BAT GROUP, INC. : Entry into a Material Definitive Agreement, Other Events, Financial Statements and Exhibits (form 8-K)

Item 1.01. Entry into a Material Definitive Agreement.

Private Placement of Common Stock

On January 22, 2020, the Company entered into certain securities purchase agreement (the "SPA") with certain "non-U.S. Persons" (the "Purchasers") as defined in Regulation S of the Securities Act of 1933, as amended (the "Securities Act") pursuant to which the Company agreed to sell an aggregate of 15,000,000 shares (the "Shares") of Common Stock, at a per share purchase price of $0.90. The net proceeds to the Company from the transaction contemplated in the SPA will be approximately $13,500,000.

The parties to the SPAs have each made customary representations, warranties and covenants, including, among other things, (a) the Purchasers are "non-U.S. Persons" as defined in Regulation S and are acquiring the Shares for the purpose of investment, (b) the absence of any undisclosed material adverse effects, and (c) the absence of legal proceedings that affect the completion of the transaction contemplated by the SPA.

The SPA is subject to various conditions to closing, including, among other things, (a) Nasdaq's approval of the listing of the Shares (b) stockholders' approval of the issuance of the Shares as required under Nasdaq Rule 5635(d), and (c) the accuracy of the Purchasers' and the Company's representations and warranties.

The net proceeds of the Offering shall be used by the Company in connection with the Company's planned commodities trading business, general corporate purposes or other purpose as approved by the board of directors (the "Board") of the Company.

The form of the SPA is filed as Exhibit 10.1 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief description of the material terms of the SPA, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.

Private Placement of Convertible Note and Warrant

On January 22, 2020, the Company entered into certain securities purchase agreement (the "Note SPA") with certain "non-U.S. Persons" (the "Holders") as defined in Regulation S of the Securities Act pursuant to which the Company agreed to sell unsecured senior convertible promissory notes in the aggregate principal amount of $30,000,000 (the "Notes") accompanied by warrants (the "Warrants") to purchase 100% shares of Common Stock issuable upon conversion of the Notes at an exercise price of $1.80.

The Notes have a maturity date of 12 months with an interest rate of 7.5% per annum. Holders have the right to convert all or any part of the Notes into shares of Common Stock at a conversion price of $1.50 per share 30 days after its date of issuance (the "Conversion Shares"). The Company retains the right to prepay the Note at any time prior to conversion with an amount in cash equal to 107.5% of the principal that the Company elects to prepay.

The Warrants will be exercisable immediately upon the date of issuance at the exercise price of $1.80 for cash (the "Warrant Shares"). The Warrants may also be exercised cashlessly if at any time after the six-month anniversary of the issuance date, there is no effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares, exercised, The Warrants will expire five years from its date of issuance. The Warrants are subject to anti-dilution provisions to reflect stock dividends and splits or other similar transactions. 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 $3.00 for 20 consecutive trading days, provided, among other things, that the shares issuable upon exercise of the are registered or may be sold pursuant to Rule 144 and the daily trading volume exceeds 300,000 shares of Common stock per trading day on each trading day in a period of 20 consecutive trading days prior to the applicable date.

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The parties to the Note SPA have each made customary representations, warranties and covenants, including, among other things, (a) the Purchasers are "non-U.S. Persons" as defined in Regulation S and are acquiring the Shares for the purpose of investment, (b) the absence of any undisclosed material adverse effects, and (c) the Company's ability to issue to securities in accordance with the terms of the Note SPA without conflicting with or breaching any incorporation documents, material agreements, laws, rules, or regulations.

The Note SPA is subject to various conditions to closing, including, among other things, (a) Nasdaq's approval of the listing of the Conversion Shares and Warrant Shares (b) stockholders' approval of the issuance of the Notes and the Warrants as required under Nasdaq Rule 5635(d), and (c) the accuracy of the Purchasers' and the Company's representations and warranties.

The form of the Note SPA is filed as Exhibit 10.2 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief description of the material terms of the Note SPA, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.

