the “Target”), both of which are limited liability companies in PRC. The Seller is the record holder and beneficial owner of all issued and outstanding capital stock of the Target. Pursuant to the SPA, the Company agreed to transfer to the Seller an aggregate of 1,253,814 shares of its common stock, par value $0.001 per share, and the Seller agreed to transfer to the Company such number of shares which represents 20% of the capital stock of the Target (the “Target’s Shares”, and the transaction contemplated therein, the “Acquisition”).

 

The closing of the Acquisition is subject to various conditions to closing, including, among other things, (a) Nasdaq’s approval of the listing of the Company’s Shares; (b) accuracy of the parties’ representations and warranties at the time of closing.

 

(3) Change of the Number of Board of Directors and Appointment of Directors.

 

Effective October 17, 2019, the Company’s board of directors (the “Board”) increased the number of directors serving on the Board to 7, appointed Ms. Renmei Ouyang as the Chairwoman of the Board and the Chief Operating Officer (the “COO”) of the Company, and appointed Mr. Weicheng Pan as a director of the Company to fill the two vacancies on the Board.

 

31

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

Overview

 

As of September 30, 2019, the Company had one business line, which is the used luxurious car leasing business which began operations in May 2018.

 

Key Factors Affecting Our Results of Operation

 

The car rental and car service industry in China is competitive and fragmented. We expect competition in China’s car rental and car service industry to persist and intensify.

 

We have a limited operating history having just launched the car leasing business in May 2018. We believe our future success depends on our ability to significantly increase revenues as well as maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things,

 

our ability to continue our growth as well as maintain profitability;

 

preservation of our competitive position in the luxurious car leasing and car service industry in China;

 

our ability to implement our strategies and make timely and effective responses to competition and changes in customer preferences; and

 

recruitment, training and retaining of qualified managerial and other personnel.

 

Our business requires a significant amount of capital in large part due to needing to continuously grow our fleet and expand our business in existing markets and to additional markets where we currently do not have operations.

 

The significant increase in the number of vehicles in China, primarily in major cities, and the traffic and pollution resulting from this increase have drawn the attention of both the government and the public. To address this issue, local governments in China have promulgated various policies to limit the increase in the number of vehicles.

 

32

 

 

Results of Operations

 

Three Months Ended September 30, 2019 as Compared to Three Months Ended September 30, 2018

 

   

For the
Three Months Ended
September 30,

    Change  
    2019     2018     Amount     %  
                         
Income from operating lease   $ 564,614     $ 140,856     $ 423,758       301 %
                                 
Operating expenses                                
Operating lease expenses     344,310       -       344,310       100 %
Depreciation expenses on operating lease assets     83,806       35,336       48,470       137 %
Total lease expense     428,116       35,336       392,780       1,112 %
                                 
Selling, general, and administrative expenses     556,430       741,762       (185,332 )     -25 %
Total operating expenses     984,546       777,098       207,448       27 %
                                 
Other income, net                                
Interest income     27,089       2,216       24,873       1,122 %
                                 
Total other income, net     27,089       2,216       24,873       1,122 %
                                 
Net loss from before income taxes     (392,843 )     (634,026 )     241,183       -38 %
                                 
Income tax expenses     -       (991 )     991       -100 %
Net loss   $ (392,843 )   $ (635,017 )   $ 242,174     $ -38 %

 

33

 

 

Income from operating lease

 

The Company commenced its new business of lease services of used luxurious cars in May 2018. From the inception of the business through September 30, 2019, the Company purchased fifteen used luxurious cars for the purpose of operating lease and disposed four of the used luxurious cars. The lease term is generally within one month. The operating lease income is recognized on a straight-line basis over the scheduled lease term.

 

Currently the Company generates operating lease income from used luxurious cars which is either owned by the Company or leased from third party vendors. The Company generated operating lease income of $564,614 for the three months ended September 30, 2019, as compared with operating lease income of $140,856 for the three months ended September 30, 2018. The increase was mainly attributable to increased number of owned used luxurious cars, and diversified lease income generated from both owned cars and leased cars. 

 

Lease expenses

  

Operating lease expenses

 

The operating lease expense was comprised of car related expenses arising from lease of cars. With diversified lease income generated from leased cars which was launched in January 2019, the Company recorded car related expenses of $344,310.

 

Depreciation expenses on operating lease assets

 

The depreciation expenses on operating lease assets increased from $35,336 for the three months ended September 30, 2018 to $83,806 for the three months ended September 30, 2019, representing an increase of $48,470, or 137%. The increase was mainly caused by the Company’s continuous investments in used luxurious cars. As of September 30, 2019, the Company had eleven used luxurious cars, as compared with six cars as of September 30, 2018.

 

Selling, general, and administrative expenses

 

Selling, general, and administrative expenses decreased from $741,762 for the three months ended September 30, 2018 to $556,430 for the three months ended September 30, 2019, representing a decrease of $185,332, or 25%. Operating expenses primarily consisted of salary and employee surcharge, office rental expense, business tax and surcharge, changes in fair value of other noncurrent liabilities, professional service fees, and other office supplies. The decrease was mainly attributable to a decrease of legal and consulting expenses of $188,137, as the Company incurred less financing and investing transactions during the period. 

