UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-Q
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Quarterly Period Ended March 31, 2009
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period
from to
Commission
File No.: 001-34098
HONG
KONG HIGHPOWER TECHNOLOGY, INC.
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
20-4062622
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
Number)
|
Building
A1, Luoshan Industrial Zone, Shanxia, Pinghu, Longgang, Shenzhen, Guangdong,
518111,
People’s
Republic of China
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(86)
755-89686238
(COMPANY’S
TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” as defined in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer
¨
|
Accelerated
filer
¨
|
|
|
Non-accelerated
filer
¨
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
The
registrant had 13,562,596 shares of common stock, par value $0.0001 per share,
outstanding as of May 12, 2009.
HONG
KONG HIGHPOWER TECHNOLOGY, INC.
FORM 10-Q
For
the Quarterly Period Ended March 31, 2009
INDEX
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|
Page
|
Part I
|
Financial
Information
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
(a)
|
Balance
Sheets as of March 31, 2009 (Unaudited) and December 31,
2008
|
2
|
|
|
|
|
|
|
|
(b)
|
Statements
of Comprehensive Income for the Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
4
|
|
|
|
|
|
|
|
(c)
|
Statements
of Cash Flows for the Three Months Ended March 31, 2009 and 2008
(Unaudited)
|
5
|
|
|
|
|
|
|
|
(d)
|
Notes
to Financial Statements (Unaudited)
|
7
|
|
|
|
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|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
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|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
35
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|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
36
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|
|
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|
Part II
|
Other
Information
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
36
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
36
|
|
|
|
|
|
Item
2.
|
Unregistered
Sale of Equity Securities and Use of Proceeds
|
36
|
|
|
|
|
|
Item
3.
|
Default
Upon Senior Securities
|
36
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|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
36
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|
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|
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|
Item
5.
|
Other
Information
|
36
|
|
|
|
|
|
Item
6.
|
Exhibits
|
37
|
|
|
|
|
Signatures
|
38
|
Part I.
Financial Information
Item
1. Financial Statements
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Stated
in US Dollars)
|
|
As of
|
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
(Audited)
$
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets :
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
3,432,997
|
|
|
4,175,780
|
|
Restricted
cash
|
|
|
5,303,892
|
|
|
4,845,478
|
|
Accounts
receivable
|
|
|
7,265,693
|
|
|
8,765,593
|
|
Notes
receivable
|
|
|
110,777
|
|
|
429,815
|
|
Prepaid expenses and
other receivables –
Note
8
|
|
|
3,230,124
|
|
|
1,732,709
|
|
Deferred charges –
Stock-based compensation –
Note
9
|
|
|
86,667
|
|
|
216,667
|
|
Inventories –
Note
10
|
|
|
8,283,889
|
|
|
11,208,697
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
27,714,039
|
|
|
31,374,739
|
|
Deferred tax assets
–
Note
6
|
|
|
113,707
|
|
|
104,556
|
|
Plant and equipment,
net –
Note
11
|
|
|
8,116,214
|
|
|
7,778,477
|
|
Leasehold land,
net –
Note
12
|
|
|
3,034,729
|
|
|
3,050,510
|
|
Intangible asset,
net –
Note
1
3
|
|
|
887,500
|
|
|
900,000
|
|
Currency forward –
Note
7
|
|
|
28,346
|
|
|
116,157
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
39,894,535
|
|
|
43,324,439
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities :
|
|
|
|
|
|
|
|
Non-trading
foreign currency derivatives liabilities
|
|
|
225,235
|
|
|
293,830
|
|
Accounts
payable
|
|
|
7,315,493
|
|
|
8,306,123
|
|
Other payables and
accrued liabilities –
Note
1
4
|
|
|
3,510,373
|
|
|
3,139,275
|
|
Income
taxes payable
|
|
|
632,183
|
|
|
476,330
|
|
Bank borrowings
–
Note 1
5
|
|
|
11,492,783
|
|
|
14,829,228
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
23,176,067
|
|
|
27,044,786
|
|
COMMITMENTS
AND CONTINGENCIES –
Note
1
7
(continued)
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Stated
in US Dollars)
|
|
A
s
of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Audited)
$
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
Par
value: $0.0001
|
|
|
|
|
|
|
Authorized:
10,000,000 shares
|
|
|
|
|
|
|
Issued
and outstanding: none
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
Par
value : $0.0001
|
|
|
|
|
|
|
|
|
Authorized:
100,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2009 –13,562,596 shares (2008 –13,562,596
shares)
|
|
|
1,356
|
|
|
|
1,356
|
|
Additional
paid-in capital
|
|
|
5,048,194
|
|
|
|
5,048,194
|
|
Accumulated
other comprehensive income
|
|
|
1,630,940
|
|
|
|
1,595,091
|
|
Retained
earnings
|
|
|
10,037,978
|
|
|
|
9,635,012
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
16,718,468
|
|
|
|
16,279,653
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
39,894,535
|
|
|
|
43,324,439
|
|
See
accompanying notes to condensed consolidated financial
statements.
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPENHENSIVE INCOME
(Stated
in US Dollars)
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
11,309,805
|
|
|
|
17,831,562
|
|
Cost
of sales
|
|
|
(8,913,709
|
)
|
|
|
(15,123,264
|
)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,396,096
|
|
|
|
2,708,298
|
|
Depreciation
–
Notes 2 and
11
|
|
|
(51,114
|
)
|
|
|
(49,371
|
)
|
Selling
and distribution costs
|
|
|
(531,349
|
)
|
|
|
(414,023
|
)
|
General
and administrative costs including stock-based
compensation
|
|
|
(1,102,922
|
)
|
|
|
(769,696
|
)
|
Loss
on exchange rate difference
|
|
|
(32,724
|
)
|
|
|
(504,887
|
)
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
677,987
|
|
|
|
970,321
|
|
Change
in fair value of currency forwards
|
|
|
(88,113
|
)
|
|
|
29,102
|
|
Other
income –
Note
3
|
|
|
66,815
|
|
|
|
104,534
|
|
Interest
expenses –
Note
4
|
|
|
(41,120
|
)
|
|
|
(206,750
|
)
|
Other
expenses –
Note
5
|
|
|
(51,536
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
564,033
|
|
|
|
897,207
|
|
Income
taxes –
Note
6
|
|
|
(161,067
|
)
|
|
|
(166,880
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
402,966
|
|
|
|
730,327
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
-
Foreign currency translation gain
|
|
|
35,849
|
|
|
|
232,085
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
438,815
|
|
|
|
962,412
|
|
|
|
|
|
|
|
|
|
|
Income
per common share
|
|
|
|
|
|
|
|
|
-
Basic and diluted
|
|
|
0.03
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
-
Basic and diluted
|
|
|
13,562,596
|
|
|
|
14,798,846
|
|
See
accompanying notes to condensed consolidated financial
statements.
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated
in US Dollars)
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
|
402,966
|
|
|
|
730,327
|
|
Adjustments to reconcile net
income to net cash provided by operating activities :
|
|
|
|
|
|
|
|
|
Amortization
of intangible asset
|
|
|
12,500
|
|
|
|
12,500
|
|
Amortization
of leasehold land
|
|
|
15,603
|
|
|
|
-
|
|
Depreciation
|
|
|
237,217
|
|
|
|
154,795
|
|
Change
in fair value of currency forwards
|
|
|
88,113
|
|
|
|
(29,102
|
)
|
Loss
on disposal of plant and equipment
|
|
|
6,807
|
|
|
|
17,122
|
|
Share
based payment
|
|
|
130,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities :
|
|
|
|
|
|
|
|
|
(Increase)
decrease in -
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,523,929
|
|
|
|
525,593
|
|
Notes
receivable
|
|
|
319,501
|
|
|
|
(342,368
|
)
|
Prepaid expenses and other
receivables
|
|
|
(1,508,097
|
)
|
|
|
(996,072
|
)
|
Inventories
|
|
|
2,955,285
|
|
|
|
(1,026,330
|
)
|
Increase
(decrease) in -
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(1,013,505
|
)
|
|
|
524,183
|
|
Other payables and accrued
liabilities
|
|
|
378,144
|
|
|
|
386,796
|
|
Income taxes
payable
|
|
|
145,632
|
|
|
|
348,391
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by operating activities
|
|
|
3,694,095
|
|
|
|
305,835
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of plant and
equipment
|
|
|
(560,026
|
)
|
|
|
(202,236
|
)
|
Deposit
paid for acquisition of machinery
|
|
|
-
|
|
|
|
(248,965
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash flows used in investing activities
|
|
|
(560,026
|
)
|
|
|
(451,201
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from new short-term
bank loans
|
|
|
6,791,546
|
|
|
|
-
|
|
Repayment of short-term bank
loans
|
|
|
-
|
|
|
|
(3,925,349
|
)
|
Net (repayment) advancement of
other bank borrowings
|
|
|
(10,168,444
|
)
|
|
|
3,466,660
|
|
(Decrease) Increase in
restricted cash
|
|
|
(444,814
|
)
|
|
|
792,237
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows (used in) provided by financing activities
|
|
|
(3,821,712
|
)
|
|
|
333,548
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(687,643
|
)
|
|
|
188,182
|
|
Effect
of foreign currency translation on cash and
cash
equivalents
|
|
|
(55,140
|
)
|
|
|
39,420
|
|
Cash
and cash equivalents - beginning of period
|
|
|
4,175,780
|
|
|
|
1,489,262
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of period
|
|
|
3,432,997
|
|
|
|
1,716,864
|
|
(continued)
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Stated
in US Dollars)
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
Supplemental
disclosures for cash flow information :
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
Interest
|
|
|
41,120
|
|
|
|
206,750
|
|
Income
taxes
|
|
|
15,434
|
|
|
|
28,756
|
|
See
accompanying notes to condensed consolidated financial
statements.
