HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
1.
|
The Company and basis of presentation
|
The consolidated financial statements
include the financial statements of Highpower International, Inc. ("Highpower") and its 100%-owned subsidiary Hong Kong
Highpower Technology Company Limited (“HKHTC”), HKHTC’s wholly-owned subsidiary Shenzhen Highpower Technology
Company Limited (“SZ Highpower”), SZ Highpower’s wholly owned subsidiary Huizhou Highpower Technology Company
Limited (“HZ HTC”) and SZ Highpower’s and HKHTC’s jointly owned subsidiaries, Springpower Technology (Shenzhen)
Company Limited (“SZ Springpower”) and Icon Energy System Company Limited (“ICON”). Highpower and its direct
and indirect wholly owned subsidiaries are collectively referred to as the "Company".
Basis of presentation
The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. 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 year ended
December 31, 2017, filed with the SEC on April 4, 2018.
In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s consolidated
financial position as of March 31, 2018, its consolidated results of operations for the three months ended March 31, 2018 and cash
flows for the three months ended March 31, 2018, as applicable, have been made. Operating results for the three months period ended
March 31, 2018 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2018
or any future periods.
Concentrations of credit risk
No customer accounted for 10%
or more of total sales during the three months ended March 31, 2018 and 2017.
One supplier accounted for 21.2%
and 10.5% of the total purchase amount during the three months ended March 31, 2018 and 2017, respectively.
No customer accounted for 10%
or more of the accounts receivable as of March 31, 2018. One customer accounted for 10.1% of the accounts receivable as of December
31, 2017.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies
|
Long-term investment
For an investee over which the Company
holds less than 20% voting interest and has no ability to exercise significant influence, the investments are accounted for under
the cost method.
For an investee over which the Company
has the ability to exercise significant influence, but does not have a controlling interest, the Company accounted for those using
the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting
stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors, voting
rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is
appropriate.
An impairment charge is recorded
if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than temporary. As
of March 31, 2018 and December 31, 2017, management believes no impairment charge is necessary.
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 Highpower's other direct and indirect wholly and majority owned subsidiaries in the PRC is the Renminbi ("RMB").
Most of the Company’s oversea
sales are priced and settled with US$. At the date a foreign currency transaction is recognized, each asset, liability, revenue,
expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by
use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement
of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction
is denominated is recognized as foreign currency transaction gain or loss that is included in earnings for the period in which
the exchange rate changes. At each balance sheet date, recorded balances that are denominated in a foreign currency are adjusted
to reflect the current exchange rate.
The Company’s reporting currency
is US$. 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 accumulated other comprehensive income.
Fair value of financial instruments
The carrying values of the Company’s
financial instruments, including cash, restricted cash, trade and other receivables, deposits, trade and other payables and bank
borrowings, approximate their fair value due to the short-term maturity of such instruments.
ASC Topic 820 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.
ASC Topic 820 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Recently issued accounting
standards
In May 2014, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”), which was subsequently modified in August 2015 by ASU 2015-14, Revenue from Contracts with Customers: Deferral
of the Effective Date. This guidance will be effective for fiscal years (and interim reporting periods within those years) beginning
after December 15, 2017. The core principle of ASU 2014-09 is that companies should recognize revenue when the transfer of promised
goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures
to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB
issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying
performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as
well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). In 2017, the FASB issued Accounting
Standards Update (ASU) 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20),
which was originally issued in ASU 2014-09. The amendments in this Update require that an entity to initially measure a retained
non-controlling interest in a nonfinancial asset at fair value consistent with a how a retained non-controlling interest in a business
is measured.
Under Topic 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the
entity expects to receive in exchange for those goods or services. It also impacts certain other areas, such as the accounting
for costs to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers.
Management has adopted this standard
effective January 1, 2018 using the modified-retrospective approach, in which case the cumulative effect of applying the standard
would be recognized at the date of initial application. The adoption of ASC 606 did not have a material impact on the Company’s
condensed consolidated balance sheet, statement of operations and statement of cash flows for the three months period ended March
31, 2018. See Note 3 for disclosures required by ASC 606 and the updated accounting policy for revenue recognition.