 

Net loss

 

As a result of the foregoing, net loss for the three months ended September 30, 2019 was $392,843 representing a decrease of $242,174 from net loss of $635,017 for the three months ended September 30, 2018.

 

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Nine Months Ended September 30, 2019 as Compared to Nine Months Ended September 30, 2018

 

    For the
Nine Months Ended
September 30,
    Change  
    2019     2018     Amount     %  
                         
Income from operating lease   $ 1,505,508     $ 237,577     $ 1,267,931       534 %
                                 
Operating expenses                                
Operating lease expenses     877,320       -       877,320       100 %
Depreciation expenses on operating lease assets     185,985       47,794       138,191       289 %
Total lease expense     1,063,305       47,794       1,015,511       2,125 %
                                 
Selling, general, and administrative expenses     3,596,706       1,615,039       1,981,667       123 %
Changes in fair value of noncurrent liabilities     -       166,540       (166,540 )     -100 %
Impairment on an operating lease asset     96,318       -       96,318       100 %
Total operating expenses     4,756,329       1,829,373       2,926,956       160 %
                                 
Other income (expenses), net                                
Interest income (expenses)     (12,173 )     2,531       (14,704 )     -581 %
                                 
Total other (expenses) income, net     (12,173 )     2,531       (14,704 )     -581 %
                                 
Net loss from continuing operations before income taxes     (3,262,994 )     (1,589,265 )     (1,673,729 )     105 %
                                 
Income tax expenses     -       (1,011 )     1,011       -100 %
Net loss from continuing operations   $ (3,262,994 )   $ (1,590,276 )   $ (1,672,718 )   $ 105 %
                                 
Net income from discontinued operations     -       10,072,629       (10,072,629 )     -100 %
                                 
Net (loss) income   $ (3,262,994 )   $ 8,482,353     $ (11,745,347 )   $ -138 %

  

35

 

 

Income from operating lease

 

The Company commenced its new business of lease services of used luxurious cars in May 2018. From the inception of business through September 30, 2019, the Company purchased fifteen used luxurious cars for the purpose of operating lease and disposed four of the used luxurious cars. The lease term is generally within one month. The operating lease income is recognized on a straight-line basis over the scheduled lease term.

 

Currently the Company generates operating lease income from used luxurious cars which is either owned by the Company or leased from third party vendors. The Company generated operating lease income of $1,505,508 for the nine months ended September 30, 2019, as compared with operating lease income of $237,577 for the nine months ended September 30, 2018. The increase was mainly attributable to increased number of owned used luxurious cars, and diversified lease income generated from both owned cars and leased cars.

 

Lease expenses

 

Operating lease expenses

 

The operating lease expense was comprised of car related expenses arising from lease of cars. With diversified lease income generated from leased cars which was launched in January 2019, the Company recorded car related expenses of $877,320 for the nine months ended September 30, 2019.

 

Depreciation expenses on operating lease assets

 

The depreciation expenses on operating lease assets increased from $47,794 for the nine months ended September 30, 2018 to $185,985 for the nine months ended September 30, 2019, representing an increase of $138,191, or 289%. The increase was mainly caused by the Company’s continuous investments in used luxurious cars. As of September 30, 2019, the Company had eleven used luxurious cars, as compared with six cars as of September 30, 2018.

 

Selling, general, and administrative expenses

 

Selling, general, and administrative expenses increased from $1,615,039 for the nine months ended September 30, 2018 to $3,596,706 for the nine months ended September 30, 2019, representing an increase of $1,981,667, or 123%. Operating expenses primarily consisted of salary and employee surcharge, office rental expense, business tax and surcharge, changes in fair value of other noncurrent liabilities, professional service fees, and other office supplies. The increase was mainly attributable to combined effects of an increase of promotion expenses of $144,594, an increase of car-related expenses of $110,113, an increase of legal and consulting expenses of $211,756 as a result of issuance of 502,391 restricted shares as compensation to service providers, and increase in expenses incurred for the registered direct offerings in April and May 2019, consisting of an increase of audit related fees of $180,785, an increase of commission of $100,000 to a third party vendor for referral of underwriters, and other expenses of $337,917. 

 

Net income from discontinued operations

 

During the nine months ended September 30, 2018, the net income was comprised of a net income of $277,756 from discontinued operations of microcredit service and a gain of $9,794,873 from disposal of the discontinued operations of microcredit service. 

 

Net (loss) income

 

As a result of the foregoing, net loss for the nine months ended September 30, 2019 was $3,262,994 representing a change of $11,745,347 from net income of $8,482,353 for the nine months ended September 30, 2018.