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization
and Basis of Presentation
|
Hong Kong
Highpower Technology, Inc. (“Highpower” or the “Company,” formerly known as SRKP
11, Inc.) was incorporated in the State of Delaware on January 3, 2006 to locate
a suitable acquisition candidate to acquire.
On
October 20, 2007, Highpower entered into a share exchange agreement (the
“Exchange Agreement”) with Hong Kong Highpower Technology Company Limited
(“HKHTC”), which was incorporated in Hong Kong on July 4, 2003 under the Hong
Kong Companies Ordinance. HKHTC was organized principally to engage in the
manufacturing and trading of nickel metal hydride rechargeable
batteries.
As used
herein, the “Company” refers to Highpower and its wholly-owned subsidiaries,
unless the context indicates otherwise.
Pursuant
to the Exchange Agreement, Highpower agreed to issue shares of its common stock
in exchange for all of the issued and outstanding securities of HKHTC. On
November 2, 2007, upon the closing of the Exchange Agreement, HKHTC had a total
of 500,000 shares of common stock issued and outstanding, and Highpower issued
an aggregate of 9,248,973 shares of its common stock to the shareholders of
HKHTC in exchange for all of the issued and outstanding securities of HKHTC on
the basis of 18.497946 shares of Highpower for each share of HKHTC. The
9,248,973 shares of common stock issued to the shareholders of HKHTC in
conjunction with this transaction have been presented as outstanding for all
periods presented. In addition, immediately prior to the closing of the Exchange
Agreement, Highpower and certain of its stockholders agreed to cancel an
aggregate of 1,597,872 shares of outstanding common stock, as a result of which
there were 1,777,128 shares of common stock outstanding immediately prior to the
share exchange transaction.
On
November 2, 2007, concurrently with the close of the Exchange Agreement, the
Company received gross proceeds of $3,120,000 in a private placement transaction
(the “Private Placement”). Pursuant to subscription agreements entered into with
the investors, the Company sold an aggregate of 1,772,745 shares of common stock
at $1.76 per share. The investors in the Private Placement also entered into
lock-up agreements pursuant to which they agreed not to sell their shares until
90 days after the Company’s common stock is listed or quoted on either the New
York Stock Exchange, NYSE Amex (formerly known as the American Stock Exchange),
NASDAQ Global Market, NASDAQ Capital Market or the OTC Bulletin Board, when
one-tenth of their shares are released from the lock-up agreement, after which
their shares will automatically be released from the lock-up agreement on a
monthly basis pro rata over a nine-month period. After commissions and expenses,
the Company received net proceeds of approximately $2,738,000 from the Private
Placement.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization and Basis of
Presentation
(continued)
|
Immediately
after the closing of the Exchange Agreement and Private Placement, the Company
had 12,798,846 shares of common stock issued and outstanding. Upon the closing
of the Exchange Agreement, the shareholders of HKHTC and their designees owned
approximately 72.3% of the Company’s issued and outstanding common stock, the
pre-existing shareholders of the Company owned approximately 13.9% of the
Company’s issued and outstanding common stock, and the investors in the Private
Placemen owned 13.8% of the Company’s issued and outstanding common stock.
Therefore, although HKHTC became the Company’s wholly-owned subsidiary, the
transaction was accounted for as a recapitalization in the form of a reverse
merger of HKHTC, whereby HKHTC was deemed to be the accounting acquirer and was
deemed to have retroactively adopted the capital structure of SRKP 11. Since the
transaction was accounted for as a reverse merger, the accompanying consolidated
financial statements reflect the historical consolidated financial statements of
HKHTC for all periods presented, and do not include the historical financial
statements of SRKP 11. All costs associated with the reverse merger transaction,
consisting primarily of consideration paid to the previous control parties of
SRKP 11 and legal and investment banking fees and costs, were expensed as
incurred as a cost of the recapitalization, and have been presented as an
operating cost line item entitled fees and costs related to reorganization in
the statement of operations.
In
January 2008, HKHTC invested $749,971 in HZ Highpower Technology Co., Ltd. (“HZ
Highpower”). HZ Highpower is a wholly-owned subsidiary of HKHTC. HZ Highpower
has not commenced business as of March 31, 2009.
In June
20, 2008, HKHTC invested $250,000 in Spring Power Technology (Shenzhen) Co.,
Ltd. (“SZ Spring Power”, formerly known as Sure Power Technology (Shenzhen) Co.,
Ltd.) which became a wholly-owned subsidiary of HKHTC. On July 9, 2008, HKHTC
invested an additional $750,000 in SZ Spring Power. SZ Spring Power commenced
business in June 2008 and specializes in researching and manufacturing
Lithium-ion rechargeable batteries.
On June
19, 2008, the Company effected a 5-for-8 reverse stock split of the
Company’s issued and outstanding shares of common stock (the Reverse Stock
Split”). The par value and number of authorized shares of the common stock
remained unchanged. All references to number of shares and per share
amounts included in these consolidated financial statements and the accompanying
notes have been adjusted to reflect the Reverse Stock Split
retroactively.
On June
19, 2008, the company’s common stock commenced trading on the NYSE
Amex.
On June
19, 2008, the Company issued 603,750 shares of common stock upon the closing of
a public offering. The Company’s sale of common stock, which was sold indirectly
by the Company to the public at a price of $3.25 per share, resulted in net
proceeds of $1,486,400. These proceeds were net of underwriting discounts and
commissions, fees for legal and auditing services, and other offering
costs.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
1.
|
Organization and Basis of
Presentation
(continued)
|
On June
19, 2008, the Company issued 160,000 shares of common stock upon the closing of
the public offering. The shares are treated as compensation for investor
relations services. The services provided are for the period of one year from
the date of June 19, 2008.
Description of
business
The
subsidiaries of the Company include the following:
Name of company
|
|
Place and date of
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
of batteries
|
|
|
|
|
|
|
|
HZ
Highpower Technology Co., Ltd.
(“HZ
Highpower”)
|
|
PRC
January
29, 2008
|
|
100%
|
|
Inactive
|
|
|
|
|
|
|
|
Spring
Power Technology (Shenzhen) Co., Ltd. (“SZ Spring Power”)
|
|
PRC
June
4, 2008
|
|
100%
|
|
Manufacturing
of
batteries
|
2.
|
Summary
of significant accounting policies
|
Basis of
presentation
The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America. The consolidated financial statements for the interim periods are
unaudited. In the opinion of management, these consolidated financial
statements, include all adjustments, including normal recurring adjustments,
necessary for their fair presentation. Interim results are not necessarily
indicative of results of operations to be expected for a full year, The
accompanying consolidated financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission and do
not include all information and footnotes necessary for a complete presentation
of financial statements in conformity with accounting principles generally
accepted in the United States. These financial statements should be read in
conjunction with the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.
Use of
estimates
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting periods. These accounts and estimates include, but are not limited to,
the valuation of accounts receivable, inventories, deferred income taxes and the
estimation on useful lives of plant and equipment. Actual results could differ
from those estimates.
Comparative
amounts
Certain
comparative amounts in prior periods have been reclassified to conform to the
current period’s presentation. The principal reclassification related to the
separate presentation of loss on exchange rate difference as an operating cost
line item in the statement of operations, which was previously included in
general and administrative costs. These reclassifications had no effect on
reported total assets, liabilities, stockholders’ equity, or net income
(loss).
Economic and political
risks
The
Company’s operations are conducted in the People’s Republic of China (the
“PRC”). Accordingly, the Company’s business, financial condition and
results of operations may be influenced by the political, economic and legal
environment in the PRC and by the general state of the PRC economy.
The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political and
social conditions in the PRC and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad and rates and methods of taxation, among
other things.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Concentrations of
cred
it
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 directors of the Company consider
that the Company’s credit risk is significantly reduced. Other than set forth
below, no customers represented 10% or more of the Company’s net sales and
accounts receivable.
For three
months ended March 31, 2009, the Company had two major customers one
representing 23% of sales and the other representing 14% of sales; accounts
receivable from these customers at March 31, 2009 were $2,697,187 and
$1,677,771, respectively. For the three months ended March 31, 2008, the Company
had two major customers with one representing 24% of sales and the other
representing 13% of sales; accounts receivable from these customers at March 31,
2008 were $4,445,455 and $4,185,339, respectively.
