8.01. Other Events
disclosed in Bat Group, Inc.’s (the “Company”) Current Report on Form 8-K on November 26, 2019, the Company
has entered into a set of VIE agreements with Huamucheng and certain shareholders of Huamucheng. The Company plans to conduct
commodities trading business via Huamucheng.
Company currently conducts a used luxurious car leasing business under the brand name “Batcar” through the Company’s
VIE, Beijing Tianxing Kunlun Technology Co. Ltd., operating in the cities of Beijing, Tianjin, Chengdu, and the Hebei province
in China, providing business professionals, luxury car enthusiasts and other customers with luxury car rental services. As of
January 22, 2020, the Company also conducts a commodities trading business via its other VIE, Huamucheng, which is further detailed
and Reason for entering into the Commodity Trading Business
the fiscal year ended December 31, 2018, the Company generated US$0.49 million as income from operating leases. Although the income
from operating leases for the first three quarters of 2019 had grown to US$1.5 million, the Company still incurred a net loss
from continuing operations of US$3.26 million, which was more than twice the amount of income from operating leases. Total assets
of the Company for the nine months ended September 30, 2019 were US$8.3 million as compared to total assets of US$3.2 million
for the twelve months ended December 31, 2018. The Company owned a total of 11 luxurious cars for the nine months ended September
30, 2019 as compared to a total of 6 luxurious cars for the twelve months ended December 31, 2018. Total stockholders’ equity
of the Company for the nine months ended September 30, 2019 was US$5.0 million as compared to total stockholders’ equity
of US$2.8 million for the twelve months ended December 31, 2018. Despite the rapid growth in total assets and stockholders’
equity attributed to the Company’s investment of resources into the development of the luxury car leasing business during
the first three quarters of 2019, the continuous net loss incurred may negatively affect the Company’s ability to satisfy
Nasdaq’s Continued Listing Requirements. As of September 30, 2019, the only new city that the company successfully expanded
its operations into in 2019 was Chengdu. The Company has attempted to operate its luxurious car leasing business in Shanghai and
Wuhan, but did not achieve ideal results. The foregoing factors indicate that it will be difficult to grow the luxurious car leasing
business further in the near future.
to management’s dissatisfaction with the performance of the used luxuries car leasing business, it started to seek other
business opportunities and/or acquisition targets in August 2019.
to China’s rapid development and urbanization over the past 30 years, it has created one of the world largest infrastructure
market. All of the ongoing and upcoming construction, renovations, and improvements to infrastructure will directly drive the
demand for steel, iron, and other commodities, thus promoting the development of the commodities trading market. Moreover, China
has implemented the Belt and Road Initiative (the “BRI”) in 2013, a global development strategy involving infrastructure
development and investments in 152 countries and international organizations in Asia, Europe, Africa, the Middle East, and the
Americas. The BRI has provided China with a platform to establish and participate in international commodities trading and resource
allocations. In addition, the implementation of the BRI requires a lot of construction metal and industrial raw materials which
provides a very good market and opportunity for developing commodity trade in energy products, basic industrial raw materials
and bulk agricultural products.
turnover of China’s commodity market has shown a rapid upward trend, and the management believes that entering into the commodity
trading business will bolster the Company’s income and increase shareholder value.
new Chief Executive Officer (“CEO”) and Chairwoman of the Board, Ms. Renmei Ouyang, has accumulated substantial
industry expertise through years of experience in the commodities trading industry. Ms. Ouyang was initially introduced to our
former Chief Executive Officer, Mr. Jiaxi Gao, as an ideal candidate to provide expert guidance for the Company in its entry into
the commodities trading industry. The Company hired Ms. Ouyang as its Chief Operating Officer and Chairwoman of the Board on October
17, 2019, and later repositioned her as the new CEO on January 9, 2020. We believe that with the leadership, expertise and experience
of Ms. Ouyang in the industry combined with our background as a Nasdaq listed company, we will experience rapid growth and achieve
a leading position in the industry.
of the Planned Commodity Trading Business
commodities trading refers to the trading of materials used in industrial and agricultural production that are continuously purchased
in bulk, and are unable to be purchased from the retail sector. Commodities belong at the upstream stage of production processes
of various industrial chains, and the supply and demand conditions of commodities can cause price fluctuations and affect the
development of these industrial chains.
