We believe that Advanced Battery Technologies, Inc. (ABAT) is fabricating its SEC financial statements. We believe that the company’s revenue and profit are highly overstated in its SEC filings.
In collaboration with Prescience Investment Group, we have put together a 35-page report on ABAT and why we believe it is a fraud.
Click here [1] for our report on Advanced Battery Technologies.
If Prescience’s website is overloaded with traffic, an alternative copy is available here [2].
A video summary of the findings, along with discussions with certain customers, are available at the following links:
- ABAT Analysis Video 1 of 2 [3]
- ABAT Analysis Video 2 of 2 [4]
- ABAT Customer Interview 1 [5]
- ABAT Customer Interview 2 (Video 1 of 2) [6]
- ABAT Customer Interview 2 (Video 2 of 2) [7]
Our evidence includes:
- SAIC filings show that ABAT is reporting significantly lower revenue and profit to the authorities in China. For 2009, SAIC filings showed less than $2 million of revenue, compared to $64 million in SEC filings.
- ABAT has unreasonably high margins in an established industry with strong competitors. The Company’s SEC-reported margins and return on capital are virtually impossible. Out of 106 global battery manufacturers as classified by Bloomberg, ABAT has the highest operating profit margin by a wide margin. When compared to six leading Chinese battery makers, ABAT’s operating margin is triple that of its closest competitor and six times that of the median operating margin of the comparable companies.
- Site visits show underutilized facilities lacking in quality control. We hired investigators to visit both the Harbin and Wuxi facilities, and provide photos as well as commentary from our investigators. Our investigators concluded that both facilities produce commodity, low-margin products that are highly unlikely to be generating industry-leading margins or return on capital.
- In December 2010, ABAT announced that it was acquiring a Shenzhen battery maker for $20 million. We believe this acquisition is a sham, and that ABAT paid $20 million in 2010 for an entity that they had previously bought in 2008 for $1 million, but had not disclosed to public investors.
- Confirmation from former customers and partners that the Company is likely a fraud. After visiting one of ABAT’s plants, one customer called the facility “absolutely the biggest joke I’d ever seen”. A recording of the conversation is available here [5]. In another conversation available here [6] and here [7], a customer said the CEO admitted to hiring an accounting firm “to cook his stock price up”.
- Low quality auditors and high turnover. The Company has had 4 auditors in the past 7 years, with no auditor being ranked in the top global 100 auditors at the time of hire.
- Unqualified CFOs and high turnover. A CFO or auditor has resigned at least once a year. The Company’s past three CFOs have included: (i) a company insider who has been general manager of the Company’s main operating subsidiary since 2004, and is therefore not remotely independent, (ii) a 29-year-old who was formerly VP Finance at China Natural Gas, another fraud, and (iii) a candidate whose primary experience comprised of being a financial adviser at Smith Barney.
- Continuous share dilution through secondary offerings, despite having more than adequate cash reserves. Through repeated share issuances, the Company has grown its outstanding shares from 10.0 million following
Our complete findings are available in our report [2].
Kerrisdale Capital, our affiliates, client accounts and other contributors to the report are short and own options in the securities of ABAT and stand to realize gains in the event that the price of the stock declines. We may buy, sell or short shares of ABAT at any time. We will not disclose if we discover something faulty with our analysis at a later date.
This email does not constitute investment advice or a recommendation of any sorts. Shorting a $1.60 stock with a $120 million market cap can be risky. Just because a stock is fundamentally worth $0 does not mean that it will end up at $0 in the near or intermediate term.
Please read the full disclaimer at the end of the report.