On February 25, 2016, the FASB issued
ASU 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating leases.
A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a
right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or
less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and
lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for
fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted
for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact
of adopting ASU 2016-02 on its consolidated financial statements.
In February 2018, the FASB issued
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments in this Update allow a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs
Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve
the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification
of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax
laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain
disclosures about stranded tax effects. Public business entities should apply the amendments in ASU 2018-02 for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted,
including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements
have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been
made available for issuance. The Company is currently evaluating the impact of adopting ASU 2018-02 on its consolidated financial
statements.
In March 2018, the FASB issued ASU
No. 2018-05, Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update
adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application
of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed
into law. The Company is currently evaluating the impact of adopting ASU 2018-05 on its consolidated financial statements.
The Company does not believe other
recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated
financial position, statements of operations and cash flows.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
The Company adopted ASC 606 using
the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result,
financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial
information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy
for revenue recognition prior to the adoption of ASC 606.
Revenue is recognized when (or as)
the Company satisfies performance obligations by transferring a promised goods to a customer. Revenue is measured at the transaction
price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised
goods to the customer. Contracts with customers are comprised of customer purchase orders, invoices and written contracts. Given
the nature of our business, customer product orders are fulfilled at a point in time and not over a period of time.
The majority of domestic sales contracts
transfer control to customers upon receipt of product by customers. The majority of oversea sales contracts transfer control to
customers when goods were delivered to the carriers. In most jurisdictions where the Company operates, sales are subject to Value
Added Tax (“VAT”). Revenue is presented net of VAT.
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 sales incentive programs.
The following table disaggregates
product sales by business segment by geography which provides information as to the major source of revenue. See Note 15 for additional
description of our reportable business segments and the products being sold in each segment.
|
|
Three months ended March 31, 2018
|
|
|
|
Lithium Business
|
|
|
Ni-MH Batteries and
Accessories
|
|
|
Consolidated
|
|
Primary Geographic Markets
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
China Mainland
|
|
|
22,590,952
|
|
|
|
5,714,811
|
|
|
|
28,305,763
|
|
Asia, others
|
|
|
12,770,712
|
|
|
|
2,983,684
|
|
|
|
15,754,396
|
|
Europe
|
|
|
905,169
|
|
|
|
3,632,734
|
|
|
|
4,537,903
|
|
North America
|
|
|
329,822
|
|
|
|
835,009
|
|
|
|
1,164,831
|
|
Others
|
|
|
-
|
|
|
|
20,560
|
|
|
|
20,560
|
|
Total sales
|
|
|
36,596,655
|
|
|
|
13,186,798
|
|
|
|
49,783,453
|
|
The Company has elected to apply
the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations
that have original expected durations of one year or less.
We do not have amounts of contract
assets since revenue is recognized as control of goods are transferred. Our contract liabilities consist of advance payments from
customers. Our contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting
period. All contract liabilities are expected to be recognized as revenue within one year and are included in Other payables and
accrued liabilities in our Condensed Consolidated Balance Sheet.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
4.
|
Accounts receivable, net
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
59,443,695
|
|
|
|
61,431,785
|
|
Less: allowance for doubtful accounts
|
|
|
3,202,734
|
|
|
|
3,178,786
|
|
|
|
|
56,240,961
|
|
|
|
58,252,999
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
31,539,229
|
|
|
|
21,428,315
|
|
Work in progress
|
|
|
10,503,750
|
|
|
|
6,931,486
|
|
Finished goods
|
|
|
12,960,846
|
|
|
|
14,284,563
|
|
Packing materials
|
|
|
30,817
|
|
|
|
36,797
|
|
Consumables
|
|
|
312,824
|
|
|
|
265,483
|
|
|
|
|
55,347,466
|
|
|
|
42,946,644
|
|
|
6.