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
Certain
cash balances are held as security for short-term bank borrowings and are
classified as restricted cash in the Company’s balance sheets.
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 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.
The
Company did not experience any bad debts during the three months ended March 31,
2009 and 2008.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Inventories
Inventories
are stated at the lower of cost or market value. Cost is determined on a
weighted average basis and includes purchase costs, direct labor and factory
overheads. There are no significant freight charges, inspection costs and
warehousing costs incurred for any of the periods presented. In assessing the
ultimate realization of inventories, management makes judgments as to future
demand requirements compared to current or committed inventory levels. The
Company’s reserve requirements generally increase based on management’s
projected demand requirements, and decrease due to market conditions and product
life cycle changes. During the three months ended March 31, 2009 and
2008, the Company did not make any allowance for slow-moving or defective
inventories. The Company’s production process results in a minor amount of waste
materials. The Company does not record a value for the waste in its cost
accounting. The Company records proceeds on an as realized basis, when the waste
is sold. The Company has offset the proceeds from the sales of waste materials
as a reduction of production costs. Proceeds from the sales of waste materials
were approximately $18,831 and $60,000 for the three months ended March 31, 2009
and 2008 respectively. Generally, waste materials on hand at the end of a year
are nominal.
Plant and
equipment
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 plant and equipment is provided using the straight-line method over their
estimated useful lives at the following annual rates:
Furniture,
fixtures and office equipment
|
|
|
20
|
%
|
Leasehold
improvement
|
|
|
50
|
%
|
Machinery
and equipment
|
|
|
10
|
%
|
Motor
vehicles
|
|
|
20
|
%
|
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Plant and
equipment
(continued)
Upon sale
or disposition, 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.
Intangible Assets and
Long-Lived Assets
SFAS
No. 142, goodwill and Other Intangible Assets (“SFAS 142”), requires
purchased intangible assets other than goodwill to be amortized over their
useful lives unless these lives are determined to be
indefinite. Accordingly, the consumer battery license is being amortized
over its useful life of 20 years. The Company does not have any
goodwill.
The
Company accounts for the impairment of long-lived assets, such as plant and
equipment, leasehold land and intangible assets, under the provisions of SFAS
No. 144, “Accounting for the Impairment of Long-Lived Assets (“SFAS 144”)”.
SFAS 144 establishes the accounting for impairment of long-lived tangible and
intangible assets other than goodwill and for the disposal of a
business. Pursuant to SFAS No. 144, the Company periodically
evaluates, at least annually, whether facts or circumstances indicate that the
carrying value of its depreciable assets to be held and used may not be
recoverable. If such circumstances are determined to exist, an estimate of
undiscounted future cash flows produced by the long-lived asset, or the
appropriate grouping of assets, is compared to the carrying value to determine
whether impairment exists. In the event that the carrying amount of
long-lived assets exceeds the undiscounted future cash flows, then the carrying
amount of such assets is adjusted to their fair value. The Company reports
an impairment cost as a charge to operations at the time it is
recognized.
There was
no impairment of long-lived assets for the three months ended March 31, 2009 and
2008.
Revenue
recognition
The
Company recognizes revenue when the goods are delivered and the customer takes
ownership and assumes risk of loss, collection of the relevant receivable is
probable, persuasive evidence of an arrangement exists and the sales price is
fixed or determinable. Sales of goods represent the invoiced value of goods, net
of sales returns, trade and allowances.
The
Company does not have arrangements for returns from customers and does not have
any future obligations directly or indirectly related to product resales by
customers. The Company has no incentive programs.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Advertising and promotion
expenses
Advertising
and promotion expenses are charged to expense as incurred.
Advertising
and promotion expenses, which are included in selling and distribution costs,
were not material for the three months ended March 31, 2009 and
2008.
Income
taxes
The
Company uses the asset and liability method of accounting for income taxes
pursuant to SFAS No. 109, “Accounting for Income Taxes”. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and loss
carry forwards and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The Company has also
adopted FIN 48, “Accounting for Uncertainty in Income Taxes – an interpretation
of FASB Statement No. 109”.
Comprehensive
income
The
Company has adopted SFAS No. 130, “Reporting Comprehensive Income”, which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Accumulated other comprehensive income
represents the accumulated balance of foreign currency translation adjustments
of the Company.
Foreign currency
translation
The
functional currency of the Company is the Renminbi (“RMB”). The Company
maintains its financial statements in the functional
currency. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
dates. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchange
rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination of
net income for the respective year.
For
financial reporting purposes, the financial statements of the Company, which are
prepared using the functional currency, are then translated into United States
dollars. Assets and liabilities are translated at the exchange rates
at the balance sheet dates and revenue and expenses are translated at the
average exchange rates and stockholders’ equity is translated at historical
exchange rates. Any translation adjustments resulting are not included in
determining net income but are included in foreign exchange adjustment in other
comprehensive income, a component of stockholders’ equity.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Foreign currency
translation
(continued)
|
|
March 31, 2009
|
|
|
March 31,2008
|
|
|
|
|
|
|
|
|
Quarter
end RMB : US$ exchange rate
|
|
|
6.8792
|
|
|
|
7.1058
|
|
Average
quarterly RMB : US$ exchange rate
|
|
|
6.8809
|
|
|
|
7.1986
|
|
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No
representation is made that RMB amounts could have been, or could be, converted
into US$ at rates used in translation.
Transactions and
balances
Transactions
in foreign currencies are translated into the functional currency at the
approximate rates of exchange ruling on the transaction date. Exchange gains and
losses resulting from this translation policy are recognized in the statements
of operations.
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, approximate their fair values due to the short-term maturity of
such instruments. The carrying amounts of borrowings approximate their fair
values because the applicable interest rates approximate current market
rates.
The
Company is exposed to certain foreign currency risk from export sales
transactions and the related accounts receivable as they will affect the future
operating results of the Company.
Foreign currency
derivative
From time
to time the Company may utilize forward foreign currency exchange contracts to
reduce the impact of foreign currency exchange rate risks. Forward contracts are
cash flow hedges of the Company’s foreign currency exposures and are recorded at
the contract’s fair value. The effective portion of the forward contract is
initially reported in “Accumulated other comprehensive income,” a component of
shareholders’ equity, with a corresponding asset or liability recorded based on
the fair value of the forward contract. When the hedged transaction
is recorded (generally when revenue on the associated sales contract is
recognized), any unrecognized gains or losses are reclassified into results of
operations in the same period. Any hedge ineffectiveness is recorded to
operations in the current period. The Company measures hedge effectiveness by
comparing changes in fair values of the forward contract and expected cash flows
based on changes in the spot prices of the underlying currencies. Cash flows
from forward contracts accounted for as cash flow hedges are classified in the
same category as the cash flows from the items being hedged.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Earnings per
share
The
Company reports earnings per share in accordance with SFAS No. 128, “Earnings
Per Share”. Basic earnings per share is computed using the weighted average
number of common shares outstanding during the periods presented. The weighted
average number of shares represents the common stock outstanding during the
years, as adjusted retroactively to reflect the November 2007 recapitalization
as described at Note 1. As the Company did not have any common stock equivalents
during such periods, basic and diluted earnings per share were the same for all
periods presented.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted Statements of Financial Accounting
Standards (“SFAS”) No. 123R,
Share-Based Payment
(“SFAS
No. 123R”). Under SFAS No. 123R, the Group measures the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award and recognizes the costs over the period the
employee is required to provide service in exchange for the award, which
generally is the vesting period.
Share-based
compensation expense was $130,000 and Nil and for the three months ended March
31, 2009 and 2008, respectively.
Recently issued accounting
pronouncem
ents
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51”. SFAS
No. 141(R) and SFAS No. 160 require most identifiable assets,
liabilities, noncontrolling interests and goodwill acquired in a business
combination to be recorded at “full fair value” and require noncontrolling
interests (previously referred to as minority interest) to be reported as a
component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both statements are effective for periods
beginning on or after December 15, 2008, and earlier adoption is
prohibited. SFAS No. 141(R) will be applied to business combinations
occurring after the effective date. SFAS No. 160 will be applied
prospectively to all noncontrolling interests, including any that arose before
the effective date. SFAS No. 160 is effective for the Company on January 1,
2009. The Company does not expect the initial adoption of SFAS No. 160 will have
a material effect on the Company’s consolidated financial
statements.
HONG KONG
HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
2.
|
Summary of significant
accounting policies
(continued)
|
Recently issued accounting
pronouncements
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”, which requires enhanced disclosures about
an entity’s derivatives and hedging activities. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. Since SFAS No. 161 only provides for additional
disclosure requirements, management assessed that there will be no impact on the
results of operations and financial position.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). This statement identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in accordance with generally accepted accounting principles (“GAAP”).
