UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2004.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 0-13337
ADVANCED BATTERY TECHNOLOGIES, INC,
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(Name of Small Business Issuer in its Charter)
Delaware 22-2497491
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(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
136-14 Northern Blvd., Suite 8E, Flushing, NY 11354
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(Address of principal executive offices)
Issuer's Telephone Number, including Area Code: 718-359-6866
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
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
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 [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $ 1,191,509.
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 March 28, 2005 was $8,441,348.
As of March 28, 2005 the number of shares outstanding of the Registrant's
common stock was 24,237,094 shares, $.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE: None
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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Risk Factors That May Affect
Future Results." Readers are cautioned not to place undue reliance on these
forward-looking statement. 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
subsidiary: Cashtech Investment Limited, a British Virgin Islands
corporation. Cashtech Investment Limited has only one asset, which is 70%
of the capital stock of Heilongjiang ZhongQiang Power-Tech Co., Ltd., a
China limited liability company ("ZQ Power-Tech").
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.
-1-
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 miner's lamp equipped with a rechargeable PLI battery
that ZQ Power-Tech sells to an agency of the Chinese government. All of ZQ
Power-Tech's other 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.
ZQ Power-Tech has produced an automobile battery under a contract
from the government of Harbin. This rechargeable PLI battery weighs
approximately 500 pounds, and is designed for commuter vehicles. It
permits a top speed of 120 mph, and a traveling distance of 240 miles per
charge. The battery discharges 5% of its energy per hour, when not in use,
so daily recharging is necessary. The battery can be recharged in 3 to 4
hours. ZQ Power-Tech currently has an order from the Heilongjiang Bus
Company to supply polymer lithium-ion batteries to power its commuter
buses.
ZQ Power-Tech has focused its initial marketing activities in
southeast Asia, primarily China, Taiwan and Japan. As it expands its
manufacturing capacity, ZQ Power-Tech intends to expand its marketing
efforts worldwide.
Backlog
ZQ Power Tech's backlog of sales orders totaled approximately
$8,000,000 on March 25, 2005. On March 25, 2004 our backlog of orders
totaled $578,000.
-2-
In the summer of 2004 ZQ Power-Tech received a one-year $21 million
order to supply 3.7 volt PLI battery sets for electric cars manufactured
by Aiyingsi Company. That project has been delayed, however, as Aiyingsi
has not finalized the specifications for the battery. We expect that order
to be renewed sometime in 2005.
Marketing
To date ZQ Power-Tech has conducted most of its marketing direct to
its customers. ZQ Power-Tech does have one sales agent, Easywood Holdings
Limited of Hong Kong. Easywood was responsible for approximately 35% of ZQ
Power-Tech's sales in 2004.
We are currently negotiating marketing relationships with a number of
companies in Asia, Europe and the United States. Our plan is to
significantly expand our market presence as our facilities reach an
operating level sufficient to service a much higher level of sales.
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.
Intellectual Property
ZQ Power-Tech owns one Chinese patent and has applied for five more.
It owns a patent for a cellular phone battery pole plate. It has applied
for patents on:
- A polymer lithium-ion battery and its production method.
- A large capacity polymer lithium-ion battery and its production
method.
- An ultra-thin polymer lithium-ion battery for a miner's lamp and its
production method.
- A walkie-talkie lithium-ion battery and its production method.
- A mobile phone battery and its production method.
During 2003 ZQ Power Tech spent $493,114 on research and development
as it completed the formulae for its polymer lithium-ion batteries. During
2004 our research and development expenditures fell to $65,415, as we
reoriented our focus toward implementing the assembly lines needed to
introduce our products to the market on a mass scale. We expect our
research and development expenditures to remain modest through 2005, as our
cash resources will continue to be focused on the build-out of our
facility. However, when the build-out is completed and our cash and
management personnel can again be focused on research, we intend to invest
heavily in the development of a second-generation product line.
-3-
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.
Employees
Advanced Battery has only two employees: its Chairman and its
Secretary. ZQ Power-Tech has 360 employees. 28 are involved in
administration and 8 in marketing. The remainder are employed in
production capacities. None of our employees belongs to a collective
bargaining unit.
Item 2. Properties
The People's Republic of China has give 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 utilizes the property for manufacturing.
During 2004 ZQ Power-Tech commenced an ongoing program of expanding
its production facility. It now has a production capacity of approximately
$20,000,000 per year, depending on the specific products being produced.
Management intends to increase the production capacity to $40,000,000 per
year during 2005. In addition to building additional factories on its
campus, ZQ Power-Tech has an ongoing training program for production
workers. ZQ Power-Tech expects that during 2005 it will add 840 production
workers to its current 360 employees, which will significantly increase ZQ
Power-Tech's production capacity.
In November 2003 ZQ Power-Tech received ISO9001 certification
pertaining to Manufacturing and Quality Control Approval.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-4-
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Small Business Issuer Purchases of Equity Securities
(a) Market Information
The Company's common stock is quoted on the OTC Bulletin Board under
the symbol "ABAT.OB." Set forth below are the high and low bid prices for
each of the eight quarters in the past two fiscal years. The reported bid
quotations reflect inter-dealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual transactions. All
quotations have been adjusted as if the 1-for-10 reverse stock split
implemented in July 2004 had occurred prior to January 1, 2003.
Bid
-----------------
Quarter Ending High Low
March 31, 2003 $ .10 $ .10
June 30, 2003 $ .35 $ .10
September 30, 2003 $ .30 $ .30
December 31, 2003 $ .30 $ .30
March 31, 2004 $ 1.20 $ .30
June 30, 2004 $ 9.40 $ 1.00
September 30, 2004 $ 7.50 $ 1.75
December 31, 2004 $ 1.85 $ .46
(b) Shareholders
Our shareholders list contains the names of 409 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.
-5-
(d) Sale of Unregistered Securities
Advanced Battery did not effect any unregistered sales of equity
securities during the 4th quarter of 2004.
(e) Repurchase of Equity Securities
The Company did not repurchase any of its equity securities that were
registered under Section 12 of the Securities Act during the 4th quarter of
2003.
Item 6. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
During the year ended December 31, 2003 ZQ Power-Tech's activities
were focused on development of its product line and the build-out of its
manufacturing facility. ZQ Power-Tech recorded its first significant
revenues in the first half of 2004, ending June 30, 2004. For that six
month period, it recorded sales totaling $968,675. Most of these sales
were made to five customers.
The Company's level of sales fell in the second half of 2004 to
$222,834. The reduction occurred primarily because the Company in the late
summer began focusing on fulfilling one major order from Aiyingsi Company,
only to have the order delayed into 2005 by the customer. In addition,
deliveries were slow in part because the management personnel at ZQ Power-
Tech were focused on completing additional factory facilities at ZQ Power-
Tech's campus in Heilongjiang. These facilities have now been completed,
resulting in a substantial increase in the manufacturing capacity of ZQ
Power-Tech.
Currently, ZQ Power-Tech has a backlog of approximately $8 million,
most of which comes from seven customers. We do not include in our current
backlog the $21 million order placed by Aiyingsi in 2004, since the
delivery times for that order have been delayed indefinitely. We do expect,
however, that we will commence shipments to Aiyingsi during 2005.
ZQ Power-Tech realized a 32% gross margin on its sales in 2004,
ranging from 44% in the first quarter to 25% in the third quarter,
reflecting a different mix of products sold in each quarter. The gross
margin ratio in the future will depend considerably upon which of ZQ Power-
Tech's products are dominating sales. So it is premature to predict
whether the 32% level achieved to date will be maintained.
