abat10k20091231.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
_____________________
FORM
10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the
fiscal year ended December 31, 2009.
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
Commission
File No. 1-33726
ADVANCED BATTERY
TECHNOLOGIES, INC,
(Exact
Name of Registrant as Specified in its Charter)
Delaware
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22-2497491
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(State
or other jurisdiction
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(I.R.S.
Employer ID Number)
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of
incorporation or organization)
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15 West 39th Street, Suite 14A, New
York, NY 10018
(Address
of principal executive offices)
Issuer's
Telephone Number, including Area Code: 212-391-2752
Securities
Registered Pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, $.001 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 406 of the Securities Act. Yes __ No √
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes __ No √
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 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 and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files.) Yes ___ No
___
Indicate
by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405) is not contained herein, and will not be
contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by
reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One)
Large
accelerated filer
Accelerated filer X
Non-accelerated filer
Small reporting company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes __ No √
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the price at which the common equity
was sold, or the average bid and ask prices of such common equity, as of a
specified date within the past 60 days.
The
aggregate market value of the Registrant’s common stock, $.001 par value, held
by non-affiliates as of June 30, 2009, the last business day of the Registrant’s
most recently completed second quarter, was $196,051,597, based on $4.03 per
share, the closing price on that date.
As of
March 29, 2010 the number of shares outstanding of the Registrant’s common stock
was 68,586,531 shares, $.001 par value.
DOCUMENTS INCORPORATED BY
REFERENCE: The definitive proxy statement relating to the
registrant’s 2010 Annual Meeting of Shareowners is incorporated by reference in
Part III to the extent described therein.
FORWARD-LOOKING
STATEMENTS: NO ASSURANCES INTENDED
In
addition to historical information, this Annual Report contains forward-looking
statements, which are generally identifiable by use of the words “believes,”
“expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or
similar expressions. These forward-looking statements represent Management’s
belief as to the future of Advanced Battery Technologies. Whether
those beliefs become reality will depend on many factors that are not under
Management’s control. Many risks and uncertainties exist that could
cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled “Risk Factors.”
Readers are cautioned not to place undue reliance on these forward-looking
statements. We undertake no obligation to revise or publicly release the results
of any revision to these forward-looking statements.
PART 1
ITEM
1.
BUSINESS
Advanced Battery Technologies, Inc. is
a holding company with one direct subsidiary: Cashtech
Investment Limited, a British Virgin Islands corporation. Cashtech
Investment Limited is, in turn, a holding company with two
subsidiaries:
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Harbin
ZhongQiang Power-Tech Co., Ltd., a China limited liability company
(“Harbin ZQPT”). Harbin ZQPT holds the government lease of the
real property on which our battery operations are
located. Harbin ZQPT also manages the assets and operations of
Heilongjiang ZhongQiang Power-Tech Co., Ltd., which is also a China
limited liability company (“ZQ Power-Tech”) under a set of agreements
between Harbin ZQPT and the registered owners of ZQ Power-Tech pursuant to
which Harbin ZQPT receives all of the benefits and assumes all of the
obligations of the business of ZQ Power-Tech. ZQ Power-Tech is
engaged in the business of manufacturing and distributing polymer
lithium-ion batteries on the property leased to Harbin ZQPT. We
are in the process of transferring the assets and operations of ZQ
Power-Tech to Harbin ZQPT, but have not yet obtained all of the necessary
government approvals.
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Wuxi
ZhongQiang Autocycle Co., Ltd., a China limited liability company (“Wuxi
ZQ”) that Cashtech Investment Limited acquired in May
2009. Wuxi ZQ is engaged in the business of manufacturing and
distributing electric vehicles that utilize batteries manufactured by ZQ
Power-Tech.
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Advanced Battery Technologies also owns
a 49% interest in Beyond E-Tech, Inc., a Texas corporation that distributes
cellular telephones in the United States.
ZQ Power-Tech
ZQ Power-Tech is a limited liability
company that was organized under the laws of the People’s Republic of China in
August 2002. ZQ Power-Tech’s offices and manufacturing facility are
located in northern China, in the Province of Heilongjiang, in the Economy &
High-Tech Development Zone of Shuangcheng, which is a suburb of
Harbin. The location is approximately 1,000 km northeast of
Beijing.
The Harbin Institute of Technology is
one of the leading technological institutions in Asia. Two of its
engineering professors now serve on ZQ Power-Tech’s Scientific Advisory Board,
along with a professor of engineering at the China Engineering
Academy. This close association with the Harbin Institute of
Technology provides ZQ Power-Tech with a rich source of technological talent,
such that ZQ Power-Tech’s research staff is filled by experienced engineers,
many with masters and Ph.D degrees.
ZQ Power-Tech designs, manufactures and
markets rechargeable polymer lithium-ion (“PLI”) batteries. PLI
batteries produce a relatively high average of 3.8 volts per cell, which makes
them attractive in terms of both weight and volume. Additionally,
they can be manufactured in very thin configurations and with large
footprints. PLI cells can be configured in almost any prismatic
shape, and can be made thinner than 0.0195 inches (0.5 mm) to fill virtually any
shape efficiently. This combination of power and versatility makes
rechargeable PLI batteries particularly attractive for use in consumer products
such as portable computers, personal digital assistants (PDA’s) and cellular
telephones.
ZQ Power-Tech’s batteries combine
high-energy chemistry with state-of-the-art polymer technology. Every
battery component is solid, which means that there are no liquids that need to
be contained by bulky, heavy cell housings. The result is a safe,
thin, lightweight rechargeable battery with a wide operating temperature
range. Similar to lithium-ion prismatic rechargeable cells, the ZQ
Power-Tech polymer cells do not exhibit a memory problem. This means
that they can be recharged at any state of charge, without first having to be
completely discharged.
At the present time, ZQ Power-Tech
produces only one finished product. This is a cordless miner’s lamp
equipped with a rechargeable PLI battery. ZQ Power-Tech has sold its
miner’s lamps to an agency of the Chinese government for several years, but
recently expanded its market to private industry. In 2006 ZQ
Power-Tech received an order from a Hong Kong-based mining company for 450,000
battery cells for mine lamps, to be delivered over a three year
period. As a result of the expanded marketing, ZQ Power-Tech has
installed a production line dedicated to mine lamps, which has a production
capacity of 100,000 lamps per year. During 2009 the miner’s lamp
business yielded $13,010,694 in revenue (20.5% of total revenue).
All of ZQ
Power-Tech’s other sales and pending contracts are for battery cells, which are
sold on an OEM basis as a component of a finished product. Among ZQ
Power-Tech’s current customers are companies that use our batteries in cell
phones, companies that use them in laptop computers, and a company that uses our
batteries in its digital cameras. One unique market for ZQ
Power-Tech’s batteries opened when, in August 2007, they were successfully
tested by oceanographers in deep sea drilling equipment utilized by the China
National Oceanographic Institute. The fastest-growing market for ZQ
Power-Tech’s batteries, however, has been the manufacturers of battery-powered
vehicles.
Vehicle Batteries
During
the summer of 2005, ZQ Power-Tech signed a cooperation agreement with the
Beijing Institute of Technology to participate in the development of an
all-electric bus using ZQ Power-Tech rechargeable batteries. To
enhance the potential use of that battery, ZQ Power-Tech entered into a
development and supply relationship with Altair Nanotechnologies, Inc. of Reno,
Nevada. During 2005 Altair supplied ZQ Power-Tech with
nano-structured lithium spinel electrode materials that ZQ Power-Tech has
successfully tested in its vehicle batteries. The inclusion of these
nanomaterials in ZQ Power-Tech’s batteries has significantly increased the power
delivery and reduced the time required for recharge. ZQ Power-Tech is
currently conducting research and development activities aimed at exploiting the
technological advantages that the Altair nanomaterials can provide throughout ZQ
Power-Tech’s catalog of batteries.
The development of ZQ Power-Tech’s
vehicle battery technologies has opened the door for a variety of relationships,
with the result that ZQ Power-Tech is developing a significant presence in the
growing market for vehicle batteries. The initial success of this
venture was marked by a $21 million order to supply 3.7 volt PLI battery sets
for electric cars manufactured by Aiyingsi Company of Taiwan. After a
period of cooperative development, shipments under that order were made to
Aiyingsi commencing in 2006.
During
2006 ZQ Power-Tech expanded its relationship with Aiyingsi Company to include
development of the world’s first “nanopowered” electric
scooter. Late in the summer, the Zhong Qiang Institute of
Research tested the scooter prototype and found that it could cover 28 miles at
up to 18.75 mph with a single 15-minute charge. The potential market
for this “alternative” vehicle is broad, including delivery services,
surveillance and commuter uses. The environment-friendliness of this
technology and other similar technologies used by ZQ Power-Tech were the reason
stated by The Organizing Committee of China Innovative Entrepreneur Awards
Organization for naming our Chairman, Fu Zhiguo, “China’s Outstanding
Entrepreneur” in December 2006.
More
recent milestones in the growth of ZQ Power-Tech’s presence in the low emissions
vehicle industry have been:
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In
July 2006 ZQ Power-Tech received its first commercial order for bus
batteries, as a Chinese bus manufacturer ordered five PLI battery
packages.
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In
March 2007 ZQ Power-Tech signed a sales contract with Beijing Guoqiang
Global Technology Development Co. Ltd. to supply a total of 3,000 PLI
battery sets for use in electric garbage trucks that were designed for the
2008 Olympics. Shipments commenced
in May 2007 and continued until February 2008. The full
contract was valued at
$10,000,000.
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In
July 2007 ZAP, a manufacturer of zero emissions vehicles located in the
U.S., placed an order to pay $5.168 million for ZQ Power-Tech batteries
for use in ZAP’s vehicles.
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In
March 2008 ZQ Power-Tech announced that it had collaborated with Wuxi
Angell on the development of an electric hybrid motorcycle that utilizes
ZQ Power-Tech batteries. Three versions of the hybrid
motorcycle were introduced to the U.S. market in February
2009.
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In
May 2009 ABAT acquired ownership of Wuxi Angell, giving it a captive
market for its batteries as well as a dynamic presence in the growing
market for electric and hybrid two-wheel
vehicles.
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In
October 2009 ZQ Power-Tech entered into a one-year $7.8 million contract
to provide 48V/15Ah and 72V/50Ah polymer lithium-ion phosphate batteries
to U Long Run Sheng Technology Co., Ltd., a leading distributor of power
management systems to the electric vehicle
industry.
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ZQ
Power-Tech: Marketing
ZQ Power-Tech has focused its marketing
activities in China, with the majority of our sales continuing to be made
directly by our marketing department. However we have recently begun
to establish relationships with sales representatives in other major
markets. Our plan is to significantly expand our market presence now
that our facilities have reached an operating level sufficient to service a much
higher level of sales.
ZQ Power-Tech: Environmental
Regulation
ZQ Power-Tech’s operations produce no
significant quantity of effluent or air-borne pollution. Therefore ZQ
Power-Tech does not incur any significant cost as a result of the environmental
regulations of the Chinese government.
ZQ Power-Tech: Intellectual
Property
ZQ Power-Tech owns seven Chinese
patents, which are patents on:
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A
cellular phone battery pole plate.
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A
polymer lithium-ion battery and its production
method.
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A
large capacity polymer lithium-ion battery and its production
method.
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An
ultra-thin polymer lithium-ion battery for a miner’s lamp and its
production method.
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A
walkie-talkie lithium-ion battery and its production
method.
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A
mobile phone battery and its production
method.
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a
nano material lithium ion battery and its production
process.
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We also
hold one US patent (Patent No. 6,994,737 B2), which covers a high capacity
polymeric lithium-ion cell and its production method.
