NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
1.
|
Organization and basis of presentation
|
The consolidated financial statements
include the financial statements of Highpower International, Inc. (“Highpower”) and its subsidiaries, Hong Kong Highpower
Technology Company Limited (“HKHTC”), Shenzhen Highpower Technology Company Limited (“SZ Highpower”), Highpower
Energy Technology (Huizhou) Company Limited (“HZ Highpower”), Springpower Technology (Shenzhen) Company Limited (“SZ
Springpower”), Ganzhou Highpower Technology Company Limited (“GZ Highpower”), Icon Energy System Company Limited
(“ICON”) and Huizhou Highpower Technology Limited ("HZ HTC"). Highpower and its subsidiaries are collectively
referred to as the “Company”.
Highpower was incorporated in
the State of Delaware on January 3, 2006. HKHTC was incorporated in Hong Kong on July 4, 2003. All other subsidiaries are incorporated
in the People’s Republic of China (“PRC”).
On May 15, 2013, GZ Highpower
increased its paid-in capital from RMB15,000,000 ($2,381,293) to RMB30,000,000 ($4,807,847). SZ Highpower holds 60% of the equity
interest of GZ Highpower, and four founding management members of GZ Highpower hold the remaining 40%.
The subsidiaries
of the Company and their principal activities are described as follows:
Name of company
|
|
Place and date
incorporation
|
|
Attributable
equity
interest held
|
|
|
Principal
activities
|
Hong Kong Highpower Technology
Co., Ltd
("HKHTC")
|
|
Hong Kong
July 4, 2003
|
|
|
100
|
%
|
|
Investment holding
|
|
|
|
|
|
|
|
|
|
Shenzhen Highpower Technology Co., Ltd
("SZ
Highpower")
|
|
PRC
October 8, 2002
|
|
|
100
|
%
|
|
Manufacturing & marketing of batteries
|
|
|
|
|
|
|
|
|
|
Highpower Energy Technology (Huizhou) Co.,
Ltd
("HZ Highpower")
|
|
PRC
January 29, 2008
|
|
|
100
|
%
|
|
Inactive
|
|
|
|
|
|
|
|
|
|
Springpower Technology (Shenzhen) Co., Ltd
("SZ Springpower")
|
|
PRC
June 4, 2008
|
|
|
100
|
%
|
|
Research & manufacturing of batteries
|
|
|
|
|
|
|
|
|
|
Ganzhou Highpower Technology Co., Ltd
("GZ
Highpower")
|
|
PRC
September 21, 2010
|
|
|
60
|
%
|
|
Processing, marketing and research of battery
materials
|
|
|
|
|
|
|
|
|
|
Icon Energy System Co., Ltd.
("ICON")
|
|
PRC
February 23, 2011
|
|
|
100
|
%
|
|
Research and production of advanced battery
packs and systems
|
|
|
|
|
|
|
|
|
|
Huizhou Highpower Technology Co., Ltd
("HZ
HTC")
|
|
PRC
March 8, 2012
|
|
|
100
|
%
|
|
Manufacturing & marketing of batteries
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies
|
Basis of presentation
The accompanying consolidated
balance sheet as of December 31, 2013, which has been derived from audited financial statements, and the unaudited interim consolidated
financial statements as of March 31, 2014 and for the three month periods ended March 31, 2014 and 2013 have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures,
which are normally included in financial statements prepared in accordance with United States generally accepted accounting principles
(U.S. GAAP), have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made
are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial
Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2013, previously filed with the SEC.
In the opinion of management,
all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated
financial position as of March 31, 2014, its consolidated results of operations and cash flows for the three month periods ended
March 31, 2014 and 2013, as applicable, have been made. The interim results of operations are not necessarily indicative of the
operating results for the full fiscal year or any future periods.
Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation. Non-controlling interests represent
the equity interest in the GZ Highpower that is not attributable to the Company.
Use of estimates
The preparation of financial
statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates
and assumptions include revenues; the allowance for doubtful receivables; recoverability of the carrying amount of inventory; fair
values of financial instruments; and the assessment of deferred tax assets or liabilities. These estimates are often based on complex
judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results
could differ from these estimates.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies(continued)
|
Concentrations of credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist principally of accounts receivable. The Company extends
credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security.
In order to minimize the credit risk, the management of the Company has delegated a team responsible for determining credit limits,
credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the
Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment
losses are made for irrecoverable amounts. In this regard, the management of the Company considers that the Company’s credit
risk is significantly reduced.
During the three months ended
March 31, 2014 and 2013, there was one customer, Energizer Holdings, Inc., that accounted for 10% or more of total net sales. The
percentages of total net sales to Energizer Holdings, Inc. in the three months ended March 31, 2014 and 2013 were 10.6% and 13.6%,
respectively.
During the three months ended
March 31, 2014 and 2013, one major supplier accounted for 10% or more of purchase amount. The percentages of total purchase amount
from this one major supplier in the three months ended March 31, 2014 and 2013 were 10.1% and 14.8%, respectively.
One of the Company’s customers
accounted for 10.3% of the accounts receivable as of March 31, 2014. None of the Company’s customers accounted for 10% or
more of the accounts receivable as of December 31, 2013.
Cash and cash equivalents
Cash and cash equivalents include
all cash, deposits in banks and other liquid investments with initial maturities of three months or less.
Restricted cash
Restricted cash include time
deposits and cash security for bank acceptance bills.
Accounts receivable
Accounts receivable are stated
at the original amount less an allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at
period end. An allowance is also made when there is objective evidence that the Company will not be able to collect all amounts
due according to the original terms of the receivables. Bad debts are written off when identified. The Company extends unsecured
credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful
receivables to be fully collectible. The Company does not accrue interest on trade accounts receivable.