-6-
The general and administrative expenses recorded in 2004
substantially exceeded revenue. This was primarily the result of low
revenue. However, general and administrative expense of $2,786,900
included a non-cash expense of $2,101,116 attributable to consulting fees
and salaries that were prepaid by the Company issuing common stock to the
consultants and employee. At December 31, 2004 there remained $1,792,634
in prepaid expenses on the Company's balance sheet, which will be
amortized as expenses over the next three years. However the expected
increase in ZQ Power-Tech's net sales should result in a better ratio of
expenses to sales.
The Company's revenue less expenses produced a net loss of $2,349,704
for 2004. However, because Advanced Battery owns only 70% of ZQ Power-
Tech, the loss was reduced by $89,395 on Advanced Battery's statements of
operations, representing 30% of the loss incurred by ZQ Power-Tech. If, in
the future, ZQ Power-Tech reports earnings, the earnings will be similarly
discounted by 30% on Advanced Battery's statements of operations, as long
as there remains 30% of ZQ Power-Tech that is not owned by Advanced
Battery.
Liquidity and Capital Resources
Until December 2004, the development and initial operations of ZQ
Power-Tech were financed primarily by contributions to capital made by
Zhiguo Fu, the Company's Chairman. On December 1, 2004, ZQ Power-Tech
entered into a Loan Agreement with China Financial Bank, and received a
loan of 20 million RMB (approximately $2.4 million). The Loan Agreement
requires that half of the principal be paid in a balloon in November 2005
and half in November 2006. Interest at 8.064% per annum is payable
monthly. $1.9 million of the obligation is secured by a pledge of ZQ
Power-Tech's manufacturing facilities; the remainder of the debt is secured
by a pledge of our realty assets.
The arrangement with China Financial Bank provided ZQ Power-Tech with
working capital. Nevertheless, the expansion of its manufacturing
facilities that has been ongoing since early 2004 required that Mr. Fu and
two business associates contribute $4,832,976 to fund construction. In
January 2005 Advanced Battery compensated Mr. Fu and his associates for 70%
of that contribution by issuing them a total of 11,276,947 common shares.
The remaining 30% of the cash was treated as a contribution to the capital
of ZQ Power-Tech, 30% of which is owned by Mr. Fu.
At December 31, 2004 ZQ Power-Tech had a working capital deficit of
$1,752,645, an increase in the deficit of $1,736,424 during 2004. Among
the principal factors in the deficit were customer deposits totaling
$814,282 provided by ten customers. These deposits will be amortized as
products are delivered to the customers, all of whose orders are scheduled
for delivery no later than September 2005. Also a factor in our working
capital deficit is an unsecured note payable to a Chinese institutional
lender in the amount of $328,670. The note was due in January 2005 and is
now payable on demand. To date, the lender has not taken any action to
collect the debt.
-7-
Despite its negative working capital, ZQ Power-Tech has sufficient
liquidity to fund its near-term operations. The principal capital resource
available is $8,348,133 in property, plant and equipment, construction in
process, and real property rights, which ZQ Power-Tech owns subject only to
the China Financial Bank lien for $2.4 million. Based on the substantial
backlog of orders that ZQ Power-Tech has accumulated, it believes that
additional secured financing will be available to it on favorable terms
when needed. Until then, if short-term cash shortages occur, Mr. Fu has
committed to provide financing as needed.
Based upon the financial resources available to ZQ Power-Tech,
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 2004, there were two estimates made which were (a) subject
to a high degree of uncertainty and (b) material to our results. The first
was our determination, detailed in Note 11 to the Financial Statements,
that we should record a valuation allowance for the full value of the
deferred tax asset created by our net operating loss carryforward. The
primary reason for the determination was our lack of certainty as to
whether ZQ Power-Tech would carry on profitable operations in the future.
The second estimate was our determination, detailed in Note 20 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.
We made no material changes to our critical accounting policies in
connection with the preparation of financial statements for 2004.
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. There was one recent accounting pronouncement that may have a
material effect on the Company's financial position or results of
operations.
In December 2004, the FASB issued SFAS No. 123R "Share-Based
Payment." This Standard addresses the accounting for transactions in which
a company receives employee services in exchange for (a) equity instruments
of the company or (b) liabilities that are based on the fair value of the
company's equity instruments or that may be settled by the issuance of such
equity instruments. This Standard eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and requires
-8-
that such transactions be accounted for using a fair-value-based method.
The Standard is effective for periods beginning after June 15, 2005. The
Standard may adversely affect the Company's results of operations if the
Company issues a material amount of capital stock for services, as it did
during 2004.
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.
Risk Factors That May Affect Future Results
You should carefully consider the risks described below before buying
our common stock. If any of the risks described below actually occurs,
that event could cause the trading price of our common stock to decline,
and you could lose all or part of your investment.
I. RISKS ATTENDANT TO OUR BUSINESS
WE MAY BE UNABLE TO GAIN A SUBSTANTIAL SHARE OF THE MARKET FOR
BATTERIES.
We have only one product line, rechargeable polymer lithium-ion
batteries. We first marketed our batteries in the Spring of 2004, and have
reported modest revenue to date. There are many companies, both large and
small, involved in the market for rechargeable batteries. 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 operate efficiently and our business will fail.
WE MAY BE UNABLE TO SATISFY OUR CURRENT DEBTS.
Our current liabilities are far in excess of the book value of our
current assets. At December 31, 2004 our current liabilities totaled
$3,048,490 and our current assets totaled $1,295,845, only $758,332 of
which were liquid assets. We are engaged in efforts to negotiate
compromises and extensions with our major creditors. If those negotiations
are unsuccessful, however, our business may fail.
WE LACK SUFFICIENT CAPITAL TO FULLY CARRY OUT OUR BUSINESS PLAN.
In order to make our operations cost-efficient, it is necessary that
we expand our operations. At the present time, however, our capital
resources are sparse. In order to expand our operations, we will need an
infusion of capital to fund the build-out of our manufacturing facility and
an accumulation of inventory. We are engaged in discussions with potential
-9-
sources of capital, and have recently obtained a $2.4 million loan. It is
not clear whether the proceeds of that loan will be sufficient to permit us
to expand to an efficient operating point.
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.
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.
-10-
CAPITAL OUTFLOW POLICIES IN CHINA MAY HAMPER OUR ABILITY TO PAY
DIVIDENDS TO SHAREHOLDERS IN THE UNITED STATES.
The People's Republic of China has adopted currency and capital
transfer regulations. These regulations require that we comply with complex
regulations for the movement of capital. Although Chinese governmental
policies were introduced in 1996 to allow the convertibility of RMB into
foreign currency for current account items, conversion of RMB into foreign
exchange for capital items, such as foreign direct investment, loans or
securities, requires the approval of the State Administration of Foreign
Exchange. We may be unable to obtain all of the required conversion
approvals for our operations, and Chinese regulatory authorities may impose
greater restrictions on the convertibility of the RMB in the future.
Because most of our future revenues will be in RMB, any inability to obtain
the requisite approvals or any future restrictions on currency exchanges
will limit our ability to fund our business activities outside China or to
pay dividends to our shareholders.
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 resources.
TRADE BARRIERS AND TAXES MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS
AND OPERATIONS.
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.
CURRENCY FLUCTUATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
We generate revenues and incur expenses and liabilities in Chinese
RMB. However we report our financial results in the United States in U.S.
Dollars. As a result, we are subject to the effects of exchange rate
fluctuations between these currencies. Recently, there have been
suggestions made to the Chinese government that it should adjust the
exchange rate and end the linkage that in recent years has held the RMB-
U.S. dollar exchange rate constant. If the RMB exchange rate is adjusted or
is allowed to float freely against the U.S. dollar, our revenues, which are
denominated in RMB, may fluctuate significantly in U.S. dollar terms. We
have not entered into agreements or purchased instruments to hedge our
exchange rate risks.