Since
receiving its initial funding in 2003, ZQ Power Tech has consistently devoted
substantial resources to the research and development activities necessary to
assure that our polymer lithium-ion batteries remain the state of the
art. In 2007, for example, our research and development expenses
totaled $383,871, as we developed a second-generation product line and explored
the utilization of nanomaterials in our batteries. In 2008, however,
the growth of demand for our products focused our attention on expansion of our
facilities. Research and development expenses in 2008, therefore,
were only $4,463, as our technical personnel were dedicated to the build-out of
our assembly lines with new equipment. In 2009, having completed the
build-out, we renewed our focus on research and development, with an expenditure
of $476,196.
The technology utilized in producing
polymer lithium-ion batteries is widely available throughout the world, and is
utilized by many competitors, both great and small. ZQ Power-Tech’s
patents give it some competitive advantage with respect to certain
products. However, the key to competitive success will be ZQ Power
Tech’s ability to deliver high quality products in a cost-efficient
manner. This, in turn, will depend on the quality and efficiency of
the assembly lines that we have been developing at our plant in
Harbin.
Wuxi
ZQ
In light
of the rapid expansion of the market for battery-powered vehicles, in May 2009
the Company’s subsidiary, Cashtech Investment Limited, acquired all of the
registered capital of Wuxi Angell Autocycle Co., Ltd. (“Wuxi ZQ”) in exchange
for three million shares of ABAT common stock. Since the acquisition,
we have been engaged in integrating the operations of Wuxi ZQ with those of ZQ
Power-Tech. Although each subsidiary will continue to maintain its
manufacturing operations at its existing location, we are rapidly developing
systems for sharing the capabilities of the two companies with respect to
technical design, marketing, production and human resources.
Wuxi ZQ
is located in the City of Wuxi Economic and Technology Development Zone, in
Jiangsu Province, about 100 kilometers west of Shanghai. Since 2002,
Wuxi ZQ has been engaged in the design, development, manufacture and marketing
of electric- and hybrid-powered two wheel vehicles, as well as electric-powered
agricultural transport vehicles and sport utility e-vehicles. The
prices of Wuxi ZQ vehicles range from $427 to $3471, with an average selling
price of $957. Wuxi ZQ markets not only complete vehicles but also
components, including motors, electronic controls, meters and plastic
parts. Wuxi ZQ has developed a reputation for delivering vehicles
that excel in both performance and style. With low noise, easy
maintenance and a stable drive, the Wuxi ZQ scooters and e-bicycles are designed
to capture the opportunities presented
by China’s recent emphasis on reducing air pollution and the degradation of
China’s environment that has accompanied its rapid
industrialization.
Before
ABAT acquired Wuxi ZQ, Wuxi ZQ was a major customer of ZQ
Power-Tech. Beginning in 2008 Wuxi ZQ and ZQ Power-Tech cooperated in
the development of a series of hybrid motorcycles that are outfitted with
48V/15Ah lithium-ion batteries. A computerized control puts the
motorcycle on electric-only drive at low speeds, then initiates the gas engine
at higher speeds. In testing by the China North Vehicle Research
Institute, the hybrid motorcycles demonstrated 35 percent lower emissions than
conventional gas-powered motorcycles, 20 percent increased fuel economy, and
equivalent road performance. The hybrid products were introduced at
industry shows in the U.S. and Europe in early 2009.
Currently
Wuxi ZQ has four production lines within its manufacturing facility, with the
capability of expanding production in response to demand. The
production lines currently manufacture 20 types of vehicles, and each line is
capable of manufacturing 100 vehicles per day. Wuxi’s manufacturing
operation has achieved certification under ISO9001:2000 standards, as well as
certification under the standards of China’s industrial oversight
agencies.
Wuxi
ZQ: Marketing
Wuxi ZQ
markets its electric vehicles primarily through a network of distributors in
selected locations worldwide. Included among Wuxi ZQ’s distributors
are:
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Motoran
Company, Turkey’s third largest two-wheeler importer, which is expected to
purchase at least 1,500 scooters per
month;
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Floretti,
a Netherlands-based distributor that is expected to distribute 5,000 of
Wuxi ZQ’s lithium battery powered motorcycles in Europe in 2010;
and
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Ampere,
a distributor based in India that is likewise expected to purchase 5,000
motorcycles for delivery in 2010.
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Within
the past year Wuxi ZQ has also signed orders of significant size for delivery
electric vehicles to distributors in Indonesia, Denmark, Israel, Italy, Chile,
Brazil and others. Most of Wuxi ZQ’s products carry both EEC and
DOT(EPA) certification.
In order
to present itself as a viable participant in the movement toward “green”
vehicles, Wuxi ZQ participates in industry shows and fairs throughout the
world. Within the past year, Wuxi ZQ has exhibited at IFMA Cologne,
EICMA Milan, Dealer Expo 2009 in Indianapolis, the Canton Fair, and the China
International Bicycle and Motor Fair, among others.
Wuxi
ZQ: Environmental Regulation
The
operations of Wuxi ZQ are governed by both national and local environmental
regulations. During the period from November 2009 to February 2010,
Wuxi installed an underground sewer in order to achieve compliance with a local
environmental protection regulation. The
total cost of the sewer project was 4,684,830 RMB (approximately
$685,000). Wuxi ZQ has not had incurred any other significant
expenditures in order to comply with environmental
rules.
Wuxi
ZQ: Intellectual Property
Wuxi ZQ
owns 14 patents issued by the government of China. The patents cover
inventions by Wuxi ZQ in the areas of e-scooter appearance, electric bicycle
appearance, water dispenser design, motor technology, and wheel
design. The patents are issued for ten years, and will terminate at
times from 2013 to 2017.
Backlog
ZQ Power Tech’s backlog of sales orders
totaled approximately $44.3million on February 28, 2010, all of which is
scheduled for delivery within the current fiscal year. Wuxi ZQ’s
backlog of sales orders totaled approximately $5.4 million on February 28, 2010,
all of which is scheduled for delivery within the current fiscal
year. On March 12, 2009, our backlog of orders totaled approximately
$63.6 million, all of which were orders for batteries or miners’
lamps.
Employees
Advanced Battery Technologies has 4
employees, all of whom are involved in administration in our New York
office. ZQ Power-Tech and Wuxi ZQ collectively have 850 employees. 96
are involved in administration, 48 are involved in marketing, and 10 are
involved in research and development and related technology
services. The remainder is employed in production
capacities. None of our employees belongs to a collective bargaining
unit.
In August 2009 ZQ Power-Tech announced
that it had commenced construction of an employee vocational training center
within its production base in Shuangcheng, near Harbin. The training
center, which is expected to be completed later in 2010, will cover 25,000
square meters, consisting of an academic center, student activity buildings and
a living area. The center will be utilized as a source of skilled personnel for
both ZQ Power-Tech and Wuxi ZQ, thus alleviating one of the major hurdles to
expansion in both the battery and the electric vehicle industries - recruiting
the necessary personnel.
Investment
in Cell Phone Distributor
In
December 2008 Advanced Battery Technologies purchased a 49% equity interest in
Beyond E-Tech, Inc., a corporation located in Texas that distributes cellular
telephones manufactured in China to its order by Flying Technology Development
Co. and Lenovo China. The purchase price for the shares was $1.5
million cash. The purchase agreement provided that as long as
Advanced Battery Technologies remains a shareholder of Beyond E-Tech, all phones
sold by Beyond E-Tech would be powered by ZQ Power-Tech batteries. Although Beyond E-Tech has
only recently begun operations, Advanced Battery Technologies’ management
considers the investment a reasonable means of securing a dedicated customer and
a potential for ancillary profits.
ITEM
1A. RISK
FACTORS
Investing
in our common stock involves a significant degree of risk. You should carefully
consider the risks described below together with all of the other information
contained in this Report, including the financial statements and the related
notes, before deciding whether to purchase any shares of our common stock. If
any of the following risks occurs, our business, financial condition or
operating results could materially suffer. In that event, the trading price of
our common stock could decline and you may lose all or part of your
investment.
Risks
Attendant to our Business Operations.
We
may be unable to gain a substantial share of the market for
batteries.
Our
business operations are based on the marketing of rechargeable polymer
lithium-ion batteries, both on an OEM basis and as components of our scooters
and miner’s lamps. There are many companies, large and small,
involved in the market for rechargeable batteries. Some of our
existing and potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other
resources. It will be difficult for us to establish a reputation in
the market so that manufacturers chose to use our batteries rather than those of
our competitors. Unless we are able to expand our sales volume
significantly, we will not be able to improve the efficiency of our
operation.
Our
recent acquisition of Wuxi ZQ may result in reduced profitability.
In
May 2009 we acquired ownership of Wuxi ZhongQiang Autocycle Co., Ltd., a
manufacturer of motor scooters and other electric vehicles. Wuxi ZQ
recorded substantial net losses in each of its past two fiscal
years: a net loss of $3,727,136 in the year ended December 31, 2008
and a net loss of $1,150,719 in the year ended December 31,
2007. In 2009, even after we took control of
management,Wuxi ZQ continued to lose money, finishing 2009 with a net loss of
$1,392,821. Unless we are able to develop Wuxi ZQ into a consistently
profitable operation, it will have a negative effect on our operating
results. In addition, the effort to integrate Wuxi ZQ into our
overall operations may distract management from our core battery business, which
could result in reduced growth in that business. Finally,
consideration must be given to the fact that Wuxi ZQ was one of our largest
customers prior to the acquisition, but our reported revenue after the
acquisition no longer includes sales to Wuxi ZQ, which has slowed the revenue
growth of our company.
Our
business and growth will suffer if we are unable to hire and retain key
personnel that are in high demand.
Our
future success depends on our ability to attract and retain highly skilled
engineers, technical, marketing and customer service personnel, especially
qualified personnel for our operations in China. Qualified individuals are in
high demand in China, and there are insufficient experienced
personnel to fill the demand. Therefore we may not be able to
successfully attract or retain the personnel we need to
succeed.
We
may not be able to adequately protect our intellectual property, which could
cause us to be less competitive.
We are
continuously designing and developing new technology. We rely on a combination
of copyright and trade secret laws and restrictions on disclosure to protect our
intellectual property rights. Unauthorized use of our technology could damage
our ability to compete effectively. In China, monitoring unauthorized
use of our products is difficult and costly. In addition,
intellectual property law in China is less developed than in the United States
and historically China has not protected intellectual property to the same
extent as it is protected in other jurisdictions, such as the United States. Any
resort to litigation to enforce our intellectual property rights could result in
substantial costs and diversion of our resources, and might be
unsuccessful.
We
may have difficulty establishing adequate management and financial controls in
China and in complying with U.S. corporate governance and accounting
requirements.
The
People’s Republic of China has only recently begun to adopt the management and
financial reporting concepts and practices that investors in the United States
are familiar with. We may have difficulty in hiring and retaining
employees in China who have the experience necessary to implement the kind of
management and financial controls that are expected of a United States public
company. If we cannot establish such controls, we may experience
difficulty in collecting financial data and preparing financial statements,
books of account and corporate records and instituting business practices that
meet U.S. standards.
We are
also subject to the rules and regulations of the United States, including the
SEC, the Sarbanes-Oxley Act of 2002 and the rules and regulations of the NASDAQ
Stock Market. We expect to incur significant costs associated with
our public company reporting requirements, costs associated with applicable
corporate governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC and
requirements in connection with the continued listing of our common stock on the
NASDAQ Stock Market. If we cannot assess our internal control over financial
reporting as effective, or our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.
Since
most of our assets are located in China, any dividends or proceeds from
liquidation are subject to the approval of the relevant Chinese government
agencies.
