HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
1.
|
The Company and basis of presentation
|
The consolidated financial statements
include the financial statements of Highpower International, Inc. ("Highpower") and its 100%-owned subsidiary Hong Kong
Highpower Technology Company Limited (“HKHTC”), HKHTC’s wholly-owned subsidiaries Shenzhen Highpower Technology
Company Limited (“SZ Highpower”), and Icon Energy System Company Limited (“ICON”), SZ Highpower’s
wholly owned subsidiary Huizhou Highpower Technology Company Limited (“HZ HTC”) and its 70%-owned subsidiary Ganzhou
Highpower Technology Company Limited (“GZ Highpower”) and SZ Highpower’s and HKHTC’s jointly owned subsidiary,
Springpower Technology (Shenzhen) Company Limited (“SZ Springpower”). Highpower and its direct and indirect wholly
and majority owned subsidiaries are collectively referred to as the "Company".
Basis of presentation
The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial informtion, the
instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. The interim financial information should be read in conjunction
with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on March 28, 2017.
In the opinion of management,
all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s consolidated
financial position as of June 30, 2017, its consolidated results of operations for the three and six months ended June 30, 2017
and cash flows for the six months ended June 30, 2017, as applicable, have been made. Operating results for the three and six months
period ended June 30, 2017 are not necessarily indicative of the operating results that may be expected for the year ending December
31, 2017 or any future periods.
Concentrations of credit risk
No customer accounted for 10%
or more of total sales during the three and six months ended June 30, 2017 and 2016.
No supplier accounted for 10%
or more of the total purchase amount during the three and six months ended June 30, 2017 and 2016.
No customer accounted for 10%
or more of the accounts receivable as of June 30, 2017 and December 31, 2016.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies
|
Long-term investment
For an investee company over
which the Company holds less than 20% voting interest, the investments are accounted for under the cost method.
For an investee company over
which the Company has the ability to exercise significant influence, but does not have a controlling interest, the Company accounted
for those using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest
in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of
directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method
of accounting is appropriate.
An impairment charge is recorded
if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than temporary. As
of June 30, 2017, management believes no impairment charge is necessary.
Foreign currency translation
and transactions
Highpower’s functional
currency is the United States dollar ("US$"). HKHTC's functional currency is the Hong Kong dollar ("HK$").
The functional currency of Highpower's other direct and indirect wholly and majority owned subsidiaries in the PRC is the Renminbi
("RMB").
Most of the Company’s oversea
sales are priced and settled with US$. At the date a foreign currency transaction is recognized, each asset, liability, revenue,
expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by
use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement
of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction
is denominated is recognized as foreign currency transaction gain or loss that is included in earnings for the period in which
the exchange rate changes. At each balance sheet date, recorded balances that are denominated in a foreign currency are adjusted
to reflect the current exchange rate.
The Company’s reporting
currency is US$. Assets and liabilities of HKHTC and the PRC subsidiaries are translated at the current exchange rate at the balance
sheet dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts
are translated at historical rates. Translation adjustments are reported in accumulated other comprehensive income (loss).
Fair value of financial instruments
The carrying values of the Company’s
financial instruments, including cash, restricted cash, trade and other receivables, deposits, trade and other payables and bank
borrowings, approximate their fair value due to the short-term maturity of such instruments.
Warrant Liability
For warrants that are not indexed
to the Company’s stock, the Company records the fair value of the issued warrants as a liability at each balance sheet date
and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statement of operations and comprehensive
income. The warrant liability is recognized in the balance sheet at the fair value (level 3). The fair value of these warrants
have been determined using the Black-Scholes pricing mode. The Black-Scholes pricing model provides for assumptions regarding volatility,
call and put features and risk-free interest rates within the total period to maturity. The Company revalued the warrants utilizing
a binomial model as of December 31, 2016 with no material difference in the value. The warrants expired on April 17,
2017.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Recently issued accounting
pronouncements
In May 2014, the FASB issued
ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which was subsequently modified in August 2015
by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. This guidance will be effective for
fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. The core principle of ASU No.