With the issuance of this statement, the FASB concluded that the GAAP hierarchy
should be directed toward the entity and not its auditor, and reside in the
accounting literature established by the FASB as opposed to the American
Institute of Certified Public Accountants “AICPA”) Statement on Auditing
Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” This statement is effective 60 days following
the Securities and Exchange commission’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” The Company
does not expect the adoption of SFAS No. 162 will have a material impact on the
results of operations and financial position.
HONG
KONG HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
|
|
|
|
|
|
|
Bank
interest income
|
|
|
25,142
|
|
|
|
38,013
|
|
Other
interest income
|
|
|
-
|
|
|
|
10,717
|
|
Sundry
income
|
|
|
41,673
|
|
|
|
55,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,815
|
|
|
|
104,534
|
|
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
|
|
|
|
|
|
|
Interest
on trade related bank loan
|
|
|
28,200
|
|
|
|
183,981
|
|
Interest
on short-term bank loans
|
|
|
12,920
|
|
|
|
22,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,120
|
|
|
|
206,750
|
|
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
|
|
|
|
|
|
|
Foreign
exchange contract expenses
|
|
|
51,536
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,536
|
|
|
|
-
|
|
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
The components of the provision for
income taxes are:
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
|
|
|
|
|
|
|
PRC
income taxes
|
|
|
161,067
|
|
|
|
166,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,067
|
|
|
|
166,880
|
|
The major
components of deferred tax recognized in the consolidated balance sheets as of
March 31, 2009 and December 31, 2008 are as follows:-
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2009
$
|
|
|
|
2008
$
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Temporary
difference on :-
|
|
|
|
|
|
|
|
|
Reorganization
of expenses
|
|
|
(100,555
|
)
|
|
|
(93,300
|
)
|
Accelerated
tax depreciation on intangible asset
|
|
|
(13,152
|
)
|
|
|
(11,256
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets, net
|
|
|
(113,707
|
)
|
|
|
(104,556
|
)
|
|
|
|
|
|
|
|
|
|
Presented
in the balance sheet:
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
(113,707
|
)
|
|
|
(104,556
|
)
|
Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes (FIN 48). FIN 48 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, the Company may recognize
the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent likelihood of
being realized upon ultimate settlement. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. The adoption
of the provisions of FIN 48 did not have a material effect on the Company’s
financial statements. As of March 31, 2009, no liability for unrecognized tax
benefits was required to be recorded.
HONG KONG
HIGHPOWER TECHNOLOGY, INC AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated
in US Dollars)
7.
|
Risk
Management Activities, Including
Derivative
|
The
Company selectively uses foreign currency forward contracts to offset the
effects of foreign currency exchange rate changes on reported earnings, cash
flow and net asset positions. The terms of these derivative contracts are
generally for 12 months or less. Changes in the fair value of these derivative
contracts are recorded in earnings to offset the impact of foreign currency
transaction gains and losses attributable to certain third party and
intercompany financial assets and liabilities with similar terms. The net gains
and losses attributable to these activities are included in the statements of
comprehensive income.
|
|
As of
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2009
$
|
|
|
|
2008
$
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Currency
forwards (notional amount $4 million),
consisting
of a put and a call
|
|
|
28,346
|
|
|
|
116,157
|
|
Due to
the volatility of the US Dollar to the Company’s functional currency, the
Company has put into place a hedging program to attempt to protect it from
significant changes to the US Dollar, which would affect the value of the
Company’s US dollar receivables and sales. At March 31, 2009, the Company had a
series of currency forwards totaling a notional amount US$4,000,000 expiring
from April 2009 to July 2009.
The
Company recognized the following gains and losses attributable to its derivative
financial instruments during the following periods:
|
|
Three months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
$
|
|
|
(Unaudited)
$
|
|
Foreign
exchange contracts, net Loss recognized in Other expenses,
net
|
|
|
51,536
|
|
|
|
-
|
|
Hedging
Activities
SZ
Highpower uses foreign currencies derivative instruments to manage foreign
exchange resulting from fluctuations in US Dollar to the Company’s functional
currency (RMB). The notional amounts of these financial instruments are based on
expected cash flow from operations.
HONG KONG HIGHPOWER TECHNOLOGY,
INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Stated in US
Dollars)
7.
|
Risk Management Activities,
Including Derivative
(continued)
|
At the
inception of a derivative contract, SZ Highpower historically designated the
derivative as a cash flow hedge. For all derivatives designated as cash flow
hedges, SZ Highpower formally documented the relationship between the derivative
contract and the hedged items, as well as the risk management objective for
entering into the derivative contract. To be designated as a cash flow hedge
transaction, the relationship between the derivative and the hedged items must
be highly effective in achieving the offset of changes in cash flows
attributable to the risk both at the inception of the derivative and on an
ongoing basis. SZ Highpower historically measured hedge effectiveness on a
quarterly basis and hedge accounting would be discontinued prospectively if it
was determined that the derivative was no longer effective in offsetting changes
in the cash flows of the hedged item. Gains and losses deferred in accumulated
other comprehensive income related to cash flow hedge derivatives that became
ineffective remained unchanged until the related cashflow was received. If SZ
Highpower determined that it was probable that a hedged forecasted transaction
would not occur, deferred gains or losses on the derivative were recognized in
earnings immediately.
Derivatives,
historically, were recorded on the balance sheet at fair value and changes in
the fair value of derivatives were recorded each period in net income or other
comprehensive income, depending on whether a derivative was designated as part
of a hedge transaction and, if it was, depending on the type of hedge
transaction. SZ Highpower’s derivatives historically consisted primarily of cash
flow hedge transactions in which SZ Highpower was hedging the variability of
cash flows related to a forecasted transaction. Period to period changes in the
fair value of derivative instruments designated as cash flow hedges were
reported in other comprehensive income and reclassified to net income in the
periods in which the contracts are settled. The ineffective portions of the cash
flow hedges were reflected in net income as an increase or decrease to other
income (expense). Gains and losses on derivative instruments that did not
qualify for hedge accounting were also recorded as an increase or decrease to
other income (expense), in the period in which they occurred. The resulting cash
flows from derivatives were reported as cash flows from operating
activities.
8.
|
Prepaid expenses and other
receivables
|
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unau
dited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Purchase deposits
paid
|
|
|
329,477
|
|
|
|
88,459
|
|
Advance to
staff
|
|
|
193,277
|
|
|
|
143,595
|
|
Other deposits and
prepayments
|
|
|
1,052,879
|
|
|
|
495,325
|
|
Other
receivables
|
|
|
1,654,491
|
|
|
|
1,005,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230,124
|
|
|
|
1,732,709
|
|
HONG KONG
HIGHPOWER TECHNOLOGY, INC.
AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Stated in US
Dollars)
9.
|
Deferred
charges – Stock-based compensation
|
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
Stock-based compensation
–
consulting
fee
|
|
|
520,000
|
|
|
|
520,000
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
433,333
|
|
|
|
303,333
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
86,667
|
|
|
|
216,667
|
|
|
Amortization expenses included in
general and administrative costs for the
three months ended March 31,
200
9
and 200
8 were
$
130,000 and $Nil
respectively
.
|
|
The Company is amortizing the
$520,000 cost of stock-based compensation over a period of one year on the
straight line basis.
|
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
|
1,733,783
|
|
|
|
1,708,431
|
|
Work
in progress
|
|
|
1,427,989
|
|
|
|
1,434,517
|
|
Finished
goods
|
|
|
5,103,594
|
|
|
|
8,049,138
|
|
Packing
materials
|
|
|
18,523
|
|
|
|
16,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,283,889
|
|
|
|
11,208,697
|
|
HONG KONG HIGHPOWER TECHNOLOGY, INC.
AND SUBSIDIARIES
NOTES TO CONDE
NSED CONSOLIDATED FINANCIAL
STATEMENTS
(Stated in US
Dollars)
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office
equipment
|
|
|
623,392
|
|
|
|
598,496
|
|
Leasehold
improvement
|
|
|
2,199,470
|
|
|
|
712,120
|
|
Machinery and
equipment
|
|
|
7,200,810
|
|
|
|
8,155,270
|
|
Motor
vehicles
|
|
|
499,578
|
|
|
|
476,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,523,250
|
|
|
|
9,942,796
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office
equipment
|
|
|
263,556
|
|
|
|
235,613
|
|
Leaseho
ld
improvement
|
|
|
250,489
|
|
|
|
220,746
|
|
Machinery and
equipment
|
|
|
1,649,653
|
|
|
|
1,486,624
|
|
Motor
vehicles
|
|
|
243,338
|
|
|
|
221,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,407,036
|
|
|
|
2,164,319
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Furniture, fixtures and office
equipment
|
|
|
359,836
|
|
|
|
362,883
|
|
Leasehold
improvement
|
|
|
1,948,981
|
|
|
|
491,374
|
|
Machinery and
equipment
|
|
|
5,551,157
|
|
|
|
6,668,646
|
|
Motor
vehicles
|
|
|
256,240
|
|
|
|
255,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,116,214
|
|
|
|
7,778,477
|
|
|
The components of depreciation
charged are:
|
|
|
Three months ended March
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Included in cost of sales and
selling and distribution costs
|
|
|
186,103
|
|
|
|
105,424
|
|
Included in operating
expenses
|
|
|
51,114
|
|
|
|
49,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,217
|
|
|
|
154,795
|
|
HONG KONG HIGHPOWER TECHNOLOGY, INC
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STA
TEMENTS
(Stated in US
Dollars)
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
3,112,765
|
|
|
|
3,112,765
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
(
78,036
|
)
|
|
|
(62,255
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
3,0
34,729
|
|
|
|
3,050,510
|
|
The
leasehold land is being amortized annually using the straight-line method over
the lease terms of 50 years.