Our
assets are predominantly located inside China. Under the laws governing
Foreign-invested Entities in China, dividend distribution and liquidation are
allowed but subject to special procedures under the relevant laws and rules. Any
dividend payment will be subject to the decision of the board of directors and
subject to foreign exchange rules governing such repatriation. Any liquidation
is subject to both the relevant government agency’s approval and supervision as
well the foreign exchange control. This may generate additional risk for our
investors in case of dividend payment or liquidation.
We have limited business insurance
coverage.
The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products, and do not, to our
knowledge, offer business liability insurance. As a result, we do not have any
business liability insurance coverage for our operations. Moreover, while
business disruption insurance is available, we have determined that the risks of
disruption and cost of the insurance are such that we do not require it at this
time. Any business disruption, litigation or natural disaster might result in
substantial costs and diversion of our resources.
Our
operations are international, and we are subject to significant political,
economic, legal and other uncertainties (including, but not limited to, trade
barriers and taxes that may have an adverse effect on our business and
operations.
We
manufacture all of our products in China and substantially all of the net book
value of our total fixed assets is located there. However, we sell our products
to customers outside of China as well as domestically. As a result, we may
experience barriers to conducting business and trade in our targeted markets in
the form of delayed customs clearances, customs duties and tariffs. In addition,
we may be subject to repatriation taxes levied upon the exchange of income from
local currency into foreign currency, as well as substantial taxes of profits,
revenues, assets or payroll, as well as value-added tax. The markets in which we
plan to operate may impose onerous and unpredictable duties, tariffs and taxes
on our business and products. Any of these barriers and taxes could
have an adverse effect on our finances and operations.
Environmental
compliance and remediation could result in substantially increased capital
requirements and operating costs.
Our
operating subsidiaries, ZQ Power-Tech and Wuxi ZQ, are subject to numerous
Chinese provincial and local laws and regulations relating to the protection of
the environment. These laws continue to evolve and are becoming increasingly
stringent. The ultimate impact of complying with such laws and regulations is
not always clearly known or determinable because regulations under some of these
laws have not yet been promulgated or are undergoing revision. Our consolidated
business and operating results could be materially and adversely affected if ZQ
Power-Tech or Wuxi ZQ were required to increase expenditures to comply with any
new environmental regulations affecting its operations.
We
may be required to raise additional financing by issuing new securities with
terms or rights superior to those of our shares of common stock, which could
adversely affect the market price of our shares of common
stock.
We may
require additional financing to fund future operations, develop and exploit
existing and new products and to expand into new markets. We may not be able to
obtain financing on favorable terms, if at all. If we raise additional funds by
issuing equity securities, the percentage ownership of our current shareholders
will be reduced, and the holders of the new equity securities may have rights
superior to those of the holders of shares of common stock, which could
adversely affect the market price and the voting power of shares of our common
stock. If we raise additional funds by issuing debt securities, the holders of
these debt securities would similarly have some rights senior to those of the
holders of shares of common stock, and the terms of these debt securities could
impose restrictions on operations and create a significant interest expense for
us.
The
NASDAQ Capital Market may delist our common stock from trading on its exchange,
which could limit investors’ ability to effect transactions in our common stock
and subject us to additional trading restrictions.
Our
common stock is listed on the NASDAQ Capital Market. We cannot assure you that
our common stock will continue to be listed on the NASDAQ Capital Market in the
future. If the NASDAQ Capital Market delists our common stock from
trading on its exchange, we could face significant material adverse consequences
including:
|
●
|
a
limited availability of market quotations for our common
stock;
|
|
●
|
a
limited amount of news and analyst coverage for our company;
and
|
|
●
|
a
decreased ability to issue additional securities or obtain additional
financing in the future.
|
We do not intend to pay any cash
dividends on our common stock in the foreseeable future and, therefore, any
return on your investment in our common stock must come from increases in the
fair market value and trading price of our common stock.
We have
never paid a cash dividend on our common stock. We do not intend to
pay cash dividends on our common stock in the foreseeable future and, therefore,
any return on your investment in our common stock must come from increases in
the fair market value and trading price of our common stock.
Our
international operations require us to comply with a number of U.S. and
international regulations.
We need
to comply with a number of international regulations in countries outside of the
United States. In addition, we must comply with the Foreign Corrupt Practices
Act, or FCPA, which prohibits U.S. companies or their agents and employees from
providing anything of value to a foreign official for the purposes of
influencing any act or decision of these individuals in their official capacity
to help obtain or retain business, direct business to any person or corporate
entity or obtain any unfair advantage. Any failure by us to adopt appropriate
compliance procedures
and ensure that our employees and agents comply with the FCPA and applicable
laws and regulations in foreign jurisdictions could result in substantial
penalties or restrictions on our ability to conduct business in certain foreign
jurisdictions. The U.S. Department of The Treasury’s Office of Foreign Asset
Control, or OFAC, administers and enforces economic and trade sanctions against
targeted foreign countries, entities and individuals based on U.S. foreign
policy and national security goals. As a result, we are restricted from entering
into transactions with certain targeted foreign countries, entities and
individuals except as permitted by OFAC which may reduce our future
growth.
All
of our assets are located in China and changes in the political and economic
policies of the PRC government could have a significant impact upon what
business we may be able to conduct in the PRC and accordingly on the results of
our operations and financial condition.
Our
business operations may be adversely affected by the current and future
political environment in the PRC. The Chinese government exerts substantial
influence and control over the manner in which we must conduct our business
activities. Our ability to operate in China may be adversely affected by changes
in Chinese laws and regulations, including those relating to taxation, import
and export tariffs, raw materials, environmental regulations, land use rights,
property and other matters. Under the current government leadership, the
government of the PRC has been pursuing economic reform policies that encourage
private economic activity and greater economic decentralization. There is no
assurance, however, that the government of the PRC will continue to pursue these
policies, or that it will not significantly alter these policies from time to
time without notice.
Our
operations are subject to PRC laws and regulations that are sometimes vague and
uncertain. Any changes in such PRC laws and regulations, or the interpretations
thereof, may have a material and adverse effect on our business.
Our
principal operating subsidiary, ZQ Power-Tech, is considered a foreign invested
enterprise under PRC laws, and as a result is required to comply with PRC laws
and regulations. Unlike the common law system prevalent in the United States,
decided legal cases have little value as precedent in China. There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business and the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy or criminal proceedings. The Chinese government has been developing a
comprehensive system of commercial laws. However, because these laws and
regulations are relatively new, and because of the limited volume of published
cases and judicial interpretation and their lack of force as precedents,
interpretation and enforcement of these laws and regulations involve significant
uncertainties. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively. We cannot predict what effect the
interpretation of existing or new PRC laws or regulations may have on our
businesses. If the relevant authorities find us in violation of PRC laws or
regulations, they would have broad discretion in dealing with such a
violation.
The
scope of our business license in China is limited, and we may not expand or
continue our business without government approval and renewal,
respectively.
Our
principal operating subsidiary, ZQ Power-Tech, is a wholly foreign-owned
enterprise organized under PRC law, commonly known as a WFOE. A WFOE can only
conduct business within its approved business scope, which ultimately appears on
its business license. In order for us to expand our business beyond the scope of
our license, we will be required to enter into a negotiation with the
authorities for the approval to expand the scope of our business. We cannot
assure you that ZQ Power-Tech will be able to obtain the necessary government
approval for any change or expansion of our business scope.
Our
business development, future performance, strategic plans, and other objectives
would be hindered if we lost the services of our Chairman.
Fu Zhiguo
is the Chief Executive Officer of Advanced Battery Technologies and of our
operating subsidiaries, ZQ Power-Tech and Wuxi ZQ. Mr. Fu is
responsible for strategizing not only our business plan but also the means of
financing it. If Mr. Fu were
to leave Advanced Battery Technologies or become unable to fulfill his
responsibilities, our business would be imperiled. At the very least,
there would be a delay in the development of Advanced Battery Technologies until
a suitable replacement for Mr. Fu could be retained.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM
2. PROPERTIES
The People’s Republic of China has
given ZQ Power-Tech a lease to use the 72,000 square meter campus in Harbin,
China where ZQ Power-Tech’s offices and manufacturing facility are
located. The campus is 24 km from the nearest airport. The
nearest port is Da Lian. The lease expires in September
2043. ZQ Power-Tech is not required to pay any rental for the
property as long as it continues to utilize the property for
manufacturing.
From 2004 to 2006 ZQ Power-Tech carried
on a program of expanding its production facility. In 2006 it
completed Building A and Building B, 30,000 square feet of manufacturing
capacity, which in 2008 ZQ Power-Tech upgraded, so that those two buildings
reached a production capacity of approximately $50,000,000 per year, depending
on the specific products being produced. Due to the rapid
increase in the Company’s sales, between 2008 and 2009 Management developed
additional assembly lines in Building C and Building D. These
additional lines became operational in July 2009, increasing ZQ Power-Tech’s
production capacity by 165%. Management is now upgrading the
production lines in Buildings A and B to again increase
productivity.
In
November 2003 ZQ Power-Tech received ISO9001 certification pertaining to
Manufacturing and Quality Control Approval.
Wuxi ZQ
utilizes a 80,000 square meter manufacturing facility in the City of Wuxi with a
production floor space of 47,837 square meters. The research and
development division occupies 3,000 square meters. Most of the
remainder is dedicated to inventory, sales and administration.
ITEM
3. LEGAL
PROCEEDINGS
Susquehanna Financial Group, LLLP v.
Advanced Battery Technologies, Inc. In September 2008
Susquehanna Financial Group, LLLP (“SFG”) commenced this action in the Court of
Common Pleas of Montgomery County, Pennsylvania (Civil Action No.
08-25505). SFG alleges that it was party to two contracts with the
Company, pursuant to which SFG alleges that it was entitled to serve as
financial advisor with respect to any offering of securities by the Company
completed prior to March 2009. SFG alleges that the Company failed to
afford SFG the opportunity to serve as financial advisor in connection with the
private placement by the Company in August 2008. SFG alleges that it
is entitled to damages in the amount of $1,359,872.46 and a warrant to purchase
81,882 share of the Company’s common stock exercisable at $8.00 per
share. The Company has answered the Complaint, and has denied that
SFG was entitled to serve as financial advisor in connection with the August
2008 private placement by reason of the fact that SFG had terminated its
agreements with the Company, had waived any continuing rights under the
contracts, and had acted in bad faith in connection with the services it
undertook to perform for the Company.
Sui-Yang Huang v. Advanced Battery
Technologies, Inc. In September 2009, Sui-Yang Huang commenced
this action in the United States District Court for the Southern District of New
York (Civil Action: 09 Civ. 8297). The plaintiff was the Company’s
Chief Technological Officer at that time. The complaint alleges that
ABAT breached its employment contract with Mr. Huang, and demands between $1.25
million and $5 million in damages. The Company believes that the alleged claim
has no merit and has answered the complaint denying liability.
PART
II
|
ITEM
4.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
(a)
Market Information
Since
February 26, 2008, the Company’s common stock has been listed on the NASDAQ
Capital Market under the symbol “ABAT.” Prior to listing on NASDAQ,
the Company’s common stock was quoted on the American Stock
Exchange.
Set forth below are the high and low
sales for each of the eight quarters in the past two fiscal years.
|
|
Bid
|
|
Quarter
Ending
|
|
High
|
|
|
Low
|
|
March
31, 2008
|
|
$ |
5.50 |
|
|
$ |
3.50 |
|
June
30, 2008
|
|
$ |
6.40 |
|
|
$ |
2.99 |
|
September
30, 2008
|
|
$ |
6.00 |
|
|
$ |
2.99 |
|
December
31, 2008
|
|
$ |
3.40 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
March
31, 2009
|
|
$ |
3.04 |
|
|
$ |
1.68 |
|
June
30, 2009
|
|
$ |
4.39 |
|
|
$ |
2.10 |
|
September
30, 2009
|
|
$ |
5.04 |
|
|
$ |
3.57 |
|
December
31, 2009
|
|
$ |
4.26 |
|
|
$ |
3.08 |
|
(b)
Shareholders
Our
shareholders list contains the names of 398 registered stockholders of record of
the Company’s Common Stock.