2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount
that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and
uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the
implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing
(ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria
and other technical corrections (ASU 2016-20). In 2017, the FASB issued Accounting Standards Update (ASU) 2017-05, Other Income—Gains
and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which was originally issued in ASU 2014-09. The amendments
in this Update require that an entity to initially measure a retained non-controlling interest in a nonfinancial asset at fair
value consistent with a how a retained non-controlling interest in a business is measured.
During 2016, the Company made
significant progress toward its evaluation of the potential changes from adopting the new standard on its future financial reporting
and disclosures. The Company has established a cross-functional implementation team on assessment on the five-step model of the
new standard to its revenue contracts. The adoption of this guidance is not expected to have a material effect on our result of
operations, financial position or liquidity. Management currently anticipates using the modified retrospective method as of January
1, 2018.
On February 25, 2016, the FASB issued Accounting Standards
Update (ASU) 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months
or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets
and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the
earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU
2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January
1, 2019, for a calendar year entity). Early application is permitted for all public business entities and all nonpublic business
entities upon issuance. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.
In August 2016, the FASB issued
Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230). The amendments in this update provide guidance
on eight specific cash flow issue. It applies to all entities. For public business entities, the amendments in this Update are
effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption
is permitted for any entity in any interim or annual period. The adoption of this guidance is not expected to have a material impact
on the Company's consolidated financial condition, results of operations or cash flows.
In October 2016, the FASB issued
Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740). The amendments in this Update is to improve the accounting
for the income tax consequences of intra-entity transfers of assets other than inventory and align the recognition of income tax
consequences for intra-entity transfers of assets other than inventory with International Financial Reporting Standards (IFRS).
Public business entities should apply the amendments in ASU 2016-16 for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. The adoption
of this guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations
or cash flows.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
In November 2016, the FASB issued
Accounting Standards Update (ASU) 2016-18, Statement of Cash Flows (Topic 230). The amendments in this Update require that a statement
of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. The amendments in this Update are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.
Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this
guidance is not expected to have a material impact on the Company's consolidated financial condition, results of operations or
cash flows.
The Company does not believe
other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated
financial position, statements of operations and cash flows.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
3.
|
Accounts receivable, net
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
45,925,897
|
|
|
|
49,460,347
|
|
Less: allowance for doubtful accounts
|
|
|
3,188,690
|
|
|
|
3,179,578
|
|
|
|
|
42,737,207
|
|
|
|
46,280,769
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
10,902,993
|
|
|
|
6,492,755
|
|
Work in progress
|
|
|
7,923,532
|
|
|
|
4,878,856
|
|
Finished goods
|
|
|
13,386,334
|
|
|
|
10,608,180
|
|
Packing materials
|
|
|
25,857
|
|
|
|
21,083
|
|
Consumables
|
|
|
249,551
|
|
|
|
206,459
|
|
|
|
|
32,488,267
|
|
|
|
22,207,333
|
|
|
5.
|
Property, plant and equipment, net
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
814,911
|
|
|
|
715,188
|
|
Furniture, fixtures and office equipment
|
|
|
4,615,273
|
|
|
|
4,025,635
|
|
Leasehold improvement
|
|
|
6,458,733
|
|
|
|
5,865,909
|
|
Machinery and equipment
|
|
|
30,313,242
|
|
|
|
27,526,572
|
|
Motor vehicles
|
|
|
1,573,570
|
|
|
|
1,496,628
|
|
Buildings
|
|
|
22,419,779
|
|
|
|
21,797,158
|
|
|
|
|
66,195,508
|
|
|
|
61,427,090
|
|
Less: accumulated depreciation
|
|
|
20,027,952
|
|
|
|
17,922,099
|
|
|
|
|
46,167,556
|
|
|
|
43,504,991
|
|
The Company recorded depreciation
expenses of $2,361,482 and $2,415,561 for the six months ended June 30, 2017 and 2016, respectively, and $1,121,356 and $1,194,584
for the three months ended June 30, 2017 and 2016, respectively.
