HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
|
|
September
30,
2017
|
|
|
December 31,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
|
11,904,511
|
|
|
|
9,324,393
|
|
Restricted cash
|
|
|
20,905,411
|
|
|
|
11,213,640
|
|
Accounts receivable, net
|
|
|
56,313,941
|
|
|
|
46,280,769
|
|
Amount due from Yipeng
|
|
|
-
|
|
|
|
7,517,250
|
|
Notes receivable
|
|
|
6,805,932
|
|
|
|
1,093,730
|
|
Prepayments and other receivables
|
|
|
16,175,372
|
|
|
|
6,899,872
|
|
Inventories
|
|
|
35,216,303
|
|
|
|
22,207,333
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
147,321,470
|
|
|
|
104,536,987
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
49,789,095
|
|
|
|
43,504,991
|
|
Land use right, net
|
|
|
3,718,804
|
|
|
|
3,622,435
|
|
Other assets
|
|
|
462,500
|
|
|
|
500,000
|
|
Deferred tax assets
|
|
|
1,386,829
|
|
|
|
1,477,761
|
|
Long-term investment
|
|
|
1,765,499
|
|
|
|
9,689,576
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
204,444,197
|
|
|
|
163,331,750
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
59,937,145
|
|
|
|
49,463,901
|
|
Deferred income
|
|
|
807,792
|
|
|
|
761,491
|
|
Short-term loans
|
|
|
10,609,112
|
|
|
|
18,776,080
|
|
Non-financial institution borrowings
|
|
|
10,527,424
|
|
|
|
3,741,115
|
|
Notes payable
|
|
|
46,124,404
|
|
|
|
30,658,000
|
|
Foreign currency derivatives liabilities
|
|
|
169,958
|
|
|
|
-
|
|
Amount due to Yipeng
|
|
|
-
|
|
|
|
1,522,313
|
|
Other payables and accrued liabilities
|
|
|
13,061,886
|
|
|
|
11,148,556
|
|
Income taxes payable
|
|
|
2,212,145
|
|
|
|
1,963,298
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
143,449,866
|
|
|
|
118,034,754
|
|
|
|
|
|
|
|
|
|
|
Warrant Liability
|
|
|
-
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
143,449,866
|
|
|
|
118,035,013
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
-
|
|
|
|
-
|
|
See notes to condensed consolidated financial
statements
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
|
|
September
30
2017
|
|
|
December
31,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
EQUITY
|
|
|
|
|
|
|
|
|
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, 15,476,000 shares issued and outstanding at September 30, 2017 and 15,114,991 shares issued and outstanding at December 31, 2016)
|
|
|
1,547
|
|
|
|
1,511
|
|
Additional paid-in capital
|
|
|
12,307,205
|
|
|
|
11,580,934
|
|
Statutory and other reserves
|
|
|
4,992,463
|
|
|
|
4,992,463
|
|
Retained earnings
|
|
|
41,197,147
|
|
|
|
29,266,068
|
|
Accumulated other comprehensive income (loss)
|
|
|
1,848,819
|
|
|
|
(873,582
|
)
|
|
|
|
|
|
|
|
|
|
Total equity attributable to the stockholders of Highpower International Inc.