 

36

 

 

Cash Flows and Capital Resources

 

We have financed our operations primarily through shareholder contributions, cash flow from operations, and public offerings of securities. On April 11, 2019 and May 20, 2019, the Company raised capital of approximately $3.7 million and $1.5 million through issuance of 1,680,000 and 1,440,000 shares of common stock, respectively. In September 2019, the Company received an advance of subscription fees of $588,000 from private placement investors to whom the Company would issue 1,685,000 shares of common stock.

 

Liquidity

 

In assessing the Company’s liquidity and its ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements and operating expenses obligations.

 

As of September 30, 2019, the Company had cash balance of $1,496,797 and a positive working capital of $471,970. Management estimated the operating expenses obligation for the next twelve months after issuance of the financial statements to be $4.1 million, which will be partially covered by the cash flows of $2.8 million generated from our luxurious car leasing business with our increased investments in luxurious used cars, the collection of $1 million from our investments in financial products, and the collection of $0.5 million from related parties. The Company plans to fund its operations through revenue generated from its operating lease income, private placements, and financial support commitments from the Company’s Chief Executive Officer and shareholders. The Company’s ability to fund these needs will depend on its future performance, which will be subject in part to general economic, competitive and other factors beyond its control. Based on the current operating plan, management believes that the Company will continue as a going concern in the following 12 months. 

  

Statement of Cash Flows

 

The following table sets forth a summary of our cash flows. For the nine months ended September 30, 2019 and 2018, respectively:

 

   

For the
Nine Months Ended
September 30,

 
    2019     2018  
             
Net Cash Used in Operating Activities     (1,983,862 )     (626,558 )
Net Cash Used in by Investing Activities     (5,387,993 )     (4,508,964 )
Net Cash Provided by Financing Activities     7,399,262       4,892,313  
Effect of Exchange Rate Changes on Cash     (14,726 )     (277,787 )
Net Increase (Decrease) in Cash   $ 12,681       (520,996 )

 

Net Cash Used in Operating Activities

 

During the nine ended September 30, 2019, we had a cash outflow from operating activities of $1,983,862, an increase of $1,357,304 from a cash outflow of $626,558 for the nine months ended September 30, 2018. We incurred a net loss for the nine months ended September 30, 2019 of $3,262,994, a change of $11,745,347 from the nine months ended September 30, 2018, during which we generated a net income of $8,482,353. In addition to the change in profitability, the decrease in net cash used in operating activities was the result of several factors, including:

 

A gain on disposal of discontinued operations of $9,794,873 and net cash provided by operating activities from discontinued operations of $1,769,566 for the nine months ended September 30, 2018;

  

An increase in impairment losses on operating lease assets, totaling $96,318 relating to the used luxurious car leasing business launched in May 2018;

  

502,391 restricted shares were issued to service providers as compensation for past services, at a fair value of $884,208; and

 

A decrease in changes of noncurrent liabilities of $1,311,000 as a result of the settlement using shares against legal proceedings.

 

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Net Cash Used in Investing Activities 

 

Net cash used in investing activities for the nine months ended September 30, 2019 was $5,387,993 as compared to net cash used in investing activities of $4,508,964 for the nine months ended September 30, 2018. The cash used in investing activities for the nine months ended September 30, 2019 was for the purchases of used luxurious cars of $2,079,115, investments in investment security and equity investees of $1,084,225, investments in financial products of $1,000,000 and loans disbursed to third parties of $1,540,758.

 

Net cash used in investing activities for the nine months ended September 30, 2018 was mainly for net cash of $1,270,070 used in investing activities from discontinued operation, purchase of used luxurious cars of $1,882,476, and loans disbursed to third parties of $1,473,458.

 

Net Cash Provided by Financing Activities

 

During the nine months ended September 30, 2019, the cash provided by financing activities was mainly attributable to borrowings from third parties of $2,294,781, cash raised in registered direct offerings of $4,653,440, and advance of subscription fees from shareholders.

 

During the nine months ended September 30, 2018, the cash provided by financing activities was mainly attributable to cash raised in a private placement of common stock of $3,265,370, and borrowings from third parties of $1,473,458.

 

Off-balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements as of September 30, 2019.

 

Contractual Obligations

 

As of September 30, 2019, the annual amounts of future minimum payments under certain of our contractual obligations were:

 

    Total     Three Months
Ending December 31,
2019
    Year Ending
December 31,
2020
    Year Ending
December 31,
2021 and
thereafter
 
Contractual obligations:                        
Operating lease (1) (2)   $ 11,683     $ 11,683     $    -           -  
Total   $ 11,683     $ 11,683     $ -     $ -  

  

(1) During the six months ended June 30, 2019, we entered into three additional lease contracts. As of September 30, 2019, we had one rental free office lease agreement with a third party and four office lease agreement with a third parties which expire in September 2020.

 

(2) As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use lease asset. Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess: (a) whether its expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases. As of September 30, 2019, the Company had one lease agreement with a lease term of 24 months from its inception, with lease prepayment of $58,838 and remaining balance due in October 2019. Consequently, ROU assets and lease liabilities shall be recognized on adoption of ASC 842. As of September 30, 2019, the Company recognized ROU assets of $55,283 and operating lease liabilities of nil, respectively.