During the six months ended June
30, 2017, the Company deducted deferred income related to government grants of $86,643 on the carrying amount of property, plant
and equipment. During the year ended December 31, 2016, the Company deducted deferred income related to government grants of $229,951
in calculating the carrying amount of property, plant and equipment.
The real estate properties
and buildings in Huizhou and Ganzhou have been pledged as collateral for short-term loans and bank acceptance bills drawn under
certain lines of credit as of June 30, 2017 and December 31, 2016. The real estate properties and buildings in Shenzhen have been
pledged as collateral for short-term loans as of June 30, 2017 and December 31, 2016 (Note 9).
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
On June 30, 2016, the Company
entered into an Equity Transfer and Capital Increase and Supplementary Agreements (collectively, the “2016 Equity Purchase
Agreement”) with Huizhou Yipeng Energy Technology Co. Ltd. ("Yipeng") and its shareholders. As of December 31,
2016, the Company has invested an aggregate of RMB65.0 million (approximately $9.6 million) in exchange for 35.4% of the equity
interest of Yipeng, which was recorded under the equity method.
On May 5, 2017, the Company
entered into an Agreement for Equity Transfer and Capital Increase (“Equity Transfer Agreement”) with a third
party, Xiamen Jiupai Yuanjiang New Power Equity Investment Partnership ("New Power"). Pursuant to the terms of the
Equity Transfer Agreement, the Company will sell 25,145,834 shares in Yipeng to New Power for RMB71.0 million (the
"Consideration", approximately $10.5 million) in cash and New Power will invest RMB60 million for a 20% equity
interest in Yipeng (collectively, the “Transaction”). After the Transaction, the Company’s equity ownership
in Yipeng will decrease from 35.4% to 4.654%, and the Company will lose the ability to exercise significant influence over
Yipeng and discontinue the use of equity method accounting.
On June 8, 2017, Yipeng completed
the business registration on equity issuance to New Power for RMB60.0 million. As of June 30, 2017, the Company held 28.32% of
the equity interest of Yipeng, which was recorded under the equity method. The Company recognized gain on dilution in equity method
investee of $491,325 for the three months ended June 30, 2017 in connection with the additional equity issuance of Yipeng to New
Power. On July 27, 2017, the Company received the Consideration from New Power for the sales of 25,145,834 shares in Yipeng (Note
16).
The equity in loss of investee
was $41,607 for the three months ended June 30, 2017. The equity in earnings of investee was $105,325 for the six months ended
June 30, 2017.
Highpower and its direct and
indirect wholly and majority owned subsidiaries file tax returns separately.
1) VAT
Pursuant to the Provisional Regulation
of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in
the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any
deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to a portion of
or all the refund of VAT that it has already paid or incurred. The Company’s PRC subsidiaries are subject to VAT at 17% of
their revenues.
2) Income tax
United States
Highpower was incorporated in
Delaware and is subject to U.S. federal income tax with a system of graduated tax rates ranging from 15% to 35%. No deferred U.S.
taxes are recorded since all accumulated profits in the PRC will be permanently reinvested in the PRC.
Hong Kong
HKHTC, which was incorporated
in Hong Kong, is subject to a corporate income tax rate of 16.5%.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
PRC
In accordance with the relevant
tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable
tax rate on taxable income.
In China, the companies granted
with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every
three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration
of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2016.
SZ Highpower, ICON and GZ Highpower
received the NHTE in 2014 and has reapplied for NHTE status in the second quarter of 2017. If SZ Highpower, ICON and GZ Highpower
fail to obtain the approval in 2017, SZ Highpower, ICON and GZ Highpower will be subject to income tax at a rate of 25% starting
for calendar year 2017.