|
|
|
60,347,181
|
|
|
|
44,967,394
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
647,150
|
|
|
|
329,343
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
|
60,994,331
|
|
|
|
45,296,737
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
|
204,444,197
|
|
|
|
163,331,750
|
|
See notes to condensed consolidated financial
statements
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Stated in US Dollars)
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
71,405,560
|
|
|
|
54,142,916
|
|
|
|
164,972,338
|
|
|
|
119,972,281
|
|
Cost of sales
|
|
|
(57,845,224
|
)
|
|
|
(40,475,820
|
)
|
|
|
(129,405,402
|
)
|
|
|
(92,784,475
|
)
|
Gross profit
|
|
|
13,560,336
|
|
|
|
13,667,096
|
|
|
|
35,566,936
|
|
|
|
27,187,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
(2,433,928
|
)
|
|
|
(3,029,628
|
)
|
|
|
(6,385,144
|
)
|
|
|
(6,688,397
|
)
|
Selling and distribution expenses
|
|
|
(1,859,762
|
)
|
|
|
(1,881,277
|
)
|
|
|
(5,220,985
|
)
|
|
|
(4,955,708
|
)
|
General and administrative expenses
|
|
|
(3,959,731
|
)
|
|
|
(5,935,907
|
)
|
|
|
(10,034,694
|
)
|
|
|
(12,254,520
|
)
|
Foreign currency transaction (loss) gain
|
|
|
(816,593
|
)
|
|
|
126,732
|
|
|
|
(1,645,095
|
)
|
|
|
636,609
|
|
Loss on derivative instruments
|
|
|
(146,481
|
)
|
|
|
-
|
|
|
|
(146,481
|
)
|
|
|
-
|
|
Total operating expenses
|
|
|
(9,216,495
|
)
|
|
|
(10,720,080
|
)
|
|
|
(23,432,399
|
)
|
|
|
(23,262,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,343,841
|
|
|
|
2,947,016
|
|
|
|
12,134,537
|
|
|
|
3,925,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of warrant liability
|
|
|
-
|
|
|
|
(11,150
|
)
|
|
|
259
|
|
|
|
115,396
|
|
Other income
|
|
|
94,775
|
|
|
|
505,928
|
|
|
|
949,233
|
|
|
|
1,717,803
|
|
Equity in earnings of investee
|
|
|
1,087
|
|
|
|
218,903
|
|
|
|
106,412
|
|
|
|
218,903
|
|
Gain on dilution in equity method investee
|
|
|
5,071
|
|
|
|
-
|
|
|
|
496,396
|
|
|
|
-
|
|
Gain on sales of long-term investment
|
|
|
1,664,377
|
|
|
|
-
|
|
|
|
1,664,377
|
|
|
|
-
|
|
Interest income (expenses)
|
|
|
57,663
|
|
|
|
(341,520
|
)
|
|
|
(926,185
|
)
|
|
|
(1,051,914
|
)
|
Income before taxes
|
|
|
6,166,814
|
|
|
|
3,319,177
|
|
|
|
14,425,029
|
|
|
|
4,925,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes expenses
|
|
|
(1,013,919
|
)
|
|
|
(769,065
|
)
|
|
|
(2,197,392
|
)
|
|
|
(978,882
|
)
|
Net income
|
|
|
5,152,895
|
|
|
|
2,550,112
|
|
|
|
12,227,637
|
|
|
|
3,947,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income (loss) attributable to non-controlling interest
|
|
|
128,702
|
|
|
|
(101,194
|
)
|
|
|
296,558
|
|
|
|
(413,384
|
)
|
Net income attributable to the Company
|
|
|
5,024,193
|
|
|
|
2,651,306
|
|
|
|
11,931,079
|
|
|
|
4,360,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,152,895
|
|
|
|
2,550,112
|
|
|
|
12,227,637
|
|
|
|
3,947,096
|
|
Foreign currency translation gain (loss)
|
|
|
1,258,937
|
|
|
|
171,574
|
|
|
|
2,743,650
|
|
|
|
(1,542,704
|
)
|
Comprehensive income
|
|
|
6,411,832
|
|
|
|
2,721,686
|
|
|
|
14,971,287
|
|
|
|
2,404,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: comprehensive income (loss) attributable to non-controlling interest
|
|
|
139,461
|
|
|
|
(103,831
|
)
|
|
|
317,807
|
|
|
|
(429,713
|
)
|
Comprehensive income attributable to the Company
|
|
|
6,272,371
|
|
|
|
2,825,517
|
|
|
|
14,653,480
|
|
|
|
2,834,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock attributable to the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.33
|
|
|
|
0.18
|
|
|
|
0.78
|
|
|
|
0.29
|
|
- Diluted
|
|
|
0.32
|
|
|
|
0.18
|
|
|
|
0.77
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,369,674
|
|
|
|
15,103,007
|
|
|
|
15,270,898
|
|
|
|
15,102,121
|
|
- Diluted
|
|
|
15,518,764
|
|
|
|
15,115,409
|
|
|
|
15,563,012
|
|
|
|
15,104,914
|
|
See notes to condensed consolidated financial
statements
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Stated in US Dollars)
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,227,637
|
|
|
|
3,947,096
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,792,178
|
|
|
