BAIYU Holdings Stock

BAIYU Holdings, Inc. engages in the commodity trading business and supply chain service business in the People’s Republic of China (PRC or China).

Commodities Trading Business

The Commodities Trading Business primarily involves purchasing non-ferrous metal products, such as aluminum ingots, copper, silver, and gold, from upstream metal and mineral suppliers and then selling to downstream customers. In connection with the company’s commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers to sell their metal products, the company launched its Supply Chain Service Business in December 2019. The company primarily generates revenues from bulk non-ferrous commodity products, and from providing related supply chain management services in the PRC.

In order to diversify the company’s business, the company has operated the Commodities Trading Business through Shenzhen Huamucheng Trading Co., Ltd. (Huamucheng) since November 2019, which was renamed Shenzhen Baiyu Jucheng Data Technology Co., Ltd. (Shenzhen Baiyu Jucheng) in 2021.

Through Shenzhen Baiyu Jucheng’s business, the company sources bulk commodity products from non-ferrous metals and mines or its designated distributors and then sell to manufacturers who need these metals in large quantities. The company also works with upstream suppliers in the sourcing of commodities.

Through Shenzhen Qianhai Baiyu Supply Chain Co., Ltd. (Qianhai Baiyu), the company’s wholly-owned subsidiary incorporated in China, it provides supply chain management services to its customers. On October 26, 2020, Shenzhen Baiyu Jucheng entered into certain share purchase agreements to acquire 100% shares of Qianhai Baiyu. Qianhai Baiyu is engaged in the supply chain service business and covers a full range of commodities, including non-ferrous metals, ferrous metals, coal, metallurgical raw materials, soybean oils, oils, rubber, wood and various other types of commodities. It also has a supply chain infrastructure, which includes processing, logistics, warehousing and terminals. Utilizing its customer base, industry experience, and expertise in the commodity trading industry, Qianhai Baiyu serves as a one-stop commodity supply chain service and digital intelligence supply chain platform integrating upstream and downstream enterprises, warehouses, logistics, information, and futures trading.

The acquisition of Qianhai Baiyu has laid a solid foundation for the Ccompany to further expand its operations in the commodity supply chain field. The company plans to strengthen and upgrade its supply chain services platform by introducing a systematic quantitative risk control system, which will be based on the Qianhai Baiyu’s massive historical market data and complex data analysis models. The platform is expected to establish a quantitative risk management system utilizing ETL data integration (Extract, Transform, Load) as its core, and then optimize trading portfolios by incorporating various factors and strategies in order to effectively control risks and sustain business development.

Business

As of December 31, 2022, the company had two business lines, the commodities trading business and supply chain management services.

Commodities Trading Business

The company’s commodities trading operations via Shenzhen Baiyu Jucheng are focused on non-ferrous metal commodities, such as aluminum, copper, silver, and gold. The company strives 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.

Business Model

The company sources bulk commodities from non-ferrous metal mines or its designated distributors and sell them to manufacturers who need these metals in large quantities. The company works with many suppliers in the sourcing of commodities, including 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 lease agreement with Shanghai Quansheng Logistics Co., Ltd (Shanghai Quansheng) to designate it as the company’s warehouse in Shanghai. The company’s criteria for choosing its warehouses are 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.

The company’s inventory management procedure involves an Application for Storage, Storage of the Commodities, an Application for Shipment, and Shipment of Commodities, which are further described below.

Application for Storage

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.

Storage of the Commodities

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.

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 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.

Application for Shipment

The 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.

The 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.

Shipment of Commodities

The warehouse prepares the commodities in advance according to the pick-up time and the Application for Shipment.

Upon 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.

The company uses a prepaid unified purchase and distribution model (Prepaid Model) in its business, which is further detailed below.

Under the Prepaid Model, the company makes advance prepayments between one to three 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 its 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.

Warehousing Arrangement

Shenzhen Baiyu Jucheng has entered into a certain warehousing agreement with Shanghai Quansheng pursuant to which Shenzhen Baiyu Jucheng designated Shanghai Quansheng as its warehouse for the storage of its commodities.

Pursuant to the warehousing agreement with Shanghai Quansheng, Shenzhen Baiyu Jucheng and Shanghai Quansheng agreed to various customary representations, warranties and covenants, including among other thing details regarding the procedures for the storage and retrieval of the commodities, storage and penalty fees, and negotiation and litigation in the event of any breach of contract.

Customers

The company sells to various businesses in need of large quantity of non-ferrous metal, including home appliance manufacturing enterprises, cable manufacturing enterprises and wire manufacturing enterprises. For the year ended December 31, 2022, the company sold non-ferrous metals to twenty-nine customers.

Supply Chain Management Services

Commodity Distribution Services

The company offers a distribution service to bulk suppliers of precious metals by acting as a sales intermediary, procuring small to medium-sized buyers through its own professional sales team and channels and distributing to them the bulk precious metals of the suppliers. Upon the execution of a purchase order from its sourced buyers, the company charges the suppliers with a commission fee ranging from 1% to 2% of the distribution order, depending on the size of the order.

Marketing

The company markets its commodities trading services through its sales personnel and online promotion. The company has registered public accounts on WeChat and Weibo public accounts, as well as an account on Tongdao.com to promote its services. The company started to introduce its services via major search engines, such as Zhida and Baidu. The company is actively engaged with followers, viewers and potential customers on social media platforms, such as Baidu Tieba, Tik Tok, Weibo, WeChat, and Zhihu.

Business Strategy

Commodities Trading Business

The company’s business strategy is to expand the varieties of commodities that it trades in, including ore, crude oil and coal in addition to its focus on non-ferrous metals. In 2023, the company plans on further expanding the commodities trading business into Southeast Asia while continuing to maintain and grow its current domestic customers. The company also plans on further expanding its trade market consultations for its bulk trading customers.

Competition

Commodities Trading Business

The company competes against other large domestic commodity trade service providers, such as Xiamen International Trade and Yijian Shares.

Intellectual Property

The company’s intellectual property includes domain names ir.tdglg.com and tdglg.com.

Applicable Government Regulations

The company’s operations are subject to extensive and complex state, provincial and local laws, rules and regulations, including Foreign Trade Law; Company Law of the PRC and its implementation rules; Labor Contract Law and its implementing rules; Provisional Regulation of China on Business Tax and its Implementing Rules; Enterprise Income Tax Law and the related Circulars and Notices; Foreign Exchange Administration Regulations; Foreign Investment Law of the PRC and its implementation Regulations; Special Management Measures (Negative List) for the Access of Foreign Investment; Road Traffic Safety Law; Road Transportation Regulation; Circular on Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment; Circular of Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment; Circular on Reform of the Administrative Rules of the Payment and Settlement of Foreign Exchange Capital of Foreign-Invested Enterprises; and Issues relating to Cross-border Direct Investment in RMB.

The company is supervised by many provincial and local government authorities, including the Beijing Administration of Industry and Commerce.

History

The company was founded in 2011. It was incorporated under the laws of the state of Delaware in 2011. It was formerly known as Bat Group, Inc. and changed its name to TD Holdings, Inc. in 2020 and then to BAIYU Holdings, Inc. in October 2023.