Notes receivable
Notes receivable represent banks’
acceptances that have been arranged with third-party financial institutions by certain customers to settle their purchases from
us. These banks’ acceptances are non-interest bearing and are collectible within six months.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Inventories
Inventories are stated at
lower of cost or market. Cost is determined using the weighted average method. Inventory includes
raw materials, packing materials, consumables, work in progress and finished goods. The variable production overhead is allocated
to each unit of production on the basis of the actual use of the production facilities. The allocation of fixed production overhead
to the costs of conversion is based on the normal capacity of the production facilities.
Property, plant and equipment
Property, plant and equipment
are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring
the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense;
major additions to physical properties are capitalized.
Depreciation of property, plant
and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:
Buildings
|
|
|
2.5% - 10
|
%
|
Furniture, fixtures and office equipment
|
|
|
20
|
%
|
Leasehold improvement
|
|
|
50
|
%
|
Machinery and equipment
|
|
|
10
|
%
|
Motor vehicles
|
|
|
20
|
%
|
Upon sale or disposal, the applicable
amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal
is charged or credited to income.
Construction in progress represents
capital expenditures for direct costs of construction or acquisition and design fees incurred, and the interest expense directly
related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate
category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended
use are completed. Construction in progress is not depreciated.
Land use rights, net
Land use rights represent payments
for the rights to use certain parcels of land for a certain period of time in the PRC. Land use rights are carried at cost and
charged to expense on a straight-line basis over the period the rights are granted.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Intangible assets
Intangible assets represent a
royalty-bearing, non-exclusive license to use certain patents owned by Ovonic Battery Company, Inc. (“Ovonic”), an
unrelated party, to manufacture rechargeable nickel metal hydride batteries for portable consumer applications (“Consumer
Batteries”) in the PRC, and a royalty-bearing, non-exclusive worldwide license to use certain patents owned by Ovonic to
manufacture, sell and distribute Consumer Batteries. The value of the licenses was established based on historic acquisition costs.
An exclusive proprietary technology
contributed by the four founding management members of GZ Highpower in exchange for the paid-in capital of GZ Highpower is recorded
at the four management members’ historical cost basis of nil.
Intangible assets are amortized
over their estimated useful lives, and are reviewed annually for impairment, or more frequently, if indications of possible impairment
exist.
Government grants
Government grants are recognized
when received and all the conditions for their receipt have been met.
Specifically, government grants
whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognized as
deferred revenue in the consolidated balance sheet and transferred to profit or loss on a systematic and rational basis over the
useful lives of the related assets. As of March 31, 2014 and December 31, 2013, the Company recorded deferred revenue of $1,677,967
and $675,521, respectively, for the government grants to purchase of non-current assets.
Government grants as the compensation
for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future
related cost are recognized in profit or loss in the period in which they become receivable. In the three months ended March 31,
2014 and 2013, approximately $94,591 and $19,597 of government grants were recognized as other income, respectively.
Revenue recognition
The Company recognizes revenue
when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery of the product has occurred,
title and risk of loss have transferred to the customers and collectability of the receivable is reasonably assured. The majority
of domestic sales contracts transfer title and risk of loss to customers upon receipt. The majority of oversea sales contracts
transfer title and risk of loss to customers when goods were delivered to the carriers. Revenue is presented net of any sales tax
and value added tax.
The Company does not have arrangements
for returns from customers and does not have any future obligations directly or indirectly related to product resale by customers.
The Company has no incentive programs.
Cost of sales
Cost of
revenues consists primarily of material costs, employee compensation, depreciation and related expenses, which are directly attributable
to the production of products. Write-down of inventories to lower of cost or market is also recorded in cost of revenues.
Shipping and handling
Shipping and handling expenses
are recorded as selling expenses when occurred. Shipping and handling expenses relating to sales were $207,187 and $180,664 respectively
for the three months ended March 31, 2014 and 2013.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Research and development
Research and development expenses
include expenses directly attributable to the conduct of research and development programs, including the expenses of salaries,
employee benefits, materials, supplies, and maintenance of research equipment. All expenditures associated with research and development
are expensed as incurred.
Advertising
Advertising, which generally
represents the cost of promotions to create or stimulate a positive image of the Company or a desire to buy the Company’s
products and services, is expensed as incurred. No significant advertising expense was recorded for the three months ended March
31, 2014 and 2013.
Share-based compensation
The Company recognizes compensation
expense associated with the issuance of equity instruments to employees for their services. The fair value of the equity instruments
is estimated on the date of grant and is expensed in the financial statements over the vesting period. The input assumptions used
in determining fair value are the expected life, expected volatility, risk-free rate and the dividend yield.
Share-based compensation associated
with the issuance of equity instruments to nonemployees is measured with the fair value of the equity instrument issued or committed
to be issued, as this is more reliable than the fair value of the services received. The fair value is measured at the date that
the commitment for performance by the counterparty has been reached or the counterparty's performance is complete.
Income taxes
The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Uncertain tax positions
The Company accounts for uncertainty
in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company
classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt)
of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in
the provision for income taxes. There were no uncertain tax positions as of March 31, 2014 and December 31, 2013.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Comprehensive income
Recognized revenue, expenses,
gains and losses are included in net income or loss. Although certain changes in assets and liabilities are reported as separate
components of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive
income or loss. The components of other comprehensive income or loss are consisted solely of foreign currency translation adjustments,
net of the income tax effect.
Foreign currency translation
and transactions
Highpower’s functional
currency is the United States dollar ("US$"). HKHTC's functional currency is the Hong Kong dollar ("HK$").
The functional currency of the Company’s subsidiaries in the PRC is the Renminbi ("RMB").
Most of the Company’s
oversea sales are priced and settled with US$. At the date a foreign currency transaction is recognized, each asset, liability,
revenue, expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording
entity by use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows
upon settlement of a transaction resulting from a change in exchange rates between the functional currency and the currency in
which the transaction is denominated is recognized as foreign currency transaction gain or loss that is included in determining
net income for the period in which the exchange rate changes. At each balance sheet date, recorded balances that are denominated
in a foreign currency are adjusted to reflect the current exchange rate.