HZ HTC received NHTE status in
2015 and SZ Springpower received NHTE status in 2016. As a result, HZ HTC and SZ Springpower are entitled to a preferential enterprise
income tax rate of 15% for calendar year 2017.
The components of the provision
for income taxes expenses are:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
456,583
|
|
|
|
111,867
|
|
|
|
919,800
|
|
|
|
274,488
|
|
Deferred
|
|
|
139,125
|
|
|
|
62,446
|
|
|
|
263,673
|
|
|
|
(64,671
|
)
|
Total income tax expenses
|
|
|
595,708
|
|
|
|
174,313
|
|
|
|
1,183,473
|
|
|
|
209,817
|
|
The reconciliation of income
tax expense computed at the statutory tax rate applicable to the Company to income tax expense is as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income before tax
|
|
|
5,057,908
|
|
|
|
2,047,426
|
|
|
|
8,258,215
|
|
|
|
1,606,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at applicable income tax rate
|
|
|
1,267,859
|
|
|
|
512,993
|
|
|
|
2,071,191
|
|
|
|
409,393
|
|
Effect of preferential tax rate
|
|
|
(397,140
|
)
|
|
|
(116,208
|
)
|
|
|
(788,983
|
)
|
|
|
(139,878
|
)
|
R&D expenses eligible for super deduction
|
|
|
(442,939
|
)
|
|
|
(555,531
|
)
|
|
|
(442,939
|
)
|
|
|
(555,531
|
)
|
Non-deductible expenses
|
|
|
17,448
|
|
|
|
96,716
|
|
|
|
33,995
|
|
|
|
114,336
|
|
Change in valuation allowance
|
|
|
150,480
|
|
|
|
236,343
|
|
|
|
310,209
|
|
|
|
381,497
|
|
Effective enterprise income taxes expenses
|
|
|
595,708
|
|
|
|
174,313
|
|
|
|
1,183,473
|
|
|
|
209,817
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
3) Deferred tax assets
Deferred tax assets and deferred
tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of
temporary difference.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
4,330,451
|
|
|
|
4,274,881
|
|
Allowance for doubtful receivables
|
|
|
125,037
|
|
|
|
121,932
|
|
Impairment for inventory
|
|
|
119,315
|
|
|
|
98,276
|
|
Difference for sales cut-off
|
|
|
731
|
|
|
|
14,245
|
|
Deferred income
|
|
|
133,823
|
|
|
|
114,224
|
|
Property, plant and equipment subsidized by government grant
|
|
|
475,064
|
|
|
|
468,313
|
|
Impairment for property, plant and equipment
|
|
|
58,779
|
|
|
|
76,248
|
|
Total gross deferred tax assets
|
|
|
5,243,200
|
|
|
|
5,168,119
|
|
Valuation allowance
|
|
|
(3,994,974
|
)
|
|
|
(3,690,358
|
)
|
Total net deferred tax assets
|
|
|
1,248,226
|
|
|
|
1,477,761
|
|
The deferred tax assets arising
from net operating losses will expire from 2018 through 2021 if not utilized.
Valuation allowance was provided
against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax
assets will not be realized. The Company had deferred tax assets which consisted of tax loss carry-forwards and others, which can
be carried forward to offset future taxable income. The management determines it is more likely than not that part of deferred
tax assets could not be utilized, so allowance was provided as of June 30, 2017 and December 31, 2016.
Notes payable presented to certain
suppliers as a payment against the outstanding trade payables.
Notes payable are mainly bank
acceptance bills which are non-interest bearing and generally mature within six months. The outstanding bank acceptance bills are
secured by restricted cash deposited in banks. Outstanding bank acceptance bills were $41,373,724 and $30,658,000 as of June 30,
2017 and December 31, 2016, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
As of June 30, 2017 and December
31, 2016, the bank borrowings were for working capital and capital expenditure purposes and were secured by personal guarantees
executed by certain directors of the Company, the time deposits with a carrying amount of $154,931 and $151,083, land use right
with a carrying amount of $3,670,645 and $3,622,435, and the buildings with carrying amount of $11,995,138 and $11,854,452, respectively.