-11-
II. RISKS ATTENDANT TO OUR MANAGEMENT
OUR BUSINESS DEVELOPMENT WOULD BE HINDERED IF WE LOST THE SERVICES OF
OUR CHAIRMAN.
Zhiguo Fu is the Chief Executive Officer of Advanced Battery
Technologies and of its operating subsidiary, ZQ Power-Tech. Mr. Fu is
responsible for strategizing not only our business plan but also the means
of financing it. Mr. Fu has also, from time to time, provided his personal
funds to meet the working capital needs of ZQ Power-Tech. 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.
ADVANCED BATTERY TECHNOLOGIES IS NOT LIKELY TO HOLD ANNUAL SHAREHOLDER
MEETINGS IN THE NEXT FEW YEARS.
Delaware corporation law provides that members of the board of
directors retain authority to act until they are removed or replaced at a
meeting of the shareholders. A shareholder may petition the Delaware Court
of Chancery to direct that a shareholders meeting be held. But absent such
a legal action, the board has no obligation to call a shareholders meeting.
Unless a shareholders meeting is held, the existing directors elect
directors to fill any vacancy that occurs on the board of directors. The
shareholders, therefore, have no control over the constitution of the board
of directors, unless a shareholders meeting is held.
Since it became a public company, Advanced Battery Technologies has
never held an annual meeting of shareholders. Management does not expect
to hold annual meetings of shareholders in the next few years, due to the
expense involved. The current members of the Board of Directors were
appointed to that position by the current and previous directors. If other
directors are added to the Board in the future, it is likely that the
current directors will appoint them. As a result, the shareholders of
Advanced Battery Technologies will have no effective means of exercising
control over the operations of Advanced Battery Technologies.
RELATED PARTY TRANSACTIONS MAY OCCUR ON TERMS THAT ARE NOT FAVORABLE
TO ADVANCED BATTERY TECHNOLOGIES.
Zhiguo Fu, directly and through his family, controls almost 44% of
the outstanding common stock of Advanced Battery Technologies. For the
foreseeable future, therefore, he will control the operations of Advanced
Battery Technologies. Mr. Fu also owns 30% of the outstanding stock of ZQ
Power-Tech, and was responsible for structuring the transaction in which
-12-
Advanced Battery Technologies acquired its 70% of ZQ Power-Tech. From time
to time, Mr. Fu has loaned money to ZQ Power-Tech, and contributed to its
capital, when needed. It is likely that Mr. Fu will engage in other
transactions with Advanced Battery Technologies and/or ZQ Power-Tech,
including transfers of all or part of his interest in ZQ Power-Tech to
Advanced Battery Technologies. It is unlikely that the Board of Directors
will obtain independent confirmation that the terms of such related party
transactions are fair. If the terms are unfair to Advanced Battery
Technologies, the transactions could harm our operating results.
YOUR ABILITY TO BRING AN ACTION AGAINST US OR AGAINST OUR DIRECTORS,
OR TO ENFORCE A JUDGMENT AGAINST US OR THEM, WILL BE LIMITED BECAUSE WE
CONDUCT ALL OF OUR OPERATIONS IN CHINA AND BECAUSE MOST OF OUR DIRECTORS
RESIDE OUTSIDE OF THE UNITED STATES.
We conduct substantially all of our operations in China through our
wholly-owned subsidiary. Most of our directors reside in China and
substantially all of the assets of those persons are located outside of the
United States. As a result, it may be difficult or impossible for you to
bring an action against us or against these individuals in the United
States in the event that you believe that your rights have been infringed
under the securities laws or otherwise. Even if you are successful in
bringing an action of this kind, the laws of the United States and of China
may render you unable to enforce a judgment against our assets or the
assets of our directors.
Item 7. Financial Statements
The Company's financial statements, together with notes and the
Independent Auditors' Report, are set forth immediately following Item 14
of this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
Item 8A. Controls and Procedures
Zhiguo Fu, our Chief Executive Officer, and Guohua Wan, our Chief
Financial Officer, performed an evaluation of the Company's disclosure
controls and procedures as of December 31, 2004. Based on their
evaluation, they concluded that the controls and procedures in place are
sufficient to assure that material information concerning the Company which
could affect the disclosures in the Company's quarterly and annual reports
is made known to them by the other officers and employees of the Company,
and that the communications occur with promptness sufficient to assure the
inclusion of the information in the then-current report.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect those controls
subsequent to the date on which Mr. Fu and Ms. Wan performed their
evaluation.
-13-
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The officers and directors of the Company are:
Director
Name Age Position with the Company Since
-----------------------------------------------------------------------------
Zhiguo Fu 55 Chairman, Chief Executive 2004
Officer
Guohua Wan 52 Director, Chief Financial 2004
Officer
Ming Liu 29 Director, Secretary 2004
Yongguo Yang 32 Director 2004
Guopeng Gao 32 Director 2005
Directors hold office until the annual meeting of the Company's
stockholders and the election and qualification of their successors.
Officers hold office, subject to removal at any time by the Board, until the
meeting of directors immediately following the annual meeting of stockholders
and until their successors are appointed and qualified.
Zhiguo Fu. Mr. Fu organized ZQ Power-Tech in 2002, and has served as
its Chairman since then. In 1993 Mr. Fu founded Heilongjiang Goangsha Group,
and he served as its Chairman until 2000. During that period Heilongjiang
Goangsha Group had over 3,000 employees and was engaged in several hundred
construction projects. Heilongjiang Goangsha Group was sold in 2000, at
which time it had annual revenue in excess of $25 million. Previously Mr. Fu
had twenty years experience in construction management.
Guohua Wan. Since 2003 Ms. Wan has been the General Manager of ZQ
Power-Tech. From 1999 until 2003 Ms. Wan was Vice President and Chief
Financial Officer of Harbin Ridaxing Science and Technology Co., Ltd.
Ming Liu. Since 2003 Mr. Liu has been the Secretary to the Board of ZQ
Power-Tech. From 1999 until 2003 Mr. Liu was Vice President of Harbin
Ridaxing Science and Technology Co., Ltd.
-14-
Yongguo Yang. Since 2003 Mr. Yang has served as Managing Director of
Easywood Holdings Limited, a trading company located in Hong Kong. From 2000
to 2003 Mr. Yang served as Managing Director or Ruiyuan International Co.,
Inc., which was also a trading company located in Hong Kong.
Guopeng Gao. Since 2002 Mr. Gao has served as Vice President of ZQ
Power-Tech. From 2000 until 2002, Mr. Gao was Technical Manager for
Heilongjiang Shuangtai Electric Co. Ltd.
Audit Committee
The Board of Directors has not appointed an Audit Committee. The Board
of Directors does not have an audit committee financial expert. The Board of
Directors has not been able to recruit an audit committee financial expert to
join the Board of Directors because of the Company's poor financial
condition.
Code of Ethics
The Company does not have a written code of ethics applicable to its
executive officers. The Board of Directors has not adopted a written code of
ethics because there are so few members of management.
Section 16(a) Beneficial Ownership Reporting Compliance
None of the officers, directors or beneficial owners of more than 10%
of the Company's common stock failed to file on a timely basis the reports
required by Section 16(a) of the Exchange Act during the year ended December
31, 2004.
Item 10. Executive Compensation
The following table sets forth all compensation awarded to, earned by,
or paid by Advanced Battery Technologies and its subsidiaries to Zhiguo Fu,
its Chief Executive Officer, for services rendered in all capacities to the
Company during the years ended December 31, 2004, 2003 and 2002. There were
no other executive officers whose total salary and bonus for the fiscal year
ended December 31, 2004 exceeded $100,000.