  

Critical Accounting Policies

 

Please refer to Note 2 of the Consolidated Financial Statements included in this Form 10-Q for details of our critical accounting policies.

 

Recent Accounting Pronouncements

 

Please refer to Note 2(p) of the Consolidated Financial Statements included in Form 10-Q for details of our recently issued accounting standards.

 

38

 

     

PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company is involved in various legal actions arising in the ordinary course of its business.

 

a) 2014 Class Action litigation

 

On August 6, 2014, a purported shareholder Andrew Dennison filed a putative class action complaint in the United States District Court District of New Jersey (the “N.J. district court”) relating to a July 25, 2014 press release about the Company’s progress in recovering a significant portion of the $5.4 million the Company paid in the first quarter of 2014 on behalf of loan guarantee customers. The action, Andrew Dennison v. Bat Group, Inc., et al., Case No. 2:2014-cv-04956, alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Xiangdong Xiao, and John F. Levy violated the federal securities laws by misrepresenting in prior public filings certain material facts about the risks associated with its loan guarantee business. On October 2, 2014, purported shareholders Zhang Yun and Sanjiv Mehrotra (the “Yun Group”) asserted substantially similar claims against the same defendants in a putative class action captioned Zhang Yun v. China Bat Group, Inc., et al., Case No. 2:14-cv-06136 (D. N.J.). Neither complaint states the amount of damages sought.

 

On or about October 6, 2014, Dennison, the Yun Group and another purported shareholder, Jason Stark, filed motions to consolidate the cases, be appointed as lead plaintiff and to have their respective counsel appointed as lead counsel.

 

On October 31, 2014, the N.J. district court entered an order consolidating the cases under the caption “In re China Commercial Credit Inc. Securities Litigation” and appointing the Yun Group as lead plaintiff (“Class Plaintiff”) and the Yun Group’s counsel as lead counsel. On November 18, 2014, the Yun Group and the Company, which at that point was the only defendant served, entered into a stipulation to transfer of the case to the Southern District of New York. On December 18, 2014, Mr. Levy, who had by then been served, joined in the stipulation.

 

On December 29, 2014, the N.J. district court entered an order transferring the action. The transfer was effected on January 22, 2015, and assigned docket number 1:15-cv-00557-ALC (S.D.N.Y.) (the “Securities Class Action”). Under the schedule stipulated by the parties, the Yun Group was to file an amended com plaint within 60 days of the date that the transfer was effected, and the defendants’ date to answer or move was within 60 days of that filing.

 

On April 7, 2015, the Class Plaintiff filed a Second Amended Class Action Complaint (the “CAC”). The CAC also asserts securities law claims against defendants Axiom Capital Management, Inc., Burnham Securities Inc. and ViewTrade Securities, Inc. (collectively, the “Underwriter Defendants”). The CAC alleges that the Company engaged in a fraudulent scheme by engaging in undisclosed and improper lending practices and made misleading representations regarding its underwriting policies, the loan portfolio quality, the loan loss allowance, compliance with U.S. GAAP and its internal control systems. In accordance with the Court’s procedures, the Company and Mr. Levy and the Underwriter Defendants requested a Pre-Motion Conference in anticipation of filing a motion to dismiss the CAC, which was held on June 25, 2015. At the conference, the Court adjourned the date to answer or move in order to provide the Class Plaintiff with time to serve certain overseas defendants. After the conference, the Class Plaintiff voluntarily dismissed Jianming Yin, Jinggen Ling and Xiangdong Xiao from the action, and Long Yi agreed to waive service, which left Huichun Qin as the sole remaining defendant to serve.

 

39

 

 

On November 22, 2016, the Company entered into a Stipulation and Agreement of Settlement (the “Stipulation”) to settle the Securities Class Action. The Stipulation resolved the claims asserted against the Company and certain of its current and former officers and directors in the Securities Class Action without any admission or concession of wrongdoing or liability by the Company or the other defendants. The Stipulation also provides, among other things, a settlement payment by the Company of $245,000 in cash and the issuance of 950,000 shares of its common stock (the “Settlement Shares”) to the plaintiff’s counsel and class members. The terms of the Stipulation were subject to approval by the Court following notice to all class members. The issuance of the Settlement Shares are exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. A fairness hearing was held on May 30, 2017, and the Court approved the settlement.

 

On December 22, 2017, the Court entered a distribution order approving the distribution of the Settlement Stock to the class plaintiffs. The $245,000 cash portion of the settlement has been paid in full. The 712,500 Class Settlement Shares were issued on or about January 19, 2018. The settlement has been finalized, and that thereafter there are no remaining claims outstanding as against the Company with respect to this litigation. On April 10, 2018, the 237,500 of plaintiff attorney fee shares were issued to plaintiff’s attorney’s broker account.