The loans as of June 30, 2017
were primarily obtained from three banks with interest rates ranging from 4.35% to 5.655% per annum. The loans as of December 31,
2016 were primarily obtained from four banks with interest rates ranging from 4.35% to 5.87% per annum, respectively. The interest
expenses were $537,156 and $422,593 for the six months ended June 30, 2017 and 2016, respectively. The interest expenses were $277,319
and $215,485 for the three months ended June 30, 2017 and 2016, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
10.
|
Non-financial institution borrowings
|
In April 2016, the Company obtained
borrowings in an amount of RMB20 million ($2,951,071) from a third party non-financial institution and repaid RMB4 million ($590,214)
and RMB16 million ($2,360,857) in October 2016 and March 2017, respectively.
In May 2016 and January 2017,
the Company obtained borrowings in an amount of RMB10 million ($1,475,536) and RMB60 million ($8,853,214) from a third party individual
that can be repaid anytime and no later than August 31, 2017 and January 10, 2018, respectively. The borrowings were used for working
capital and capital expenditure purposes, and personally guaranteed by the Company’s Chief Executive Officer, Mr. Dang Yu
Pan. The interest rate for the borrowings is 5.66% per annum.
In May 2017, the Company obtained
borrowings in an amount of RMB10 million ($1,475,536) from a third party non-financial institution that can be repaid anytime and
no later than December 31, 2019. The borrowing was personally guaranteed by the Company’s Chief Executive Officer, Mr. Dang
Yu Pan. The interest rate for the borrowings is 5.655% per annum.
The interest expense of the above
borrowings was $297,753 and $32,905 for the six months ended June 30, 2017 and 2016, respectively. The interest expense of the
above borrowings was $154,235 and $32,905 for the three months ended June 30, 2017 and 2016, respectively.
The following table sets forth
the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2017 and 2016.
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
|
4,371,237
|
|
|
|
2,051,782
|
|
|
|
6,906,886
|
|
|
|
1,709,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,317,101
|
|
|
|
15,101,679
|
|
|
|
15,218,820
|
|
|
|
15,101,679
|
|
- Dilutive effects of equity incentive awards
|
|
|
162,256
|
|
|
|
1,198
|
|
|
|
85,953
|
|
|
|
2,207
|
|
- Diluted
|
|
|
15,479,357
|
|
|
|
15,102,877
|
|
|
|
15,304,773
|
|
|
|
15,103,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.29
|
|
|
|
0.14
|
|
|
|
0.45
|
|
|
|
0.11
|
|
- Diluted
|
|
|
0.28
|
|
|
|
0.14
|
|
|
|
0.45
|
|
|
|
0.11
|
|
685,001 and 540,001 options
and warrants were not included in the computation of diluted earnings per share for the six months and three months ended June
30, 2017, respectively, and 1,701,927 options and warrants were not included in the computation of diluted earnings per share
for the six months and three months ended June 30, 2016, respectively, because the options’ exercise price was greater than
the average market price of the ordinary shares.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
12.
|
Defined contribution plan
|
Full-time employees of the Company
in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical
care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC
operating subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the
employees’ salaries. Except for contributions mentioned above, the Company has no legal obligation for the benefits beyond
the contributions made.