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
20
08
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Consumer
battery license
fee
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
(112,500
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
887,500
|
|
|
|
900,000
|
|
|
Amortization expenses included in
selling and distribution costs for the three months ended March 31,
2009
and 200
8
was $12
,500.
|
|
Shenzhen Highpower Technology Co.,
Ltd. (SZ Highpower), a wholly-owned subsidiary of the Company, entered
into a Consumer Battery License Agreement with Ovonic Battery Company,
Inc. (Ovonic), an unrelated party, dated May 14, 2004, pursuant to
which
SZ Highpower
acquired a royalty-bearing, non-exclusive license to use certain patents
owned by Ovonic to manufacture rechargeable nickel metal hydride batteries
for portable consumer applications (Consumer Batteries) in the PRC, and a
royalty-bearing, no
n
-exclusive worldwide license to
use certain patents owned by Ovonic to use, sell and distribute Consumer
Batteries. SZ Highpower made an up-front royalty payment to Ovonic
of $50,000 in 2004.
|
HONG KONG HIGHPOWER TECHNOLOGY, INC
AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Stated in US
Dollars)
13.
|
Intangible asset
(continued)
|
On August 8, 2007, SZ Highpwer and
Ovonic amended the Consumer Battery License Agreement pursuant to which SZ
Highpower agreed to pay a total of $112,58
0, which was to be made in two equal
payments of $56,290, one of which was to be made within 15 days of August 8,
2007, and the other within 45 days of August 8, 2007, as royalties for its use
of the licensed technology in 2004, 2005 and 2006. Both of th
e
se payments were made during 2007 and
were recorded as royalty expense in prior years, which was included in selling
and distribution costs in the statement of operations.
The Consumer Battery License Agreement
also requires the Company to pay an additio
nal up-front royalty payment of
$1,000,000 by four annual installments and an annual royalty fee based on the
gross sales of consumer batteries over the term of the Consumer Battery License
Agreement. Accordingly, during the year ended December 31, 2007,
t
he Company recorded a total up-front
royalty payment obligation of $1,000,000, which was included in other payables
and accrued liabilities, with the related debit recorded as an intangible asset
entitled consumer battery license agreement. During the thr
e
e months ended March 31, 200
9
, the Company recorded a total of
approximately $
46,623
as royalty expense, which was included
in selling and distribution costs in the statement of operations. At March 31,
200
9
, accrued royalty fees payable was
$
1,432,814
(se
e Note 14).
|
The Company is amortizing the
$1,000,000 cost of the Consumer Battery License Agreement over a period of
20 years on the straight line basis. The accounting for the Consumer
Battery License Agreement is based on the Company
’
s estimate of the u
seful 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.
|
14.
|
Other payab
les and accrued
liabilities
|
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
1,251,805
|
|
|
|
1,072,331
|
|
Royalty
payable
|
|
|
1,432,814
|
|
|
|
1,540,900
|
|
Sales
deposits received
|
|
|
506,638
|
|
|
|
388,261
|
|
Value-added
tax payables
|
|
|
288,722
|
|
|
|
105,833
|
|
Other
payables
|
|
|
30,394
|
|
|
|
31,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,510,373
|
|
|
|
3,139,275
|
|
HONG KONG HIGHPOWER TECHNOLOGY, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Stated in US
Dollars)
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
Secured:
|
|
|
|
|
|
|
|
|
Repayable
within one year
|
|
|
|
|
|
|
|
|
Short
term bank loans
|
|
|
1,453,649
|
|
|
|
2,969,939
|
|
Other
trade related bank loans
|
|
|
10,039,134
|
|
|
|
11,859,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,492,783
|
|
|
|
14,829,228
|
|
As of
March 31, 2009, the above bank borrowings were secured by the
following:
|
(a)
|
charge
over bank deposits of $5,303,892 which is included in restricted cash on
the Balance sheet;
|
|
(b)
|
personal
guarantee executed by the directors of the
Company;
|
|
(c)
|
the
legal charge over leasehold land with carrying amount $
3,0
34,729
(see Note 12);
and
|
|
(d)
|
other
financial covenant.
|
The bank
borrowings require one of the Company’s subsidiaries to maintain a minimum net
worth of $11,629,197. The Company was in compliance with this requirement at
March 31, 2009.
The interest rates of
trade related bank loans
were at bank
’
s prime lending rate per annum with
various maturity dates.
The rates at
March 31, 200
9
ranged from
6.5
% to
8
%.
The interest rates of
short term
bank loans we
re at
4.86
% per annum at
March 31
, 200
9
.
For
employees in PRC, the Group contributes on a monthly basis to various defined
contribution plans organized by the relevant municipal and provincial government
in the PRC based on certain percentage of the relevant employees’ monthly
salaries. The municipal and provincial governments undertake to assume the
retirement benefit obligations payable to all existing and future retired
employees under these plans and the Group has no further constructive obligation
for post-retirement benefits beyond the contributions made. Contributions to
these plans are expenses as incurred.
The assets of the schemes are controlled
by trustees and held separately from those of the Group. Total pension cost was
$98
,094
and
$
94,518
for the three months ended March 31,
200
9
and 200
8,
respectively.
HONG KONG HIGHPOWER TECHNOLOGY, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Stated in US
Dollars)
17.
|
Commitments
and contingencies
|
Oper
ating leases
commitments
The Group leases factory and office
premises under various non-cancelable operating lease agreements that expire at
various dates through years 2009 to 2010,
with an option to renew the lease. All
leases are on a fixed repayment b
asis. None of the leases includes
contingent rentals. Minimum future commitments under these agreements payable as
of March 31, 200
9
are as follows:
Period
ending March 31,
|
|
|
$
|
|
|
|
|
|
|
2009
|
|
|
456,731
|
|
2010
|
|
|
234,713
|
|
|
|
|
|
|
|
|
|
691,444
|
|
Rent expenses
for the three months ended March 31,
20
09
and 200
8
w
ere
$241,063 and $32,534
respectively.
Capital
commitments
The Group has the following capital
commitments as of March 31, 200
9
:
|
|
|
$
|
|
|
|
|
|
|
Purchase
of plant and equipment
|
|
|
449,945
|
|
Contin
gencies
From time to time, the Company factors
bills receivable to banks. At the time of the factoring, all rights and
privileges of holding the receivables are transferred to the banks. The
Company removes the asset from its books and records a correspon
ding expense for the amount of the
discount. The Company remains contingently liable on the amount outstanding
in the event the bill issuer defaults.
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Bills
discounted
|
|
|
-
|
|
|
|
-
|
|
HONG KONG HIGHPOWER TECHNOLOGY,
INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Stated in US
Dollars)
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. Management, including the chief operating
decision maker, reviews operating results solely by monthly revenue (but not by
sub-product type or geographic area) and operating results of the Company and,
as such, the Company has determined that the Company has one operating segment
as defined by SFAS 131, “ Disclosures about Segments of an Enterprise and
Related Information ”
Long-lived
assets of the Group are located in PRC. Geographic information about
the revenues and accounts receivable which are classified based on the location
of the customers is set out as follows:
|
|
Three months ended March
31,
|
|
|
|
20
09
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
$
|
|
|
|
$
|
|
Net revenue
|
|
|
|
|
|
|
|
|
Hong Kong and
China
|
|
|
5,013,644
|
|
|
|
6,247,148
|
|
Asia
|
|
|
539,012
|
|
|
|
1,064,813
|
|
Europe
|
|
|
4,295,698
|
|
|
|
7,621,260
|
|
North
America
|
|
|
1,368,795
|
|
|
|
2,849,549
|
|
South
America
|
|
|
-
|
|
|
|
6,838
|
|
Others
|
|
|
92,657
|
|
|
|
41,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,309,806
|
|
|
|
17,831,562
|
|
|
|
As
of
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
200
9
|
|
|
200
8
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
$
|
|
|
|
$
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
Hong Kong and
China
|
|
|
4,847,086
|
|
|
|
5,012,472
|
|
Asia
|
|
|
423,597
|
|
|
|
169,376
|
|
Europe
|
|
|
1,409,029
|
|
|
|
2,695,166
|
|
North
America
|
|
|
572,389
|
|
|
|
875,022
|
|
South
America
|
|
|
13,592
|
|
|
|
13,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,265,693
|
|
|
|
8,765,594
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion relates to a discussion of the financial condition and
results of operations of Hong Kong Highpower Technology, Inc. (the “Company”)
and its wholly-owned subsidiary Hong Kong Highpower Technology Co., Ltd.