|
3,735,353
|
|
Allowance for doubtful accounts
|
|
|
48,866
|
|
|
|
1,661,968
|
|
Loss on disposal of property, plant and equipment
|
|
|
57,277
|
|
|
|
197,848
|
|
Deferred income tax
|
|
|
153,625
|
|
|
|
(63,934
|
)
|
Loss on derivative instruments
|
|
|
166,387
|
|
|
|
-
|
|
Equity in earnings of investee
|
|
|
(106,412
|
)
|
|
|
(218,903
|
)
|
Gain on dilution in equity method investee
|
|
|
(496,396
|
)
|
|
|
-
|
|
Gain on sales of long-term investment
|
|
|
(1,664,377
|
)
|
|
|
-
|
|
Share based compensation
|
|
|
86,921
|
|
|
|
244,142
|
|
Changes in fair value of warrant liability
|
|
|
(259
|
)
|
|
|
(115,396
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,517,071
|
)
|
|
|
(13,619,029
|
)
|
Notes receivable
|
|
|
(5,543,798
|
)
|
|
|
(59,905
|
)
|
Prepayments and other receivables
|
|
|
(8,775,985
|
)
|
|
|
(230,595
|
)
|
Amount due from Yipeng
|
|
|
7,691,900
|
|
|
|
(3,004,025
|
)
|
Amount due to Yipeng
|
|
|
(1,557,682
|
)
|
|
|
1,560,360
|
|
Inventories
|
|
|
(11,753,127
|
)
|
|
|
(2,457,733
|
)
|
Accounts payable
|
|
|
7,049,819
|
|
|
|
11,817,867
|
|
Deferred income
|
|
|
11,637
|
|
|
|
(82,697
|
)
|
Other payables and accrued liabilities
|
|
|
1,394,691
|
|
|
|
3,745,023
|
|
Income taxes payable
|
|
|
156,744
|
|
|
|
119,859
|
|
Net cash flows (used in) provided by operating activities
|
|
|
(5,577,425
|
)
|
|
|
7,177,299
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisitions of property,
plant and equipment
|
|
|
(7,297,901
|
)
|
|
|
(8,474,440
|
)
|
Acquisition of investment
|
|
|
-
|
|
|
|
(3,039,006
|
)
|
Proceeds from sale of long-term investment
|
|
|
10,453,475
|
|
|
|
-
|
|
Net cash flows provided by (used in) investing activities
|
|
|
3,155,574
|
|
|
|
(11,513,446
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from short-term loans
|
|
|
8,797,727
|
|
|
|
18,158,059
|
|
Repayments of short-term loans
|
|
|
(17,594,229
|
)
|
|
|
(10,650,400
|
)
|
Repayments of long-term loans
|
|
|
-
|
|
|
|
(1,823,403
|
)
|
Proceeds from non-financial institution borrowings
|
|
|
10,306,243
|
|
|
|
4,558,509
|
|
Repayments of non-financial institution borrowings
|
|
|
(3,828,033
|
)
|
|
|
-
|
|
Proceeds from notes payable
|
|
|
62,193,463
|
|
|
|
41,908,812
|
|
Repayments of notes payable
|
|
|
(48,408,417
|
)
|
|
|
(39,518,955
|
)
|
Proceeds from exercise of employee options
|
|
|
635,484
|
|
|
|
19,304
|
|
Change in restricted cash
|
|
|
(8,992,019
|
)
|
|
|
601,759
|
|
Net cash flows provided by financing activities
|
|
|
3,110,219
|
|
|
|
13,253,685
|
|
Effect of foreign currency translation on cash
|
|
|
1,891,750
|
|
|
|
(1,290,306
|
)
|
Net increase in cash
|
|
|
2,580,118
|
|
|
|
7,627,232
|
|
Cash - beginning of period
|
|
|
9,324,393
|
|
|
|
5,849,967
|
|
Cash - end of period
|
|
|
11,904,511
|
|
|
|
13,477,199
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures for cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
1,464,592
|
|
|
|
922,957
|
|
Interest expenses
|
|
|
1,402,447
|
|
|
|
1,051,914
|
|
Non-cash investing and financing activity
|
|
|
|
|
|
|
|
|
Offset of deferred income related to government grant and property, plant and equipment
|
|
|
171,403
|
|
|
|
33,019
|
|
See notes to condensed
consolidated financial statements
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”), 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”), and Icon Energy System Company Limited (“ICON”). 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 information, the
instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. The interim financial information should be read in conjunction
with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 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 September 30, 2017, its consolidated results of operations for the three and nine months ended September
30, 2017 and cash flows for the nine months ended September 30, 2017, as applicable, have been made. Operating results for the
three and nine months period ended September 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 nine months ended September 30, 2017 and 2016.