The Company’s reporting
currency is US$. Assets and liabilities of HKHTC and the PRC subsidiaries are translated at the current exchange rate at the balance
sheet dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts
are translated at historical rates. Translation adjustments are reported in other comprehensive income.
Segment Reporting
The Company uses the “management
approach” in determining reportable operating segments. The management approach considers the internal organization and reporting
used by the Company's chief operating decision maker for making operating decisions and assessing performance as the source for
determining the Company's reportable segments. The Company’s reportable segments are based on products, geography, legal
structure, management structure, or any other manner in which management disaggregates a company. Therefore the Company categorizes
its business into three reportable segments, namely (i) Ni-MH Batteries; (ii) Lithium Batteries; and (iii) New Materials.
Fair value of financial instruments
The carrying values of the Company’s
financial instruments, including cash and cash equivalents, restricted cash, trade and other receivables, deposits, trade and other
payables, and bank borrowings, approximate their fair values due to the short-term maturity of such instruments.
The Company defines fair value
as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.
The Company establishes a fair
value hierarchy that requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring
fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement.
The Company
measures fair value using three levels of inputs that may be used to measure fair value:
-Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical assets or liabilities.
-Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
-Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the assets or liabilities.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Derivatives
From time to time the Company
may utilize foreign currency forward contracts to reduce the impact of foreign currency exchange rate risk. Management considered
that the foreign currency forwards did not meet the criteria for designated hedging instruments and hedged transactions to qualify
for cash flow hedge or fair value hedge accounting. The currency forwards therefore are accounted for as derivatives, with fair
value changes reported as gain (loss) of derivative instruments in the income statement.
Loss per share
Basic earnings per share (“EPS”)
is computed by dividing income attributable to holders of common shares by the weighted average number of common shares outstanding
during the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common
shares were exercised or converted into common shares.
There were 1,136,515 and 727,500
options and warrants outstanding as of March 31, 2014 and 2013 respectively, which were not included in the computation of diluted
EPS for the periods ended March 31, 2014 and 2013 because of the net loss sustained for the three months ended March 31, 2014 and
2013.
Recently issued accounting
pronouncements
As of May 14, 2014, the Financial
Accounting Standards Board (“FASB”) issued ASU No. 2013-01 up to ASU 2014-8, which are not expected to have a material
impact on the consolidated financial statements upon adoption.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
As of March
31, 2014 and December 31, 2013, restricted cash consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Securities for bank acceptance bill
|
|
|
9,739,284
|
|
|
|
14,132,921
|
|
Time deposit
|
|
|
11,731,135
|
|
|
|
14,453,200
|
|
|
|
|
21,470,419
|
|
|
|
28,586,121
|
|
|
4.
|
Accounts receivable, net
|
As of March
31, 2014 and December 31, 2013, accounts receivable consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
30,545,092
|
|
|
|
36,467,233
|
|
Less: allowance for doubtful debts
|
|
|
2,496,249
|
|
|
|
2,506,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,048,843
|
|
|
|
33,961,014
|
|
The Company experienced bad debt
expenses of $nil during the three months ended March 31, 2014 and reversed bad debt expense of $4,252 during the three months ended
March 31, 2013.
The Company wrote off accounts receivable of $2,959
and $nil, respectively, in the three months ended March 31, 2014 and 2013.
The account receivable attributable to SZ Springpower,
with a carrying amount of $13,411,203, was pledged as collateral for bank loans as of March 31, 2014.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Purchase deposits paid
|
|
|
2,686,438
|
|
|
|
2,876,267
|
|
Value-added tax prepayment
|
|
|
1,255,203
|
|
|
|
1,032,619
|
|
Deferred share-based compensation
|
|
|
345,933
|
|
|
|
131,812
|
|
Rental deposit
|
|
|
207,351
|
|
|
|
209,095
|
|
Deferred insurance fee
|
|
|
201,358
|
|
|
|
53,297
|
|
Advances to staff for operations
|
|
|
141,178
|
|
|
|
48,499
|
|
Other deposits and prepayments
|
|
|
611,232
|
|
|
|
618,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,448,693
|
|
|
|
4,969,743
|
|
Other deposits and prepayments
represent deferred expenses and prepayments to services providers.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Deposit for land use right
|
|
|
514,277
|
|
|
|
518,603
|
|
Others
|
|
|
565,220
|
|
|
|
545,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,079,497
|
|
|
|
1,063,656
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
4,872,102
|
|
|
|
4,281,232
|
|
Work in progress
|
|
|
1,965,697
|
|
|
|
2,047,627
|
|
Finished goods
|
|
|
12,909,610
|
|
|
|
13,087,995
|
|
Packing materials
|
|
|
15,502
|
|
|
|
20,591
|
|
Consumables
|
|
|
303,805
|
|
|
|
301,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,066,716
|
|
|
|
19,739,360
|
|
Where
there is evidence that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost,
whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the inventories are written down
to fair value.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
8.
|
Property, plant and equipment, net
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
6,819,363
|
|
|
|
6,681,652
|
|
Furniture, fixtures and office equipment
|
|
|
3,287,681
|
|
|
|
3,282,818
|
|
Leasehold improvement
|
|
|
1,189,228
|
|
|
|
940,089
|
|
Machinery and equipment
|
|
|
25,635,475
|
|
|
|
24,600,773
|
|
Motor vehicles
|
|
|
1,419,079
|
|
|
|
1,430,611
|
|
Building
|
|
|
21,341,904
|
|
|
|
21,521,416
|
|
|
|
|
59,692,730
|
|
|
|
58,457,359
|
|
Less: accumulated depreciation
|
|
|
10,518,961
|
|
|
|
9,909,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,173,769
|
|
|
|
48,548,203
|
|
The Company recorded depreciation
expenses of $970,857 and $532,439 for the three months ended March 31, 2014 and 2013, respectively.