|
Property, plant and equipment, net
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
1,624,402
|
|
|
|
1,330,643
|
|
Furniture, fixtures and office equipment
|
|
|
6,326,512
|
|
|
|
5,794,983
|
|
Leasehold improvement
|
|
|
7,404,622
|
|
|
|
7,080,409
|
|
Machinery and equipment
|
|
|
34,968,872
|
|
|
|
33,176,416
|
|
Motor vehicles
|
|
|
1,651,532
|
|
|
|
1,498,605
|
|
Buildings
|
|
|
20,913,122
|
|
|
|
20,169,197
|
|
|
|
|
72,889,062
|
|
|
|
69,050,253
|
|
Less: accumulated depreciation
|
|
|
24,699,844
|
|
|
|
22,529,477
|
|
|
|
|
48,189,218
|
|
|
|
46,520,776
|
|
The Company recorded depreciation
expenses of $1,445,700 and $1,240,126 for the three months ended March 31, 2018 and 2017, respectively.
During the three months ended March
31, 2018, the Company deducted deferred income related to government grants of $nil on the carrying amount of property, plant and
equipment. During the year ended December 31, 2017, the Company deducted deferred income related to government grants of $263,948
in calculating the carrying amount of property, plant and equipment.
The buildings comprising the Huizhou
facilities were pledged as collateral for bank loans. The net carrying amounts of the buildings were $9,502,186 and $9,224,694
as of March 31, 2018 and December 31, 2017, respectively.
The building located in Shenzhen,
Guangdong was pledged as collateral for bank loans. The net carrying amount of the buildings was $405,105 and $396,843 as of March
31, 2018 and December 31, 2017, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
Interest%
|
|
|
|
|
|
Interest%
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Equity method investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Ganzhou Highpower Technology Company Limited (“GZ Highpower”) (1)
|
|
|
8,558,347
|
|
|
|
31.294
|
%
|
|
|
8,102,520
|
|
|
|
31.294
|
%
|
-Shenzhen V-power Innovative Technology Co., Ltd (“V-power”) (2)
|
|
|
780,702
|
|
|
|
49.000
|
%
|
|
|
-
|
|
|
|
N/A
|
|
Cost method investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Huizhou Yipeng Energy Technology Co Ltd. (“Yipeng”) (3)
|
|
|
1,870,393
|
|
|
|
4.654
|
%
|
|
|
1,803,859
|
|
|
|
4.654
|
%
|
|
|
|
11,209,442
|
|
|
|
|
|
|
|
9,906,379
|
|
|
|
|
|
(1) Investment in GZ Highpower
On December 21, 2017, after the
completion of the capital increase to GZ Highpower by other shareholders, the Company lost the controlling power over GZ Highpower
and deconsolidated GZ Highpower. Thereafter, the investment was recorded under the equity method.
The equity in earnings of investee
was $156,250 for the three months ended March 31, 2018.
(2) Investment in V-power
On February 28, 2018, the Company
signed an investment agreement (the “Agreement”) with a related company and a group of individuals (the “Founder
Team”) with an aggregate amount of RMB4.9 million (approximately $0.8 million) for 49% of the equity interest of V-power,
which was recorded under the equity method. Pursuant to the terms of the Agreement, the Company shall complete the capital injection
to V-power no later than December 31, 2018. In addition, the Company agrees to transfer the 15% of original equity interest of
V-power to the Founder Team as compensation under voluntary assignment as any of the following requirements met: 1. annual sales
revenue higher or equal to RMB30 million before the first capital increase of V-power; 2. valuation of V-power higher or equal
to RMB30 million before equity issuance. As of March 31, 2018, no capital injection was made by the Company, and the unpaid amount
was recorded as amount due to a related party (See Note 16).
Since V-power did not commence
any operation, there was no profit or loss for the three months ended March 31, 2018.
(3) Investment in Yipeng
In 2017, after the completion of
the capital injection to Yipeng and the equity transfer payment received by the Company from the other shareholder, the Company’s
equity ownership in Yipeng decreased from 35.4% to 4.654%, and the Company lost the ability to exercises significant influence
over Yipeng, discontinued the use of equity mehod and applied the cost methed in accounting.