No supplier accounted for 10%
or more of the total purchase amount during the three and nine months ended September 30, 2017 and 2016.
No customer accounted for 10%
or more of the accounts receivable as of September 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 over which the
Company holds less than 20% voting interest and has no ability to exercise significant influence, the investments are accounted
for under the cost method.
For an investee over which the
Company has the ability to exercise significant influence, but does not have a controlling interest, the Company accounted for
those using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest
in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of
directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method
of accounting is appropriate.
An impairment charge is recorded
if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than temporary. As
of September 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$. At the date a foreign currency transaction is recognized, each asset, liability, revenue,
expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by
use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement
of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction
is denominated is recognized as foreign currency transaction gain or loss that is included in earnings for the period in which
the transaction settled.
The Company’s reporting
currency is US$. 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.
ASC Topic 820 defines fair
value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact
and it considers assumptions that market participants would use when pricing the asset or liability.
ASC Topic 820 establishes a
fair value hierarchy that requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring
fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement.
The Company measures fair value
using three levels of inputs that may be used to measure fair value:
-Level 1 applies to assets
or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
-Level 2 applies to assets
or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities
in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
-Level 3 applies to assets or liabilities for which
there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets
or liabilities.
Derivatives
From time to time the Company
may utilize foreign currency forward contracts to reduce the impact of foreign currency exchange rate risk. Management considered
that the foreign currency forwards did not meet the criteria for designated hedging instruments and hedged transactions to qualify
for cash flow hedge or fair value hedge accounting. The currency forwards therefore are accounted for as derivatives, with fair
value changes reported as gain (loss) of derivative instruments in the statements of operations. The derivatives liability is recognized in the balance sheet at the fair value (level 2).
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
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
has 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.
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.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
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. 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. 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 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, 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
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
59,442,266
|
|
|
|
49,460,347
|
|
Less: allowance for doubtful accounts
|
|
|
3,128,325
|
|
|
|
3,179,578
|
|
|
|
|
56,313,941
|
|
|
|
46,280,769
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
12,428,760
|
|
|
|
6,492,755
|
|
Work in progress
|
|
|
9,313,919
|
|
|
|
4,878,856
|
|
Finished goods
|
|
|
13,127,624
|
|
|
|
10,608,180
|
|
Packing materials
|
|
|
28,667
|
|
|
|
21,083
|
|
Consumables
|
|
|
317,333
|
|
|
|
206,459
|
|
|
|
|
35,216,303
|
|
|
|
22,207,333
|
|
|
5.
|
Property, plant and equipment, net
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
1,246,333
|
|
|
|
715,188
|
|
Furniture, fixtures and office equipment
|
|
|
5,607,264
|
|
|
|
4,025,635
|
|
Leasehold improvement
|
|
|
6,831,474
|
|
|
|
5,865,909
|
|
Machinery and equipment
|
|
|
33,341,553
|
|
|
|
27,526,572
|
|
Motor vehicles
|
|
|
1,604,552
|
|
|
|
1,496,628
|
|
Buildings
|
|
|
22,849,869
|
|
|
|
21,797,158
|
|
|
|
|
71,481,045
|
|
|
|
61,427,090
|
|
Less: accumulated depreciation
|
|
|
21,691,950
|
|
|
|
17,922,099
|
|
|
|
|
49,789,095
|
|
|
|
43,504,991
|
|
The Company recorded depreciation
expenses of $3,688,755 and $3,629,817 for the nine months ended September 30, 2017 and 2016, respectively, and $1,327,273 and $1,214,256
for the three months ended September 30, 2017 and 2016, respectively.
During the nine months ended
September 30, 2017, the Company deducted deferred income related to government grants of $171,403 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 amounting to $11,687,406 and $11,398,423 have been pledged as collateral for
short-term loans and bank acceptance bills drawn under certain lines of credit as of September 30, 2017 and December 31,
2016, respectively.
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 $9.8 million) in exchange for 35.4% of the equity
interest of Yipeng, which was recorded under the equity method as of December 31, 2016.
