U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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 of (I.R.S. Employer I.D. No.)
incorporation or organization)
100 Wall Street, 15th Floor, New York, NY 10005
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (212) 232-0120 x 221
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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date:
August 19, 2004
Common Voting Stock: 10,380,169
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART 1. FINANCIAL INFORMATION
Advanced Battery Technologies, Inc.
Consolidated Balance Sheet
June 30, 2004
Assets
Current Assets
Cash $ 36,046
Accounts receivable 319,034
Inventories 236,491
Prepaid expenses 239,819
Loan receivable, other 59,775
----------
Total Current Assets 891,165
Property, plant and equipment, net 2,554,118
Construction in process 3,324,638
Rights to use land and power, net 435,302
Patents, net 101,061
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Total Assets 7,306,284
==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 361,636
Notes payable 362,463
Current maturities of long term debt 19,936
Customer deposits 227,800
Welfare payable 37,908
Taxes payable 28,752
Loan payable, others 471,147
----------
Total Current Liabilities 1,509,642
Long-term debt, excluding current
maturities 12,233
Minority interest in consolidated
subsidiary net assets 1,720,980
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Total Liabilities 3,242,855
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Stockholders' Equity
Common stock, $0.001 par value;
60,000,000 shares authorized,
19,842,582 issued and outstanding 19,843
Preferred stock, $0.001 par value;
5,000,000 shares authorized,
806,113 issued and outstanding -
Additional paid in capital 4,667,783
Accumulated deficit (664,929)
Exchange reserve 40,732
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Total Stockholders' Equity 4,063,429
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Total Liabilities and Stockholders'
Equity $ 7,306,284
==========
See notes to consolidated financial statements.
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Advanced Battery Technologies, Inc.
Consolidated Statements of Operations
For the Three Months Ended June 30, 2004 and 2003
(Unaudited)
Three Months Ended June 30,
---------------------------
2004 2003
Revenues $ 492,666 $ -
Cost of Sales 343,552 -
--------- ---------
Gross Profit 149,114 -
--------- ---------
Costs and Expenses:
Research and development 13,184 -
General and administrative 103,412 54,474
Selling expense 6,637 -
--------- ---------
Total Costs and Expenses 123,233 54,474
--------- ---------
Income (Loss) From Operations 25,881 (54,474)
--------- ---------
Other Income (Expense):
Interest expense (781) -
Other expense (40) -
Interest income 6 -
--------- ---------
Total Other Income (Expense) (815) -
--------- ---------
Minority Interest in Consolidated
Subsidiary (7,520) -
--------- ---------
Net Loss $ 17,546 $ (54,474)
========= =========
Loss Per Common Share
Basic $ - $ (0.01)
========= =========
Diluted $ - $ (0.01)
========= =========
Weighted Average Common Shares Outstanding
Basic 19,842,582 9,040,427
========== =========
Diluted 100,453,882 9,040,427
=========== =========
See notes to consolidated financial statements.
-3-
Advanced Battery Technologies, Inc.
Consolidated Statements of Operations
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
Six Months Ended June 30,
-------------------------
2004 2003
Revenues $ 968,675 $ -
Cost of Sales 610,118 -
--------- --------
Gross Profit 358,557 -
--------- --------
Costs and Expenses:
Research and development 37,017 -
General and administrative 348,119 70,913
Selling expense 13,742 -
--------- ---------
Total Costs and Expenses 398,878 70,913
--------- ---------
Loss From Operations (40,321) (70,913)
--------- ---------
Other Income (Expense):
Interest expense (7,872) -
Interest income 105 -
--------- ---------
Total Other Income (Expense) (7,767) -
--------- ---------
Minority Interest in Consolidated
Subsidiary 14,426 -
--------- ---------
Net Loss $ (33,662) $ (70,913)
========= =========
Loss Per Common Share
Basic $ - $ (0.01)
========= =========
Diluted $ - $ (0.01)
========= =========
Weighted Average Common Shares
Outstanding
Basic 19,842,582 9,040,427
========== =========
Diluted 100,453,882 9,040,427
=========== =========
See notes to consolidated financial statements.