can be divided into four categories, metals, energy, livestock and meat, and agricultural. Metal commodities include gold, silver,
platinum, and copper. Energy commodities include crude oil, heating oil, natural gas, and gasoline. Livestock and meat include
lean hogs, pork bellies, live cattle, and feeder cattle. Agricultural commodities include corn, soybeans, wheat rice, cocoa, coffee,
cotton, and sugar.
recent years, although the growth rate of China’s total commodity sales has slowed down, the aggregate sales are still impressive
and exceed RMB100 billion. Prior to 2013, the growth rate of commodity trading was the highest at nearly 12% per year. From 2014
to 2016, as the national economic operations stabilized, the growth rate slowed down to approximately 8%, and slowed down further
to 5.3% and 4.6% in 2017 and 2018, respectively. However at the same time, China’s commodity market turnover has increased
from RMB25.89 trillion in 2009 to RMB60.28 trillion yuan in 2018. Calculating the size of China’s commodity market based
on its market turnover shows that it is a multi-trillion dollar industry.
Company’s planned commodities trading operations via Huamucheng will be focused on non-ferrous metal commodities such as
aluminum, copper, silver, and gold. We strive to become an emerging platform in the non-ferrous metal e-commerce industry by offering
all participants in the non-ferrous metal e-commerce industry a seamless, one-stop transaction experience.
connection with the Company’s entry into the commodities trading industry, we hired Mr. Menglin Li to serve as the Client
Relationship Manager in the Company’s Marketing Department. Mr. Li has more than 20 years of commodity trading industry
experience and has a wide pool of customer relationship resources in the industry. He will be primarily responsible to manage
the Company’s interaction with current and potential customers, specifically focusing on customer retention and driving
have also hired Mr. Shican Huang to serve as the Product Manager in the Company’s Product Department. Mr. Huang has more
than 10 years of industry experience and will be mainly responsible for the forecasting and analysis of commodity prices, specifically
focusing on making forecasts of commodity price trends.
plan to source bulk commodity from non-ferrous metal mines or its designated distributors and sell to manufactures who need these
metal in large quantity. We plan to work with many upstream suppliers in the sourcing of commodities. Suppliers we intend to source
from include various metal and mineral suppliers such as Kunsteel Group, Baosteel Group, Aluminum Corporate of China Limited,
Yunnan Benyuan, Yunnan Tin, and Shanghai Copper. Potential customers include large infrastructure companies such as China National
Electricity, Datang Power, China Aluminum Foshan International Trade, Tooke Investment (China), CSSC International Trade Co.,
Ltd., Shenye Group, and Keliyuan.
Company has entered into a Warehousing Agreement with Foshan Nanchu to designate it as the Company’s warehouse. The Company’s
criteria for choosing its warehouse is based primarily on the convenience of its location for transportation, which is highly
conducive to the transportation of non-ferrous metal commodities, and secondarily based on its storage price.
inventory management procedure will involve (1) an Application for Storage, (2) Storage of the Commodities, (3) an Application
for Shipment, and (4) Shipment of Commodities, which are further described below.
upstream suppliers apply for storage with the Company’s leased warehouse center
upon the sale of commodities to the Company. The application requires information including
the commodities’ production company, brand, specifications, weight, quantity, and
of the Commodities
the arrival of the commodities at the warehouse, the warehouse checks and accepts the
commodities according to the delivery instructions provided by the transportation company,
ensuring that the delivery instructions, storage application, and the delivered commodities
are all consistent.
acceptance, the warehouse scans and places the commodities into sorted storage. The warehouse
then issues a certificate of inspection, which includes information such as the brand
name, specifications, weight, quantity, packaging information, arrival time, storage
location and other information of the received commodities. The certificate of inspection
is then signed and stamped by the delivery driver, the warehouse manager, and the warehouse.