(c) Dividends
The
Company has never paid or declared any cash dividends on its Common Stock and
does not foresee doing so in the foreseeable future. The Company
intends to retain any future earnings for the operation and expansion of the
business. Any decision as to future payment of dividends will depend
on the available earnings, the capital requirements of the Company, its general
financial condition and other factors deemed pertinent by the Board of
Directors
(d) Securities Authorized
for Issuance Under Equity Compensation Plans
The
information set forth in the table below regarding equity compensation plans
(which include individual compensation arrangements) was determined as of
December 31, 2009.
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
Equity
compensation plans approved by security holders
|
0
|
N.A.
|
5,000,000(1)
|
Equity
compensation plans not approved by security holders
|
340,000
|
$2.66
|
891,000(2)
|
Total
|
340,000
|
$2.66
|
5,891,000
|
___________________________
(1)
|
In
2009 the Board of Directors and shareholders approved the 2009 Equity
Incentive Plan. The Plan authorized the Board to issue up to
5,000,000 common shares during the ten year period of the
Plan. The shares may be awarded to employees or directors of
Advanced Battery Technologies or its subsidiaries as well as to
consultants to those entities. The shares may be awarded as
outright grants or in the form of options or restricted
stock. 5,000,000 shares remain available for issuance under the
plan.
|
(2)
|
In
2006 the Board of Directors adopted the 2006 Equity Incentive
Plan. The Plan authorized the Board to issue up to 8,000,000
common shares during the ten year period of the Plan. The
shares may be awarded to employees or directors of Advanced Battery
Technologies or its subsidiaries as well as to consultants to those
entities. The shares may be awarded as outright grants or in
the form of options, restricted stock or performance
shares. 891,000 shares remain available for issuance under the
plan.
|
(e) Sale
of Unregistered Securities
Advanced Battery did not effect any
unregistered sales of equity securities during the 4th
quarter of 2009.
(f)
Repurchase of Equity Securities
Advanced
Battery did not repurchase any shares of
its common stock during the 4th
quarter of 2009.
ITEM
5. SELECTED
FINANCIAL DATA
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Revenue
|
|
$ |
63,561,925 |
|
|
$ |
45,172,111 |
|
|
$ |
31,897,618 |
|
|
$ |
16,329,340 |
|
|
$ |
4,222,960 |
|
Net
Income/(Loss)
|
|
$ |
21,359,637 |
|
|
$ |
16,096,120 |
|
|
$ |
10,205,406 |
|
|
$ |
8,040,752 |
|
|
$ |
(157,637 |
) |
Net
Income/(Loss) Per Share – Diluted
|
|
$ |
0.35 |
|
|
$ |
0.31 |
|
|
$ |
0.21 |
|
|
$ |
0.17 |
|
|
$ |
(0.01 |
) |
Total
Assets
|
|
$ |
157,826,354 |
|
|
$ |
77,752,231 |
|
|
$ |
38,723,210 |
|
|
$ |
22,521,982 |
|
|
$ |
17,158,364 |
|
Long-Term
Debt
|
|
$ |
20,689,597 |
|
|
|
-- |
|
|
$ |
411,263 |
|
|
$ |
384,413 |
|
|
|
-- |
|
Shareholders’
Equity
|
|
$ |
131,932,431 |
|
|
$ |
76,454,596 |
|
|
$ |
36,476,504 |
|
|
$ |
23,206,350 |
|
|
$ |
9,086,632 |
|
Shareholders’
Equity Per Share
|
|
$ |
1.92 |
|
|
$ |
1.40 |
|
|
$ |
0.73 |
|
|
$ |
0.47 |
|
|
$ |
0.22 |
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Results
of Operations
Year Ended December 31, 2009
Compared to Year Ended December 31, 2008
Near the end of 2004, ZQ Power-Tech
obtained the financing needed to complete additional factory facilities at ZQ
Power-Tech’s campus in Heilongjiang. Since 2004, the number of
employees at our facilities has increased from 300 to 850 as of December 31
2009. The increase has occurred because we more than doubled our
battery production capacity and we acquired an electric vehicle manufacturer in
May 2009.
In
2008 our battery production capacity was $45 million per year with two buildings
(“A” and “B”) in full production. As our revenues in 2008
reached $45 million and continue to grow, the need to outfit buildings “C” and
“D” so as to double our production capacity became apparent. Toward
that end, during 2008 we completed an equity placement to obtain the capital
necessary for the expansion. In July 2009, the two new production lines, “C” and
“D”, became operational with automated equipment. In August 2009, we decided to
upgrade the capacity of “A” and “B” with further investment in automated
equipment. We expect to invest approximately $6.5 million in this
upgrade of “A” and “B”, which will increase our annual battery production
capacity to over $100 million when the upgrade is completed in the second
quarter of 2010.
On May 4, 2009, Cashtech
Investment Limited, a wholly-owned subsidiary of the Company, acquired ownership
of 100% of the registered capital of Wuxi Angell Autocycle Co., Ltd. in exchange
for three million shares of the Company’s common stock. Immediately after the
completion of acquisition, Wuxi Angell Autocycle Co. Ltd. was renamed as Wuxi
Zhongqiang Autocycle Co., Ltd. (“Wuxi ZQ”). In June and October 2009, in
order to support the future growth of our newly acquired electric vehicle
business and to facilitate an expansion of our battery production, we completed
additional equity placements, obtaining net proceeds of approximately
$16,091,868 in June and $18,017,350 in October and $6,679,499 in
December.
The following tables present certain
consolidated statement of operations information. Financial information is
presented for the year ended December 31, 2009 and 2008
respectively.
|
|
For
the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
Amount
|
|
|
%
|
|
Revenues
|
|
$ |
63,561,925 |
|
|
$ |
45,172,111 |
|
|
$ |
18,389,814 |
|
|
|
40.7 |
% |
Cost
of Goods Sold
|
|
|
35,169,478 |
|
|
|
23,122,610 |
|
|
$ |
12,046,868 |
|
|
|
52.1 |
% |
Gross
Profit
|
|
|
28,392,447 |
|
|
|
22,049,501 |
|
|
$ |
6,342,946 |
|
|
|
28.8 |
% |
Operation
Expenses
|
|
|
11,502,514 |
|
|
|
3,267,872 |
|
|
$ |
8,234,642 |
|
|
|
252.0 |
% |
Operation
Income
|
|
|
16,889,933 |
|
|
|
18,781,629 |
|
|
$ |
(1,891,696 |
) |
|
|
-10.1 |
% |
Net
Income
|
|
$ |
21,359,637 |
|
|
$ |
16,096,120 |
|
|
$ |
5,263,517 |
|
|
|
32.7 |
% |
Revenues
We had total revenues of $63,561,925
for 2009, an increase of $18,389,814 or 40.7%, compared to $45,172,111 for 2008.
The increase in revenues was primarily due to the contribution of sales from the
electric vehicle business, which the Company acquired on May 4, 2009. Sales
of electric vehicles after May 4, 2009 totaled $20,329,895. At the
same time, the acquisition of Wuxi ZQ resulted in flat year-to-year results in
battery sales, since Wuxi Angell had been a major customer of our battery
business. Sales of batteries to Wuxi ZQ are included in
our 2008 financial results and excluded from our 2009 financial results, since
we acquired ownership of Wuxi ZQ in May 2009. If sales to Wuxi ZQ are
excluded from our 2008 results, our revenue from battery sales increased by
around $4.7 million in 2009, compared to 2008.
The growth in our battery business has
been accompanied by a reorientation in the relative importance of different
battery sizes. When we first entered the battery business in 2003 and
during the following years, the bulk of our sales were small capacity batteries,
primarily those used in consumer electronic devices. Our growth,
however, has been propelled by customers for our medium capacity batteries (used
for electric scooters, electric bicycles, power tools, miners’ lamps,
searchlights, etc.) and large capacity batteries (used for electric sanitation
vehicles, stationary applications, and other large scale battery
applications). In the years ended December 31, 2009 and 2008, the
contribution of batteries in these categories as well as the contribution of
electric vehicles to our total revenues was:
|
|
Year
ended December 31, 2009
|
|
|
Year
ended December 31, 2008
|
|
|
|
Amount
(US$)
|
|
|
%
(of
total revenue)
|
|
|
Amount
(US$)
|
|
|
%
(of
total revenue)
|
|
Small
Capacity Battery
|
|
|
4,040,333 |
|
|
|
6.36 |
% |
|
|
4,727,223 |
|
|
|
10.5 |
% |
Medium
Capacity Battery
|
|
|
9,923,292 |
|
|
|
15.61 |
% |
|
|
16,200,079 |
|
|
|
35.9 |
% |
Large
Capacity Battery
|
|
|
16,257,711 |
|
|
|
25.58 |
% |
|
|
13,467,511 |
|
|
|
29.8 |
% |
Miner's
Lamp
|
|
|
13,010,694 |
|
|
|
20.47 |
% |
|
|
10,777,298 |
|
|
|
23.8 |
% |
Electric
Vehicle
|
|
|
20,329,895 |
|
|
|
31.98 |
% |
|
|
0 |
|
|
|
0 |
% |
Total
|
|
|
63,561,925 |
|
|
|
100.00 |
% |
|
|
45,172,111 |
|
|
|
100 |
% |
The increase in the portion of our
revenue attributable to medium and large capacity batteries has been beneficial
to our overall business. The margins that we are able to achieve in
selling larger capacity batteries are significantly greater than the margins we
achieve in selling smaller capacity batteries, due primarily to the relative
amount of competition in the different markets.
At February 28, 2010 we had a backlog
of around $49.7 million for delivery throughout the next 12 months, including a
battery backlog of approximately $44.3 million. Therefore we expect to expand on
the level of operations that we achieved during 2009.
Gross
Profit.
Our cost of goods sold consists of the
cost of raw materials, labor costs and production overhead. In 2009, our
revenue increased by 40.7% and our cost of goods sold increased by 52.1%,
from $23,122,610 to $35,169,478, compared to 2008. This disparate growth in
cost of sales is mainly attributable to the higher proportion of sales from
lower margin products, i.e. electrical vehicles. After eliminating intercompany
sales, during May 4 to the end of 2009 Wuxi ZQ achieved only approximately 33.2%
gross margin, while our battery manufacturing operations achieved a 49.9% gross
margin. The overall result of combining our operations with those of
Wuxi ZQ was a reduction in our gross margin from 48.8% in 2008 to 44.7% in
2009.
Our expectation is that the operations
of Wuxi ZQ will become more profitable in 2010. The transfer of
ownership and management in 2009 led to inefficiencies in the operations of that
company. In addition, since the acquisition, our management has been
working aggressively to reduce unnecessary expenses at Wuxi ZQ.