(referred to herein as “HKHT”), and HKHT’s wholly-owned subsidiaries Shenzhen
Highpower Technology Co., Ltd. (“Shenzhen Highpower”) and Sure Power Technology
(Shenzhen) Co., Ltd. (“Sure Power”). HKHT’s other subsidiary, HZ Highpower
Technology Co. (“HZ Highpower”) has not yet commenced operations.
Forward-Looking
Statements
This
management’s discussion and
analysis of financial condition and results of operations
should be read in conjunction with our
unaudited consolidated financial statements and the related notes that are
included in this Quarterly Report and the audited consolidated financial
statements and related notes and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” contained in our Annual Report on
Form 10-K for the year ended December 31, 2008.
This Quarterly Report contains
forward-looking statements that involve substantial risks and uncertainties. All
statements other than historical facts contained in this report, including
statements regarding our future financial position, capital expenditures, cash
flows, business strategy and plans and objectives of management for future
operations, are forward-looking statements. The words “anticipated,” “believe,”
“expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and
similar expressions are intended to identify forward-looking statements. Such
statements reflect our management’s current views with respect to future events
and financial performance and involve risks and uncertainties, including,
without limitation, the current economic downturn adversely affecting demand for
the our products; fluctuations in the cost of raw materials; our dependence on,
or inability to attract additional, major customers for a significant portion of
our net sales; our ability to increase manufacturing capabilities to satisfy
orders from new customers; changes in the laws of the PRC that affect our
operations; our ability to complete construction at our new manufacturing
facility on time; our ability to control operating expenses and costs related to
the construction of our new manufacturing facility; the devaluation of the U.S.
Dollar relative to the Renminbi; our dependence on the growth in demand for
portable electronic devices and the success of manufacturers of the end
applications that use our battery products; our responsiveness to competitive
market conditions; our ability to successfully manufacture Li-ion batteries in
the time frame and amounts expected; the market acceptance of our Li-ion
products; changes in foreign, political, social, business and economic
conditions that affect our production capabilities or demand for our products;
and various other matters, many of which are beyond our control. Actual results
may vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated should one or more of these risks or uncertainties occur or
if any of the risks or uncertainties described in elsewhere in this report or in
the “Risk Factors” section of our 2008 Annual Report occur. Consequently, all of
the forward-looking statements made in this filing are qualified by these
cautionary statements and there can be no assurance of the actual results or
developments
.
Overview
We were
incorporated in the state of Delaware on January 3, 2006. We were originally
organized as a “blank check” shell company to investigate and acquire a target
company or business seeking the perceived advantages of being a publicly held
corporation. On November 2, 2007, we closed a share exchange transaction,
pursuant to which we (i) became the 100% parent of HKHT and its wholly-owned
subsidiary, Shenzhen Highpower, (ii) assumed the operations of HKHT and its
subsidiary and (iii) changed our name from SRKP 11, Inc. to Hong Kong Highpower
Technology, Inc. HKHT was incorporated in Hong Kong in 2003, under the Companies
Ordinance of Hong Kong. Shenzhen Highpower was founded in founded in
2001. HKHT formed HZ Highpower and Springpower in 2008. HZ
Highpower has not yet commenced business operations.
In
addition, on November 2, 2007, concurrently with the close of the Share
Exchange, we conducted a private placement transaction (the “Private
Placement”). Pursuant to Subscription Agreements entered into with the
investors, we sold an aggregate of 1,772,745 shares of Common stock at $1.76 per
share. As a result, we received gross proceeds in the amount of $3.12
million.
Through
Shenzhen Highpower, we manufacture Nickel Metal Hydride (“Ni-MH”) batteries for
both consumer and industrial applications. We have developed significant
expertise in Ni-MH battery technology and large-scale manufacturing that enables
us to improve the quality of our battery products, reduce costs, and keep pace
with evolving industry standards. In 2008, we commenced manufacturing two lines
of Lithium-Ion (“Li-ion”) and Lithium polymer rechargeable batteries through
Spring Power for higher-end, high-performance applications, such as laptops,
digital cameras and wireless communication products. Our automated
machinery allows us to process key aspects of the manufacturing process to
ensure high uniformity and precision, while leaving the non-key aspects of the
manufacturing process to manual labor.
We employ
a broad network of salespersons in China and Hong Kong, which target key
customers by arranging in-person sales presentations and providing post-sale
services. The sales staff works with our customers to better address customers’
needs.
Critical
Accounting Policies and Estimates
The SEC
defines critical accounting policies as those that are, in management's view,
most important to the portrayal of our financial condition and results of
operations and those that require significant judgments and
estimates.
The
preparation of these condensed consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities at the date of our financial statements. We
base our estimates on historical experience, actuarial valuations and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Some of
those judgments can be subjective and complex and, consequently, actual results
may differ from these estimates under different assumptions or conditions. While
for any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements. The
accounting principles we utilized in preparing our consolidated financial
statements conform in all material respects to generally accepted accounting
principles in the United States of America.
Use of
Estimates
. In preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the dates of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting periods. These accounts and estimates
include, but are not limited to, the valuation of accounts receivable,
inventories, deferred income taxes and the estimation on useful lives of plant
and equipment. Actual results could differ from those estimates.
Accounts
Receivable
. Accounts receivable are stated at original amount less
allowance made for doubtful receivables, if any, based on a review of all
outstanding amounts at the period end. An allowance is also made when there is
objective evidence that we will not be able to collect all amounts due according
to original terms of receivables. Bad debts are written off when identified. We
extend unsecured credit to customers in the normal course of business and
believe all accounts receivable in excess of the allowances for doubtful
receivables to be fully collectible. We do not accrue interest on trade accounts
receivable.
Revenue
Recognition
.
We
recognize revenue when the goods are delivered and the customer takes ownership
and assumes risk of loss, collection of the relevant receivable is probable,
persuasive evidence of an arrangement exists and the sales price is fixed or
determinable. Sales of goods represent the invoiced value of goods, net of sales
returns, trade discount and allowances.
We do not
have arrangements for returns from customers and do not have any future
obligations directly or indirectly related to product resales by the customer.
We have no incentive programs.
Inventories
.
Inventories are stated at
the lower of cost or market value. Cost is determined on a weighted average
basis and includes purchase costs, direct labor and factory overheads. In
assessing the ultimate realization of inventories, management makes judgments as
to future demand requirements compared to current or committed inventory levels.
Our reserve requirements generally increase based on management’s projected
demand requirements, and decrease due to market conditions and product life
cycle changes. Our production process results in a minor amount of waste
materials. We do not record a value for the waste in our cost accounting. We
record proceeds on an as realized basis, when the waste is sold. We offset the
proceeds from the sales of waste materials as a reduction of production
costs.
Income
Taxes
.
We use the
asset and liability method of accounting for income taxes pursuant to SFAS No.
109, “Accounting for Income Taxes.” Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and loss carry
forwards and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. We have also adopted FIN 48,
“Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109.”
Foreign Currency
Translation
. Our functional currency is the Renminbi (“RMB”). We maintain
our financial statements in the functional currency. Monetary assets and
liabilities denominated in currencies other than the functional currency are
translated into the functional currency at rates of exchange prevailing at the
balance sheet dates. Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchange
rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination of
net income for the respective periods.
For
financial reporting purposes, our financial statements, which are prepared using
the functional currency, are then translated into United States dollars. Assets
and liabilities are translated at the exchange rates at the balance sheet dates
and revenue and expenses are translated at the average exchange rates and
stockholders’ equity is translated at historical exchange rates. Any translation
adjustments resulting are not included in determining net income but are
included in foreign exchange adjustment in other comprehensive income, a
component of stockholders’ equity.
The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No
representation is made that RMB amounts could have been, or could be, converted
into U.S. Dollars at rates used in translation.
Results
of Operations
Non-GAAP
Financial Results
In
evaluating our business, we consider and use EBITDA, a financial measure not in
accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), as
a supplemental measure of our operating performance. We define EBITDA as net
income (loss) before net interest expense, provision (benefit) for income taxes,
and depreciation and amortization. We use EBITDA as a supplemental measure to
review and assess our operating performance and to enhance comparability between
periods. We also believe the use of EBITDA facilitates the use by investors of
operating performance comparisons from period to period and company to company
by backing out potential differences caused by variations in such items as the
book amortization of intangible assets (affecting relative amortization
expense), the age and book value of facilities and equipment (affecting relative
depreciation expense), and capital structure (affecting relative interest
expense). We also present EBITDA because we believe it is frequently used by
securities analysts, investors and other interested parties as an alternate
measure of financial performance. We reconcile EBITDA to net income (loss), the
most comparable financial measure under U.S. GAAP.