Four copies of the certificate of inspection are made, two of which are provided to the
transportation company and the supplier.
downstream customers apply for shipment with the warehouse upon the purchase of Commodities
from the Company. The application requires information including the production company,
brand, specifications, weight, quantity, delivery time, and storage location number.
downstream customers also fill in a delivery entrustment letter, including the name of
the delivery company, the name of the delivery person, his or her ID number, the delivery
vehicle’s license plate number, the time, quantity, and information regarding the
warehouse for delivery.
warehouse prepares the commodities in advance according to the pick-up time and the Application
arrival of the pick-up driver at the warehouse, the Company reviews the identity of the
pick-up driver according to the delivery entrustment letter.
Upon completing the loading of the commodities for shipment, the warehouse issues a certificate of sale, which includes information
such as the brand name, specifications, weight, quantity, delivery time, and storage location number. The pick-up driver, warehouse
manager, and the warehouse signs and stamps the certificate of sale. Four copies of the certificate of sale are made, two of which
are provided to the transportation company and the customer.
intend to use a prepaid unified purchase and distribution model (“Prepaid Model”) in our business, which is
further detailed below.
the Prepaid Model, we will make advance prepayments between 1 – 3 months in advance when purchasing from the Company’s
upstream suppliers. The process involves first obtaining purchase orders from one or more downstream purchasers and entering into
sales agreements with such purchasers. After the Company receives the down payment from the downstream purchasers, it aggregates
the total amount of commodities required to fulfill the orders and enters into purchase agreements with upstream suppliers to
fulfill its purchase orders. Once the upstream suppliers have received the prepayment from the Company, they produce and deliver
the commodities to the Company’s designated warehouse on the purchase agreement. Upon receipt of the commodities in the
designated warehouse, the Company is notified by the warehouse and obtains the full payment from the downstream purchasers. After
the Company pays its remaining balance to the upstream suppliers, it issues delivery instructions to the designated warehouse
on the sales agreement and has the commodities delivered to the downstream purchasers.
the Prepaid Model, which is further illustrated below, the Company expects to be able to maintain a stable distribution volume
and thereby generate profit margins via purchase discounts from upstream suppliers and mark-up pricing to downstream customers.
Company will mainly compete against other large domestic commodity trade service providers such as Xiamen International Trade
and Yijian Shares. Currently, the principal competitive factors in the non-ferrous metals commodities trading business are price,
product availability, quantity, service, and financing terms for purchases and sales of commodities. In addition, we also believe
that that our customers will choose among service providers on the basis of industry and service leadership.
believe we have obtained all material approvals, permits, licenses and certificates required for our planned commodity trading
operations, including registrations from the local police department authorizing the purchase of raw materials.
Factors Related to the Planned Commodity Trading Business
is no assurance that we will be able to manage the luxurious car leasing and commodities trading business effectively.
the commodities trading business is a significant challenge and there is no assurance that we will be able to manage the integration
successfully. If we are unable to efficiently integrate these businesses, the attention of our management could be diverted from
our existing operations and the ability of the management teams at these business units to meet operational and financial expectations
could be adversely impacted, which could impair our ability to execute our business plans. Failure to successfully integrate the
new commodities trading business or to realize the expected benefits of entry into the business may have an adverse impact on
our results of operations and financial condition.
in our new line of business could disrupt the Company’s ongoing business and present risks not originally contemplated.
plan to deploy significant amount of proceeds from financing in its new commodities business line, Huamucheng. New ventures are
inherently risky and may not be successful. In evaluating such endeavors, we are required to make difficult judgments regarding
the value of business strategies, opportunities, technologies and other assets, and the risks and cost of potential liabilities.
Furthermore, these investments involve certain other risks and uncertainties, including the risks involved with entering new competitive
categories or regions, the difficulty in integrating the new business, the challenges in achieving strategic objectives and other
benefits expected from our investment, the diversion of our attention and resources from our operations and other initiatives,
the potential impairment of acquired assets and liabilities and the performance of underlying products, capabilities or technologies.
may not be able to ensure the successful implementation of our strategy to diversify our businesses.
are expanding our business from the luxurious car leasing business to enter into the commodities trading business. Such initiatives
involve various risks including but not limited to the investment costs in establishing a distribution network within the PRC,
leasing warehouses, offices and other working capital requirements. There is no assurance that such future plans can be successfully
implemented as the successful execution of such future plans will depend on several factors, some of which are not within our
control, such as retaining and recruiting qualified and skilled staff, and the continued demand for our products by our customers.