The buildings comprising the
Huizhou facilities were pledged as collateral for bank loans as of March 31, 2014 and December 31, 2013. The carrying amount of
the building was estimated to be $10,721,650 and $10,867,411, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
Land located in Huizhou
|
|
|
3,491,385
|
|
|
|
3,520,752
|
|
Land located in Ganzhou
|
|
|
1,362,058
|
|
|
|
1,373,515
|
|
|
|
|
4,853,443
|
|
|
|
4,894,267
|
|
Accumulated amortization
|
|
|
(497,240
|
)
|
|
|
(472,852
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
4,356,203
|
|
|
|
4,421,415
|
|
As of March 31, 2014, land use
rights of the Company included certain parcels of land located in Huizhou City, Guangdong Province, PRC and Ganzhou City, Jiangxi
Province, PRC. Land use rights for land in Huizhou City with an area of approximately 126,605 square meters and in Ganzhou City
with an area of approximately 58,669 square meters will expire on May 23, 2057 and January 4, 2062, respectively.
Land use rights are being amortized
annually using the straight-line method over a contract term of 50 years. Estimated amortization for the coming years is as follows
|
|
$
|
|
Remaining 2014
|
|
|
85,332
|
|
2015
|
|
|
113,776
|
|
2016
|
|
|
113,776
|
|
2017
|
|
|
113,776
|
|
2018
|
|
|
113,776
|
|
2019 and thereafter
|
|
|
3,815,767
|
|
|
|
|
4,356,203
|
|
The Company recorded amortization
expenses of $28,444 and $23,780 for the three months ended March 31, 2014 and 2013, respectively.
The land use right for land
located in Huizhou City was pledged as collateral for bank loans as of March 31, 2014 and December 31, 2013.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Consumer battery license fee
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(362,500
|
)
|
|
|
(350,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
637,500
|
|
|
|
650,000
|
|
The Company is amortizing the
$1,000,000 cost of the Consumer Battery License Agreement with Ovonic over a period of 20 years on the straight line basis over
the estimated useful life of the underlying technology, which is based on the Company’s assessment of existing battery technology,
current trends in the battery business, potential developments and improvements, and the Company’s current business plan.
As of March 31, 2014 and December
31, 2013, the Company had an exclusive proprietary technology with historical cost of zero but still in use. The exclusive proprietary
technology was contributed by four founding management members of GZ Highpower in exchange for the paid-in capital of GZ Highpower.
The historical cost basis was recorded at $nil at the four management members’ historical cost basis.
Amortization expenses included
in selling and distribution expenses were $12,500 for the three months ended March 31, 2014 and 2013.
|
11.
|
Other payables and accrued liabilities
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
3,945,975
|
|
|
|
3,877,095
|
|
Royalty payable
|
|
|
577,627
|
|
|
|
582,486
|
|
VAT payable
|
|
|
669,525
|
|
|
|
1,406,086
|
|
Sales deposits received
|
|
|
1,935,731
|
|
|
|
1,574,258
|
|
Other payables
|
|
|
373,255
|
|
|
|
361,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,502,113
|
|
|
|
7,801,431
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
The Company and its subsidiaries
file tax returns separately.
1) VAT
Pursuant to the Provisional
Regulation of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are
engaged in the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received,
less any deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to a portion
of or all the refund of VAT that it has already paid or incurred. The Company’s PRC subsidiaries are subject to VAT at 17%
of their revenues.
2) Income tax
United States
Highpower was incorporated in
Delaware and is subject to U.S. federal income tax with a system of graduated tax rates ranging from 15% to 35%. As Highpower does
not conduct any business in the U.S. or Delaware, it is not subject to U.S. or Delaware state corporate income tax. No deferred
U.S. taxes are recorded since all accumulated profits in the PRC will be permanently reinvested in the PRC.
Hong Kong
HKHTC, which is incorporated
in Hong Kong, is subject to a corporate income tax rate of 16.5%.
PRC
In accordance with the relevant
tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable
tax rate on the taxable income.
SZ Highpower has obtained the
approval and is qualified as a High-Tech Enterprise ("NHTE") status by the Shenzhen Tax Bureau according to the PRC Enterprise
Income Tax Law. It is eligible to enjoy a preferential tax rate of 15% from 2011 to 2013. SZ Highpower will reapply for High-Tech
Enterprise status in the second quarter of 2014. If SZ Highpower fails to obtain the approval in 2014, SZ Highpower will be subject
to income tax at a rate of 25% starting with calendar year 2014.
SZ Springpower received High-Tech
Enterprise ("NHTE") status in 2013, which is valid for 3 calendar years. As a result, SZ Springpower is entitled to a
preferential enterprise income tax rate of 15% from 2013 to 2015. SZ Springpower will reapply for High-Tech Enterprise status in
2016. If SZ Springpower fails to obtain the approval in 2016, SZ Springpower will be subject to income tax at a rate of 25% starting
with calendar year 2016.