The total contributions made,
which were expensed as incurred, were $1,125,097 and $754,663 for the six months ended June 30, 2017 and 2016, respectively, and
$620,577 and $419,105 for the three months ended June 30, 2017 and 2016, respectively.
|
13.
|
Commitments and contingencies
|
Contingencies
On January 14, 2016, FirsTrust
China, Ltd (“FirsTrust”) filed an amended complaint in the Delaware Chancery Court (amending its initial complaint
filed February 25, 2015) naming Highpower as the defendant asserting a cause of action for breach of contract and conversion of
stock, and seeking damages in the form of issuance of 150,000 shares or the value of such shares, plus interest thereon, attorneys’
fees and costs and expenses. On February 4, 2016, Highpower filed an answer, affirmative defenses and counterclaim against FirsTrust
asserting claims for equitable rescission, declaratory relief and breach of contract, and seeking rescission of the contract, return
of the 200,000 warrants and 150,000 shares of Highpower stock previously issued to FirsTrust, plus interest, attorneys’ fees
and costs and expenses. On January 24, 2017, the court denied FirsTrust’s motion for judgment on the pleadings. The parties
are continuing with pre-trial discovery, as well as settlement discussions. The Company believes that it has meritorious defenses
and counterclaims and intends to defend and prosecute them vigorously.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
The reportable segments are components
of the Company that offer different products and are separately managed, with separate financial information available that is
separately evaluated regularly by the Company’s chief operating decision maker (“CODM”), the Chief Executive
Officer, in determining the performance of the business. The Company categorizes its business into three reportable segments, namely
(i) Lithium Business; (ii) Ni-MH Batteries and Accessories; and (iii) New Materials.
The descriptions of the reportable
segments have been extended from Lithium Batteries and Ni-MH Batteries to Lithium Business and Ni-MH Batteries and Accessories,
respectively. Lithium Business mainly consists of lithium batteries, power storage system and power source solutions. Ni-MH Batteries
and Accessories mainly consists of Ni-MH rechargeable batteries, sized batteries in blister packing as well as chargers and battery
packs. Prior to the six months ended June 30, 2017, the sales of products except for the batteries in the two reporting segments
were insignificant.
The CODM evaluates performance
based on each reporting segment’s net sales, cost of sales, gross profit and total assets. Net sales, cost of sales, gross
profit and total assets by segments were set out as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
37,009,048
|
|
|
|
23,666,887
|
|
|
|
64,499,542
|
|
|
|
38,981,832
|
|
Ni-MH Batteries and Accessories
|
|
|
11,783,901
|
|
|
|
11,972,810
|
|
|
|
24,311,214
|
|
|
|
24,829,135
|
|
New Materials
|
|
|
2,906,981
|
|
|
|
1,092,613
|
|
|
|
4,756,022
|
|
|
|
2,018,398
|
|
Total
|
|
|
51,699,930
|
|
|
|
36,732,310
|
|
|
|
93,566,778
|
|
|
|
65,829,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
28,310,375
|
|
|
|
18,857,605
|
|
|
|
49,950,244
|
|
|
|
31,364,936
|
|
Ni-MH Batteries and Accessories
|
|
|
9,013,125
|
|
|
|
8,869,549
|
|
|
|
18,201,515
|
|
|
|
18,475,355
|
|
New Materials
|
|
|
2,304,664
|
|
|
|
1,361,485
|
|
|
|
3,408,419
|
|
|
|
2,468,364
|
|
Total
|
|
|
39,628,164
|
|
|
|
29,088,639
|
|
|
|
71,560,178
|
|
|
|
52,308,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
8,698,673
|
|
|
|
4,809,282
|
|
|
|
14,549,298
|
|
|
|
7,616,896
|
|
Ni-MH Batteries and Accessories
|
|
|
2,770,776
|
|
|
|
3,103,261
|
|
|
|
6,109,699
|
|
|
|
6,353,780
|
|
New Materials
|
|
|
602,317
|
|
|
|
(268,872
|
)
|
|
|
1,347,603
|
|
|
|
(449,966
|
)
|
Total
|
|
|
12,071,766
|
|
|
|
7,643,671
|
|
|
|
22,006,600
|
|
|
|
13,520,710
|
|
|
|
June 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
129,591,163
|
|
|
|
115,116,508
|
|
Ni-MH Batteries and Accessories
|
|
|
46,881,968
|
|
|
|
37,994,369
|
|
New Materials
|
|
|
11,677,769
|
|
|
|
10,220,873
|
|
Total
|
|
|
188,150,900
|
|
|
|
163,331,750
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
14.
