Kindly do call the officers of Pomerantz, (212) 661-1100 especially longs in the class who sense deception and something rotten in state of denmark. Explain to them how vvr report falsifies and makes lies against ABAT causing initial share depression. Not based on disclosure but based on lies. A lying report is not disclosure. Then do your research and go through point by point as which vvr allegators are no correct.
here is one. . .
Allegation 2: ABAT leads investors to think that it makes cutting-edge electric cars, when in fact it produces cheap scooters and bicycles.
The Facts: ABAT is a battery manufacturer. Among the products it manufactures are batteries that may be used in electric cars. ABAT's subsidiary, Wuxi ZQ, is a vehicle manufacturer. Among the vehicles that Wuxi ZQ manufactures are ATVs that can be used as agricultural transport vehicles or sport-utility vehicles. Pictures are available on the Wuxi ZQ website. As our 10-K states (and the Variant View report notes), Wuxi ZQ's highest priced vehicle sells for $3,471.
No person reading our SEC filings or looking at our website in good faith could draw the conclusion that ABAT manufactures electric cars.
you can now google reuters + Wuxi Zhongqiang+2009 and you read there the press releases from 2009. see there how ABAT says electric vehicles, then next sentence says electric bikes, each one. but here is quote from vvr report. . .
"The company regularly refers to its business as an "electric vehicle" business in its press releases and filings. This is highly likely to mislead Western investors whose idea of an electric vehicle is a Tesla, not a bicycle with a small electric motor attached"
But press releases from 2009 all say electric bike and so do filing.
Lawfirms supposed to have integrity. None there. Hurting many people. Hurting you shareholders.
Speak up say somthing.
Hi Wang ... I feel V V R added "allegation 2" to amplify the impact of the short-and-distort attack. It may be V V R were aware that this complaint could later be amended in Court. Which has happened, twice now, if I read PACER correctly. Give the devil his due. The March 2011 V V R assault performed exactly as planned. It's just a shame they were able to recruit two shareholders willing to figure head the ongoing assault against ABAT.
As far as Pomerantz goes. I haven't contacted them. Pomerantz is doing as they were hired to do. To bring action against ABAT with hope that someday the Court would somehow award something to them. I feel the longer Pomerantz and the lead plaintiffs take it to ABAT. The less likely ABAT will be willing to settle anything with them. I posted this advice several months ago and see it has fallen on deaf ears.
So far the big winner is Variant View Research. After successfully posting pages of opinion, formed to appear as fact and admitting it was for short sell gain, are flushed with shareholder cash. At this point I just don't see Pomerantz being paid by anyone.
I am holding my 2011-2012 shares of ABAT and to continue to accumulate more at a modest rate. My target is 260,000 shares. This hinges on personal cash flow and settlement date.
Google: China ghost cities, vacant malls, industrial overcapacity, real estate bubble
Slimy investment banks and PE firms cruise China looking for run down enterprises to dress up and sell to gullible US pigeons, like you. It's the China miracle for sale, and you can get rich like the big boys. They hire a slimy auditor, cook the books, do the back door RTO, get on an exchange, and the first thing these cash rich world beating China miracles do is sell as much of their stock as they can, for whatever they can get. The money is divied up with the investment bankers, the bulk of the cash goes back to China, where it stays.
When you buy stock in these scams you own a part of a US shell corp. that owns another shell in the British Virgin Islands that allegedly owns a couple of shells in China. To make a long story short, you own what's under the US shell, which is nothing. The pea is under a shell in China. Company get's caught frauding, get's turned PINK, goes dark, keeps the money, you get to keep the bag. End of story.
If the filings are accurate, the Chairman transferred ownership of the company’s sole operating subsidiary to himself without explanation or compensation. If the filings are inaccurate, then the company is guilty of misrepresenting itself as previously owning 100% of HLJ ZQPT, when in fact it did not (and remember, the company issued millions of shares to Fu supposedly in exchange for his holdings of HLJ ZQPT).
Either way, this is the most egregious action by any Chinese RTO management
ABAT is a serial issuer of equity at low prices
In August 2008, the company issued 5 million common shares and warrants to purchase an additional 2.6 million shares.
In June 2009, the company issued preferred stock that converts into 4.3 million common shares and warrants to purchase an additional 3.5 million shares.
In December 2010, the company issued 7.5 million common shares and warrants to purchase an additional 3.7 million shares.
In addition to the equity sales, the company also issued, in aggregate, at least 30 million shares for acquisitions and a suspicious “loan repayment” (at least 26 million of these shares went to Chairman Fu and friends).