All the other PRC subsidiaries
are not entitled to any tax holiday. They were subject to income tax at a rate of 25% for calendar years 2014 and 2013.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
The components of the provision
for income taxes expenses are:
|
|
Three months ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
326,755
|
|
|
|
159,923
|
|
Deferred
|
|
|
(418,906
|
)
|
|
|
(111,704
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(92,151
|
)
|
|
|
48,219
|
|
The reconciliation of income
taxes expenses computed at the statutory tax rate applicable to the Company to income tax expenses is as follows:
|
|
Three months ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Loss before tax
|
|
|
(1,078,096
|
)
|
|
|
(590,197
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at applicable income tax rate
|
|
|
(306,966
|
)
|
|
|
(156,621
|
)
|
Effect of preferential tax rate
|
|
|
(23,134
|
)
|
|
|
56,494
|
|
Non-deductible expenses
|
|
|
18,138
|
|
|
|
25,787
|
|
Change in valuation allowance
|
|
|
219,811
|
|
|
|
122,559
|
|
|
|
|
|
|
|
|
|
|
Effective enterprise income tax
|
|
|
(92,151
|
)
|
|
|
48,219
|
|
3) Deferred tax assets
Deferred tax assets and deferred
tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of
temporary difference.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
3,019,592
|
|
|
|
2,601,823
|
|
Allowance for doubtful receivables
|
|
|
111,066
|
|
|
|
112,446
|
|
Allowance for inventory obsolescence
|
|
|
100,784
|
|
|
|
46,441
|
|
Fair value change of currency forwards
|
|
|
11,097
|
|
|
|
(9,493
|
)
|
Difference for sales cut-off
|
|
|
36,107
|
|
|
|
46,824
|
|
Deferred Revenue
|
|
|
318,684
|
|
|
|
168,880
|
|
Total gross deferred tax assets
|
|
|
3,597,330
|
|
|
|
2,966,921
|
|
Valuation allowance
|
|
|
(2,384191
|
)
|
|
|
(2,164,696
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
|
1,213,139
|
|
|
|
802,225
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
Notes payable are presented
to certain suppliers as a payment against the outstanding trade payables. These notes payable are bank guarantee promissory notes
which are non-interest bearing and generally mature within six months. The outstanding bank guarantee promissory notes are secured
by restricted cash deposited in banks. Outstanding notes payable were $19,113,705 and $25,271,256 as of March 31, 2014 and December
31, 2013, respectively.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Short- term bank loans guaranteed and repayable within one year
|
|
|
25,453,672
|
|
|
|
36,142,105
|
|
As of March 31, 2014, the above
bank borrowings were for working capital and capital expenditure purposes and were secured by personal guarantees executed by certain
directors of the Company, a land use right with a carrying amount of $3,054,962, the building with a carrying amount of $10,721,650
and a trade receivable with a carrying amount of $13,411,203.
The loans were primarily obtained
from 7 banks with interest rates ranging from 1.3% to 7.8% per annum. The interest expenses were $491,763 and $184,981 for the
three months ended March 31, 2014 and 2013, respectively.
The Company entered into various
credit contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. The following tables
summarize the unused lines of credit as of March 31, 2014 and December 31, 2013:
|
|
March
31, 2014 (Unaudited)
|
Lender
|
|
Starting
date
|
|
Maturity
date
|
|
Line
of credit
|
|
|
Unused
line of credit
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Bank of China
|
|
3/10/2014
|
|
3/10/2015
|
|
|
12,601,012
|
|
|
|
7,608,579
|
|
Industrial and Commercial
Bank of China
|
|
7/26/2012
|
|
7/25/2015
|
|
|
6,503,748
|
|
|
|
3,251,874
|
|
China Everbright Bank
|
|
5/30/2013
|
|
5/29/2014
|
|
|
6,503,748
|
|
|
|
1,665,654
|
|
China Everbright Bank
|
|
9/4/2013
|
|
9/3/2014
|
|
|
1,138,156
|
|
|
|
-
|
|
Industrial Bank Co.,
Ltd
|
|
7/24/2013
|
|
7/24/2014
|
|
|
8,129,685
|
|
|
|
6,503,748
|
|
Jiang Su Bank Co., Ltd
|
|
6/21/2013
|
|
6/20/2014
|
|
|
4,877,811
|
|
|
|
-
|
|
Ping An Bank
|
|
11/12/2013
|
|
9/17/2014
|
|
|
11,381,559
|
|
|
|
4,912,443
|
|
Shanghai
Commercial & Saving Bank
|
|
8/29/2013
|
|
8/29/2014
|
|
|
3,000,000
|
|
|
|
1,250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
54,135,719
|
|
|
|
25,192,298
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
15.
|
Lines of credit (continued)
|
|
|
December
31, 2013
|
Lender
|
|
Starting
date
|
|
Maturity
date
|
|
Line
of credit
|
|
|
Unused
line of credit
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Industrial and Commercial Bank of China
|
|
7/26/2012
|
|
7/25/2015
|
|
|
6,558,452
|
|
|
|
1,803,574
|
|
China Citic Bank
|
|
3/29/2013
|
|
3/29/2014
|
|
|
7,378,259
|
|
|
|
5,738,646
|
|
Bank of China
|
|
1/25/2013
|
|
1/25/2014
|
|
|
3,689,129
|
|
|
|
247,582
|
|
Bank of China
|
|
1/10/2013
|
|
1/10/2014
|
|
|
12,707,001
|
|
|
|
1,674,876
|
|
China Everbright Bank
|
|
5/30/2013
|
|
5/29/2014
|
|
|
8,438,433
|
|
|
|
1,382,194
|
|
China Everbright Bank
|
|
9/4/2013
|
|
9/3/2014
|
|
|
1,147,729
|
|
|
|
-
|
|
Industrial Bank Co.,
Ltd
|
|
7/24/2013
|
|
7/24/2014
|
|
|
8,198,065
|
|
|
|
6,558,452
|
|
Jiang Su Bank Co., Ltd
|
|
6/21/2013
|
|
6/20/2014
|
|
|
4,918,839
|
|
|
|
-
|
|
Ping An Bank
|
|
11/12/2013
|
|
9/17/2014
|
|
|
11,477,291
|
|
|
|
7,564,027
|
|
Shanghai Commercial
& Saving Bank
|
|
8/29/2013
|
|
8/29/2014
|
|
|
3,000,000
|
|
|
|
1,250,000
|
|
Industrial and Commercial
Bank of China(MACAU) LIMITED
|
|
7/29/2013
|
|
1/29/2014
|
|
|
7,093,296
|
|
|
|
3,084,294
|
|
Total
|
|
|
|
|
|
|
74,606,494
|
|
|
|
29,303,645
|
|
The lines of credits from Bank
of China, Industrial and Commercial Bank of China, China Everbright Bank, Jiang Su Bank, Industrial Bank Co. Ltd, Ping An Bank
Co., Ltd and China Citic Bank are guaranteed by the Company’s Chief Executive Officer, Mr. Dang Yu Pan.