-4-
Advanced Battery Technologies, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
Six Months Ended June 30,
----------------------------
2004 2003
Cash Flows From Operating Activities:
Net Loss $ (33,662) $ (70,913)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 80,292 20,434
Minority interest (14,426) -
Loss on foreign currency exchange - 25,988
Changes in operating assets and liabilities:
Accounts receivable (318,973) -
Inventory (133,716) (13,604)
Prepaid expenses 38,287 -
Taxes payable 57,247 (3,771)
Welfare payable 17,362 1,404
Customer deposits 227,731 -
Accounts payable and accrued expenses 322,418 -
--------- ---------
Net Cash Used in Operating Activities 242,560 (40,462)
--------- ---------
Cash Flows From Investing Activities:
Purchase of construction in progress (504,008) (113,223)
Purchase of property and equipment (127,875) (60,589)
Purchase of patents (5,065) (103,766)
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Net Cash Used in Investing Activities (636,948) (277,578)
--------- ---------
Cash Flows From Financing Activities:
Net proceeds from long-term debt 10,421 -
Net proceeds from loans payable - other 285,913 657,499
Proceeds from (payments on) loan receivable - other 35,249 (28,373)
Proceeds from officers' advances 90,788 18,226
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Net Cash Provided by Financing Activities 422,371 647,352
--------- ---------
Net Increase (Decrease) in Cash 27,983 329,312
Cash and Cash Equivalents, beginning of period 8,063 2,441
--------- ---------
Cash and Cash Equivalents, end of period $ 36,046 $ 331,753
========= =========
See notes to consolidated dance club.
-5-
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ -
========= =========
Income taxes paid $ - $ -
========= =========
SUPPLEMENTAL SCHEDULE ON NON-CASH INVESTING
AND FINANCING ACTIVITIES
Capital increase in exchange of property,
plant and equipment $ - $ 415,396
========= =========
See notes to consolidated financial statements.
-6-
Advanced Battery Technologies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
BASIS OF PRESENTATION
These financial statements should be read in conjunction with a reading of the
financial statements included in the Company's Current Report on Form 8-K
dated May 6, 2004.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial information and with the requirements of Form
10-QSB and Item 310 of Regulation S-B of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. Interim results are not
necessarily indicative of results for a full year. In the opinion of
management, all adjustments considered necessary for a fair presentation of
the financial position and the results of operations and cash flows for the
interim periods have been included.
ACQUISITION OF ASSETS
On May 6, 2004 the Company acquired 100% of the outstanding capital stock of
Cashtech Investment Limited, a British Virgin Island corporation ("Cashtech").
Cashtech is a holding company which owns 70% of the outstanding capital stock
of Heilongjiang ZhongQiang Power-Tech Co., Ltd., a China limited liability
company ("ZQ Power-Tech").
In exchange for ownership of Cashtech, the Company issued 9,720,000 shares of
its common stock. It also issued 725,503 shares of Series D Preferred Stock.
Each share of Series D Preferred Stock was convertible into 100 shares of the
Company's common stock. At the closing of the acquisition, the Company also
issued 1,080,000 shares of common stock and 80,610 shares of Series D
Preferred Stock to Warner Technology and Investment Limited, which had served
as advisor to Cashtech in connection with the transaction.
SUBSEQUENT EVENTS
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 thus:
1.The corporate name of the Company was changed from "Buy It Cheap.com, Inc."
to "Advanced Battery Technologies, Inc."
2.The authorized number of shares of capital stock was increased from
20,000,000 common shares and 2,000,000 preferred shares to 60,000,000 common
shares and 5,000,000 preferred shares.
3.There was a reverse split of the outstanding common stock on a 1-for-10
basis, effective at 8:00 P.M. on July 12, 2004. The Company will purchase
fractional shares resulting from the reverse split on the basis of $3.50 per
share.
Since July 13, 2004, the company's common stock has been listed on the OTC
Bulletin Board under the symbol "ABAT."
Subsequent to the reverse stock split, the holders of the Series D Preferred
Stock converted their shares into 8,051,130 shares of common stock. After the
conversion, there were 10,220,169 common shares outstanding.