If the financial statements are believed, then these issuances were done at unreasonably low P/E multiples at times when the company had significant net cash balances. The only possible explanations are that (1) the financial results are inflated, (2) the counterparties are related and getting a sweetheart deal, or (3) the management is incredibly stupid.
In my opinion, issuing shares at absurdly low prices to fund opaque transactions is one of the most serious red flags that a public company can have.
ABAT spent $20 million to acquire a company linked to the Chairman without disclosing the relationship
In January 2011, the company acquired Shenzhen Zhongqiang New Energy Science & Technology Co., Ltd. (“Shenzhen ZQ”) for 135 million RMB (about $20 million).
The first red flag is that the company has spent a significant sum on an acquisition, but gives investors very little information about the target company. Not a single financial metric was disclosed until two months post-acquisition, even now we know very little. In legitimate acquisitions, management is quick to trumpet the good qualities and results of the business being acquired.
Even the target’s name, Shenzhen ZQ, is suspiciously similar to the company’s existing subsidiaries (Harbin ZQ and Wuxi ZQ). But we can dig deeper than that. From Shenzhen ZQ’s government registration, we learn that Fu Zhiguo was previously Executive Managing Director and Legal Representative of Shenzhen ZQ.
Yet in ABAT’s announcement of the acquisition, and its 10-K, the company does not mention this relationship at all.
I think it is quite likely that the Shenzhen ZQ acquisition is a sham transaction that enabled the Chairman to funnel $20 million of proceeds from the December equity raise into his own pockets.
China Integrated Energy (CBEH) was recently accused of a similar scheme to funnel out cash through an acquisition. That stock fell from $6 to $3.75 in less than a week.
ABAT spent $22 million or 7x sales to acquire a failing and possibly related company
In 2009, ABAT paid $3.64 million, 70 million RMB, and 3 million common shares to acquire Wuxi Angell (later renamed Wuxi ZQ), the producer of electric scooters and bicycles. Previously, ABAT had advanced Wuxi $3.81 million. Note that the purchase agreement does not mention the advance, and the consideration amounts do not appear to include it. So the total acquisition cost may be over $25 million.
Wuxi had a book value of $9.6 million at March 2009; a net loss of $3.7 million in 2008, and a net loss of $1.1 million in 2007. Its gross profit actually declined by 35% from 2007 to 2008. Revenue was rapidly contracting: 2009 Q1 revenue was $0.75 million, or down 63% year over year.
Working capital position was negative $15 million. Cashflow from operations in the first quarter was negative $4.1 million. Wuxi had been sued five times and brought to arbitration over bad debts. The company lost all six cases and had not repaid any of the debts at year-end 2008.
The situation was so dire that the auditor issued a going concern warning and Wuxi had to take a $3.8 million “advance” from ABAT a few months prior to the acquisition. ABAT should have been purchasing Wuxi in bankruptcy court, not at over 2x a questionable book value.
The pro-forma statement of operations (page F-40) is very enlightening.
Wuxi Net Contribution
In other words, after eliminating the battery revenue that ABAT was previously getting from Wuxi, ABAT was paying 7x FY08 revenue for a business that was about to go bust. If we estimate SAAR from the 2009 Q1 revenue number, and use the same intercompany elimination percentage, we get an absurd price of 18x sales.
Subsequent revenue growth numbers seem impossible. As a standalone company, Wuxi generated an estimated $1 million revenue in the first four months of 2009. Yet, ABAT claimed $20 million of “electric vehicle” revenue in 2009, which means that average monthly sales grew by 9.5x from the first four months of the year to the last eight months of the year. Meanwhile, the combined companies had fewer employees at year-end 2009 than legacy ABAT alone at year-end 2008.
ABAT claims that Wuxi’s shareholders are not related parties to ABAT, but it also says that one of the owners, Bao Jin, was a major shareholder of ABAT, with one million shares. Chairman Fu agreed to buy his ABAT shares “in order to facilitate the purchase of Wuxi Angell.” The majority owner of Wuxi was a Chinese entity whose shareholding is opaque. Also, Wuxi was audited by Bagell Josephs Levine, the same firm that was auditing ABAT at the time. Despite ABAT’s claim of non-relatedness, it is hard to believe that these individuals were not friendly, especially since ABAT clearly overpaid for Wuxi.