We
believe that EBITDA permits a comparative assessment of our operating
performance, relative to our performance based on our U.S. GAAP results, while
isolating the effects of interest, taxes, depreciation and amortization, which
may vary from period to period without any correlation to underlying operating
performance. We provide information relating to our EBITDA so that securities
analysts, investors and other interested parties have the same data that we
employ in assessing our overall operations. We believe that trends in our EBITDA
are a valuable indicator of our operating performance and of our ability to
produce operating cash flows to fund working capital needs, to service debt
obligations and to fund capital expenditures.
The term
EBITDA is not defined under U.S. GAAP, and is not a measure of operating income,
operating performance or liquidity presented in accordance with U.S. GAAP. Our
EBITDA has limitations as an analytical tool, and when assessing our operating
performance, EBITDA should not be considered in isolation, or as a substitute
for net income (loss) or other consolidated statement of operations data
prepared in accordance with U.S. GAAP. Some of these limitations include, but
are not limited to, the following:
|
·
|
EBITDA
(1) does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments; (2) does not reflect
changes in, or cash requirements for, our working capital needs;
(3) does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt;
(4) does not reflect income taxes or the cash requirements for any
tax payments; and (5) does not reflect all of the costs associated
with operating our business;
|
|
·
|
although
depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future,
and EBITDA does not reflect any cash requirements for such replacements;
and
|
|
·
|
other
companies may calculate EBITDA differently than we do, limiting its
usefulness as a comparative
measure.
|
We
compensate for these limitations by relying primarily on our U.S. GAAP results
and using EBITDA only supplementally. EBITDA is calculated as follows for the
periods presented:
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
$
|
|
Net income (lo
ss)
|
|
|
402,966
|
|
|
|
730,327
|
|
Interest
expense
|
|
|
41,120
|
|
|
|
206,750
|
|
Income
taxes
|
|
|
161,067
|
|
|
|
166,880
|
|
Depreciation
|
|
|
237,217
|
|
|
|
154,795
|
|
Amortization
|
|
|
28,103
|
|
|
|
12,500
|
|
EBITDA
|
|
|
870,473
|
|
|
|
1,271,252
|
|
EBITDA
for the three months ended March 31, 2009 totaled $870,473, compared with
$1,271,252 for the comparable period in 2008. The decrease was due to
the decrease in the number of battery units sold and increased general and
administrative and stock-based compensation expense in 2009.
Three
Months Ended March 31, 2009 and 2008
Net sales
for the three months ended March 31, 2009 were $11.3 million compared to
$17.8 million for the three months ended March 31, 2008, a decrease of
36.5%. This decrease was largely due to a 22% decrease in the number
of battery units sold and a 19% decrease in the average selling price of our
battery units. The 22% decrease in the number of battery units sold
was due to decreased orders from our major customers. The 19%
decrease in the average selling price of our battery units was due to a decrease
in the average cost of nickel during the three months ended March 31, 2009
compared to the comparable period in 2008. Net sales during the three
months ended March 31, 2008 also included $91,000 from the sale of battery
seconds. No such sales of battery seconds occurred during the three
months ended March 31, 2009.
Cost of
sales consists of the cost of nickel and other materials. Costs of
sales were $8.9 million the three months ended March 31, 2009 as compared
to $15.1 million for the comparable period in 2008. As a
percentage of net sales, cost of sales decreased to 78.8% for the three months
ended March 31, 2009 compared to 84.8% for the comparable period in
2008. This decrease was attributable to a
28% decrease in the average
per unit cost of goods sold during three months ended March 31, 2009 as compared
to the comparable period in 2008, which was offset by a 19% decrease in the
average selling price of our battery units during the three months ended March
31, 2009 over three months ended March 31, 2008. The 28% decrease in the average
per unit cost of goods sold resulted from a 65% decrease in the average cost of
nickel during the three months ended March 31, 2009 compared to the comparable
period in 2008.
Gross
profit for the three months ended March 31, 2009 was $2.4 million, or 21.2% of
net sales, compared to $2.7 million, or 15.2% of net sales, for the
comparable period in 2008. Management considers gross profit to be a key
performance indicator in managing our business. Gross profit margins are usually
a factor of cost of sales, product mix and demand for product. The increase in
our gross profit margin for the three months ended March 31, 2009 is primarily
due to a 28% decrease in the average per unit cost of goods sold during three
months ended March 31, 2009 as compared to the comparable period in
2008.
To cope
with pressure on our gross margins we intend to control production costs by
preparing budgets for each department and comparing actual costs with our
budgeted figures monthly and quarterly. Additionally, we have reorganized the
Company’s production structure and have focused more attention on employee
training to enhance efficiency. We also intend to expand our market share by
investing in greater promotion of our products in regions such as the U.S.,
Russia, Europe and India, and by expanding our sales team with more experienced
sales personnel. We have also begun production of a line of Li-ion batteries as
to complement our current Ni-MH battery products so that we are less vulnerable
to price increases in nickel. We intend to expand production of our Li-ion
battery products in the future.
Selling
and distribution costs were $531,000 for the three months ended March 31, 2009
compared to $414,000 for the comparable period in 2008. The increase was
primarily due to the expansion of our salesforce. Our market share
decreased attributed to the decreased demand for our products due to the global
economic downturn and challenging economic conditions.
General
and administrative costs were $1.1 million, or 9.8% of net sales, for the three
months ended March 31, 2009, compared to $770,000, or 4.3% of net sales, for the
comparable period in 2008. Management considers these expenses as a percentage
of net sales to be a key performance indicator in managing our
business. The increase as a percentage of net sales was primarily due
to an increase in personnel and labor costs, which increased $73,000 for
the three months ended March 31, 2009 over the comparable period in 2008 due to
the expansion of our technician and marketing team to expand our market share
and $130,000 in stock based compensation charges in the three months ended
March 31, 2009. We anticipate our general and administrative expenses
to continue to increase modestly on an absolute dollar basis as a result of
additional legal, accounting and other related costs from becoming a public
reporting company.
We
experienced losses on the exchange rate difference between the U.S. Dollar and
the RMB of $33,000 and $505,000, respectively, in the three months ended March
31, 2009 and 2008, a decrease of 93.5%, due to the devaluation of the U.S.
Dollar relative to the RMB over the respective periods. Although our
sales contracts do not automatically adjust to reflect changes in exchange
rates, to cope with devaluation of the U.S. Dollar relative to the RMB, each
time that we enter into new sales contracts with new or existing customers we
adjust the selling price of batteries in anticipation of an increase, and to
make up for any potential change, in the exchange rate between the two
currencies. We currently engage in currency hedging, due to which we
experienced an $88,000 loss on the fair value of our currency forwards in the
three months ended March 31, 2009 compared to a $29,000 gain on the fair value
of our currency forwards in the three months ended March 31, 2008.
Interest
expense was $41,000 for the three months ended March 31, 2009, as compared to
$207,000 for the comparable period in 2008. The decrease was primarily due
to lower borrowing levels. We decreased our borrowings by approximately $3.3
million in the three months ended March 31, 2009 as compared to the three months
ended March 31, 2008. Further increases in borrowing rates would
further increase our interest expense, which would have a negative effect on our
results of operations.
Other
income from operations, which consists of bank interest income, exchange gains
and losses and sundry income, was $67,000, for the three months ended March 31,
2009, as compared to $105,000 for the three months ended Mach 31, 2008, a
decrease of 37.1%. The decrease was due to a $13,000 decrease in bank interest
income, an $11,000 decrease in other interest income and a $14,000 increase in
sundry income.
During
the three months ended March 31, 2009, we recorded a provision for income taxes
of $161,000, as compared to $167,000 for the comparable period in
2008. The decrease was a result of an increase in our net taxable
income, partially offset by an increase in our tax rate.
Net
income for the three months ended March 31, 2009 was $403,000, compared to net
income of $730,000 for the comparable period in 2008.
Liquidity
and Capital Resources
To
provide liquidity and flexibility in funding our operations, we borrow amounts
under bank facilities and other external sources of financing. As of
March 31, 2009, we had in place general banking facilities with four financial
institutions aggregating $23.2 million. The maturity of these
facilities is generally up to one year. The facilities are subject to
annual review and approval. These banking facilities are guaranteed
by us and some of our shareholders, including Dang Yu Pan, Wen Liang Li and Wen
Wei Ma, and contain customary affirmative and negative covenants for secured
credit facilities of this type. However, these covenants do not have
any impact on our ability to undertake additional debt or equity
financing. Interest rates are generally based on the banks’ reference
lending rates. No significant commitment fees are required to be paid
for the banking facilities. As of March 31, 2009, we had utilized
approximately $11.5 million under such general credit facilities and had
available unused credit facilities of $11.7 million.
On
November 2, 2007, upon the closing of a private placement, we received gross
proceeds of $3.12 million in a private placement transaction (the “Private
Placement”). Pursuant to Subscription Agreements entered into with
the investors, we sold an aggregate of 2,836,364 shares of Common Stock at $1.10
per share. We filed a registration statement covering the common
stock sold in the Private Placement. For its services in connection with the
Share Exchange and as placement agent, the placement agent received an aggregate
commission equal to 10% of the gross proceeds from the Private Placement, in
addition to $30,000 in connection with the execution of the Exchange Agreement
and a $40,000 success fee for the Share Exchange, for an aggregate amount fee of
$382,000.