Certain of the agreements governing
the Company’s loans include standard affirmative and negative covenants, including restrictions on granting additional pledges
on the Company’s property and incurring additional debt and obligations to provide advance notice of major corporate actions,
and other covenants including: that the borrower may not serve as a guarantor for more than double its net assets; that the borrower
is restricted in certain circumstances from using the loans in connection with related party transactions or other transactions
with affiliates; that the borrower must provide monthly reports to certain lenders describing the actual use of loans; that the
borrower may need to obtain approval to engage in major corporate transactions; and that the borrower may need to obtain approval
to increase overseas investments, guarantee additional debt or incur additional debt by an amount which exceeds 20% of its total
net assets should the lender determine that such action would have a material impact on the ability of the borrower to repay the
loan. The covenants in these loan agreements could prohibit the Company from incurring any additional debt without consent from
its lenders. The Company believes it would be able to obtain consents from the lenders in the event it needed to do so. The agreements
governing the Company’s loans may also include covenants that, in certain circumstances, may require the Company’s
PRC operating subsidiaries to give notice to, or obtain consent from, certain of their lenders prior to making a distribution of
net profit, as well as covenants restricting the ability of the Company’s PRC operating subsidiaries from extending loans.
As of March 31, 2014 and December 31, 2013, the Company was in compliance with all material covenants in its loan agreements.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Long term loans from Bank of China
|
|
|
5,365,592
|
|
|
|
5,902,607
|
|
Less: current portion of long-term borrowings
|
|
|
1,951,124
|
|
|
|
1,967,536
|
|
Long- term bank loans, net of current portion
|
|
|
3,414,468
|
|
|
|
3,935,071
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
16.
|
Long-term loans (continued)
|
On January 13, 2012, the Company
borrowed $8,129,685 (RMB50 million) from the Bank of China, which is guaranteed by the Company’s Chief Executive Officer,
Mr. Dang Yu Pan. It is a five-year long-term loan, with an annual interest rate of 7.04%, which was equal to 110% of the benchmark-lending
rate of the People’s Bank of China (“PBOC”) as of March 31, 2014. Interest expenses are to be paid quarterly.
The interest expenses were $103,618
and $151,285 for the three months ended March 31, 2014 and 2013, respectively.
The principal is to be repaid
quarterly from September 30, 2012. 2% of the principal was repaid on each of September 30, 2012 and December 30, 2012, respectively.
Thereafter 6% of the principal is to be repaid every quarter after December 31, 2012 until the maturity date. The repayment schedule
of the principal is summarized as in below table:
|
|
$
|
|
Remaining 2014
|
|
|
1,463,344
|
|
2015
|
|
|
1,951,124
|
|
2016
|
|
|
1,951,124
|
|
|
|
|
5,365,592
|
|
|
17.
|
Share-based Compensation
|
2008 Omnibus Incentive Plan
The 2008 Omnibus Incentive Plan
(the "2008 Plan") was approved by the Company’s Board of Directors on October 29, 2008 to be effective as such
date, subject to approval of the Company’s stockholders which occurred on December 11, 2008. The 2008 Plan has a ten year
term. The 2008 Plan reserves two million shares of common stock for issuance, subject to adjustment in the event of a recapitalization
in accordance with the terms of the 2008 Plan.
The 2008 Plan authorizes the
issuance of awards including stock options, restricted stock units (RSUs), restricted stock, unrestricted stock, stock appreciation
rights (SARs) and other equity and/or cash performance incentive awards to employees, directors, and consultants of the Company.
Subject to certain restrictions, the Compensation Committee of the Board of Directors has broad discretion to establish the terms
and conditions for awards under the 2008 Plan, including the number of shares, vesting conditions and the required service or performance
criteria. Options and SARs may have a contractual term of up to ten years and generally vest over three to five years with an exercise
price equal to the fair market value on the date of grant. Incentive stock options (ISOs) granted must have an exercise price equal
to or greater than the fair market value of the Company’s common stock on the date of grant. Repricing of stock options and
SARs is permitted without stockholder approval. If a particular award agreement so provides, certain change in control transactions
may cause such awards granted under the 2008 Plan to vest at an accelerated rate, unless the awards are continued or substituted
for in connection with the transaction As of March 31, 2014, approximately 632,000 shares of common stock remained available for
issuance pursuant to awards granted under the 2008 Plan.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
17.
|
Share-based Compensation (continued)
|
Options
Granted to Employees
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2014
|
|
|
1,105,000
|
|
|
$
|
2.87
|
|
|
|
8.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercised
|
|
|
(160,000
|
)
|
|
$
|
2.69
|
|
|
|
|
|
Forfeited
|
|
|
(8,485
|
)
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2014
|
|
|
936,515
|
|
|
$
|
2.90
|
|
|
|
8.45
|
|
Exercisable, March 31, 2014
|
|
|
220,000
|
|
|
$
|
3.47
|
|
|
|
6.83
|
|
Vested and expected to vest, March 31, 2014
|
|
|
851,571
|
|
|
$
|
2.92
|
|
|
|
8.37
|
|
The aggregate
intrinsic value of options vested and expected to vest as of March 31, 2014 and December 31, 2013 was approximately $2.0 million
and Nil, respectively. Intrinsic value is calculated as the amount by which the current market value of a share of common stock
exceeds the exercise price multiplied by the number of option shares.
During the
three months ended March 31, 2014, the Company did not grant any new options to employees. One employee exercised his options to
purchase 160,000 shares of the Company’s common stock, but the issuance of shares was not completed as of March 31, 2014.
One employee had resigned and his options to purchase a total of 8,485 shares of the Company’s common stock were forfeited.
During the
three months ended March 31, 2013, no options was granted, exercised or forfeited.
The estimated
fair value of share-based compensation to employees is recognized as a charge against income on a ratable basis over the requisite
service period, which is generally the vesting period of the award.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
17.
|
Share-based Compensation (continued)
|
Restricted Stock Awards Granted
to Employees
During the year ended December
31, 2013 the Company granted 246,000 shares of restricted stock to members of the Board of Directors as Restricted Stock Awards
(“RSA”) under 2008 Plan. The RSA granted in 2013 had the following vesting periods; 30% immediately upon grant, 30%
vest on first anniversary of the grant date, and 40% vest on the second anniversary of grant date. The RSAs are governed by agreements
between the Company and recipients of the awards. Terms of the agreements are determined by the Compensation Committee. There were
no RSAs granted to employees during the three months ended March 31, 2014 and 2013.