-15-
Compensation
Year Salary
----------------
Zhiguo Fu 2004 $70,000
2003 $8,712
2002 $2,904
Employment Agreements
All of our employment arrangements with our executives are on an at
will basis.
Equity Grants
The following tables set forth certain information regarding the stock
options acquired by the Company's Chief Executive Officer during the year
ended December 31, 2004 and those options held by him on December 31, 2004.
Option Grants in the Last Fiscal Year
Percent
of total Potential Realizable
Number of options value at assumed
securities granted to annual rates of
underlying employees Exercise appreciation of
option in fiscal Price Expiration for option term
Name granted year ($/share) Date 5% 10%
-------------------------------------------------------------------------------
Zhiguo Fu 0 N.A. N.A. N.A. 0 0
Aggregated Fiscal Year-End Option Values
Number of securities underlying Value of unexercised
unexercised options at fiscal in-the-money options
year-end (#) at fiscal year-end ($)
Name (All exercisable) (All exercisable)
---------------------------------------------------------------------------
Zhiguo Fu 0 0
Remuneration of Directors
None of the members of the Board of Directors receives remuneration for
service on the Board.
-16-
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information known to us with respect to
the beneficial ownership of our common stock as of the date of this
prospectus by the following:
* each shareholder known by us to own beneficially more than 5% of our
common stock;
* Zhiguo Fu, our Chief Executive Officer
* each of our directors; and
* all directors and executive officers as a group.
There are 24,237,094 shares of our common stock outstanding on the
date of this report. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below have sole voting power
and investment power with respect to their shares, subject to community
property laws where applicable. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission.
In computing the number of shares beneficially owned by a person and
the percent ownership of that person, we include shares of common stock
subject to options or warrants held by that person that are currently
exercisable or will become exercisable within 60 days. We do not, however,
include these "issuable" shares in the outstanding shares when we compute
the percent ownership of any other person.
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owner(1) Ownership of Class
-------------------------------------------------------------------
Zhiguo Fu 10,618,022(2) 43.8%
Guohua Wan 180,994 0.7%
Ming Liu 17,787 0.1%
Yongguo Yang 0 --
Guopeng Gao 180,994 0.7%
All officers and directors
as a group (5 persons) 10,997,797 45.4%
_____________________________
(1) The address of each shareholder, unless otherwise noted, is c/o ZQ
Power-Tech, Weiyou Road, Shuangcheng Heilongjiang 150100, People's
Republic of China.
(2) Includes 1,067,633 shares owned by Mr. Fu's spouse.
-17-
Equity Compensation Plan Information
The information set forth in the table below regarding equity
compensation plans (which include individual compensation arrangements) was
determined as of December 31, 2004.
Number of Weighted
securities to average Number of
be issued upon exercise securities
exercise of price of remaining
outstanding outstanding for future
options, options, issuance under
warrants and warrants compensation
rights and rights plans
-------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders.......... 0 - 0
Equity compensation plans
not approved by security
holders(1).... 0 - 2,650,000
---- --- ---------
Total.............. 0 - 2,650,000
___________________________
(1) The Board of Directors adopted the 2004 Equity Incentive Plan in 2004.
The Plan authorizes 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, restricted
stock or performance shares.
Item 12. Certain Relationships and Related Transactions
On January 20, 2005 Advanced Battery Technologies entered into a
contract with its Chairman, Zhiguo Fu, as well as Zhijie Fu and Wenhua
Yang. The contract acknowledged that these three individuals had provided
$4,832,976 to fund the construction of plant facilities owned by ZQ Power-
Tech Co. Since Advanced Battery Technologies owns 70% of ZQ Power-Tech,
the contract provided that Advanced Battery Technologies would issue a
total of 11,276,947 shares to satisfy $3,383,084 (70%) of the loan from the
investors to ZQ Power-Tech. The investors agreed that the remaining 30%
would be a contribution to the capital of ZQ Power-Tech.
We believe the above transaction was as favorable to us as we could
have obtained from unrelated third parties.
-18-
Item 13. Exhibit List and Reports on Form 8-K
(a) Financial Statements
Report of Independent Registered Accounting Firm
Consolidated Balance Sheets - December 31, 2004
Consolidated Statements of Operations - Years ended December 31,
2004 and 2003
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2004 and 2003
Consolidated Statements of Cash Flows - Years ended December 31,
2004 and 2003
Notes to Consolidated Financial Statements
(b) Exhibit List
3-a Amended and Restated Certificate of Incorporation - filed as an
exhibit to the Current Report on Form 8-K dated July 12, 2004 and
incorporated herein by reference.
3-b By-laws - filed as an exhibit to the Company's 1986 Proxy Statement
dated November 7, 1986 and incorporated herein by reference.
10-a 2004 Equity Incentive Plan - filed as an exhibit to the Registration
Statement on Form S-8 (333-118574) and incorporated herein by
reference.
10-b Loan Agreements (2) dated November 20, 2004 with China Financial Bank
Harbin Branch.
21 Subsidiaries - none
31 Rule 13a-14(a) Certifications
32 Rule 13a-14(b) Certifications
_________________________________________
(c) Reports on Form 8-K
Report dated December 1, 2004 - Item 2.03: Creation of a Direct
Financial Obligation
-19-
Item 14. Principal Accountant Fees and Services
Advanced Battery Technologies retained PKF Hong Kong SAR as it principal
accountant on September 28, 2004. Prior to that date, PKF had not performed
any services for Advanced Battery Technologies or its subsidiaries.
Audit Fees
PKF billed $40,000 in connection with the audit of the Company's
financial statements for the year ended December 31, 2004. Also included are
services performed in connection with the reviews of the Company's financial
statements for the third quarter of 2004 as well as those services normally
provided by the accountant in connection with the Company's statutory and
regulatory filings for 2004.
Audit-Related Fees
PKF billed the Company $1,039 for any Audit-Related fees in 2004.
Tax Fees
PKF billed $0 to the Company in 2004 for professional services rendered
for tax compliance, tax advice and tax planning.
All Other Fees
PKF billed the Company $0 for other services in 2004.
It is the policy of the Company that all services other than audit,
review or attest services must be pre-approved by the Board of Directors. All
of the services described above were approved by the Board of Directors.
-20-
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 sheet of
Advanced Battery Technologies, Inc. and its subsidiaries as of
December 31, 2004 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Advanced Battery Technologies, Inc. and
its subsidiaries as of December 31, 2004 and the results of
their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
PKF
Certified Public Accountants
Hong Kong
February 28, 2005
F-1
Independent Auditors' Report
To the Board of Directors and Stockholders of
Heilongjiang ZhongQiang Power-Tech Co., Ltd.