Operating expenses
The Company’s operating expenses
increased by 252.0%, from $3,267,872 in 2008 to $11,502,514 in 2009. The
increase was almost entirely attributable to the expansion of our operations, as
operating expenses in Heilongjiang ZQPT, our main battery production base in
China, increased by only $0.20 million during 2009. The primary
reasons for the year-to-year increase in operating expenses were:
|
●
|
$5.4
million in selling and administration expenses incurred by Wuxi ZQ after
the acquisition on May 4 2009. Wuxi ZQ’s selling expenses included
$1,000,000 advertising expense. The Wuxi ZQ expenses also
included satisfaction of approximately $1,200,000 in debts that were
incurred in prior periods but were not previously recorded.
|
|
●
|
Higher
administration expenses related to our US office, including salaries,
legal fees and marketing expenses related to our equity offerings and
annual meeting, as well as expenses attributable to ongoing
litigation.
|
|
●
|
An
increase of $1,326,177 in noncash stock and option compensation
amortization expense in 2009
|
Included in our general and
administrative expense during the year ended December 31, 2009 was $2,063,215
attributable to amortization of the market value of stock and options that we
granted to employees or consultants. This non-cash expense resulted
from our use of stock during our early years to incentivize key
individuals. The market value of the stock at the time it was issued
is being amortized over the term of the employee’s or consultant’s services,
thus:
|
●
|
In
the case of employees, the period of amortization is based on a vesting
schedule included in the employees’ contracts. The average
vesting period for the employees is 10.4 years.
|
|
●
|
In
the case of consultants, the period of amortization is based on the term
of the consulting contracts, although amortization will be accelerated if
the consulting relationship ceases. Again, to date, the
consultants who received stock have remained involved in the Company’s
affairs, so there has been no acceleration of
amortization.
|
At
December 31, 2009 there remained $6,123,762 in unamortized stock compensation on
the Company’s books. The amortization of this sum will contribute to
our operating expenses as described above.
As noted,
approximately $2.2 million of the operating expenses incurred by Wuxi ZQ in 2009
were “clean-ups” of bad situations that existed when we acquired Wuxi ZQ or the
marketing promotion efforts after acquisition. We do not expect such
expenses to be recurrent. We expect, therefore, that we will be able
to reduce our operating expenses in 2010, particularly as the ongoing
consolidation of the administration of Wuxi ZQ with the administration of
Heilongjiang ZQPT should yield operating efficiencies.
During 2009 we recorded $10,702,305 in
“other income (expenses). The primary components of this charge
were:
|
●
|
$210,321
in net interest expenses,
|
|
●
|
an
investment loss of $17,401 related to our investment in Beyond E-Tech,
Inc.,
|
|
●
|
an
income of $666,839 related to the change in the fair value of our
outstanding common stock purchase warrants,
and
|
|
●
|
a
$9,909,320 gain on bargain purchase arising from our acquisition of Wuxi
ZQ.
|
In 2009, we realized $210,321 in net
interest expenses. We incurred $501,096 in interest expense on Wuxi
ZQ’s short-term bank loan. This was partially offset by $160,000 in
interest income that we earned by lending $1.6 million to a non-related company,
Harbin Jinhuida Investment Consulting Limited, at an interest rate of 10% per
annum, and by interest on our cash deposited in Chinese banks. Additionally, in
2009 we recognized $336,906 income due to the forgiveness of interest payable on
our existing short-term loans after negotiation with banks who loaned to Wuxi ZQ
before acquisition.
Furthermore, for the year ended
December 31 2009, we recognized a $17,401 investment loss from our 49% equity
investment in Beyond E-Tech, Inc., a Texas corporation recently organized to
engage in distributing cellular telephones in the United States. The
acquisition has been recorded as an “investment in unconsolidated entity” on our
balance sheet, and our participation in that business will be accounted for
through the equity method. Because Beyond E-Tech incurred a net loss
of $35,512 in 2009, we recorded a $17,401 reduction in the value of its equity
on our books.
In 2008
and 2009, the Company issued warrants in conjunction with the issuance of common
shares or convertible preferred stock. The warrants permit the investors to buy
additional common shares at the prices specified in the warrant
agreements. Because the Company may be required to repurchase the
warrants at their fair value in certain circumstances, the fair value of the
warrants has been recorded as a liability on our balance sheet. At
the end of each quarter, we re-calculate the fair value of the warrants by
Black-Scholes model, and record any increase or decrease in that fair value as
other income or other expense. During 2009, the change in
the fair value of warrants was $666,839, which was recognized as other income
for the year ended December 31, 2009. If in future quarters the
warrants decrease in value (e.g. by reason of an increase in the market price of
our common stock), we will record an other expense equal to the amount of the
increase.
Our acquisition of Wuxi ZQ in May 2009
resulted in a $9,909,320 gain on bargain purchase. This
occurred because the fair value of the net assets of Wuxi ZQ was $19,779,320,
but the 3,000,000 common shares that we paid to acquire Wuxi ZQ had a market
value of only $9,870,000. We recorded the $9,909,320 difference as
“other income.”
The Company’s revenue less expenses
produced pre-tax income of $27,592,238 for the year ended December 31, 2009,
representing an increase of $8,773,711 from 2008. In 2009, our domestic
(U.S.) pre-tax loss was $ 3,686,549 (including $666,839 other income due to
change in fair value of warrants); foreign (China) pre-tax income was
$29,055,793, which includes the $9,909,320 gain on bargain purchase recognized
in the second quarter of 2009. The income tax accrued as a result of our
operations was $2,764,339. The deferred income tax accrued in 2009
because of the gain on bargain purchase was $3,468,262. As a result of Chinese
tax laws that reward foreign investment in China, currently and through 2010 ZQ
Power-Tech is entitled to a 50% tax abatement, which results in an effective
corporate tax rate of approximately 12.5%. After taxes of $6,232,601
realized in the year ended December 31 2009, our net income was $ 21,359,637,
representing 32.7% increase over 2008.
Year Ended December 31, 2008
Compared to Year Ended December 31, 2007
Our business continued to grow in 2008,
as both revenue and net income increased by over 42%. Recognizing
that the worldwide recession would make it difficult for us to match that growth
rate in 2009, we began supplementing our growth-through-new-customers by making
strategic alliances that will capture new markets for
us. Specifically, at the end of 2008 we purchased a 49% interest in
Beyond E-Tech, a cell phone distributor, which will provide us a dedicated
customer for our cell phone batteries. And in the first half of 2009
we acquired Wuxi Angell, a leading manufacturer of battery-powered motorbikes
and scooters. These alliances will help us to offset the effects of
the recession.
Revenues: In 2008 we realized
$45,172,111 in revenues, an increase of 42% compared to the $31,897,618 in
revenue that we achieved in 2007. As a result of competition, our prices have
remained relatively stable. Our growth has been almost entirely the
result of increased unit sales. A number of factors contributed to
the increase in revenue from 2007 to 2008. Primary among them
were:
|
·
|
New
Customers. Our revenue in 2008 included $10,331,311 sold
to customers that had not purchased from us in prior
years. This expansion of our customer base is primarily a
result of the efforts of our growing network of independent sales
agents.
|
|
·
|
Vehicle
Batteries. Our sales of batteries for use in motorized
vehicles increased by 70% from 2007 to 2008. We expect growth
in this area to continue, primarily due to our acquisition of Wuxi
Angell.
|
|
·
|
Miner’s
Lamps. Our one end product, our miner’s lamp, has fueled
a significant portion of our growth. In 2008 our sales of
miner’s lamps and batteries for miner’s lamps totaled $10,777,298,
compared to $5,534,798 in 2007.
|
The
growth in our battery business has been accompanied by a reorientation in the
relative importance of different battery sizes. When we first entered
the battery business in 2003 and following years, the bulk of our sales were
small capacity batteries, primarily those used in consumer electronic
devices. Our growth, however, has been propelled by customers for our
medium capacity batteries (used for electric scooters, electric bicycles, power
tools, miners’ lamps, searchlights, etc.) and large capacity batteries (used for
electric sanitation vehicles, stationary applications, and other large scale
battery applications). In 2008, the contribution of batteries in
these categories to our total revenues was:
·
|
Small Capacity
Batteries.
|
|
$ |
4,727,223 |
|
|
|
(10.5 |
%) |
|
·
|
Medium
Capacity Batteries
|
|
$ |
16,200,079 |
|
|
|
(35.9 |
%) |
|
·
|
Large
Capacity Batteries:
|
|
$ |
13,467,511 |
|
|
|
(29.8 |
%) |
|
·
|
Other
|
|
$ |
10,777,298 |
|
|
|
(23.8 |
%) |
|
Gross Profit. Our cost of
revenues consists of the cost of raw materials, production costs and production
overhead. In 2008, although our revenue increased by 42%, our cost of
goods sold increased by only 28%, from $18,039,861 to
$23,122,610. This disparity permitted resulted from the efforts of
our production staff to achieve a more efficient use of raw materials, and from
our ongoing program of improving the efficiency of our production
techniques. The result was an improvement in our gross margin from
43% in 2007 to 49% in 2008.
The
current global recession has caused a widespread and dramatic drop in the cost
of raw materials, including the metals that we utilize in our
batteries. We expect this situation will permit us to maintain the
level of gross margin that we achieved in 2008. If the recession
results in diminished sales, however, our gross margin is likely to suffer, as a
reduction in sales would be likely to reduce the efficiency of our production
operations.
Operating Expenses: The
Company’s operating expenses fell by 11%, from $3,667,101 in 2007 to $3,267,872
in 2008. The decrease is primarily due to a one-time
compensation charge of $893,896, arising from a bonus granted to management
during the quarter ended March 31, 2007. In addition, we quelled our
aggressive research and development programs in 2008, while we focused on
expanding our production facility, and this reduced our expenditures for
research and development by $379,408. After eliminating these two
factors, we realized an increase of $502,332 (21%) from 2007 to
2008. The increase reflected expenses relating to the expansion of
our manufacturing facility as well as expenses incurred by our U.S. offices,
including the expense attributable to the Company’s listing on the NASDAQ
Capital Market in March 2008. We expect that future increases in our selling,
general and administrative expense will be roughly proportional to the increase
in our revenues. This will occur because the efficiencies that we are
realizing from our expanded operations will be partially offset by the expenses
of the US office.
Included in our general and
administrative expense during 2008 was $908,713 attributable to amortization of
the market value of stock that we granted to employees or consultants, primarily
during 2004. This non-cash expense resulted from our use of stock
during our early years to incentivize key individuals. The market
value of the stock at the time it was issued is being amortized over the term of
the employee’s or consultant’s services, thus:
|
·
|
In
the case of employees, the period of amortization is based on a vesting
schedule included in the employees’ contracts. The average
vesting period for the employees is 18.5 years. To date, no one
of the employees of ZQ Power-Tech who received stock awards has terminated
employment; so the amortization has been proportional to that
schedule.
|
|
·
|
In
the case of consultants, the period of amortization is based on the term
of the consulting contracts, although amortization will be accelerated if
the consulting relationship ceases. Again, to date, the
consultants who received stock have remained involved in the Company’s
affairs, so there has been no acceleration of
amortization.
|
At
December 31, 2008 there remained $5,737,795 in unamortized stock compensation on
the Company’s books. The amortization of this sum will contribute to
our operating expenses as described above.
At the end of 2008 we purchased, for
$1.5 million, 49% of the equity in Beyond E-Tech, Inc., a Texas corporation
recently organized to engage in distributing cellular telephones in the United
States. The acquisition has been recorded an “investment in
unconsolidated entity” on our balance sheet, and our participation in that
business will be accounted for through the equity method. Because
Beyond E-Tech incurred a net loss of approximately $185,000 in 2008, the value
of our investment was reduced on our balance sheet by 49% of that sum – i.e.
$90,707 – and we incurred “other expenses” in that amount. In
addition, at year-end we performed a valuation of our investment by estimating
future undiscounted net cash flows that can be expected from Beyond
E-Tech. That estimate indicated that our carrying cost for the
investment exceeded its value by $371,743. Accordingly, we also
reduced the book value of the investment by that amount, and recorded an
addition to operating expenses in that amount. In the future, our
gain or loss on the investment will be determined by similar allocations of the
income or loss incurred by Beyond E-Tech.