The equity in earnings of investee
was $146,932 for the three months ended March 31, 2017.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
Highpower and its direct and indirect
wholly owned 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
Tax Reform
On December 22, 2017, the Tax Cuts
and Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate
income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax
on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to
U.S. tax.
On December 22, 2017, the Securities
and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act
enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must
reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent
that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements.
As of March 31, 2018, the Company
has not completed its accounting for certain tax effects of enactment of the Tax Act; however, the Company has made reasonable
estimates of the effects on our existing deferred tax balances and the one-time transition tax. The Company expects to finalize
these provisional estimates before the end of 2018 after completing our reviews and analysis, including reviews and analysis of
any interpretations issued during this re-measurement period.
The one-time transition tax
is based on the total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred U.S.
income taxes. The Company expects to make adjustments to this provisional estimate based on additional clarifying and interpretative
technical guidance to be issued related to the calculation of the one-time transition tax.
The Tax Act subjects a U.S. shareholder
to tax on Global Intangible Low Taxed Income (GILTI) earned by foreign subsidiaries. The Company has not determined its accounting
policy with respect to GILTI and has therefore included the 2018 estimate of current year GILTI as a period cost and included as
part of the estimated annual effective tax rate. The 2018 estimated annual effective tax rate also includes the 2018 impact of
all other U.S. tax reform provisions that were effective on January 1, 2018.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
Hong Kong
HKHTC, which was 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 taxable income.
In China, the companies granted
with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every
three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration
of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2018 and 2017.
The components of the provision
for income taxes (benefit) expense are:
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
346,937
|
|
|
|
463,217
|
|
Deferred
|
|
|
(356,616
|
)
|
|
|
124,548
|
|
Total income taxes (benefit) expense
|
|
|
(9,679
|
)
|
|
|
587,765
|
|
The reconciliation of income taxes
expenses computed at the PRC statutory tax rate to income tax (benefit) expense is as follows:
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
(Loss) income before tax
|
|
|
(1,128,615
|
)
|
|
|
3,200,307
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at PRC statutory income tax rate (25%)
|
|
|
(282,154
|
)
|
|
|
800,077
|
|
Impact of different tax rates in other jurisdictions
|
|
|
58,660
|
|
|
|
3,255
|
|
Effect of PRC preferential tax rate
|
|
|
6,453
|
|
|
|
(391,843
|
)
|
Other non-deductible expenses
|
|
|
16,576
|
|
|
|
16,547
|
|
Change in valuation allowance of deferred tax assets
|
|
|
190,786
|
|
|
|
159,729
|
|
Effective enterprise income tax
|
|
|
(9,679
|
)
|
|
|
587,765
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
3) Deferred tax assets,
net
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
1,425,204
|
|
|
|
991,766
|
|
Allowance for doubtful receivables
|
|
|
142,521
|
|
|
|
136,562
|
|
Impairment for inventory
|
|
|
269,234
|
|
|
|
222,289
|
|
Difference for sales cut-off
|
|
|
20,576
|
|
|
|
17,322
|
|
Deferred government grant
|
|
|
119,858
|
|
|
|
46,446
|
|
Property, plant and equipment subsidized by government grant
|
|
|
276,510
|
|
|
|
269,344
|
|
Impairment for property, plant and equipment
|
|
|
60,370
|
|
|
|
58,304
|
|
Total gross deferred tax assets
|
|
|
2,314,273
|
|
|
|
1,742,033
|
|
Valuation allowance
|
|
|
(1,178,723
|
)
|
|
|
(991,766
|
)
|
Total net deferred tax assets
|
|
|
1,135,550
|
|
|
|
750,267
|
|
As of March 31, 2018, the Company
had net operating loss carry-forwards in Hong Kong of $6,404,130 and the United States of $581,148 without expiration and in the
PRC of $1,643,213, which will expire in 2022.