We have audited the accompanying balance sheets of Heilongjiang ZhongQiang
Power-Tech Co., Ltd. (A Development Stage Company) as of December 31, 2003
and 2002 and the related statements of operations, changes in stockholders'
equity and cash flows for the year ended December 31, 2003, the period from
August 20, 2002 (date of inception) to December 31, 2002, and the period from
August 20, 2002 (date of inception) to December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heilongjiang ZhongQiang
Power-Tech Co., Ltd. (A Development Stage Company) as of December 31, 2003
and 2002 and the results of their operations and cash flows for the year
ended December 31, 2003, the period from August 20, 2002 (date of inception)
to December 31 2002, and the period from August 20, 2002 (date of inception)
to December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
January 10, 2004
F-2
ADVANCED BATTERY TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
USD
ASSETS
Current assets
Cash and cash equivalents 758,015
Accounts receivable 317
Inventories (Note 4) 233,493
Prepayments, deposits and other receivables 304,020
---------
Total current assets 1,295,845
Property, plant and equipment, net (Note 5) 3,234,887
Construction in process 4,110,865
Deposits for acquisition of property, plant
and equipment 575,512
Rights to use land and power, net (Note 6) 426,869
Patents, net (Note 7) 103,704
Prepaid expenses (Note 3) 1,792,634
----------
Total assets 11,540,316
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 36,869
Accrued expenses and other payables 211,217
Notes payable (Note 8) 361,463
Other loans payable (Note 9) 328,670
Current maturities of long-term debts (Note 10) 1,238,120
Customer deposits 814,282
Welfare payable 57,869
---------
Total current liabilities 3,048,490
Long-term debts, less current maturities (Note 10) 1,214,925
---------
Total liabilities 4,263,415
Minority interests 1,662,113
Stockholders' equity
Common stock (Note 13) 12,940
Preferred stock (Note 14) -
Additional paid-in capital (Note 15) 8,381,036
Accumulated deficit (2,791,591)
Accumulated other comprehensive income 12,403
---------
Total stockholders' equity 5,614,788
---------
Total liabilities and stockholders' equity 11,540,316
==========
See Notes to the consolidated financial statements
F-3
ADVANCED BATTERY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2004 2003
-------- --------
USD USD
Revenues 1,191,509 11,292
Cost of sales (809,266) (9,388)
--------- --------
Gross profit 382,243 1,904
Other income 61,689 227
Selling expenses (25,671) (2,790)
General and administrative expenses (2,786,900) (109,913)
Research and development costs (65,415) (493,114)
Interest expense (5,045) (5,027)
--------- ---------
Loss before minority interests (2,439,099) (608,713)
Minority interests 89,395 182,614
--------- ---------
Net loss (2,349,704) (426,099)
========= =========
Basic net loss per share (Note 12) (0.23) (0.05)
========= =========
See Notes to consolidated financial statements
F-4
ADVANCED BATTERY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional other
Common stock Preferred Stock paid-in Accumulated comprehensive
Shares Amount Shares Amount capital deficit income
USD USD USD USD USD
(Note)
------------------------------------------------------------------------------------------------------
At January 1, 2003
(Note 13) 9,042,582 2,400,000 - - 14,461 (22,554) 15,457
Additional paid-in
capital from
exchange of
property,
plant and
equipment - - - - 414,433 - 963
Issue of common
stock in
private placement,
net of nil offering
costs - 3,600,000 - - - - 24,312
Loss before minority
interests - - - - - (608,713) -
Minority interests
in a subsidiary
(Note2(ii)) - (1,800,000) - - (128,668) 189,380 (12,220)
---------------------------------------------------------------------------------
At December 31, 2003
and January 1, 2004
(Note 13) 9,042,582 4,200,000 - - 300,226 (441,887) 28,512
Shares issued for
acquisition 10,800,000 (4,180,157) 806,113 806 4,179,351 - -
of a subsidiary
(Note 2(ii))
Reverse split of
outstanding
common stock
(Note 13(i)) (17,883,543) (17,884) - - 17,884 - -
Conversion of
preferred stock
(Note 13(ii)) 8,061,130 8,061)(806,113) (806) (7,255) - -
Shares issued to
employees
(Note 13(iii)) 2,425,000 2,425 - - 2,257,575 - -
Shares issued to
consultants
(Note 13(iv)) 495,000 495 - - 1,633,255 - -
Exchange difference
arising from
translation
of financial
statements of
foreign
subsidiary - - - - - - (16,109)
Net loss - - - - - (2,349,704) -
---------------------------------------------------------------------------------
At December 31, 2004 12,940,169 12,940 - - 8,381,036 (2,791,591) 12,403
=================================================================================
Note: Accumulated other comprehensive income represents gain on foreign currency
translation. The comprehensive loss and income for the years ended
December 31, 2004 and 2003 were USD16,109 and USD25,275 respectively.
See Notes to consolidated financial statements
F-5
ADVANCED BATTERY TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
2004 2003
------- -------
USD USD
Cash flows from operating activities :
Net loss (2,349,704) (426,099)
Adjustments to reconcile net loss
to net cash provided by/(used in)
operating activities:
Loss on disposal of property, plant
and equipment 3,278 -
Depreciation and amortization 192,114 118,715
Amortization of prepaid expenses 541,116 -
Compensation expense settled by
issuance of common stock 1,560,000 -
Minority interests (89,395) (182,614)
Changes in operating assets and
liabilities :
Increase in accounts receivable (256) (61)
Increase in inventories (130,718) (102,775)
Decrease/(increase) in prepayments,
deposits and other receivable 27,418 (331,438)
Decrease/(increase) in tax receivable 28,495 (28,495)
Increase in accounts payable, accrued
expensesand other payable 198,629 49,458
Increase in customer deposits 814,213 69
Increase in welfare payable 37,322 20,546
Effect of foreign exchange rate changes (900) (320)
Net cash provided by/(used in) operating --------- ---------
activities 831,612 (883,014)
--------- ---------
Cash flows from investing activities :
Deposit for acquisition of property,
plant and equipment (575,512) -
Purchase of property, plant and equipment (913,625) (240,780)
Additions to construction in process (1,298,017) (2,820,630)
Purchase of patents (10,560) (97,417)
Purchase of rights to use land and power - (2,446)
--------- ---------
Net cash used in investing activities (2,797,714) (3,161,273)
--------- ---------
Cash flows from financing activities :
New bank loans raised 2,409,754 -
Repayment from/(advances to) officers 99,420 (102,246)
Increase in other loans payable 143,436 185,234
Increase/(decrease) in other loans
receivable 95,024 (95,024)
(Repayment to)/advances from employee (53,101) 53,101
Increase in long-term debts 21,543 21,748
Net proceeds from issuance of common stock - 3,624,633
Increase in notes payable - 362,463
--------- ---------
Net cash provided by financing activities 2,716,076 4,049,909
--------- ---------
Net increase in cash and cash equivalents 749,974 5,622
Effect on foreign exchange rate changes (22) -
Cash and cash equivalents, beginning of year 8,063 2,441
--------- ---------
Cash and cash equivalents, end of year 758,015 8,063
========= =========
See Notes to consolidated financial statements
F-6
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
The Company was incorporated in the State of Delaware on January 16,
1984.
Following the reverse takeover transactions as detailed in note 2(ii),
the Company is now engaging in the business of designing, manufacturing
and marketing of rechargeable polymer lithium-ion batteries through its
subsidiaries, Cashtech Investment Limited ("Cashtech") and Heilongjiang
Zhong Qiang Power-Tech Co., Ltd. ("ZQ Power-Tech"). Cashtech is a
British Virgin Islands corporation and ZQ Power-Tech is a limited
liability company established in the People's Republic of China (the
"PRC") in which Cashtech owns 70% interest.
On July 12, 2004, the name of the Company was changed from Buy It
Cheap.com to Advanced Battery Technologies, Inc. ("ABAT").
On July 20, 2004, the Company's board of directors approved a change in
the Company's fiscal year-end from June 30 to December 31.
2. BASIS OF PREPARATION
(i) The accompanying consolidated financial statements of ABAT and its
subsidiaries (the "Group") have been prepared in accordance with
generally accepted accounting principles in the United States of
America.
(ii) On March 1, 2004, the previous stockholders holding 70% ownership
of ZQ Power-Tech agreed to the transfer of their shares to obtain
100% ownership in Cashtech. Cashtech is the legal parent of ZQ
Power-Tech since inception, with the transaction being treated as
a reverse merger and recapitalization of ZQ Power-Tech, which is
treated as the accounting acquirer.