The Company’s revenue less expenses
produced a pre-tax income of $18,818,527 for 2008 and a pre-tax income of
$10,205,406 in 2007. As a result of Chinese tax laws that reward
foreign investment in China, ZQ Power-Tech was entitled to exemption from income
taxes during 2006 and 2007. So for 2007, the Company’s pre-tax income
was identical to its net income, representing $.25 basic earnings per share and
$.21 per share fully diluted. Currently and through 2010, ZQ
Power-Tech is entitled to a 50% tax abatement, which results in an effective
corporate tax rate of approximately 12.5%. After taxes of $2,722,407
realized in 2008, our net income for 2008 was $16,096,120, an increase of 58%
over 2007. This 2008 income represented $.37 basic earnings per share
and $.31 fully diluted.
Our business operates primarily in
Chinese Renminbi, but we report our results in our SEC filings in U.S.
Dollars. The conversion of our accounts from RMB to Dollars results
in translation adjustments. While our net income is added to the
retained earnings on our balance sheet; the translation adjustments are added to
a line item on our balance sheet labeled “accumulated other comprehensive
income,” since it is more reflective of changes in the relative values of U.S.
and Chinese currencies than of the success of our business. During
2008, the effect of converting our financial results to Dollars was to add
$2,912,481 to our accumulated other comprehensive income.
Liquidity and Capital
Resources
The growth of our Company has been
funded by capital contributions - initially those of our founders and in recent
years capital raised by the sale of equity to private investors. As a
result, the Company’s only debt at December 31, 2009 was a total of $2,916,071
in loans owed by Wuxi ZQ to Huaxia Bank. These loans bear interest at
6.57% per annum. We are currently negotiating with the bank to retire
this loan in the first quarter of 2010.
In June 2009 the Company completed two
placements of convertible preferred stock and warrants. The
purchasers were institutional funds. The net proceeds from the
placements and the exercise of warrants during 2009 was
$22,771,367. Pursuant to provisions of ASC 815 (previously: EITF
07-05) that became effective for 2009 and subsequent years, the present value of
the outstanding warrants is considered a liability.
In
October 2009 the Company sold 4,592,145 shares of common stock and 1,377,644
warrants to purchase common stock at $4.70 per share. The purchasers
were institutional funds. The net proceeds of the placement was
$18,017,350.
At December 31, 2009 the Company had a
working capital balance of $83,453,937, an improvement from our working capital
balance of $49,991,602 at December 31, 2008. We had $52,923,358 cash, an
increase of $20,177,203 from our cash balance of $32,746,155 at December 31,
2008. The primary reason for the improvement in working capital and cash was the
equity offerings we completed in June and October 2009, partially offset by
further investment in our facilities and higher working capital
demands. With the sufficient cash available, we believe we are able to fund
the current debt obligations when due.
ZQ
Power-Tech and Wuxi ZQ have sufficient liquidity to fund their near-term
operations and to fund the working capital demands of future expansion. If
we determine that additional funds are needed for other attractive growth
opportunities or for the full implementation of our long term expansion plans
for Wuxi ZQ, we have available over $18 million in property, plant and equipment
that ZQ Power-Tech owns free of liens, for potential collateral loans. On
February 28, 2010 our backlog of firm orders was approximately $49.7
million. Based on that backlog of orders, we believe that secured
financing will be available on favorable
terms if needed.
Given the financial resources available
to the Company, management believes that it has sufficient capital and liquidity
to sustain operations for the foreseeable future.
Application
of Critical Accounting Policies
In
preparing our financial statements we are required to formulate working policies
regarding valuation of our assets and liabilities and to develop estimates of
those values. In our preparation of the financial statements for
2009, there were five estimates made which were (a) subject to a high degree of
uncertainty and (b) material to our results. They were:
|
·
|
The
first was our determination, detailed in Note 21 to the Financial
Statements, that we had no need of a reserve for warranty
costs. The primary reason for the determination was the fact
that we have received no warranty claims to
date.
|
|
·
|
The
second was our determination, detailed in Note 15 to the Financial
Statements, to amortize the stock compensation that we gave to our
employees in 2005 and 2006 over an average of 18.5 years. The
determination was based on the senior status of the employees, the vesting
period under their employment contracts, and our expectation that they
will remain employed by ZQ Power-Tech for at least that
period.
|
|
·
|
The
third was our determination, detailed in Note 9 to the Financial
Statements, to record a $235,091 impairment loss on our investment in
Beyond E-Tech. The determination was based on Beyond E-Tech’s
projection of cash flows for the next five
years.
|
|
·
|
The
fourth was our determination, detailed in Note 5 to the Financial
Statements, to reserve the full amount of Wuxi ZQ’s outstanding loans
receivable, $480,705. The determination was based on our
inability to obtain assurances that the loans were
collectable.
|
|
·
|
The
fifth was our determination, detailed in Note 12, to the Financial
Statements, to record no impairment of Wuxi ZQ’s intangible
assets. The determination was based on our evaluation of the
future cash flows from Wuxi ZQ’s business, which exceeded the carrying
cost of the intangible assets.
|
We made
no material changes to our critical accounting policies in connection with the
preparation of financial statements for 2009.
Impact of Accounting
Pronouncements
There were no recent accounting
pronouncements that have had a material effect on the Company’s financial
position or results of operations.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition or results of
operations.
ITEM
6A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
|
Our operating subsidiary, ZQ
Power-Tech, carries on business exclusively in Chinese
Renminbi. Therefore it does not have any derivative instruments or
other financial instruments that are market risk sensitive.
ITEM
7. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm - Friedman
LLP
|
30
|
|
|
Report
of Independent Registered Public Accounting Firm - Bagell, Josephs, Levine
& Company, L.L.C. |
31 |
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
32
|
|
|
Consolidated
Statements of Income and Other Comprehensive Income for the years ended
December 31, 2009, 2008 and 2007
|
33
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December
31, 2009, 2008 and 2007
|
34
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
35
|
|
|
Notes
to Consolidated Financial Statements
|
36
|
To the
Board of Directors and
Stockholders
of Advanced Battery Technologies, Inc
We have
audited the accompanying balance sheets of Advanced Battery Technologies, Inc as
of December 31, 2009, and the related statements of income, stockholders’ equity
and comprehensive income, and cash flows for the year ended December 31, 2009.
We also have audited Advanced Battery Technologies, Inc’s internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Advanced Battery Technologies, Inc’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on the company’s internal
control over financial reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Battery Technologies, Inc
as of December 31, 2009, and the results of its operations and its cash flows
for the year ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion,
Advanced Battery Technologies, Inc maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
/s/
Friedman LLP
|
Friedman
LLP
|
|
Marlton
,NJ 08053
|
March 29,
2010
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Advanced
Battery Technologies, Inc.
We have
audited the accompanying consolidated balance sheets of Advanced Battery
Technologies, Inc.(the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of income and other comprehensive income,
changes in stockholders’ equity and cash flows for each of the three years in
the period ended December 31, 2008. We have also audited the Company’s internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organization of the Treadway Commission. (COSO).The Company’s management is
responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over financial
reporting based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of the consolidated financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
its inherent limitations, internal control over financial reporting,
may not prevent or detect misstatements. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Battery
Technologies, Inc. as of December 31, 2008, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December
31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
/s/
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Bagell,
Josephs, Levine & Company, L.L.C.
Marlton,
NJ 08053
March 12,
2009
The
report is a copy of the previously issued report.
The
predecessor auditor has not reissued the report.
ADVANCED
BATTERY TECHNOLOGIES, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
52,923,358 |
|
|
$ |
32,746,155 |
|
Accounts
receivable, net
|
|
|
22,406,927 |
|
|
|
14,708,078 |
|
Inventories,
net
|
|
|
3,680,098 |
|
|
|
1,748,115 |
|
Loan
receivable,net
|
|
|
1,600,000 |
|
|
|
1,600,000 |
|
Other
receivables
|
|
|
107,751 |
|
|
|
240,726 |
|
Advance
to suppliers,net
|
|
|
7,940,129 |
|
|
|
246,163 |
|
Total
Current Assets
|
|
|
88,658,263 |
|
|
|
51,289,237 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $10,477,610 as of
December 31, 2009 and $2,803,788 as of December 31,
2008
|
|
|
47,248,600 |
|
|
|
16,635,843 |
|
Total
Fixed Assets
|
|
|
47,248,600 |
|
|
|
16,635,843 |
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated entity
|
|
|
785,057 |
|
|
|
1,037,550 |
|
Investment
advance
|
|
|
1,457,034 |
|
|
|
3,000,000 |
|
Deposit
for long-term assets
|
|
|
2,860,882 |
|
|
|
1,748,363 |
|
Intangible
assets, net
|
|
|
14,317,502 |
|
|
|
1,548,158 |
|
Goodwill
|
|
|
2,472,311 |
|
|
|
2,487,080 |
|
Other
assets
|
|
|
26,705 |
|
|
|
6,000 |
|
Total
other assets
|
|
|
21,919,491 |
|
|
|
9,827,151 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
157,826,354 |
|
|
$ |
77,752,231 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Short-term
loan
|
|
$ |
2,916,071 |
|
|
|
- |
|
Accounts
payable
|
|
|
670,254 |
|
|
|
415,850 |
|
Advance
from Customers
|
|
|
228,871 |
|
|
|
80,479 |
|
Accrued
expenses and other payables
|
|
|
1,389,130 |
|
|
|
784,070 |
|
Loan
from officers
|
|
|
- |
|
|
|
17,236 |
|
Total
Current Liabilities
|
|
|
5,204,326 |
|
|
|
1,297,635 |
|
|
|
|
|
|
|
|
|
|
Long
term liabilities:
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
3,468,262 |
|
|
|
- |
|
Warrant
liability
|
|
|
17,221,335 |
|
|
|
|
|
Total
Liabilities
|
|
|
25,893,923 |
|
|
|
1,297,635 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 face value, 5,000,000 shares authorized; 2
shares issued and 2 shares outstanding as of December 31, 2009 and
0 shares issued and outstanding as of December 31,
2008
|
|
$ |
- |
|
|
|
- |
|
Common
stock, $0.001 par value, 150,000,000 shares authorized; 68,778,112
shares issued and 68,583,531 shares outstanding as of December 31, 2009
and 54,781,577 shares issued and 54,662,067 shares outstanding as of
December 31, 2008
|
|
|
68,778 |
|
|
|
54,782 |
|
Additional
paid-in-capital
|
|
|
74,114,122 |
|
|
|
39,289,991 |
|
Accumulated
other comprehensive income
|
|
|
5,496,334 |
|
|
|
6,012,475 |
|
Retained
earnings
|
|
|
52,752,687 |
|
|
|
31,393,050 |
|
Less:
Cost of treasury stock (194,581 and 119,510 shares as of December 31,2009
and December 31, 2008 )
|
|
|
(499,490 |
) |
|
|
(295,702 |
) |
Total
Stockholders' Equity
|
|
|
131,932,431 |
|
|
|
76,454,596 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
157,826,354 |
|
|
$ |
77,752,231 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
ADVANCED
BATTERY TECHNOLOGIES, INC.