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
$10.7 million) in cash and New Power will invest RMB60.0 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. On July 27, 2017, the Company received the Consideration
from New Power for the sales of 25,145,834 shares in Yipeng. As of September 30, 2017, the Company held 4.654% of the equity interest
of Yipeng, which was recorded under the cost method. The Company recognized gain on dilution in equity method investee of $496,396
for the nine months ended September 30, 2017 in connection with the additional equity issuance of Yipeng to New Power. The Company
recognized gain on sales for $1,664,377 in connection with the sales of its shares.
The equity in earnings of investee
was $1,087 and $218,903 for the three months ended September 30, 2017 and 2016, respectively. The equity in earnings of investee
was $106,412 and $218,903 for the nine months ended September 30, 2017, respectively.
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 have reapplied for NHTE status in the second quarter of 2017. On November 2, 2017, SZ Highpower and
ICON succeeded to pass NHTE status process. As a result, SZ Highpower and ICON are entitled to a preferential enterprise income
tax rate of 15% for calendar year 2017. If GZ Highpower fails to obtain the approval in 2017, 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 (benefit) are:
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
1,123,967
|
|
|
|
768,328
|
|
|
|
2,043,767
|
|
|
|
1,042,816
|
|
Deferred
|
|
|
(110,048
|
)
|
|
|
737
|
|
|
|
153,625
|
|
|
|
(63,934
|
)
|
Total income tax expenses
|
|
|
1,013,919
|
|
|
|
769,065
|
|
|
|
2,197,392
|
|
|
|
978,882
|
|
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
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income before tax
|
|
|
6,166,814
|
|
|
|
3,319,177
|
|
|
|
14,425,029
|
|
|
|
4,925,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at applicable income tax rate
|
|
|
1,529,484
|
|
|
|
910,416
|
|
|
|
3,600,675
|
|
|
|
1,319,809
|
|
Effect of preferential tax rate
|
|
|
(675,946
|
)
|
|
|
(512,709
|
)
|
|
|
(1,464,929
|
)
|
|
|
(652,587
|
)
|
R&D expenses eligible for super deduction
|
|
|
(4,571
|
)
|
|
|
3,385
|
|
|
|
(447,510
|
)
|
|
|
(552,146
|
)
|
Non-deductible expenses
|
|
|
31,769
|
|
|
|
27,767
|
|
|
|
65,764
|
|
|
|
142,103
|
|
Change in valuation allowance
|
|
|
133,183
|
|
|
|
340,206
|
|
|
|
443,392
|
|
|
|
721,703
|
|
Effective enterprise income taxes expenses
|
|
|
1,013,919
|
|
|
|
769,065
|
|
|
|
2,197,392
|
|
|
|
978,882
|
|
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.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
4,532,147
|
|
|
|
4,274,881
|
|
Allowance for doubtful accounts
|
|
|
127,442
|
|
|
|
121,932
|
|
Impairment for inventory
|
|
|
163,590
|
|
|
|
98,276
|
|
Difference for sales cut-off
|
|
|
21,271
|
|
|
|
14,245
|
|
Deferred income
|
|
|
121,169
|
|
|
|
114,224
|
|
Property, plant and equipment subsidized by government grant
|
|
|
489,652
|
|
|
|
468,313
|
|
Impairment for property, plant and equipment
|
|
|
59,908
|
|
|
|
76,248
|
|
Total gross deferred tax assets
|
|
|
5,515,179
|
|
|
|
5,168,119
|
|
Valuation allowance
|
|
|
(4,128,350
|
)
|
|
|
(3,690,358
|
)
|
Total net deferred tax assets
|
|
|
1,386,829
|
|
|
|
1,477,761
|
|
The deferred tax assets arising
from tax loss carry-forward 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, accordingly, a valuation allowance was provided as of September 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 $46,124,404 and $30,658,000 as of September
30, 2017 and December 31, 2016, respectively.
As of September 30, 2017, the
notes receivable with a carrying amount of $1,052,742 was pledged for the issuance of bank acceptance bills.
As of September 30, 2017 and
December 31, 2016, short-term loans consisted of 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 $3,068,972
and $151,083, land use right with a carrying amount of $2,599,645 and $3,622,435, and the buildings with carrying amount of $9,482,182
and $11,854,452, respectively.