On May 6, 2004, ABAT completed a share exchange (the "Exchange")
with the stakeholders of Cashtech (the "Shareholders"). In the
Exchange, ABAT acquired 100% of the outstanding capital stock of
Cashtech from the Shareholders in exchange for the issuance of
9,720,000 shares of common stock and 725,503 shares of Series D
preferred stock of ABAT to the Shareholders. Each share of
Series D preferred stock is convertible into 100 shares of common
stock. In conjunction with the Exchange, ABAT also issued a
total of 1,080,000 shares of common stock and 80,610 shares of Series
D preferred stock to an advisor as compensation for its services provided.
F-7
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (CONT'D)
The Exchange resulted in a change of control of ABAT. Upon
completion of the Exchange and the related share issuance, ABAT
has a total of 19,842,582 shares of common stock and 806,113
shares of Series D preferred stock (convertible into 80,611,300
common stock) issued and outstanding, or a total of 100,453,882
common stock outstanding on a fully-diluted basis. As the
Exchange resulted in the former stakeholders of Cashtech owned
greater than 50% of the common stock of ABAT on a fully-diluted
basis, the Exchange has been treated as a reverse takeover with
Cashtech as the accounting acquirer and ABAT as the accounting
acquiree.
The purchase method under reverse takeover accounting has been
applied for the share exchange between Cashtech and ZQ Power-Tech
and the Exchange. These consolidated financial statements issued
under the name of the legal parent, ABAT, are a continuation of
the financial statements of ZQ Power-Tech. The comparative
figures are those of ZQ Power-Tech. The 30% minority interests
in ZQ Power-Tech was reflected in the comparative figures as if
the current group structure was already in existence.
ZQ Power-Tech had been in the development stages from the date of
inception (August 20, 2002) to December 31, 2003 and was
considered as a normal operating company starting from January 1,
2004.
(iii) The Group has accumulated deficit as at December 31, 2004.
However, based on the substantial backlog of orders of
approximately USD8 million that the Group has accumulated, the
management of the Group believes that these orders will generate
sufficient revenue and cash flows to enable the Group to continue
as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements for the year ended December 31,
2004 include the accounts of the Company and its subsidiaries. All
significant inter-company balances and transactions are eliminated in
consolidation.
F-8
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
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 year. Significant estimates required to
be made by the management include the recoverability of long-lived
assets and the valuation of inventories. Actual results could differ
from those estimates.
Cash and cash equivalents
Cash equivalents are highly liquid investments and have maturities of
three months or less at the date of purchase.
Inventories
Inventories are valued at the lower of cost or market with cost
determined on a first-in first-out basis.
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 over the
estimated useful lives :-
Buildings and improvements 39 years
Machinery, equipment and motor vehicles 5-10 years
Rights to use land and power
Rights to use land and power are stated at cost less accumulated
amortization. Amortization is provided using the straight-line method
over the respective terms of the leases.
Patents
Patents are capitalized when the Company determines that there will
be a future benefit derived from such assets, and are stated at cost.
Amortization is provided using the straight-line method over the
estimated useful life of the assets of forty years.
F-9
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Prepaid expenses
Prepaid expenses represent the aggregate fair value of the Company's
common stock issued in return for the consultancy works and services provided
by certain consultants and a Company's employee to the Company. The fair
value is determined by reference to the closing price of the Company's
common stock as quoted on the OTC Bulletin Board ("OTCBB") at the date of
issuance. The prepaid expenses are amortized on a straight-line basis
over the respective terms of the agreements.
Amortization for the years ended December 31, 2004 and 2003 was
USD541,116 and nil respectively.
Impairment of long-lived assets
The Company evaluates long-lived assets for impairment when events or
changes in circumstances indicate, in management's judgment, that the
carrying value of such assets may not be recoverable.
The impairment of long-lived assets is measured pursuant to the
guidelines of Statement of Financial Accounting Standard (SFAS) No.144
"Accounting for the Impairment or Disposal of Long-Lived Assets". When
an indicator of impairment has occurred, management's estimate of
undiscounted cash flows attributable to the assets is compared to the
carrying value of the assets to determine whether impairment has
occurred. If an impairment of the carrying value has occurred, the
amount of the impairment recognized in the financial statements is
determined by estimating the fair value of the assets and recording a
loss of the amount that the carrying value exceeds the estimated fair
value.
Income taxes
The Company accounts for income tax under the provisions of SFAS No.
109 "Accounting for Income Taxes", which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of the events that have been included in the financial
statements or tax returns. Deferred income taxes are recognised for
all significant temporary differences between tax and financial
statements bases of assets and liabilities. Valuation allowances are
established against net deferred tax assets when it is more likely than
not that some portion or all of the deferred tax asset will not be
realized.
F-10
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Revenue recognition
Revenue is recognized upon shipment of product, at which time title of
goods has been transferred to the buyer and there exist no significant
obligations of the Company other than normal warranty support.
Government grants
Depending on the nature of the grant, the Company either records the
grant as revenue or a decrease of the related costs. The Company
recorded in other income a grant of USD60,244 and nil for the years
ended December 31, 2004 and 2003 respectively.
Research and development costs
Research and development costs are charged to operations as incurred.
Concentration of credit risk
Concentration of credit risk is limited to accounts receivable and is
subject to the financial conditions of major customer. The Company
does not require collateral or other security to support accounts
receivable. The Company conducts periodic reviews of its clients'
financial condition and customer payment practices to minimize
collection risk on accounts receivable.
Fair value of financial instruments
The carrying amounts of certain financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, notes
payable and other loans payable approximate fair value due to the
short-term nature of these items. The carrying amounts of bank
borrowings approximate the fair value based on the Company's expected
borrowing rate for debt with similar remaining maturities and
comparable risk.
Foreign currency translation
The Group uses China Renminbi ("RMB") as the functional currency, which
is not freely convertible into foreign currencies. Transactions
denominated in currencies other than RMB are translated into RMB at the
applicable rates of exchange prevailing at the dates of the
transactions, quoted by the People's Bank of China (the "PBOC").
Monetary assets and liabilities denominated in other currencies are
translated into RMB at rates of exchange quoted by the PBOC prevailing
at the balance sheet date. Exchange gains or losses arising from
changes in exchange rates subsequent to the transactions dates for
monetary assets and liabilities denominated in other currencies are
included in the determination of net income for the respective period.
F-11
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Foreign currency translation (cont'd)
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 period
end. Income statement accounts are translated at the average rate of
exchange prevailing during the period. 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 transactions are included in other comprehensive
income/(loss).
New accounting pronouncements
(i) The Statement of Financial Accounting Standard No.150, "Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150") was issued in May 2003. This
statement affects the classification, measurement and disclosure
requirements of the following three types of freestanding financial
instruments :-
1) mandatory redeemable shares, which the issuing company is
obligated to buy back with cash or other assets;
2) instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets,
which include put options and forward purchase contracts; and
3) obligations that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the
value of the issuers' shares.
In general, SFAS 150 is effective for all financial instruments
entered into or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement had no impact on the Company's
results of operations or financial position.
(ii) Financial Accounting Standards Board Interpretation No. 46,
"Consolidation of Variable Interest Entities ("VIE")" ("FIN 46"), was
issued in January 2003. FIN 46 requires that if an entity is the
primary beneficiary of a variable interest entity, the assets,
liabilities and results of operations of the variable interest entity
should be included in the consolidated financial statements of the
entity. The provisions of FIN 46 are effective immediately for all
arrangements entered into after January 31, 2003.