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Item 2. Management Discussion and Analysis
Forward-looking Statements
This Report contains certain forward-looking statements regarding the
business and financial prospects of Advanced Battery Technologies, Inc. and
its subsidiary, ZQ Power-Tech. These statements represent Management's
present intentions and its present belief regarding the company's future.
Nevertheless, there are numerous risks and uncertainties that could cause our
actual results to differ from the results suggested in this Report. Among the
more significant factors are:
1. ZQ Power-Tech has only recently initiated marketing. It is not yet
known whether it will be able to sell its products in quantities
sufficient to support significant growth and profitable operations.
2. A number of competitors who have capital resources far greater than
those of ZQ Power-Tech dominate the market for rechargeable
batteries. If one or more of them chose to compete aggressively
with ZQ Power-Tech, it might prevent ZQ Power-Tech from effectively
expanding its customer base.
3. If the current growth rate of the economy of China were to be
significantly reduced or if China were to experience a recession,
the market for ZQ Power-Tech's products would be reduced, and the
capital available to fund its expansion program might also be
reduced.
Because these and other risks may cause the Company's actual results to
differ from those anticipated by Management, the reader should not place undue
reliance on any forward-looking statements that appear in this Report. Readers
should also take note that the Company will not necessarily make any public
announcement of changes affecting these forward-looking statements, which
should be considered accurate on this date only.
Results of Operations
Advanced Battery Technologies, Inc. is a holding company with one
subsidiary. Its subsidiary owns 70% of the equity in Heilongjiang ZhongQiang
Power-Tech Co., Ltd., a China limited liability company ("ZQ Power-Tech"),
which is engaged in the business of designing, manufacturing and marketing
rechargeable polymer lithium-ion ("PLI") batteries.
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 quarter of 2004, ending March 31, 2004. All but a trace of the
$476,009 in sales recorded in that quarter were made to two customers. In the
second quarter of 2004 ZQ Power-Tech's sales were only slightly greater, as
revenue of $492,666 was recorded. Most of the second quarter sales were made
to three customers.
-8-
Deliveries in the second quarter were slow in part because the operations
personnel at ZQ Power-Tech were focused throughout the quarter 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 $21 million. Almost the entire
backlog consists of an order placed by Aiyingsi Enterprise Co., Ltd. of Taiwan
for standard 3.7 volt PLI battery sets. Deliveries to Aiyingsi are scheduled
monthly from September 30, 2004 through August 30, 2005.
ZQ Power-Tech realized a 44% gross margin on its sales in the first
quarter of 2004. In the second quarter gross margin was reduced to 30%,
reflecting a different mix of products sold in the second 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 37% level achieved in the six months ended June 30, 2004 will be maintained.
The general and administrative expenses recorded in the three months
ended June 30, 2004 equaled approximately 21% of revenue. This was a
substantial improvement over the first three months of 2004, when general and
administrative expenses exceeded 50% of revenue. In both quarters, however,
general and administrative expenses were disproportionate to revenue,
primarily due to ZQ Power-Tech's ongoing expansion program. At the same time,
ZQ Power-Tech incurred significant expenses in connection with its entry into
the U.S. securities market through a reverse merger into a U.S. public
company. Both of these factors will continue to swell general and
administrative expenses for the immediate future. However the expected
increase in ZQ Power-Tech's net sales should result in a better ratio of
expenses to sales.
ZQ Power-Tech reported a net loss of $48,088 for the six months ended
June 30, 2004. However, because Advanced Battery owns only 70% of ZQ Power-
Tech, the loss was reduced by $14,426 on Advanced Battery's statements of
operations. 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
To date, the development and initial operations of ZQ Power-Tech have
been financed primarily by contributions to capital made by Zhiguo Fu, the
Company's Chairman. At June 30, 2004 ZQ Power-Tech had a working capital
deficit of $618,477, an increase in the deficit of $411,346 since March 31,
2004. Among the principal factors in the deficit were customer deposits
totaling $227,800, which will be amortized as products are delivered, and an
unsecured note payable to a Chinese institutional lender in the amount of
$362,463. The note, which had been due on June 1, 2004, was recently
restructured and is now due on January 1, 2005.