 

Two of the Underwriter Defendants, Axiom Capital Management, Inc., and ViewTrade Securities, Inc., have asserted their respective rights to indemnification under the Underwriting Agreements entered into in connection with the Company’s initial public offering and secondary offering. On or about March 16, 2016, CCCR entered into an Advance Funding and Escrow Agreement (“Advance Funding Agreement”), under which the CCCR agreed to deposit shares into escrow to fund the advancement obligation, with the initial deposit to be 637,592 shares which was valued at Two Hundred Thousand Dollars ($200,000), based upon 80% of the 30 day volume weighted average trading price for each of the 30 consecutive trading days prior to the date of the agreement. As of the completion of the settlement, an aggregate of 527,078 shares are unused in the escrow account and the Underwriter Defendants acknowledged there is no additional payment of fees and expenses owed to the Underwriter Defendants and the Advance Funding Agreement shall be terminated. The Company has instructed the transfer agent to cancel the 527,078 shares and return them to authorized shares. As of the date of this Form 10-Q, the Company is working with its counsel and the escrow agent to complete such cancelation.

 

b) 2015 Derivative action

 

On February 3, 2015, a purported shareholder Kiran Kodali filed a putative shareholder derivative complaint in the United States District Court for the Southern District of New York, captioned Kiran Kodali v. Huichun Qin, et al., Case No. 15-cv-806. The action alleges that the Company and its current and former officers and directors Huichun Qin, Long Yi, Jianming Yin, Jinggen Ling, Chunfang Shen, John F. Levy, Xiaofang Shen and Chunjiang Yu violated their fiduciary duties, grossly mismanaged the Company and were unjustly enriched based upon the transfer that was the subject of the Internal Review and other grounds substantially similar to those asserted in the class action complaints. Kodali did not serve a demand upon the Company and alleges that demand is excused. The Company and Mr. Levy are the only defendants who have been served. An amended derivative complaint was filed on April 20, 2015.

 

40

 

 

On May 29, 2015, the Court “so ordered” a stipulation among Kodali, the Company, and Mr. Levy staying all proceedings in the derivative case, except for service of process on individual defendants, until the earlier of thirty days of termination of the stipulation, dismissal of the class action with prejudice or the date any of the defendants in the class action file an answer to the CAC.

 

The Company intends to vigorously defend against it. At this stage of the proceedings, the Company is not able to estimate the probability of success or loss. The Court ordered GLG to answer or otherwise move with respect to this action on or before November 13, 2017. Thereafter, GLG and Mr. Levy submitted a pre-motion letter to the Court requesting permission to move to dismiss the derivative complaint; submission of this letter stayed the proceedings pending the Court’s review thereof. The Court held a hearing on this pre-motion letter on January 22, 2018, denying permission to file a motion to dismiss the complaint without prejudice and setting forth a schedule under which Kodali must serve the remaining defendants in the derivative litigation. On or about August 22, 2018, our new litigation counsel noticed their appearance in the Action. The parties filed a Joint Status Report on August 22, 2018, advising the Court that the parties continued to have discussions regarding a potential resolution of the matter. The parties have come to a potential agreement regarding a monetary settlement. However, the parties continued to discuss the non-monetary aspects of a potential resolution. On January 18, 2019, the parties to the derivative action entered into a Stipulation of Settlement and Plaintiff filed an Unopposed Motion for Preliminary Approval of Proposed Derivative Settlement (“Motion”). On April 4, 2019, the Court preliminarily approved the Stipulation and settlement set forth therein, including the terms and conditions for settlement and dismissal with prejudice of the Derivative Action, subject to further consideration at the Settlement Hearing to be held on July 11, 2019 at the United States District Court for the Southern District of New York.

 

On July 16, 2019, the Company received a copy of the final order and judgment that the Court entered on July 11, 2019, approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the Derivative Action as to the Company and the Individual Defendants, and the Company agrees to adopt or maintain certain corporate governance reforms for at least three years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Individual Defendants’ insurance carriers to plaintiffs’ counsel. 

 

c) 2017 Class Action

 

The Company and its directors were party to a lawsuit filed on September 1, 2017, by certain a stockholder of the Company on behalf of himself and similarly situated stockholders of the Company GLG in the Chancery Court of the State of Delaware (the “Delaware Chancery Court”) (Case No. 2017-0633-JTL) (the “Action”), Plaintiff stockholders which sought injunctive relief, costs, and attorney’s fees. Plaintiff’s Verified Class Action Complaint (“Complaint”) alleged that the Company’s directors breached their fiduciary duties to the Company’s stockholders by failing to disclose all necessary material information relating to the Company’s entry into an the Exchange Agreement (“Exchange Agreement”) with Sorghum Investment Holdings Limited (“Sorghum”) on August 9, 2017, and preventing the Company’s stockholders from casting a fully informed vote on the Company’s acquisition of Sorghum, and other proposals contained in the Company’s preliminary proxy statement, dated August 14, 2017 (“Preliminary Proxy Statement”).