The Company has deferred tax
assets which consisted of tax loss carry-forwards and other items that can be carried forward to offset future taxable income.
Management determined it is more likely than not that part of the deferred tax assets could not be utilized, so a valuation allowance
was provided for as of March 31, 2018 and December 31, 2017. The net valuation allowance increased by approximately $0.2 million
and $0.2 million during the three months ended March 31, 2018 and 2017, respectively.
Notes payable presented to certain
suppliers as a payment against the outstanding trade payables.
Notes payable are mainly bank acceptance
bills which are non-interest bearing and generally mature within six months. The outstanding bank acceptance bills are secured
by restricted cash deposited in banks. Outstanding bank acceptance bills were $58,833,089 and $54,859,478 as of March 31, 2018
and December 31, 2017, respectively.
As of March 31, 2018 and December
31, 2017, short-term loans consisted of bank borrowings for working capital and capital expenditure purposes and were secured by
personal guarantees executed by certain directors of the Company, time deposits with a carrying amount of $5,941,350 and $3,982,226,
land use right with a carrying amount of $2,719,885 and $2,639,631, and buildings with a carrying amount of $9,907,291 and $9,621,537,
respectively.
The loans were primarily obtained
from two banks with interest rates ranging from 5.00% to 6.09% per annum and 5.000% to 5.8725% per annum as of March 31, 2018 and
December 31, 2017, respectively. The interest expenses were $111,713 and $259,837 for the three months ended March 31, 2018 and
2017, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
11.
|
Non-financial institution borrowings
|
As of March 31, 2018, the Company
obtained borrowings from a third party non-financial institution in an amount of $1,593,270 and an individual in an amount of $9,559,620,
which were used for working capital and capital expenditure purposes. The interest rates for the borrowings were 5.655% and 5.66%
per annum, respectively. The borrowings are personally guaranteed by the Company's Chief Executive Officer, Mr. Dang Yu Pan. The
borrowing from the individual, which expired on January 10, 2018 was extended for an additional year.
The interest expense of the above
borrowings was $162,303 and $143,518 for the three months ended March 31, 2018 and 2017, respectively.
The Company entered into various
credit contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. As of March 31,
2018, the total and unused lines of credit were $85.1 million and $14.6 million with maturity dates from April 2018 to July 2019.
As of December 31, 2017, the total and unused lines of credit were $79.8 million and $31.3 million with maturity dates from March
2018 to July 2019.
These lines of credit were guaranteed by the Company’s Chief Executive Officer, Mr. Dang Yu Pan
or Mr. Dang Yu Pan and his wife.
The following table sets forth the
computation of basic and diluted earnings per common share for the three months ended March 31, 2018 and 2017.
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to the Company
|
|
|
(1,118,936
|
)
|
|
|
2,535,649
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,509,658
|
|
|
|
15,119,693
|
|
- Dilutive effects of equity incentive awards
|
|
|
-
|
|
|
|
179,336
|
|
- Diluted
|
|
|
15,509,658
|
|
|
|
15,299,029
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
(0.07
|
)
|
|
|
0.17
|
|
- Diluted
|
|
|
(0.07
|
)
|
|
|
0.17
|
|
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. Potential dilutive securities are excluded from the calculation of diluted EPS in loss periods as
their effect would be anti-dilutive.
Due to the loss for for three
months ended March 31, 2018, 955,542 and 200,000 options and warrants were excluded in the computation of diluted earnings per
share, because the effect would be anti-dilutive. For the three months ended March 31, 2017, 145,000 and 540,001 options and warrants
were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the
average market price of the shares of common stock.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
14.
|
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 (“the 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 contributions made related to the Benefits, the Company has no legal obligation.
The total contributions made, which
were expensed as incurred, were $653,957 and $504,520 for the three months ended March 31, 2018 and 2017, respectively.