Agreements related to the Commodities Trading Business

Warehousing Agreement

On January 22, 2020, Shenzhen Huamucheng Trading Co., Ltd. ("Huamucheng"), the Company's variable interest entity ("VIE") has entered into certain warehousing agreement (the "Warehousing Agreement") with Foshan Nanchu Storage Management Co., Ltd. ("Foshan Nanchu") pursuant to which Huamucheng designated Foshan Nanchu as its warehouse for the storage of its commodities.

Pursuant to the Warehousing Agreement, Huamucheng and Foshan Nanchu agreed to various customary representations, warranties and covenants, including, among other things, (1) details regarding the procedures for the storage and retrieval of the commodities, (2) storage and penalty fees, and (3) negotiation and litigation in the event of any breach of contract.

An unofficial English translation of the Warehousing Agreement is filed as Exhibit 10.3 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief description of the material terms of the Warehousing Agreement and does not purport to be a complete description of the rights and obligation of the parties thereunder and is qualified in its entirety by reference to such exhibit.

Purchase Agreement

On January 22, 2020, the Company has entered into certain purchase agreement (the "Purchase Agreement") with Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. ("Shenzhen Qianhai"), pursuant to which the Company purchased approximately 55 tons of aluminum ingots at a price of RMB14195 per ton.

Pursuant to the terms of the Purchase Agreement, the Company and Shenzhen Qianhai agreed to various customary representations, warranties and covenants, including, among other things, (1) the type, quantity, and price of the aluminum ingots, (2) the quality of the aluminum ingots meet the national standards, (3) the delivery method and period, and (4) the standards and deadlines for the acceptance of the aluminum ingots.

An unofficial English translation of the Purchase Agreement is filed as Exhibit 10.4 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief description of the material terms of the Purchase Agreement and does not purport to be a complete description of the rights and obligation of the parties thereunder and is qualified in its entirety by reference to such exhibit.

Sales Agreement

On January 22, 2020, the Company entered into a sales agreement (the "Sales Agreement") with Yunfeihu Cross-border E-commerce Co., Ltd. ("Yunfeihu"), pursuant to which the Company sold all of the aluminum ingots purchased from Shenzhen Qianhai at a price RMB14230 per ton.

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Pursuant to the terms of the Sales Agreement, the Company and Yunfeihu agreed to various customary representations, warranties and covenants, including, among other things, (1) the type, quantity, and price of the aluminum ingots, (2) the quality of the aluminum ingots meet the national standards, (3) the delivery method and period, and (4) the standards and deadlines for the acceptance of the aluminum ingots.

An unofficial English translation of the Sales Agreement is filed as Exhibit 10.5 to this Current Report on Form 8-K and such document is incorporated herein by reference. The foregoing is only a brief description of the material terms of the Sales Agreement and does not purport to be a complete description of the rights and obligation of the parties thereunder and is qualified in its entirety by reference to such exhibit.

Item 8.01. Other Events

As 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.

The 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 below.

Background and Reason for entering into the Commodity Trading Business

For 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.

Due 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.

Due 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.

The 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.

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Our 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.

Description of the Planned Commodity Trading Business

Industry Overview

Bulk 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.

Commodities 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.

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In 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.

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Business Overview

The 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.

In 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 sales growth.

We 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.

Business Model

We 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.

The 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.

Our 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.

 1) Application for Storage

o The 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 storage time.

2) Storage of the Commodities

o Upon 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.

o Upon 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 . . .

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.



Exhibit
Number                                  Description

10.1        Form of SPA
10.2        Form of Note SPA
10.3        Unofficial Translation of Warehousing Agreement, dated January 22,
          2020, by and between Huamucheng and Foshan Nanchu Storage Management
          Co., Ltd.
10.4        Unofficial Translation of Purchase Agreement, dated January 22, 2020,
          by and between Huamucheng and Shenzhen Qianhai Baiyu Supply Chain Co.,
          Ltd.
10.5        Unofficial Translation of Sales Agreement, dated January 22, 2020, by
          and between Huamucheng and Yunfeihu Cross-border E-commerce Co., Ltd.




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