 

On October 10, 2017, the Company filed Amendment No. 1 to its Preliminary Proxy Statement (the “Amended Preliminary Proxy”) with the U.S. Securities and Exchange Commission (the “Commission”) in response to the Commission’s September 8, 2017 comment letter (“Comment Letter”). After reviewing the Amended Preliminary Proxy, Plaintiff determined that the Company’s Amended Preliminary Proxy rendered the claims asserted in Plaintiff’s Complaint moot and/or otherwise unsuitable for further pursuit. On October 19, 2017, the Company and Plaintiff entered into a stipulation (“Stipulation”) wherein Plaintiff agreed to voluntarily dismiss his claims against the Company, and its directors, with prejudice. The Delaware Chancery Court granted the Stipulation on October 20, 2017, and entered an Order dismissing the Action with prejudice. In accordance with the Order, the Company will advise the Delaware Chancery Court within fifteen (15) days of the earlier of (a) the stockholder vote on the Exchange Agreement relating to the proposals, or (b) the termination of the Exchange Agreement, and whether the parties to the Action have reached an agreement with respect to Plaintiff’s anticipated request for fees and expenses. Currently, no compensation in any form has passed from the Company, or its directors, to Plaintiff or Plaintiff’s attorneys in the Action, and the Company has not made a promise to give any such compensation. On or about November 6, 2017, the Company filed Amendment No. 2 to its Preliminary Proxy Statement with the Commission in further response to the Comment Letter. On December 29, 2017, the Company received notice from Sorghum notifying the Company that the Exchange Agreement is terminated. The Company advised Plaintiff of the termination of the Exchange Agreement on January 9, 2018.

 

41

 

 

d) 2017 Arbitration with Sorghum

 

On December 21, 2017, the Company delivered notice (“Notice”) to Sorghum notifying Sorghum that certain recent actions of Sorghum constituted breaches of Sorghum’s covenants under the Exchange Agreement. Specifically, we believe that Sorghum is in breach of Section 6.9 (a) and Section 6.11 (b) of the Exchange Agreement which required Sorghum to use commercially reasonable efforts and to cooperate fully with the other parties to consummate the transactions contemplated by the Exchange Agreement and to make its directors, officers and employees available in connection with responding in a timely manner to SEC comments. According to the terms of the Exchange Agreement, the Company is entitled to terminate the Exchange Agreement if the breach is not cured within twenty (20) days after the Notice is provided to Sorghum.

 

On January 25, 2018, the Company filed an arbitration demand (“Arbitration Demand”) with the American Arbitration Association (“AAA”) against Sorghum in connection with Sorghum’s breach of the Exchange Agreement. The AAA has forwarded the Company’s Arbitration Demand to Sorghum, and Sorghum’s response to the Arbitration Demand was due on or before February 14, 2018. Sorghum has not provided a written response to the Company’s Arbitration Demand. In accordance with the Commercial Arbitration Rules of the AAA (“Rules”), Sorghum’s failure to respond is deemed as a general denial of the Company’s claims. On April 10, 2018, the AAA initially appointed Barbara Mentz, Esq. (“Arbitrator Mentz”) as arbitrator in accordance with the arbitration clause contained in the Exchange Agreement. On March 28, 2018, the AAA conducted an initial telephonic conference with Arbitrator Barbara Mentz, but neither Sorghum nor its counsel appeared for the call. On March 28, 2018, after the Company’s counsel appeared for the initial telephonic conference, Sorghum and its counsel contacted the AAA claiming that it was not in receipt of the AAA’s correspondence although the AAA forwarded its correspondence to Sorghum’s Chief Executive Officer’s active email. In response, the AAA scheduled another telephonic conference for April 9, 2018. All parties appeared at the April 9, 2018 conference, and approved Arbitrator Mentz’s appointment. On April 11, 2018, pursuant to the Rules, Sorghum filed its answer and counterclaim. The Company filed a written denial to Sorghum’s counterclaim on April 26, 2018. On May 2, 2018, the parties jointly requested an extension of time to file their respective proposals for resolution with the AAA, and Arbitrator Mentz granted the extension. On May 17, 2018, Sorghum requested another extension and Arbitrator Mentz granted the extension. In accordance with Arbitrator Mentz’s Order, the parties’ proposals was due May 31, 2018. On May 30, 2018, due to a delay in receiving additional evidence from a relevant third party, the Company requested an extension of time to file its proposal for resolution, which Arbitrator Mentz granted extending the deadline to June 7, 2018. To provide additional time to allow certain relevant documents to be translated due to the unavailability of the parties’ mutually accepted translator, the Company requested a final extension of time to June 14, 2018, to submit the parties’ proposal for resolution. Arbitrator Mentz granted the Company’s request. On June 14, 2018, the Company submitted its proposal for resolution to the AAA. On July 30, 2018, Arbitrator Mentz entered a reasoned award, accepting the Company’s proposal for resolution, awarding the Company damages of $1,436,521.50 against Sorghum and denying Sorghum’s Counterclaim against the Company in its entirety with prejudice. Sorghum has sought to vacate the arbitration award by filing a petition to vacate the arbitration award in the Supreme Court for the State of New York, New York County. The Court heard the Company and Sorghum’s arguments on May 1, 2019, and entered an order vacating the arbitration award. The Company vigorously opposed and moved to confirm the arbitration award on May 6, 2019. On June 5, 2019, the Company filed a notice of appeal with the New York Supreme Court Appellate Division First Department. The appeal is currently scheduled to be mediated on November 20, 2019.