The reportable segments are components
of the Company that 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”), the Chief Executive
Officer, in determining the performance of the business. The Company categorizes its business into three reportable segments, namely
(i) Lithium Business; (ii) Ni-MH Batteries and Accessories; 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,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
36,596,655
|
|
|
|
27,490,494
|
|
Ni-MH Batteries and Accessories
|
|
|
13,186,798
|
|
|
|
12,527,313
|
|
New Materials
|
|
|
-
|
|
|
|
1,849,041
|
|
Total
|
|
|
49,783,453
|
|
|
|
41,866,848
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
30,791,339
|
|
|
|
21,639,869
|
|
Ni-MH Batteries and Accessories
|
|
|
11,425,787
|
|
|
|
9,188,390
|
|
New Materials
|
|
|
-
|
|
|
|
1,103,755
|
|
Total
|
|
|
42,217,126
|
|
|
|
31,932,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
5,805,316
|
|
|
|
5,850,625
|
|
Ni-MH Batteries and Accessories
|
|
|
1,761,011
|
|
|
|
3,338,923
|
|
New Materials
|
|
|
-
|
|
|
|
745,286
|
|
Total
|
|
|
7,566,327
|
|
|
|
9,934,834
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
191,951,616
|
|
|
|
171,881,450
|
|
Ni-MH Batteries and Accessories
|
|
|
52,571,957
|
|
|
|
48,383,088
|
|
Total
|
|
|
244,523,573
|
|
|
|
220,264,538
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
15.
|
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 locations of the Company’s
customers is set out as follows:
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
28,305,763
|
|
|
|
22,161,592
|
|
Asia, others
|
|
|
15,754,396
|
|
|
|
13,695,558
|
|
Europe
|
|
|
4,537,903
|
|
|
|
4,852,730
|
|
North America
|
|
|
1,164,831
|
|
|
|
1,058,132
|
|
South America
|
|
|
-
|
|
|
|
61,737
|
|
Others
|
|
|
20,560
|
|
|
|
37,099
|
|
|
|
|
49,783,453
|
|
|
|
41,866,848
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
40,629,764
|
|
|
|
37,636,478
|
|
Asia, others
|
|
|
11,819,346
|
|
|
|
15,294,527
|
|
Europe
|
|
|
3,299,588
|
|
|
|
5,189,859
|
|
North America
|
|
|
472,145
|
|
|
|
94,585
|
|
South America
|
|
|
-
|
|
|
|
12,816
|
|
Others
|
|
|
20,118
|
|
|
|
24,734
|
|
|
|
|
56,240,961
|
|
|
|
58,252,999
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
16.
|
Related party balance and transaction
|
Related party balance
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
921,432
|
|
|
|
632,704
|
|
Other receivable
|
|
|
430
|
|
|
|
533,134
|
|
Amount due from a related party- GZ Highpower
|
|
|
921,862
|
|
|
|
1,165,838
|
|
|
|
|
|
|
|
|
|
|
Other payable-investment (1)
|
|
|
780,702
|
|
|
|
-
|
|
Amount due to a related party- V-power
|
|
|
780,702
|
|
|
|
-
|
|
(1) The Company signed an investment
agreement with an aggregate amount of RMB4.9 million (approximately $0.8 million) in investing for 49% of the equity interest of
V-power which was set up on March 1, 2018 (See Note 7).
Related party transaction
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
Sales
|
|
|
225,787
|
|
|
|
624,323
|
|
-GZ Highpower
|
|
|
225,787
|
|
|
|
-
|
|
-Yipeng
|
|
|
-
|
|
|
|
624,323
|
|
Rental income- Yipeng
|
|
|
-
|
|
|
|
11,299
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Equipment rental fee- Yipeng
|
|
|
-
|
|
|
|
162,302
|
|
|
|
|
|
|
|
|
|
|
Repayment:
|
|
|
|
|
|
|
|
|
Other receivable- GZ Highpower
|
|
|
550,256
|
|
|
|
-
|
|
The Company has evaluated subsequent
events through the issuance of the unaudited condensed consolidated financial statements and no subsequent event is identified
that would have required adjustment or disclosure in the consolidated financial statements.