ABAT spent $1.5 million on another suspicious transaction
Quoting the 10-K:
In December 2008 Advanced Battery Technologies purchased a 49% equity interest in Beyond E-Tech, Inc. (BET), a corporation located in Texas that distributes cellular telephones manufactured in China to its order by Flying Technology Development Co. and Lenovo China. The purchase price for the shares was $1.5 million cash.
A search of Beyond E-Tech shows that BET-branded phones exist, but as the 10-K reveals, these are simply white label devices purchased from ODMs. It looks like BET sent some samples to review websites to get reviewed, but besides that, there is virtually zero mentioned about the company online, and I cannot find any reputable merchants selling their product. Does this business still exist? Was it ever a “real” company?
(Google Shopping Search)
To dig deeper, I looked up Beyond E-Tech, Inc. on the State of Texas Comptroller’s website.
We see that the entity was created only two months prior to ABAT’s equity purchase, with the registered agent listed as: Lisheng Zhang, 3005 West Loop South Suite 100, Houston, TX 77027.
It turns out that 3005 West Loop South Suite 100 is actually the retail address of “Impression Bridal”.
Just to be sure, I called Impression Bridal and the friendly clerk informed me there was no Lisheng Zhang associated with that location.
A registered agent is a designated person who must be available during all business hours to receive service of process, otherwise, the company can automatically lose its corporate status and protection. This is important enough that every legitimate corporation is going to have legitimate registered agent information. (One can pay an “agent service” $70/yr to handle this)
Based on the above evidence, I wonder whether this is another sham transaction intended to funnel cash out of the company.
ABAT issued 11 million common shares to Chairman Fu and two other individuals to repay a “loan” which appears to be fabricated
In the company’s 2006 10-K, filed April of 2007, ABAT disclosed for the first time that it had entered into a contract in January 2005 with Chairman Fu and two other individuals. This purported contract “acknowledged” [ABAT’s wording] that these three individuals had loaned $4.8 million to ABAT and that this contract “provided” that ABAT would issue 11.2 million shares to satisfy $3.3 million of the loan ($0.33 per share). At the time that the disclosure was made, the stock was trading at $0.60 per share.
Strangely, this contract had never been disclosed prior; in fact, no long-term liabilities whatsoever are listed in the 2005 10-K balance sheet. The 10-K does list $4.1 million of “Short Term Bank and Other Borrowings”, but Note 8 to the financial statements clearly describes that these borrowings are bank loans, car loans, and other non related party loans. There was no disclosure in the 2005 10-K under related party transactions. This so-called “contract” appears to be entirely fabricated.
[Author's correction: Our reason for believing that the $4.8 million loan had not been disclosed prior to the 2006 10-K was that the disclosure was not explicitly listed under the 2005 10-K, footnote 17, "Related Party Transactions" or in the 2005 balance sheets. Our research had also shown that there was no explicit disclosure in the 2004 10-K, under footnote 19, "Related Party Transactions", or in the 2004 balance sheets. However, the company did in fact disclose the transaction in other sections of its 10-K filings. We regret and apologize for our oversight.
However, we still believe that the company's disclosures were inadequate. $4.8 million is larger than the total reported liabilities of the company at the end of 2004. Our understanding is that such a loan must be disclosed as a liability under GAAP. By omitting the loan from the balance sheet, the company misrepresented its true financial condition. Furthermore, it was a large enough transaction that it should have been explicitly disclosed under the Related Party Transactions footnotes (No. 17 and No. 19 in 2005 and 2004 respectively).
Our analysis regarding the legitimacy of this transaction are unchanged. We still believe that had it been a "real" loan, it would have been disclosed in the 2004 balance sheet, and depending on timing, in the 2005 balance sheet as well.]
Why did the company describe the transaction as a “loan”? The individuals transferred money to ABAT. ABAT was required to issue shares to these individuals. This is not a loan, it is an equity sale. In fact, the SEC requires that unregistered equity sales be disclosed in a timely manner.
Even if the transaction is exactly as ABAT described it, ABAT appears to have violated securities law by failing to disclose it timely. However, I don’t believe that cash was ever transferred to ABAT. I doubt that Chairman Fu would lend money to the company without recording a liability in the financial statements.
Management has done many other related party transactions
The 2004 10-K risk factors include this gem:
RELATED PARTY TRANSACTIONS MAY OCCUR ON TERMS THAT ARE NOT FAVORABLE TO ADVANCED BATTERY TECHNOLOGIES.
What an understatement.
In addition to the egregious transactions described above, here is a brief list of “piggy bank” transactions:
2004-2005: The company sold goods to related parties. At the end of 2005, the company had a large account receivable from one of these parties. I believe this was, in effect, a kind of interest-free loan.