F-12
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
In December 2003, the Financial Accounting Standards Board ("FASB")
completed deliberations on proposed modifications to FIN 46 and re-
issued FIN 46 ("Revised Interpretation") resulting in multiple
effective dates based on the nature as well as the creation date of
the VIE. VIEs created after January 31, 2003 but prior to January 1,
2004 may be accounted for either based on the original interpretation
or the Revised Interpretation. The adoption of these interpretations
had no impact on the Company's results of operation or financial
position.
(iii) SFAS 132 (revised 2003), "Employer's Disclosure about Pensions
and Other Post-Retirement Benefits" was issued in December 2003. SFAS 132
(revised) revised employer's disclosure about pension plans and other
post-retirement benefit plans. SFAS 132 (revised) requires additional
disclosures in annual financial statements about the types of plan
assets, investment strategy, measurement dates, plan obligations, cash
flows, and components of net periodic benefit cost of defined benefit
pension plans and other post-retirement benefit plans. The annual
disclosure requirements are effective for fiscal years ended after
December 15, 2003. SFAS 132 (revised) also requires interim disclosure
of the elements of net periodic benefit cost and the total amount of
contributions paid or expected to be paid during the current fiscal
year if significantly different from amounts previously disclosed.
The interim disclosure requirements of SFAS 132 (revised) are
effective for interim periods beginning after December 15, 2003. The
adoption of this standard had no impact on the Company's results of
operation or financial position.
(iv) In December 2004, the FASB issued SFAS No. 123R "Share-Based
Payment." This Standard addresses the accounting for transactions in
which a company receives employee services in exchange for (a) equity
instruments of the company or (b) liabilities that are based on the
fair value of the company's equity instruments or that may be settled
by the issuance of such equity instruments. This Standard eliminates
the ability to account for share-based compensation transactions using
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and requires that such transactions be accounted
for using a fair-value-based method. The Standard is effective for
periods beginning after June 15, 2005. The Company is currently
assessing the impact of this Standard on its results of operations and
financial position.
(v) In November 2004, the FASB issued SFAS No. 151 "Inventory costs -
an amendment of ARB No. 43, Chapter 4". SFAS 151 amends ARB 43, Chapter
4, to clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as
current-period charges. SFAS No. 151 is effective for inventory costs
incurred during fiscal year beginning after June 15, 2005. The adoption
of this standard has no impact on the Company's results of operation or
financial position.
F-13
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
USD
Raw materials 50,333
Packing materials 38,669
Finished goods 144,491
-------
233,493
=======
No allowance for inventories was made for the years ended December 31,
2004 and 2003.
5. PROPERTY, PLANT AND EQUIPMENT, NET
USD
Building and improvements 2,071,961
Machinery and equipment 1,342,185
Motor vehicles 114,261
---------
3,528,407
Less : Accumulated depreciation
and amortization (293,520)
---------
3,234,887
=========
(i) At December 31, 2004, buildings and motor vehicles with net book
values of USD1,955,284 and USD88,467 respectively were pledged to
the banks for loans granted to the Group (Note 10).
(ii) Depreciation and amortization expenses for the years ended
December 31, 2004 and 2003 amounted to USD175,080 and USD102,800
respectively and USD58,259 and nil of these expenses were
included in cost of sales.
(iii) During the year ended December 31, 2004, improvements with
carrying amount of USD3,278 were disposed of at nil consideration
resulting in a loss of USD3,278. There was no disposal in the
year ended December 31, 2003.
F-14
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RIGHTS TO USE LAND AND POWER
The rights to use land and power at cost, less accumulated
amortization, consists of the following:
USD
Right to use land 420,760
Right to use power 42,287
-------
463,047
Less : Accumulated
amortization (36,178)
-------
426,869
The Group leases two pieces of land per real estate contract from the
PRC Government for a period from August 2003 to September 2043, on
which the office and production facilities of ZQPT are situated. This
right to use land was pledged to a bank for the bank loans granted to
the Group (Note 10).
The Group leases power from the local government for a period from July
2003 to July 2013.
Amortization expense was USD14,451 and USD14,494 for the years ended
December 31, 2004 and 2003 respectively.
7. PATENTS
The patents at cost, less accumulated amortization, consist of the
following:
USD
Patents 107,708
Less : Accumulated amortization 4,004
-------
103,704
=======
Amortization expense was USD2,583 and USD1,421 for the years ended
December 31, 2004 and 2003 respectively.
F-15
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PATENTS (CONT'D)
The estimated aggregate amortization expenses for patents for each of
the five succeeding years is as follows:
Year USD
2005 2,693
2006 2,693
2007 2,693
2008 2,693
2009 2,693
-------
13,465
=======
8. NOTES PAYABLE
The notes payable represents an unsecured demand loan from Shuangcheng
National Owned Assets Operation Ltd. with monthly interest rate of
0.57525% and no fixed term of repayment.
9. OTHER LOANS PAYABLE
The loans due to non-related third parties are interest-free, unsecured
and repayable on demand.
10. LONG-TERM DEBTS
(i) Long-term debts comprise of the followings:
USD
Bank loans 2,409,754
Car loans 43,291
---------
2,453,045
=========
F-16
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBTS (CONT'D)
The Group is obliged to make the following principal payments:
USD
Years ending December 31 :-
2005 1,238,120
2006 1,214,925
---------
2,453,045
=========
(ii) The bank loans were secured by the Group's buildings (Note 5) and
right to use land (Note 6), bore interest at 8.064% per annum and are
repayable in 2 yearly instalments commencing from November 2005.
(iii) The car loans were secured by the Group's motor vehicles (Note
5), bore interest ranging from 4.1% to 5.4% per annum and are repayable in
24 monthly instalments commencing from December 2003, April 2004 and October
2004 respectively.
11. INCOME TAXES
No provision for income tax is made as the Company's operating
subsidiary in the PRC has no assessable profits throughout the years.
Income tax can be reconciled to the loss before minority interests as
follow :
Year ended December 31,
2004 2003
------- -------
USD USD
Loss before minority interests (2,439,099) (608,713)
========= =======
Expected income tax credit at PRC
enterprise income tax rate of 33% (804,903) (200,875)
Expenses not deductible for tax
purposes 818,763 156,693
Differences in tax depreciation
expenses and book depreciation
expenses (29,259) 15,211
Valuation allowances 15,399 28,971
-------- -------
Income tax - -
======== =======
F-17
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (CONT'D)
The major components of deferred tax as of December 31, 2004 are as
follows:
USD
Tax losses 44,370
Less : Valuation allowances (44,370)
------
-
======
At December 31, 2004, the Company had tax losses amounting to
USD134,456 which can be carried forward for five years from the year of
loss.
The management determined that these tax losses incurred by the
operating subsidiary did not meet the realization criteria and therefore
a valuation allowance of USD44,370 was made against the deferred tax
asset.
12. BASIC NET LOSS PER SHARE
(i) The basic net loss per share is calculated using the net loss and
the weighted average number of common stock outstanding during
the year.
Year ended December 31,
2004 2003
------- -------
Net loss (USD) (2,349,704) (426,099)
========== =========
Weighted average common stock
outstanding 10,080,357 9,141,130#
========== =========
Basic net loss per share (USD) (0.23) (0.05)
========== =========
# The number represents the number of shares issued by ABAT
for the Exchange (after taking into account the reverse stock split
as disclosed in Note 13(i)).
(ii) The diluted net loss per share is not presented as there is
no dilutive effect for the years ended December 31, 2004 and
2003.