|
CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
For
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
63,561,925 |
|
|
$ |
45,172,111 |
|
|
$ |
31,897,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Goods Sold
|
|
|
35,169,478 |
|
|
|
23,122,610 |
|
|
|
18,039,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
28,392,447 |
|
|
|
22,049,501 |
|
|
|
13,857,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development expenses
|
|
|
348,297 |
|
|
|
4,463 |
|
|
|
383,871 |
|
Selling,
general and administrative
|
|
|
11,154,217 |
|
|
|
3,263,409 |
|
|
|
3,283,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
16,889,933 |
|
|
|
18,781,629 |
|
|
|
10,190,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
290,774 |
|
|
|
124,487 |
|
|
|
14,750 |
|
Interest
(expense)
|
|
|
(501,096 |
) |
|
|
- |
|
|
|
- |
|
Equity
loss from unconsolidated entity
|
|
|
(17,401 |
) |
|
|
(90,707 |
) |
|
|
- |
|
Gain
on bargain purchase
|
|
|
9,909,320 |
|
|
|
- |
|
|
|
- |
|
Forgiveness
of debt
|
|
|
336,906 |
|
|
|
- |
|
|
|
- |
|
Other
income (expenses)
|
|
|
16,962 |
|
|
|
3,118 |
|
|
|
- |
|
Change
in fair value of warrants
|
|
|
666,839 |
|
|
|
- |
|
|
|
- |
|
Total
other income (expenses)
|
|
|
10,702,305 |
|
|
|
36,898 |
|
|
|
14,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Before Income Taxes
|
|
|
27,592,238 |
|
|
|
18,818,527 |
|
|
|
10,205,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax-Current
|
|
|
2,764,339 |
|
|
|
2,722,407 |
|
|
|
- |
|
Income
tax-Deferred
|
|
|
3,468,262 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,359,637 |
|
|
$ |
16,096,120 |
|
|
$ |
10,205,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(516,141 |
) |
|
|
2,912,481 |
|
|
|
2,125,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
$ |
20,843,496 |
|
|
$ |
19,008,602 |
|
|
$ |
12,330,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.41 |
|
|
$ |
0.37 |
|
|
$ |
0.25 |
|
Diluted
|
|
$ |
0.35 |
|
|
$ |
0.31 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,124,814 |
|
|
|
43,493,492 |
|
|
|
40,924,452 |
|
Diluted
|
|
|
60,222,687 |
|
|
|
51,671,992 |
|
|
|
49,677,285 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
ADVANCED
BATTERY TECHNOLOGIES, INC.
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008, and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
Treasury
Stock
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Shares
|
|
|
Par
Value
|
|
|
Paid
in Capital
|
|
|
Income
|
|
|
at
Cost
|
|
|
Earnings
(Deficit)
|
|
|
Total
|
|
Balance
December 31, 2006 (Restated)
|
|
|
|
|
|
|
|
|
49,627,710 |
|
|
|
49,628 |
|
|
|
17,090,614 |
|
|
|
974,584 |
|
|
|
- |
|
|
|
5,091,524 |
|
|
|
23,206,350 |
|
Stock
issued under employee equity incentive plan
|
|
|
|
|
|
|
|
|
61,288 |
|
|
|
61 |
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,205,406 |
|
|
|
10,205,406 |
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125,410 |
|
|
|
|
|
|
|
|
|
|
|
2,125,410 |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of prepaid consulting expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,215 |
|
Amortization
of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
561,123 |
|
Balance
December 31, 2007 (Restated)
|
|
|
|
|
|
|
|
|
49,688,998 |
|
|
$ |
49,689 |
|
|
$ |
18,029,891 |
|
|
$ |
3,099,994 |
|
|
$ |
- |
|
|
$ |
15,296,930 |
|
|
$ |
36,476,504 |
|
Issuance
of common stock for financing
|
|
|
|
|
|
|
|
|
5,058,834 |
|
|
|
5,059 |
|
|
|
20,351,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,356,480 |
|
Stock
issued under employee equity incentive plan
|
|
|
|
|
|
|
|
|
33,745 |
|
|
|
34 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,096,120 |
|
|
|
16,096,120 |
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,912,481 |
|
|
|
|
|
|
|
|
|
|
|
2,912,481 |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock (119,510 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295,702 |
) |
|
|
|
|
|
|
(295,702 |
) |
Amortization
of prepaid consulting expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309,237 |
|
Amortization
of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,476 |
|
Balance
December 31, 2008
|
|
|
|
|
|
|
|
|
54,781,577 |
|
|
$ |
54,782 |
|
|
$ |
39,289,991 |
|
|
$ |
6,012,475 |
|
|
$ |
(295,702 |
) |
|
$ |
31,393,050 |
|
|
$ |
76,454,596 |
|
Issuance
of preferred stock for financing
|
|
|
17,000 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
6,577,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,577,436 |
|
Conversion
of preferred stock to common stock
|
|
|
(16,998 |
) |
|
|
(17 |
) |
|
|
4,387,993 |
|
|
|
4,388 |
|
|
|
(4,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Issuance
of common stock for acquisition
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,000 |
|
|
|
9,867,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,870,000 |
|
Issuance
of common stock for financing
|
|
|
|
|
|
|
|
|
|
|
4,592,145 |
|
|
|
4,592 |
|
|
|
13,770,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,775,318 |
|
Exercise
of warrants
|
|
|
|
|
|
|
|
|
|
|
1,722,622 |
|
|
|
1,723 |
|
|
|
5,976,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,977,780 |
|
Stock
issued for service
|
|
|
|
|
|
|
|
|
|
|
293,775 |
|
|
|
294 |
|
|
|
(294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,359,637 |
|
|
|
21,359,637 |
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(516,141 |
) |
|
|
|
|
|
|
|
|
|
|
(516,141 |
) |
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock (75,071 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203,788 |
) |
|
|
|
|
|
|
(203,788 |
) |
Amortization
of prepaid consulting expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,562 |
|
Amortization
of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,925,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,925,653 |
|
Reclassification
of prior warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,429,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,429,992 |
) |
Balance
December 31, 2009
|
|
|
2 |
|
|
$ |
0 |
|
|
|
68,778,112 |
|
|
$ |
68,778 |
|
|
$ |
74,114,122 |
|
|
$ |
5,496,334 |
|
|
$ |
(499,490 |
) |
|
$ |
52,752,687 |
|
|
$ |
131,932,431 |
|
The
accompanying notes are an integral part of these consolidated financial
statements
ADVANCED
BATTERY TECHNOLOGIES, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
21,359,637 |
|
|
$ |
16,096,120 |
|
|
$ |
10,205,406 |
|
Adjustments
to reconcile net income to net cash provided
by (used in)operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on bargain purchase
|
|
|
(9,909,320 |
) |
|
|
- |
|
|
|
- |
|
Deferred
income tax
|
|
|
3,468,262 |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
2,629,643 |
|
|
|
767,235 |
|
|
|
699,749 |
|
Amortization
of deferred consulting expenses
|
|
|
137,562 |
|
|
|
309,237 |
|
|
|
378,215 |
|
Amortization
of stock based compensation expense
|
|
|
1,925,653 |
|
|
|
599,476 |
|
|
|
561,123 |
|
Loan
converted to compensation
|
|
|
- |
|
|
|
- |
|
|
|
843,803 |
|
Equity
loss of unconsolidated entity
|
|
|
17,401 |
|
|
|
90,707 |
|
|
|
- |
|
Provision
for doubtful accounts and inventory valuation allowance
|
|
|
(208,876 |
) |
|
|
64,161 |
|
|
|
- |
|
Forgiveness
of debt
|
|
|
(336,849 |
) |
|
|
- |
|
|
|
- |
|
Investment
Impairment Loss
|
|
|
235,091 |
|
|
|
371,743 |
|
|
|
- |
|
Loss
on disposal of fixed asset
|
|
|
- |
|
|
|
55,187 |
|
|
|
- |
|
Change
in fair value of warrants
|
|
|
(666,839 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(6,514,738 |
) |
|
|
1,002,020 |
|
|
|
(11,079,633 |
) |
Inventories
|
|
|
(274,638 |
) |
|
|
(636,296 |
) |
|
|
(720,228 |
) |
Other
receivable & prepayments
|
|
|
(5,605,572 |
) |
|
|
1,507,030 |
|
|
|
(8,787 |
) |
Accounts
payable, accrued expenses and other payables
|
|
|
(7,825,590 |
) |
|
|
196,288 |
|
|
|
(267,031 |
) |
Advances
from Customer
|
|
|
(1,164,942 |
) |
|
|
5,363 |
|
|
|
26,264 |
|
Taxes
payable
|
|
|
(174,435 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
(2,908,549 |
) |
|
|
20,428,271 |
|
|
|
638,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable
|
|
|
- |
|
|
|
(1,600,000 |
) |
|
|
- |
|
Deposit
for long-term assets
|
|
|
(2,828,783 |
) |
|
|
(1,748,363 |
) |
|
|
- |
|
Purchase
of property, plant and equipment
|
|
|
(6,665,374 |
) |
|
|
(65,672 |
) |
|
|
(96,342 |
) |
Cash
acquried from subsidiary
|
|
|
832,555 |
|
|
|
- |
|
|
|
- |
|
Payment
made on investment advance
|
|
|
(1,463,913 |
) |
|
|
(3,000,000 |
) |
|
|
- |
|
Acquistion
of Construction in process
|
|
|
(2,667,993 |
) |
|
|
(3,126,130 |
) |
|
|
- |
|
Investment
in unconsolidated subsidary
|
|
|
- |
|
|
|
(1,500,000 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(12,793,507 |
) |
|
|
(11,040,165 |
) |
|
|
(96,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of bank loan
|
|
|
(4,389,735 |
) |
|
|
- |
|
|
|
- |
|
Purchase
of treasury stock
|
|
|
(203,788 |
) |
|
|
(295,702 |
) |
|
|
- |
|
Repayments
of notes payable
|
|
|
- |
|
|
|
(411,263 |
) |
|
|
- |
|
Proceeds
from issuance of stock, net
|
|
|
40,788,717 |
|
|
|
20,356,480 |
|
|
|
- |
|
Proceeds
from officer loan
|
|
|
- |
|
|
|
- |
|
|
|
776,826 |
|
Repayment
of officer loan
|
|
|
(140,059 |
) |
|
|
(718,465 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
36,055,135 |
|
|
|
18,931,050 |
|
|
|
776,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(175,876 |
) |
|
|
1,722,176 |
|
|
|
1,372,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
20,177,202 |
|
|
|
30,041,332 |
|
|
|
2,692,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of year
|
|
|
32,746,155 |
|
|
|
2,704,823 |
|
|
|
12,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of year
|
|
$ |
52,923,358 |
|
|
$ |
32,746,155 |
|
|
$ |
2,704,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the year, cash was paid for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$ |
395,496 |
|
|
$ |
- |
|
|
$ |
- |
|
Income
taxes
|
|
$ |
1,083,556 |
|
|
$ |
2,881,966 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for incentive stock-based compensation
|
|
$ |
1,162,850 |
|
|
$ |
139,403 |
|
|
$ |
71,000 |
|
Common
stock issued for acquisition of Wuxi ZQ
|
|
$ |
9,870,000 |
|
|
$ |
- |
|
|
$ |
- |
|
Option
issued to executives for service
|
|
$ |
777,660 |
|
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
1.
ORGANIZATION AND BASIS OF PRESENTATION
Advanced
Battery Technologies, Inc. ("ABAT" or the "Company") was incorporated in the
State of Delaware on January 16, 1984.
On May 6,
2004, the Company completed a share exchange (the "Exchange") with the
shareholders of Cashtech Investment Limited (“Cashtech”), a British Virgin
Islands Corporation, who, at the time, owned 70% interest of Harbin Zhong Qiang
Power-Tech Co., Ltd. (“ZQPT” or “Harbin ZQPT”), a limited liability company
established in the People’s Republic of China (the “PRC”). As result of this
share exchange transaction, there was change of control in the Company as the
shareholders of Cashtech became the majority shareholders of the
Company.
The
transaction had been accounted for as a reverse acquisition under the purchase
method of accounting. Accordingly, Cashtech was treated as the continuing entity
for accounting purposes.