The following table summarizes the restricted stock
awards activities for the three months ended March 31, 2014:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2014
|
|
|
172,200
|
|
|
$
|
2.81
|
|
|
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2014
|
|
|
172,000
|
|
|
$
|
2.81
|
|
|
|
0.48
|
|
Expected to vest, March 31, 2014
|
|
|
155,219
|
|
|
$
|
2.81
|
|
|
|
1.52
|
|
Share-based
Compensation to Nonemployees
On July 15, 2013, the Company
entered into an agreement with a consulting firm. In return for the consulting firm’s financial advisory service in the coming
two years, the Company issued an aggregate of 150,000 shares of the Company’s restricted stock to the consulting firm on
August 15, 2013. The restricted stock was fully vested upon issuance. The fair value of the restricted stocks was $171,000, which
was based on the closing market price of the Company’s common stock on August 15, 2013. The share-based compensation is being
amortized during a two year period.
Pursuant to the above agreement,
the Company would also issue another 150,000 shares of the Company’s restricted stock to the consulting firm after a specific
financing target is completed. Neither was the restricted stock issued nor was the consulting firm’s performance completed
as of March 31, 2014. However, the consulting firm was considered to have a performance commitment as of July 15, 2013 because
of sufficiently large disincentives for nonperformance. Hence, July 15, 2013 was considered to be the measurement date of the restricted
stock. The fair value of the restricted stock was zero, which was the lowest aggregate amount in the case of failure to accomplish
the specific financing target.
Also, pursuant to the above
agreement, the Company issued five year warrants to purchase 200,000 shares of the Company’s common stock at January 17,
2014. The warrants were fully vested upon issuance and the aggregate fair value of the warrants was $389,787 which was calculated
using the Black-Scholes pricing model, with the following weighted-average assumptions:
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Expected volatility
|
|
|
83.62
|
%
|
|
|
-
|
|
Risk-free interest rate
|
|
|
1.64
|
%
|
|
|
-
|
|
Expected term from grant date (in years)
|
|
|
5
|
|
|
|
-
|
|
Dividend rate
|
|
|
-
|
|
|
|
-
|
|
Fair value
|
|
|
1.95
|
|
|
|
-
|
|
Expected
Term
The expected
term of the warrants issued during the three months ended March 31, 2014, represents the remaining contractual term of the warrants.
Expected
Volatility
The expected
volatility used for the three-month periods ended March 31, 2014 is based upon the Company’s own trading history.
Risk-Free
Interest Rate
The risk
free interest rate assumption is based on U.S. Treasury instruments with a term consistent with the remaining contractual term
of the warrants issued during the first quarter of 2014.
Dividend
Yield
The Company has never declared
or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and therefore, used an expected dividend
yield of zero in the valuation model.
Forfeitures
The Company estimates forfeitures
at the time of grant and revises the estimates in subsequent periods if actual forfeitures differ from what was estimated. The
forfeiture rate is applied to stock options and restricted stock awards. The Company uses historical data to estimate pre-vesting
forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment
awards are amortized on a ratable basis over the requisite service periods of the awards, which are generally the vesting periods.
The Company records stock-based compensation expense only for those awards that are expected to vest.
The fair value of the warrants
are being amortized over the remaining consulting service period. For the three months ended March 31, 2014, approximately $154,291
was recognized as stock-based compensation expense and approximately $235,496 remains capitalized on the balance sheet as of March
31, 2014, which will be amortized to expense over the next five quarters.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
17.
|
Share-based Compensation (continued)
|
Total Share-based Compensation
Expenses
As of March 31, 2014 the gross
amount of unrecognized share-based compensation expense relating to unvested share-based awards held by employees was approximately
$1.4 million, which the Company anticipates recognizing as a charge against income over a weighted average period of 9.34 years.
In connection with the grant
of stock options, restricted stock awards and warrants to employees and nonemployees, the Company recorded stock-based compensation
charges of $225,280 and $175,666, respectively, for the three-month period ended March 31, 2014 and stock-based compensation charges
of $48,537and $502, respectively, for the three-month period ended March 31, 2013.
Basic earnings per common share
is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding
during the period. Diluted earnings per common share is computed by dividing income available to common stockholders by the weighted-average
number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock
outstanding that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities
include outstanding stock options, restricted shares. The dilutive effect of potential dilutive securities is reflected in diluted
earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair
market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
The Company excludes potential common stock in the diluted EPS computation in periods of losses from continuing operations, as
their effect would be anti-dilutive.
The following table sets forth
the computation of basic and diluted earnings per common share for the three months ended March 31, 2014 and 2013.
|
|
Three months ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to the Company
|
|
|
(935,149
|
)
|
|
|
(608,880
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
13,978,106
|
|
|
|
13,582,106
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
(0.07
|
)
|
|
|
(0.04
|
)
|
Diluted earnings per share takes
into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and
converted into common stock. There were 1,136,515 and 727,500 options and warrants outstanding as of March 2014 and 2013 respectively,
which were not included in the computation of diluted EPS for the periods ended March 31, 2014 and 2013 because of the net loss
sustained for the three months ended March 31, 2014 and 2013.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
19.
|
Defined contribution plan
|
Full-time employees of the Company
in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical
care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC
operating subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the
employees’ salaries. Except for pension benefits, medical care, employee housing fund and other welfare benefits mentioned
above, the Company has no legal obligation for the benefits beyond the contributions made.
The total amounts for such employee
benefits, which were expensed as incurred, were $359,899 and $370,331 for the three months ended March 31, 2014 and 2013, respectively.
|
20.
|
Non-controlling interest
|
GZ Highpower is the Company’s
majority-owned subsidiary which is consolidated in the Company’s financial statements while with a non-controlling interest
recognized. GZ Highpower is engaged in processing, marketing and research of battery materials. The Company holds 60% interest
of GZ Highpower as of March 31, 2014 and December 31, 2013.