January 2006: Fu sells 30% of HLJ ZQPT to ABAT for 11 million shares. The company admits that Fu structured the transaction and the Board did not get a fairness opinion.
…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.
January 2006: Fu sells a patent on “a nano material lithium ion battery and its production process” to the company for 4.4 million shares.
2006: The company made interest-free, unsecured loans of $884,929 to companies owned by Chairman Fu.
Q1 2009: ABAT made an interest-free loan of $19,355 to a company where Fu sits on the board of directors.
July 2009: The company agrees to lease a house from the Chairman for $4,000 per month.
Chairman Fu has sold an estimated 28 million shares since 2004
During the same time period, the company’s diluted share count tripled. The number of shares sold by Fu is greater than the shares outstanding at the time the company obtained its listing.
This is an estimate that understates sales to the extent of options received, and overstates sales to the extent that any shares received in the related-party transactions went to other individuals. However, I believe it to be roughly correct.
The addition of 1.3 million shares in 2009 is explained by a 1 million share purchase that was part of the Wuxi transaction, and the balance (I believe) by options.
Despite a parade of auditors and multiple restatements, ABAT still has material weaknesses
Prior to 2006, ABAT was audited by PKF CPA in Hong Kong. HLJ ZQPT was audited by Rosenberg Rich Baker Berman & Company. For the fiscal years 2006-2008, ABAT was audited by Bagell, Josephs, Levine & Co (which later merged with Friedman). ABAT’s 2009’s audit was done by Friedman and 2010 audit by EFP Rotenberg. Auditor changes are a red flag, as they may be a sign of “opinion shopping.”
Another red flag: both Friedman and EFP Rotenberg identified material weaknesses.
(a) a lack of expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles among the personnel in the Company’s accounting department, which has resulted in errors in accounting that necessitated a restatement of the financial statements for 2008 and 2009 and (b) inadequate review by management personnel of the Company’s reports prior to filing, which resulted in errors in prior filings that necessitated the filing of amendments to the 2009 Annual Report and the Quarterly Reports through the quarter ended September 30, 2010. [emphasis added]
Translation: Management does not understand GAAP and failed to read its own filings.
Not exactly confidence-inspiring.
ABAT’s RTO promoter, John Leo, is behind a number of suspicious Chinese reverse mergers, most notably CYXI
ABAT’s reverse merger was the brainchild of John C. Leo, who was also ABAT’s first public-company CFO. John Leo has been involved in a number of shady Chinese reverse mergers, most notably, China Yingxia (CYXI).
CYXI now trades on the Pink Sheets for $0.01 and two CYXI executives were sentenced to death in China for fraud. They made the mistake of defrauding Chinese investors prior to defrauding Americans.
How many $250 million companies cannot even get their own name right?
The “Exact name of registrant” in ABAT’s SEC filings is Advanced Battery Technologies, Inc., but the company's website alternately calls the company (depending on which page you are on):
United States Advanced Battery Technologies, Inc.;
United States Advanced Battery Technology, Inc.;
United States Advanced Battery Technology Company;
USA Advanced Battery Technology, Inc.;
U.S. ABAT Group (China) Co., Ltd.; or
None of these latter six names is listed in the company’s 10-K, and yet the company’s real name is nowhere on its website! If you were running a legitimate company with over $100 million in the bank, wouldn’t you be sure to get the name of your company right?
A more disconcerting question: is there an undisclosed “ABAT Group” Chinese entity holding assets that belong to shareholders?
Virtually zero fundamental institutional ownership
Looking at the list of top holders at 12/31, out of the top nine, seven are major index product providers, one is a “social” fund which appears to be a closet indexer, and one is a quantitative fund. None of these funds is likely to have done any due diligence on this company. There are no fundamental institutions with a significant shareholding. Another multi-hundred million market cap company with this characteristic was China MediaExpress (CCME). We all know how that turned out.
ABAT is the most egregious Chinese RTO I have seen. If the ownership status of HLJ ZQPT alone is not enough of a red flag, ABAT appears to have: A self-dealing management, falsely represented business description, serial equity issuances to acquire related or poor businesses, ludicrous profitability claims, customers that cannot be verified, multiple audit problems, the list goes on and on. This company has the dubious honor of achieving every major red flag that one looks for in a Chinese RTO fraud.
If CBEH is any guide, the market is eager to punish companies that do suspicious acquisitions funded by dilution. I would not want to be on the long side of this one.