 

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e) 2018 Court Matter with Shanghai Nonobank Financial Information Service Co. Ltd.

 

On August 2, 2018, the Company became party to an action filed by Shanghai Nonobank Financial Information Service Co. Ltd. (“Plaintiff”) in the Supreme Court for the State of New York, New York County (“NY Supreme Court”) (Index No. 653834/2018) (the “Action”). Plaintiff’s Complaint seeks to recover approximately $3.5 million of Plaintiff’s funds that were allegedly required to be held in escrow in New York pursuant to an agreement by and between Plaintiff, Yang Jie and Yi Lin (the “Complaint”). Plaintiff has alleged that the funds were required to be held in escrow in a New York attorney trust account pending the alleged consummation of a merger between Plaintiff’s parent company and the Company. Plaintiff alleged two causes of action against the Company for fraud/fraudulent inducement and conversion. On August 30, 2018, the Company filed a motion to dismiss Plaintiff’s causes of action against the Company. The Court has scheduled oral arguments on the Company’s motion to dismiss for May 1, 2019.

 

On July 15, 2019, the Company received a copy of the decision and order the Court entered on July 12, 2019, granting the Company’s motion to dismiss the Complaint in its entirety as against the Company without prejudice, with costs and disbursements to the Company as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of the Company. 

 

ITEM 1A. RISK FACTORS

 

As of the date of this Report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 05, 2019.

 

Risks Related to Our Common Stock

 

We can provide no assurance that our Common Stock will continue to meet Nasdaq listing requirements.

 

On June 12, 2019, the Company received a notification letter (the “Notification”) from the Nasdaq Listing Qualifications Staff of The NASDAQ Stock Market LLC (“Nasdaq”) notifying the Company that did not meet the following requirements: (i) because the exercise price for the warrants issued on April 11, 2019 had been reduced from $2.20 to $1.32 on May 20, 2019 (the “Replacement Warrants”), below the minimum price requirements set forth in Nasdaq Listing Rule 5635(d)(1), the Company was required to obtain shareholder approval as set forth in Nasdaq Listing Rule 5635(d)(2); (ii) Staff has determined to aggregate the offering pursuant to the Securities Purchase Agreement dated April 11, 2019 and the offering pursuant to the Securities Purchase Agreement dated May 20, 2019 for purposes of the Nasdaq’s shareholder approval rules; and (iii) the Company was also required to submit a Listing of Additional Shares Notification Form as set forth in Nasdaq Listing Rule 5250(e)(2)(D) 15 days prior to issuing any common stock, or any security convertible into common stock in a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis.

 

On August 30, 2019, the Company and the Purchasers entered into an amendment and exchange agreement (the “Exchange Agreement”), pursuant to which the Company issued to the Purchasers exchange warrants (the “Exchange Warrants”) to purchase up to 1,680,000 shares of Common Stock with an exercise price of $2.20 in exchange for the cancellation and termination of the Replacement Warrants.

 

On September 16, 2019, the Company received a written notification from the NASDAQ Stock Market Listing Qualifications Staff (the “Staff”) indicating that the Company has regained compliance with the shareholder approval requirements set forth in Listing Rule 5635(d) and the Listing of Additional Shares notification requirements under Listing Rule 5250(e)(2)(D) for continued listing on the NASDAQ Capital Market based on the Staff’s review of the Company’s submitted materials.

 

In addition, on July 3, 2019, the Company received a notification letter from Nasdaq notifying the Company that the minimum bid price per share for its common shares has been below $1.00 for a period of 30 consecutive business days and the Company therefore no longer meets the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2).

 

The notification received has no immediate effect on the listing of the Company’s common stock on Nasdaq. Under the Nasdaq Listing Rules, the Company has until December 30, 2019 to regain compliance. If at any time during such 180-day period the closing bid price of the Company’s common shares is at least $1 for a minimum of 10 consecutive business days, Nasdaq will provide the Company written confirmation of compliance.

 

43

 

 

If the Company does not regain compliance during such 180-day period, the Company may be eligible for an additional 180 calendar days, provided that the Company meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq except for Nasdaq Listing Rule 5550(a)(2), and provide a written notice of its intention to cure this deficiency during the second compliance period, by effecting a reverse stock split, if necessary.

 

If we are unable to meet these requirements, our Common Stock could be delisted from Nasdaq. If our Common Stock were to be delisted from Nasdaq, our Common Stock could continue to trade on the OTCQB or similar marketplace following any delisting from Nasdaq. Any such delisting of our Common Stock could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, it could have an adverse effect on our ability to raise capital in the public or private equity markets. Any of these changes could cause the value of our shareholders’ investments to decline.