-9-
Despite its negative working capital, ZQ Power-Tech has sufficient
liquidity to fund its near-term operations. The principal capital resource
available is $5,878,756 in property, plant and equipment and construction in
process, which ZQ Power-Tech owns without lien. Based on the substantial
backlog of orders that ZQ Power-Tech has accumulated, it believes that 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. In addition, the Shuangcheng Science and Technology Bureau has
committed to grant $604,105 to ZQ Power-Tech if its products have achieved
international standards or the standards of the local bureau by the end of
2004.
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.
Item 3. Controls and Procedures
Zhiguo Fu, our Chief Executive Officer, and John Leo, our Chief
Financial Officer, performed an evaluation of the Company's disclosure
controls and procedures as of June 30, 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 Messrs. Fu and Leo performed their evaluation.
PART II OTHER INFORMATION
Item 2. Changes in Securities and Small Business Issuer Purchase of Equity
Securities
(c) Unregistered sales of equity securities
On May 6, 2004 Advanced Battery issued common stock and common stock
derivatives to the nineteen shareholders of Cashtech Investment Limited. The
number of shares issued, after the derivatives were fully converted into
common stock, totaled 8,227,030 (after taking into account the recent 1-for-10
reverse split). The shares were issued in exchange for the capital stock of
Cashtech Investment Limited. The transaction was exempt pursuant to Section
4(2) of the Act since the exchange was not made in a public offering and was
made to individuals who had access to detailed information about Advanced
Battery and who were acquiring the shares for their own accounts. There were
no underwriters.
-10-
On May 6, 2004 Advanced Battery issued 10,0000 shares (after taking into
account the recent 1-for-10 reverse split) of common stock to Hoi Yat Kam.
The shares were issued in exchange for the Series C Preferred Stock previously
issued by Advanced Battery to Dr. Hoi. The transaction was exempt pursuant to
Section 4(2) of the Act since the exchange was not made in a public offering
and was made to an individuals who had access to detailed information about
Advanced Battery and who was acquiring the shares for his own account. There
were no underwriters.
(e) Purchases of equity securities
The Company did not repurchase any of its equity securities that were
registered under Section 12 of the Securities Exchange Act during the 2nd
quarter of 2004.
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K:
- Report dated April 13, 2004 announcing contract to acquire
Cashtech Investment Limited.
- Report dated May 6, 2004 announcing acquisition of Cashtech
Investment Limited.
Exhibits:
31 Rule 13a-14(a) Certifications
32 Rule 13a-14(b) Certification
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
ADVANCED BATTERY TECHNOLOGIES, INC.
Date: August 20, 2004 By: /s/ Zhiguo Fu
----------------------------------
Zhiguo Fu, Chief Executive Officer
Date: August 20, 2004 By: /s/ John C. Leo
----------------------------------
John C. Leo, Chief Financial Officer
-11-
* * * * *
EXHIBIT 31: Rule 13a-14(a) Certifications
I, Zhiguo Fu, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advanced
Battery Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation;
and
c) Disclosed in this report any change in the small business issuer's
internal controls over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal controls over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: August 20, 2004 /s/ Zhiguo Fu
----------------------------------
Zhiguo Fu, Chief Executive Officer
I, John C. Leo, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Advanced
Battery Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation;
and
c) Disclosed in this report any change in the small business issuer's
internal controls over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal controls over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: August 20, 2004 /s/ John C. Leo
---------------------------
JohnC. Leo, Chief Financial
Officer
* * * * *
EXHIBIT 32: Rule 13a-14(b) Certification
The undersigned officers certifies that this report fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934, and that
the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of Advanced
Battery Technologies, Inc.
A signed original of this written statement required by Section 906 has been
provided to Advanced Battery Technologies, Inc. and will be retained by
Advanced Battery Technologies, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: August 20, 2004 /s/ Zhiguo Fu
-----------------------------------
Zhiguo Fu (Chief Executive Officer)
Date: August 20, 2004 /s/ John C. Leo
-------------------------------------
John C. Leo (Chief Financial Officer)