F-18
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMON STOCK No. of Amount
shares USD
--------- ---------
Authorized :
Common stock at USD0.001 par value
(Note 13(i)) 60,000,000 60,000
Issued and outstanding :
At January 1, 2004 ABAT share
capital before the Exchange 9,042,582 9,043
Shares issued for the Exchange
(Note 2(ii)) 10,800,000 10,800
Reverse split of outstanding
common stock (Note 13(i)) (17,883,543) (17,884)
Conversion of preferred stock
(Note 13(ii)) 8,061,130 8,061
Shares issued to employees
(Note 13(iii)) 2,425,000 2,425
Shares issued to consultants
(Note 13(iv)) 495,000 495
---------- -------
At December 31, 2004 12,940,169 12,940
========== =======
Notes :
(i) Pursuant to a resolution adopted by the Company to amend the
certificate of incorporation, on July 12, 2004, the Company filed a
restated certificate of incorporation with the Secretary of State
of Delaware. The restated certificate of incorporation amended the
certificate of incorporation and :
(a) The authorized number of shares of capital stock was
increased from 20,000,000 common stock and 2,000,000 preferred stock
to 60,000,000 common stock and 5,000,000 preferred stock.
(b) There was a reverse split of the outstanding common stock
for a 1-for-10 basis, effective on July 12, 2004. The fractional shares
resulting from the reverse split were purchased by the Company.
(ii) Subsequent to the reverse stock split on July 12, 2004, the
holders of the Company's preferred stock converted their shares into
8,061,130 shares of common stock.
(iii) 200,000 of these shares were issued to an employee of the Company
for the provision of services for a term of two years commencing on
July 11, 2004.
The remaining 2,225,000 shares were issued to 11 employees of the
Company for the provision of services during the year ended December
31, 2004.
F-19
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMON STOCK (CONT'D)
(iv) The Company entered into several consulting agreements (the
"Agreements") with various consultants. In consideration of the
consulting services provided, the Company agreed to issue in
aggregate 495,000 of the Company's common stock to the consultants.
The details of the consulting agreements are as follows :
Number of
shares of
common
Services provided Terms stock issued Date of issuance
-----------------------------------------------------------------------------
Marketing, sales
channeling, market June 29, 2004 to 220,000 September 14, 2004
research and
promotion services June 28, 2006
Provision of technical
market July 23, 2004 100,000 July 30, 2004
information and to
technical research July 22, 2007
and development
services
Provision of industry
and market September 8, 2004 125,000 September 9, 2004
information in the to
PRC September 7, 2005
Coordination and
business September 8, 2004 50,000 September 14, 2004
development services to
in the September 7, 2006
United States
-------
495,000
=======
14. PREFERRED STOCK
No. of shares Amount
USD
Authorized :
Preferred stock at
USD0.001 par value
(Note 13(i)) 5,000,000 5,000
========= =====
Issued and outstanding :
At January 1, 2004 - -
Shares issued for the
Exchange (Note 2(ii)) 806,113 806
Conversion to common
stock (Note 13(ii)) (806,113) (806)
--------- -----
At December 31, 2004 - -
========= =====
Each preferred stock is convertible into 10 shares of common stock
(after taking into account the reverse stock split as disclosed in Note
13(i)).
F-20
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. ADDITIONAL PAID-IN CAPITAL
Included in the additional paid-in capital is an amount of USD3,890,830
which represents the excess of the aggregate fair value of the
Company's common stock issued to employees (Note 13(iii)) and
consultants under the Agreements (Note 13(iv)), over the par value of
the stock issued. The fair value is determined by reference to the
closing price of the Company's common stock quoted on the OTCBB at the
dates of issuance of common stock.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Year ended December 31,
2004 2003
------- -------
USD USD
Interest paid 5,045 5,027
Income taxes - -
Non-cash transaction
Capital increase in exchange of
property, plant and equipment - 415,396
Other than the above-mentioned, during the year ended December 31,
2004, there were non-cash transactions regarding the issues of the
Company's common stock and preferred stock for the acquisition of
Cashtech and the issues of the Company's common stock for the provision
of services and consultancy works by various employees and consultants,
the details of which are set out in notes 2(ii), 13(iii) and 13(iv)
respectively.
17. EQUITY INCENTIVE PLAN
(i) The Company adopted the 2004 Equity Incentive Plan (the "Plan")
on August 24, 2004. The purpose of the Plan is to promote the
success and enhance the value of the Company by linking the personal
interests of the participants of the Plan (the "Participants") to those
of the Company's shareholders, and by providing the Participants with
an incentive for outstanding performance. The Plan is further intended
to attract and retain the services of the Participants upon whose judgment,
interest, and special efforts the successful operation of the Group is
dependent. The Company has reserved 5,000,000 shares of common stock
for the options and awards under the Plan.
Subject to the terms and provisions of the Plan, the Board of
Directors, at any time and from time to time, may grant shares of
stock to eligible persons in such amounts and upon such terms and
conditions as the Board of Directors shall determine.
F-21
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. EQUITY INCENTIVE PLAN (CONT'D)
The Committee appointed by the Board of Directors to administer
the Plan shall have the authority to determine all matters
relating to the options to be granted under the Plan including
selection of the individuals to be granted awards or stock
options, the number of stocks, the date, the termination of the
stock options or awards, the stock option term, vesting schedules
and all other terms and conditions thereof.
(ii) As mentioned in notes 13(iii) and 13(iv), ABAT issued a total of
2,225,000 and 495,000 common stocks to 11 employees and various
consultants respectively. The shares granted to the employees and
125,000 shares entitled by a consultant were issued under the Plan.
(iii) Other than the transaction as detailed in note 17(ii), no options
or awards have been made, exercised or lapsed during the year
ended December 31, 2004.
18. COMMITMENTS
(i) At December 31, 2004, the Group had capital commitments in
respect of acquisition of property, plant and equipment, which
are contracted for but not provided in the financial statements,
amounting to USD832,953.
(ii) At December 31, 2004, the Group had agreed to pay USD144,585 to
Harbin Institute of Technology for the research and development
of polymer lithium-ion batteries for motor vehicles.
19. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2004, the Group sold goods amounting
to USD420,790 to a related company in which a director of the Company
has a controlling interest. The transaction was entered into in the
normal course of business and at normal commercial terms.
20. WARRANTIES
The Group warrants that all equipment manufactured by it will be free
from defects in material and workmanship under normal use for a period
of one year from the date of shipment. The Group's experience for
costs and expenses in connection with such warranties has been minimal
and during the year ended December 31, 2004, no amounts have been
considered necessary to reserve for warranty costs at this time.
F-22
ADVANCED BATTERY TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SUBSEQUENT EVENT
On January 20, 2005, the Company entered into a contract with its
chairman, Zhiguo Fu, as well as Zhijie Fu and Wenhua Yang. The
contract acknowledged that these three individuals had provided
USD4,832,976 to fund the construction of plant facilities owned by ZQ
Power-Tech. Since the Company has a 70% interest in ZQ Power-Tech, the
contract provided that the Company would issue a total of 11,276,947
shares to satisfy USD3,383,084 (i.e. 70%) of the loan from the three
individuals to ZQ Power-Tech. The individuals agreed that the
remaining 30% of the loan would be a contribution to the capital of ZQ
Power-Tech.
F-23
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advanced Battery Technologies, Inc.
By: /s/ Zhiguo Fu
-----------------------------------
Zhiguo Fu, Chief Executive Officer
In accordance with the Exchange Act, this Report has been signed
below on March 31, 2005 by the following persons, on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Zhiguo Fu
___________________________
Zhiguo Fu, Director,
Chief Executive Officer
/s/ Guohua Wan
____________________________
Guohua Wan, Director,
Chief Financial and Chief
Accounting Officer
/s/ Ming Liu
____________________________
Ming Liu, Director
/s/ Yongguo Yang
_____________________________
Yongguo Yang, Director
/s/ Guopeng Gao
_____________________________
Guopeng Gao, Director