On
January 6, 2006, the minority shareholders of ZQPT transferred the
remaining 30% of their interests in ZQPT to Cashtech in exchange for 11,780,594
shares of the Company’s Common Stock. As result of this transfer, Cashtech now
owns 100% of the capital stock of ZQPT.
On May 4,
2009, the Company acquired 100% interest of Wuxi Angell Autocycle Co., Ltd.
(“Wuxi ZQ”).
On August
20, 2002, Heilongjiang Zhongqiang Power-Tech Co., Ltd (“HLJ ZQPT”), was
incorporated under the laws of the PRC. HLJ ZQPT is owned by our Chairman,
Mr. Fu and other individuals but controlled by Harbin ZQPT through a series of
contractual arrangements that transferred all of the benefits and all of the
responsibilities for the operations of HLJ ZQPT to Harbin ZQPT. During 2009 HLJ
ZQPT also transferred to Harbin ZQPT all of its rights in the real property on
which HLJ carries on its operations. The Company is in the process of
transferring all of the other assets of HLJ ZQPT to Harbin ZQPT, but has not yet
obtained all of the necessary government approvals. Harbin ZQPT
accounts for HLJ ZQPT as a Variable Interest Entity (“VIE”) under ASC 810
“Consolidation”. Accordingly, Harbin ZQPT consolidates HLJ ZQPT’s results,
assets and liabilities.
The
Company is engaged in design, manufacture and distribution of rechargeable
polymer lithium-ion batteries and electric vehicles through its wholly owned
subsidiaries, Cashtech, ZQPT, Wuxi ZQ and the VIE, HLJ ZQPT. The Company’s main
operations are located in the PRC.
The
accompanying consolidated financial statements of the Company and its
subsidiaries have been prepared in accordance with generally accepted accounting
principles in the United States of America (“US GAAP”).
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2. SIGNIFICANT ACCOUNTING
POLICIES
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Cashtech Inc., ZQPT, Wuxi ZQ and the VIE, HLJ
ZQPT. All significant inter-company balances and transactions have
been eliminated in consolidation.
Use
of estimates
In
preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, the management
makes estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the consolidated financial statements, as well as the reported amounts of
revenues and expenses during the reporting periods. Significant estimates
required to be made by the management include, but are not limited to, the
recoverability of long-lived assets and the valuation of accounts receivable and
inventories. Actual results could differ from those estimates.
Fair
value of financial instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures. ASC 820
clarifies the definition of fair value, prescribes methods for measuring fair
value, and establishes a fair value hierarchy to classify the inputs used in
measuring fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
carrying amounts reported in the balance sheets for cash, accounts receivable,
loan receivables, other receivables, advance to suppliers, short-term loan,
accounts payable, advance from customers, other payables and accrued expenses,
approximate their fair market value based on the short-term maturity of these
instruments. The Company did not identify any assets or liabilities that are
required to be presented on the consolidated balance sheets at fair value in
accordance
with ASC 820.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Risks
of losses
The
Company is potentially exposed to risks of losses that may result from business
interruptions, injury to others (including employees) and damage to
property. These losses may be uninsured, especially due to the fact that
the Company’s operations are in China, where business insurance is not readily
available. If: (i) information is available before the Company’s financial
statements are issued or are available to be issued indicates that such loss is
probable and (ii) the amount of the loss can be reasonably estimated, an
estimated loss will be accrued by a charge to income. If such loss is
probable but the amount of loss cannot be reasonably estimated, the loss shall
be charged to the income of the period in which the loss can be reasonably
estimated and shall not be charged retroactively to an earlier period. As
of December 31, 2009 and 2008, the Company has not experienced any uninsured
losses from injury to others or other losses.
Subsequent
events
The
Company has evaluated subsequent events that have occurred through the date of
this financial statement issuance and has determined that there were no material
events since the balance sheet of this report.
Cash
and cash equivalents
For
purposes of the statement of cash flow, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Accounts
receivable
Accounts
receivables are stated at net realizable value. Any allowance for doubtful
accounts is established based on the management’s assessment of the
recoverability of accounts and other receivables. Management regularly reviews
the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the collectability of accounts
receivable and the adequacy of the allowance. The allowance for accounts
receivable is $570,182 and $16,506 as of December 31, 2009 and 2008
respectively.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined on a weighted average
method. Cost of work in progress and finished goods comprises direct
material, direct production cost and an allocated portion of production
overheads. Management compares the cost of inventory
with the market value and an allowance is made for writing down the inventory to
its market value, if lower.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property,
plant and equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
amortization. Maintenance, repairs and betterments, including replacement of
minor items, are charged to expense; major additions to physical properties are
capitalized. Depreciation and amortization are provided using the straight-line
method (after taking into account their respective estimated residual values)
over the estimated useful lives of the assets as follows:
|
Buildings
and improvements
|
20-39
years
|
|
Machinery,
equipment and motor vehicles
|
5-10
years
|
Construction
in progress
Construction
in progress represents buildings and machinery under construction, which is
stated at cost and is not depreciated. Cost comprises the direct costs of
construction. Construction in progress is reclassified to the appropriate
category of property, plant and equipment when completed and ready for
use.
Acquisitions
The
purchase method of accounting is used to account for the acquisition by the
Company. The cost of an acquisition is measured at the fair value of the assets
given, equity instruments issued and liabilities incurred or assumed at the date
of exchange, plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Group’s share of the identifiable net
assets acquired is recorded as goodwill. If the cost of acquisition is less than
the fair value of the net assets of the subsidiary acquired, the excess of the
value of the net assets acquired over the purchase price was recorded as gain on
bargain purchase and is shown as a separate component of revenues in the
Company’s Consolidated Statement of Income for the year ended December 31,
2009 (See note 18).
Goodwill
Goodwill
and other intangible assets are accounted for in accordance with the provisions
of ASC 350, “Goodwill and Other Intangible Assets.” Under ASC 350, goodwill,
including any goodwill included in the carrying value of investments accounted
for using the equity method of accounting, and certain other intangible assets
deemed to have indefinite useful lives are not amortized. Rather, goodwill and
such indefinite-lived intangible assets are assessed for impairment at least
annually based on comparisons of their respective fair values to
their
carrying
values.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment
of long-lived assets
Finite-lived
intangible assets are amortized over their respective useful lives and, along
with other long-lived assets, are evaluated for impairment periodically whenever
events or changes in circumstances indicate that their related carrying amounts
may not be recoverable in accordance with ASC 360, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”
In
evaluating long-lived assets for recoverability, including finite-lived
intangibles and property and equipment, the Company uses its best estimate of
future cash flows expected to result from the use of the asset and eventual
disposition in accordance with ASC 360. To the extent that estimated future
undiscounted net cash flows attributable to the asset are less than the carrying
amount, an impairment loss is recognized in an amount equal to the difference
between the carrying value of such asset and its fair value. Assets to be
disposed of and for which there is a committed plan of disposal, whether through
sale or abandonment, are reported at the lower of carrying value or fair value
less costs to sell.
Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. Sales revenue is recognized when title and risks have
passed, which is generally at the date of shipment and when collectability is
reasonably assured.
The
Company sells its products to the customers who have passed the Company’s credit
check. Sales agreements are signed with each customer. The purchase price of
products is fixed in the agreement. The company makes custom products based on
sales agreements, so no returns are allowed. The Company warrants the product
only in the event of defects for one year from the date of shipment.
Historically, the Company has not experienced significant defects, and
replacements for defects have been minimal. For the years ended December 31,
2009, 2008 and 2007, no such returns and allowances have been recorded. Should
returns increase in the future it would be necessary to adjust estimates, in
which case recognition of revenues could be delayed. Payments received before
all of the relevant criteria for revenue recognition are recorded as advance
from customers.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Product
warranty
The
Company provides product warranties to its customers that all equipment
manufactured by it will be free from defects in materials and workmanship under
normal use for a period of one year from the date of shipment. The Company's
costs and expenses in connection with such warranties has been minimal and
during the three-year period ended December 31 2009, no product warranty reserve
was considered necessary.
Stock-Based
compensation
Effective
January 1, 2006, the Company adopted the provisions of ASC 718, “Share-Based
Payments,” which establishes the accounting for employee stock-based awards.
Under the provisions of ASC 718, stock-based compensation is measured at the
grant date, based on the calculated fair value of the award, and is recognized
as an expense over the requisite employee service period (generally the vesting
period of the grant). The Company adopted ASC 718 using the modified prospective
method and, as a result, periods prior to December 31, 2005 have not been
restated.
Prior to
December 31, 2005, the Company accounted for stock-based compensation in
accordance with provisions of Accounting Principles Board Opinion No. 25 (“APB
No. 25), “Accounting for Stock Issued to Employees,” and related
interpretations. Under APB No. 25, compensation cost was recognized based on the
difference, if any, on the date of grant between the fair value of the Company’s
stock and the amount an employee must pay to acquire the stock. The Company has
not granted any stock options and, accordingly, no compensation expense related
to options was recognized prior to the adoption of ASC 718.
Unearned
compensation represents shares issued to executives and employees that will be
vested over a certain service period. These shares will be amortized over the
vesting period in accordance with ASC 718. The average vesting period for the
shares issued to date has been 10.40 years, based on the terms of the employment
agreements under which the stock was awarded. The stock-based compensation was
$1,925,653, $599,476 and $499,123 for the years ended December 31, 2009, 2008
and 2007, respectively.
The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 718 “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received. Fair value is measured as the
value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument
is charged directly to compensation expense and additional paid-in
capital.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research
and development costs
Research
and development costs are expensed as incurred. The salaries of engineers and
technical staff in our research and development division are included in
research and development expense. The expense was $476,196, $4,463 and $383,871
for the years ended December 31, 2009, 2008 and 2007, respectively.
Advertising
Advertising
is expensed as incurred. Advertising expenses were included in selling expenses
and amounted to $1,016,820 for the years ended December 31, 2009. The Company
did not have any advertising expenses for the years ended December 31, 2008 and
2007.
Income tax
The
Company utilizes ASC 740, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
Comprehensive
income
Comprehensive
income is defined to include changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. Comprehensive income includes net income and the foreign currency
translation gain, net of tax.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 2008 AND 2007
2.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic
and diluted earnings per share
Earnings
per share are calculated in accordance with the ASC 260, “Earnings per share.”
Basic net earnings per share are based upon the weighted average number of
common shares outstanding, but excluding shares issued as compensation that have
not yet vested. Diluted net earnings per share are based on the assumption that
all dilutive convertible shares and stock options were converted or exercised,
and that all unvested shares have vested. Dilution is computed by applying
the treasury stock method. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of issuance, if
later), and as if funds obtained thereby were used to purchase common stock at
the average market price during the period.
Segment
reporting
ASC 280
requires use of the “management approach” model for segment reporting. The
management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company. During the year ended December 31, 2009, the Company
operated in two business segments - battery segment and electronic vehicle
segment. The Company operated in one business segment for the years ended
December 31, 2008 and 2007.
Foreign
currency translation
The
functional currency of ZQPT, HLJ ZQPT and Wuxi ZQ is the Chinese Renminbi
(“RMB”). For financial reporting purposes, RMB has been translated into United
States dollars ("USD") as the reporting currency. Assets and liabilities are
translated at the exchange rate in effect at the balance sheet date. Income
statement accounts are translated at the average rate of exchange prevailing for
the period. Capital accounts are translated at their historical exchange rates
when the capital transaction occurred. Translation adjustments arising from the
use of different exchange rates from period to period are included as a
component of stockholders' equity as "Accumulated other comprehensive income."
Gains and losses resulting from foreign currency translation are included in
accumulated other comprehensive income.
ADVANCED
BATTERY TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009, 20