Failure to implement any part of our future plans or executing such plan costs effectively, may lead to a material adverse change
in our operating environment or affect our ability to respond to market or industry changes, which may, in turn, adversely affect
our business and financial results.
expect that we will require additional debt and equity capital to pursue our business objectives and respond to business opportunities,
challenges and/or unforeseen circumstances. If such capital is not available to us, or is not available on favorable terms, our
business, operating results and financial condition may be harmed.
expect that we will require additional capital to pursue our business objectives and respond to business opportunities, challenges
and/or unforeseen circumstances, including to increase our marketing expenditures in order to improve our brand awareness, build
our non-ferrous metal inventory, develop new customers, enhance our operating infrastructure and acquire complementary technologies.
Accordingly, we may need to engage in equity, debt or other types of financings to secure additional funds. Additional funds may
not be available when we need them on terms that are acceptable to us, or at all. In addition, any debt financing that we secure
in the future could involve restrictive covenants which may make it more difficult for us to obtain additional capital and to
pursue business opportunities.
in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds through
further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and privileges superior to those of our Common Stock. If we are
unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue
our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly
limited, and our business, operating results, financial condition and prospects could be adversely affected.
success depends substantially upon the continued retention of our senior management.
future success is substantially dependent on the continued service of certain members of our senior management, including Ms.
Renmei Ouyang, our Chairwoman and Chief Executive Officer, and Qun Xie, our Chief Strategy Officer. These officers play an integral
role in determining our strategic direction and for executing our growth strategy and are important to our brand and culture.
The loss of the services of any of these executives without qualified replacement could have a material adverse effect on our
business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition,
any such departure could be viewed negatively by investors and analysts, which could cause the price of our ordinary shares to
business depends on adequate supply and availability of nonferrous metal commodities.
planned business requires nonferrous metal commodities that are sourced from third-party suppliers. We are affected by industry
supply conditions, which generally involve risks beyond our control, including costs of these materials, transportation costs
and market demand. As a result, we may not be able to obtain an adequate supply of quality nonferrous metal commodities in a timely
or cost-effective manner, which would have a material adverse effect on our business, financial condition and results of operations.
operate in a business that is cyclical and where demand can be volatile, which could have a material adverse effect on our business,
financial condition or results of operations.
operate in a business that is cyclical and where demand can be volatile, which could have a material adverse effect on our results
of operations and financial condition. The timing and magnitude of the cycles in the business in which we operate are difficult
to predict. Purchase prices for the raw materials we purchase, and selling prices for our products are volatile and beyond our
control. While we attempt to respond to changing raw material costs through adjustments to the sales price of our products, our
ability to do so is limited by competitive and other market factors. A significant reduction in selling prices for our products
may have a material adverse effect on our business, financial condition and results of operations, and adversely impact our ability
to recover purchase costs from end customers. A decline in market prices for our products between the date of the sales order
and shipment of the product may impact the customer’s ability to obtain letters of credit to cover the full sales amount.
A decline in selling prices for our products coupled with customers failing to meet their contractual obligations may also result
in a net realizable value adjustment to the average cost of inventory to reflect the lower of cost or fair market value. Additionally,
changing prices could potentially impact the volume of raw materials available to us, the volume of ore and processed metal sold
by us and inventory levels. The cyclical nature of our businesses tends to reflect and be amplified by changes in general economic
conditions, both domestically and internationally. For example, the automobile and construction industries typically experience
cutbacks in production, resulting in decreased demand for steel, copper and aluminum. This can lead to significant decreases in
demand and pricing for our metal ore and recycled metal.
to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
are subject to the United States Foreign Corrupt Practices Act, or FCPA, which generally prohibits United States companies from
engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. We have
implemented these policies through our Code of Conduct. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices
occur from time-to-time in China. While we make every effort to comply with FCPA and our company Code of Conduct, we can make
no assurance that our employees or other agents will not engage in such conduct for which we might be held responsible. If our
employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that will likely have a material adverse effect on our business, financial condition and results of operations.