  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On April 11, 2019, the Company and certain institutional investors (the “Purchasers”) entered into a securities purchase agreement (the “April Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 1,680,000 shares of common stock (the “Common Stock”) in a registered direct offering and warrants to purchase up to approximately 1,680,000 shares of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $3.7 million (the “April Financing”). The offering of the warrants were made pursuant to an exemption from the registration requirements of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D promulgated thereunder. The warrants will be exercisable immediately following the date of issuance and have an exercise price of $2.20. The warrants will expire 5 years from the earlier of the date on which the shares of Common Stock issuable upon exercise of the warrants may be sold pursuant to an effective registration statement or may be exercised on a cashless basis and be immediately sold pursuant to Rule 144. The purchase price for each share of Common Stock and the corresponding warrant is $2.20. Each warrant is subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants contain a mandatory exercise right for the Company to force exercise of the warrants if the Company’s common stock trades at or above $6.60 for 20 consecutive trading days provided, among other things, that the shares issuable upon exercise of the warrants are registered or could be sold pursuant to Rule 144 and the daily trading volume exceeds 200,000 shares per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.

 

The Company entered into a letter agreement dated February 25, 2019 with Maxim Group LLC, as exclusive placement agent (the “Placement Agent”), pursuant to which the Placement Agent agreed to act as the sole lead/exclusive placement agent in connection with the April Financing. The Company agreed to pay the Placement Agent an aggregate fee equal to 7% of the gross proceeds raised in the April Financing. The Company also agreed to reimburse the Placement Agent for certain expenses, including for fees and expenses related to legal expenses limited to $90,000.

 

The Company intends to use the net proceeds from the April Financing for working capital and general corporate purposes. The April Financing closed on April 15, 2019, subject to satisfaction of customary closing conditions.

 

On May 20, 2019, the Company and the Purchasers entered into a second securities purchase agreement (the “May Purchase Agreement”), pursuant to which the Company agreed to sell to such investors an aggregate of 1,440,000 shares of Common Stock in a registered direct offering and warrants to purchase up to approximately 1,080,000 shares of the Company’s Common Stock in a concurrent private placement, for gross proceeds of approximately $1.5 million (the “May Financing”). The offering of the warrants were made pursuant to an exemption from the registration requirements of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D promulgated thereunder. The warrants will be exercisable after 6 months of the date of issuance and have an exercise price of $1.32. The warrants will expire 5.5 years from the date of issuance. The purchase price for each share of Common Stock and the corresponding warrant is $1.05. Each warrant is subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions, but not as a result of future securities offerings at lower prices. The warrants contain a mandatory exercise right for the Company to force exercise of the warrants if the Company’s common stock trades at or above $3.96 for 20 consecutive trading days provided, among other things, that the shares issuable upon exercise of the warrants are registered or could be sold pursuant to Rule 144 and the daily trading volume exceeds 200,000 shares per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date. In addition, the Company agreed to reduce the exercise of the warrants issued on April 15, 2019 from $2.20 to $1.32.

 

44

 

 

The Company entered into another letter agreement dated May 17, 2019 with the Placement Agent, pursuant to which the Placement Agent agreed to act as the sole lead/exclusive placement agent in connection with the May Financing. The Company agreed to pay the Placement Agent an aggregate fee equal to 7% of the gross proceeds raised in the May Financing. The Company also agreed to reimburse the Placement Agent for certain expenses, including for fees and expenses related to legal expenses limited to $20,000.

 

The Company intends to use the net proceeds from the May Financing for working capital and general corporate purposes. The May Financing closed on May 22, 2019, subject to satisfaction of customary closing conditions.

 

On August 30, 2019, the Company and the Purchasers entered into the Exchange Agreement, pursuant to which the Company issued to the Purchasers the Exchange Warrants to purchase up to 1,680,000 shares of Common Stock with an exercise price of $2.20 in exchange for the cancellation and termination of the Replacement Warrants.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None. 

  

ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
3.1*   Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the draft registration statement on Form DRS filed on February 14, 2013)
3.2*   Bylaws of Registrant (incorporated by reference to Exhibit 3.2 of the draft registration statement on Form DRS filed on February 14, 2013)
3.3*   Certificate of Amendment of the Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.5 of the registration statement on Form S-1/A filed on July 16, 2013)
3.4*   Certificate of Amendment to the Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on January 16, 2019)
4.1*   Form of Exchange Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on September 3, 2019)
10.1*   Form of Exchange Agreement dated August 30, 2019, among Bat Group, Inc. and certain institutional investors (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 3, 2019)
31.1**   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2**   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1**   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Previously filed
** Filed herewith

   

45

 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BAT GROUP, INC.  
     
Date: November 14, 2019 By: /s/ Jiaxi Gao
  Name: Jiaxi Gao
  Title:

Chief Executive Officer

(Principal Executive Officer)

     
  By: /s/ Yang An
  Name:   Yang An
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 

46

 

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