On May 15, 2013, GZ Highpower
increased its paid-in capital from RMB15,000,000 ($2,381,293) to RMB30,000,000 ($4,807,847). SZ Highpower contributed to the increased
paid-in capital with cash of RMB 9,000,000 ($1,456,193), while the non-controlling shareholders contributed with an exclusive proprietary
technology with fair value of 6,000,000 ($970,795). The exclusive proprietary technology, however, was recorded at the four management
members’ historical cost basis of nil. Therefore, an increase of $582,477, which was the 40% of the RMB 9,000,000 ($1,456,193),
was recorded in non-controlling interest.
As of March 31, 2014 and December
31, 2013, non-controlling interest related to GZ Highpower in the consolidated balance sheet was $1,237,819 and $1,299,252, respectively.
For the three months ended March
31, 2014 and 2013, non-controlling interest related to GZ Highpower in the consolidated statements of operations was loss of $50,796
and $29,536, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
21.
|
Commitments and contingencies
|
Operating leases commitments
The Company leases factory and
office premises under various non-cancelable operating lease agreements that expire at various dates through years 2013 to 2016,
with options to renew the leases. All leases are on a fixed repayment basis. None of the leases includes contingent rentals. Minimum
future commitments under these agreements as of March 31, 2014 are as follows:
|
|
$
|
|
Remaining 2014
|
|
|
1,184,901
|
|
2015
|
|
|
1,446,361
|
|
2016
|
|
|
1,321,106
|
|
2017
|
|
|
333,935
|
|
|
|
|
|
|
|
|
|
4,286,303
|
|
Rent expenses for the three
months ended March 31, 2014 and 2013 were $387,681 and $328,899 respectively.
Capital commitments and contingency
The Company had contracted capital
commitments of $nil and $990,031 for the construction of the Ganzhou plant as of March 31, 2014 and December 31, 2013, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
The reportable segments are
components of the Company which offer different products and are separately managed, with separate financial information available
that is separately evaluated regularly by the Company’s chief operating decision maker (“CODM”) in determining
the performance of the business. The Company categorizes its business into three reportable segments, namely (i) Ni-MH Batteries;
(ii) Lithium Batteries; and (iii) New Materials.
The CODM evaluates performance
based on each reporting segment’s net sales, cost of sales, gross profit and total assets. Net sales, cost of sales, gross
profit and total assets by segments is set out as follows:
|
|
Three months ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
Ni-MH Batteries
|
|
|
15,487,503
|
|
|
|
15,049,970
|
|
Lithium Batteries
|
|
|
13,390,244
|
|
|
|
9,252,222
|
|
New Materials
|
|
|
282,567
|
|
|
|
97,180
|
|
Total
|
|
|
29,160,314
|
|
|
|
24,399,372
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
Ni-MH Batteries
|
|
|
12,289,798
|
|
|
|
12,097,100
|
|
Lithium Batteries
|
|
|
10,702,826
|
|
|
|
7,441,912
|
|
New Materials
|
|
|
236,745
|
|
|
|
97,180
|
|
Total
|
|
|
23,229,369
|
|
|
|
19,636,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Ni-MH Batteries
|
|
|
3,197,705
|
|
|
|
2,952,870
|
|
Lithium Batteries
|
|
|
2,687,418
|
|
|
|
1,810,310
|
|
New Materials
|
|
|
45,822
|
|
|
|
-
|
|
Total
|
|
|
5,930,945
|
|
|
|
4,763,180
|
|
|
|
|
|
|
|
March 31,2014
|
|
|
December 31,2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Ni-MH Batteries
|
|
|
51,714,237
|
|
|
|
66,960,366
|
|
Lithium Batteries
|
|
|
77,637,127
|
|
|
|
76,357,912
|
|
New Materials
|
|
|
8,807,252
|
|
|
|
8,475,098
|
|
Total
|
|
|
138,158,616
|
|
|
|
151,793,376
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
|
22.
|
Segment information (continued)
|
All long-lived assets of the
Company are located in the PRC. Geographic information about the sales and accounts receivable based on the location of the Company’s
customers is set out as follows:
|
|
Three months ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
China (including Hong Kong)
|
|
|
18,032,224
|
|
|
|
10,882,035
|
|
Asia, others
|
|
|
2,063,364
|
|
|
|
3,433,989
|
|
Europe
|
|
|
6,389,293
|
|
|
|
7,402,042
|
|
North America
|
|
|
2,342,307
|
|
|
|
2,419,950
|
|
South America
|
|
|
125,381
|
|
|
|
165,008
|
|
Africa
|
|
|
159,779
|
|
|
|
43,422
|
|
Others
|
|
|
47,966
|
|
|
|
52,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,160,314
|
|
|
|
24,399,372
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China (including Hong Kong)
|
|
|
21,164,209
|
|
|
|
24,554,617
|
|
Asia, others
|
|
|
1,044,715
|
|
|
|
3,278,001
|
|
Europe
|
|
|
5,488,637
|
|
|
|
5,191,444
|
|
North America
|
|
|
200,398
|
|
|
|
863,156
|
|
South America
|
|
|
104,139
|
|
|
|
50,691
|
|
Africa
|
|
|
21,183
|
|
|
|
25
|
|
Others
|
|
|
25,562
|
|
|
|
23,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,048,843
|
|
|
|
33,961,014
|
|
The Company has evaluated subsequent
events through the issuance of the consolidated financial statements and identified following event:
On
April 17, 2014, the Company
entered into a definitive securities
purchase agreements with several institutional investors for the sale of its common stock in a registered direct offering. The
Company sold 1,000,000 shares of common stock at a price of $5.05 per share, including warrants to purchase an additional 500,000
shares of common stock with an exercise price of $6.33 per share, for total gross proceeds of approximately $5.05 million.