|
Segment information (continued)
|
All long-lived assets of the
Company are located in the PRC. Geographic information about the sales and accounts receivable based on the location of the Company’s
customers were set out as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
32,086,138
|
|
|
|
28,855,932
|
|
|
|
54,247,730
|
|
|
|
37,385,011
|
|
Asia, others
|
|
|
12,092,612
|
|
|
|
6,295,056
|
|
|
|
25,788,170
|
|
|
|
18,275,423
|
|
Europe
|
|
|
3,612,677
|
|
|
|
208,548
|
|
|
|
8,465,407
|
|
|
|
6,524,327
|
|
North America
|
|
|
3,604,935
|
|
|
|
1,285,688
|
|
|
|
4,663,067
|
|
|
|
2,919,834
|
|
South America
|
|
|
205,549
|
|
|
|
14,074
|
|
|
|
267,286
|
|
|
|
478,971
|
|
Africa
|
|
|
55,567
|
|
|
|
25,968
|
|
|
|
55,567
|
|
|
|
50,001
|
|
Others
|
|
|
42,452
|
|
|
|
47,044
|
|
|
|
79,551
|
|
|
|
195,798
|
|
|
|
|
51,699,930
|
|
|
|
36,732,310
|
|
|
|
93,566,778
|
|
|
|
65,829,365
|
|
|
|
June 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
29,275,047
|
|
|
|
29,663,633
|
|
Asia, others
|
|
|
10,496,258
|
|
|
|
10,441,358
|
|
Europe
|
|
|
2,507,947
|
|
|
|
3,875,979
|
|
North America
|
|
|
423,027
|
|
|
|
2,260,840
|
|
South America
|
|
|
15,803
|
|
|
|
26,610
|
|
Africa
|
|
|
378
|
|
|
|
378
|
|
Others
|
|
|
18,747
|
|
|
|
11,971
|
|
|
|
|
42,737,207
|
|
|
|
46,280,769
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
15.
|
Related party balance and transaction
|
Related party balance
The outstanding amounts of Yipeng
were as follow:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
2,457,684
|
|
|
|
7,125,140
|
|
Other receivable
|
|
|
7,641
|
|
|
|
392,110
|
|
Account due from Yipeng
|
|
|
2,465,325
|
|
|
|
7,517,250
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (1)
|
|
|
54,884
|
|
|
|
1,516,557
|
|
Other payable
|
|
|
7,320
|
|
|
|
5,756
|
|
Amount due to Yipeng
|
|
|
62,204
|
|
|
|
1,522,313
|
|
|
(1)
|
Accounts payable represented $nil and $1.3 million technical support fee and $54,884 and $0.2 million
equipment rental fee to Yipeng as of June 30, 2017 and December 31, 2016, respectively.
|
Related party transaction
The details of the transactions
with Yipeng were as follows:
|
|
Three months ended June 30, 2017
|
|
|
Six months ended June 30, 2017
|
|
|
Period from May 2,2016 to June 30,2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1,422,533
|
|
|
|
2,046,856
|
|
|
|
1,264,934
|
|
Rental income
|
|
|
7,012
|
|
|
|
18,311
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rental fees
|
|
|
162,927
|
|
|
|
325,229
|
|
|
|
-
|
|
Pursuant to the terms of the
Equity Transfer Agreement (Note 6), on July 27, 2017, the Company received the Consideration from New Power, and the Company’s
equity ownership in Yipeng decreased to 4.654% accordingly. The Company would recognize gain on sales for approximately $1.6 million
in connection with the sales of its shares.
The Company has evaluated subsequent
events through the issuance of the consolidated financial statements and no other subsequent event is identified that would have
required adjustment or disclosure in the consolidated financial statements.