For the
three months ended March 31, 2009, net cash provided by operating activities was
approximately $3.7 million, as compared to $306,000 for the comparable period in
2008. The increase in net cash provided by operating activities is primarily
attributable to a decrease in inventory levels.
Net cash
used in investing activities was $560,000 for the three months ended March 31,
2009 compared to $451,000 for the comparable period in 2008. The increase of
cash used in investing activities was primarily attributable to the acquisition
of plant and equipment.
Net cash
used in financing activities was $3.8 million for the three months ended
March 31, 2009 as compared to net cash provided by financing activities of
$334,000 for the comparable period in 2008. The increase in net cash
used in financing activities was attributable to the repayment of bank
borrowings in the three months ended March 31, 2009.
For the
three months ended March 31, 2009, our inventory turnover was 8.3 times, as
compared to 5.5 times at March 31, 2008. The average days outstanding of our
accounts receivable at March 31, 2009 were 64 days, as compared to 80 days at
March 31, 2008. Inventory turnover and average days outstanding are key
operating measures that management relies on to monitor our business.
In the next 12 months, we
expect to expand our research, development and manufacturing of lithium-based
batteries and anticipate additional capital expenditures of approximately $1.0
million.
We are
required to contribute a portion of our employees’ total salaries to the Chinese
government’s social insurance funds, including medical insurance, unemployment
insurance and job injuries insurance, and a housing assistance fund, in
accordance with relevant regulations. We expect these contributions will
contribute to administrative and other operating expenses in an amount of
approximately $30,000 per month based on the size of our current workforce. We
expect the amount of our contribution to the government’s social insurance funds
to increase in the future as we expand our workforce and
operations.
Based
upon our present plans, we believe that cash on hand, cash flow from operations
and funds available under our bank facilities will be sufficient to fund our
capital needs for the next 12 months. However, our ability to
maintain sufficient liquidity depends partially on our ability to achieve
anticipated levels of revenue, while continuing to control costs. If we did not
have sufficient available cash, we would have to seek additional debt or equity
financing through other external sources, which may not be available on
acceptable terms, or at all. Failure to maintain financing arrangements on
acceptable terms would have a material adverse effect on our business, results
of operations and financial condition.
The use
of working capital is primarily for the maintenance of our accounts receivable
and inventory. We provide our major customers with payment terms ranging from 30
to 75 days. Additionally, our production lead time is approximately 30 to 40
days, from the inspection of incoming materials, to production, testing and
packaging. We need to keep a large supply of raw materials and work in process
and finished goods inventory on hand to ensure timely delivery of our products
to our customers. We use two methods to support our working capital needs: (1)
paying our suppliers under payment terms ranging from 30 to 60 days; and (2)
using short-term bank loans. We use our accounts receivable as collateral for
our loans. Upon receiving payment for our accounts receivable, we pay our
short-term loans. Our working capital management practices are designed to
ensure that we maintain sufficient working capital.
Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
141(R), “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51”. SFAS No. 141(R)
and SFAS No. 160 require most identifiable assets, liabilities, noncontrolling
interests and goodwill acquired in a business combination to be recorded at
“full fair value” and require noncontrolling interests (previously referred to
as minority interest) to be reported as a component of equity, which changes the
accounting for transactions with noncontrolling interest holders. Both
statements are effective for periods beginning on or after December 15, 2008,
and earlier adoption is prohibited. SFAS No. 141(R) will be applied to business
combinations occurring after the effective date. SFAS No. 160 will be applied
prospectively to all noncontrolling interests, including any that arose before
the effective date. SFAS No. 160 is effective for the Company on January 1,
2009. We do not expect the initial adoption of SFAS No. 160 will have a material
effect on our consolidated financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”,
, which
requires enhanced disclosures about an entity’s derivatives and hedging
activities. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. Since SFAS
No. 161 only provides for additional disclosure requirements, management
assessed that there will be no impact on the results of operations and financial
position.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). This statement identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in accordance with generally accepted accounting principles (“GAAP”).
With the issuance of this statement, the FASB concluded that the GAAP hierarchy
should be directed toward the entity and not its auditor, and reside in the
accounting literature established by the FASB as opposed to the American
Institute of Certified Public Accountants “AICPA”) Statement on Auditing
Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.” This statement is effective 60 days following
the Securities and Exchange commission’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” The Company
does not expect the adoption of SFAS No. 162 will have a material impact on the
results of operations and financial position.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Credit
Risk
We are
exposed to credit risk from our cash at bank, fixed deposits and contract
receivables. The credit risk on cash at bank and fixed deposits is limited
because the counterparts are recognized financial institutions. Contract
receivables are subject to credit evaluations. We periodically record a
provision for doubtful collections based on an evaluation of the collectibility
of contract receivables by assessing, among other factors, the customer’s
willingness or ability to pay, repayment history, general economic conditions
and our ongoing relationship with the customers.
Foreign
Currency and Exchange Risk
The
Company maintains its financial statements in the functional currency of
Renminbi (“RMB”). Substantially all of our operations are conducted in the PRC
and we pay the majority of our expenses in RMB. Approximately 75% of our sales
are made in U.S. Dollars. During the three months ended March 31, 2009, the
exchange rate of the RMB to the U.S. Dollar decreased approximately 0.02% from
the level at the end of December 31, 2008. This fluctuation resulted in a slight
increase in our material costs during the three months ended March 31, 2009. A
future appreciation of the RMB against the U.S. Dollar would increase our costs
when translated into U.S. Dollars and could adversely affect our margins unless
we make sufficient offsetting sales. Conversion of RMB into foreign currencies
is regulated by the People’s Bank of China through a unified floating exchange
rate system. Although the PRC government has stated its intention to support the
value of the RMB, there can be no assurance that such exchange rate will not
continue to appreciate significantly against the U.S. Dollar. Exchange rate
fluctuations may also affect the value, in U.S. Dollar terms, of our net assets.
In addition, the RMB is not freely convertible into foreign currency and all
foreign exchange transactions must take place through authorized institutions.
Due to the volatility of the US Dollar to our functional currency the Company
put into place in 2008 a hedging program to attempt to protect it from
significant changes to the US Dollar which affect the value of its US dollar
receivables and sales. At March 31, 2009, the Company had a series of currency
forwards totaling a notional amount US$4,000,000 expiring from April 2009 to
July 2009. The terms of these derivative contracts are generally for 12 months
or less. Changes in the fair value of these derivative contracts are recorded in
earnings to offset the impact of foreign currency transaction gains and losses.
We experienced $88,000 loss in the value of currency forwards in the three
months ended March 31, 2009 as compared to a $29,000 gain on currency forwards
during the comparable period in 200
Country
Risk
The
substantial portion of our business, assets and operations are located and
conducted in Hong Kong and China. While these economies have experienced
significant growth in the past twenty years, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese government
has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall economy of
Hong Kong and China, but may also have a negative effect on us. For example, our
operating results and financial condition may be adversely affected by
government control over capital investments or changes in tax regulations
applicable to us. If there are any changes in any policies by the Chinese
government and our business is negatively affected as a result, then our
financial results, including our ability to generate revenues and profits, will
also be negatively affected.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures, which are designed to ensure that
information required to be disclosed in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer, or CEO,
and Chief Financial Officer, or CFO, as appropriate to allow timely decisions
regarding required disclosure.
Based on
an evaluation carried out as of the end of the period covered by this quarterly
report, under the supervision and with the participation of our management,
including our CEO and CFO, our CEO and CFO have concluded that, as of the end of
such period, our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934) were
effective as of March 31, 2009.
Changes
in Internal Control Over Financial Reporting
Based on
the evaluation of our management as required by paragraph (d) of Rule 13a-15 of
the Exchange Act, there were no changes in our internal control over financial
reporting that occurred during our last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Part II.
Other Information
Item
1. Legal Proceedings
None.
Item
1A. Risk Factors
Not applicable to smaller reporting
companies.
Item
2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Item
3. Default Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits
(a) Exhibits
Exhibit
Number
|
|
Description of Document
|
|
|
|
10.1
|
|
Employment
Offer Letter dated as of January 22, 2009 with Henry
Ngan.
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
|
Certification
of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
|
*
|
This
exhibit shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of
that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any
filings.
|
HONG
KONG HIGHPOWER TECHNOLOGY, INC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
Hong
Kong Highpower Technology, Inc.
|
|
|
Dated:
May 13, 2009
|
/s/
|
Dang Yu Pan
|
|
By:
|
Dang Yu Pan
|
|
Its:
|
Chairman
of the Board and Chief Executive Officer
|
|
|
|
|
/s/
|
Henry Ngan
|
|
By:
|
Henry Ngan
|
|
Its:
|
Chief
Financial Officer
|
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