The loans as of September 30,
2017 were primarily obtained from two banks with interest rates ranging from 4.35% to 5.8725% 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 $700,708 and $631,211 for the nine months ended September 30, 2017 and 2016, respectively. The interest expenses were
$163,552 and $209,931 for the three months ended September 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 ($3,007,835) from a third party non-financial institution and repaid RMB4 million ($601,567)
and RMB16 million ($2,406,268) in October 2016 and March 2017, respectively.
In May 2016, the Company obtained
borrowings in an amount of RMB10 million ($1,503,918) from a third party individual and repaid in September 2017.
In January 2017, the Company
obtained borrowings in an amount of RMB60 million ($9,023,506) from a third party individual that can be repaid anytime and no
later than January 10, 2018. 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 ($1,503,918) 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 $468,817 and $99,832 for the nine months ended September 30, 2017 and 2016, respectively. The interest expense of
the above borrowings was $171,064 and $66,927 for the three months ended September 30, 2017 and 2016, respectively.
The following table sets forth
the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2017 and 2016.
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
|
5,024,193
|
|
|
|
2,651,306
|
|
|
|
11,931,079
|
|
|
|
4,360,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,369,674
|
|
|
|
15,103,007
|
|
|
|
15,270,898
|
|
|
|
15,102,121
|
|
- Dilutive effects of equity incentive awards
|
|
|
149,090
|
|
|
|
12,402
|
|
|
|
292,114
|
|
|
|
2,793
|
|
- Diluted
|
|
|
15,518,764
|
|
|
|
15,115,409
|
|
|
|
15,563,012
|
|
|
|
15,104,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.33
|
|
|
|
0.18
|
|
|
|
0.78
|
|
|
|
0.29
|
|
- Diluted
|
|
|
0.32
|
|
|
|
0.18
|
|
|
|
0.77
|
|
|
|
0.29
|
|
695,000 and 1,235,001 options
and warrants were not included in the computation of diluted earnings per share for the three months and nine months ended September
30, 2017, respectively, and 1,393,422 and 1,663,762 options and warrants were not included in the computation of diluted earnings
per share for the three months and nine months ended September 30, 2016, respectively, because their effect would have been anti-dilutive
under the treasury stock method.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
12.
|
Share-based Compensation
|
The 2008 Omnibus Incentive
Plan
The 2008 Omnibus Incentive Plan
(the "2008 Plan") was approved by the Company’s Board of Directors on October 29, 2008 to be effective at such
date, subject to approval of the Company’s stockholders, which occurred on December 11, 2008. The 2008 Plan has a ten year
term. The 2008 Plan reserves two million shares of common stock for issuance, subject to adjustment in the event of a recapitalization
in accordance with the terms of the 2008 Plan.
The 2008 Plan authorizes the
issuance of awards including stock options, restricted stock units (RSUs), restricted stock, unrestricted stock, stock appreciation
rights (SARs) and other equity and/or cash performance incentive awards to employees, directors, and consultants of the Company.
Subject to certain restrictions, the Compensation Committee of the Board of Directors has broad discretion to establish the terms
and conditions for awards under the 2008 Plan, including the number of shares, vesting conditions and the required service or performance
criteria. Options and SARs may have a contractual term of up to ten years and generally vest over three to five years with an exercise
price equal to the fair market value on the date of grant. Incentive stock options (ISOs) granted must have an exercise price equal
to or greater than the fair market value of the Company’s common stock on the date of grant. Repricing of stock options and
SARs is permitted without stockholder approval. If a particular award agreement so provides, certain change in control transactions
may cause such awards granted under the 2008 Plan to vest at an accelerated rate, unless the awards are continued or substituted
for in connection with the transaction. As of September 30, 2017, 32,046 shares of common stock remained available for issuance
pursuant to awards granted under the 2008 Plan.
Options Granted to Employees
|
|
Number of Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
$
|
|
|
|
|
Outstanding, January 1, 2016
|
|
|
786,926
|
|
|
|
3.08
|
|
|
|
6.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
190,000
|
|
|
|
2.66
|
|
|
|
-
|
|
Exercised
|
|
|
(13,312
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Forfeited
|
|
|
(41,678
|
)
|
|
|
2.15
|
|
|
|
-
|
|
Canceled
|
|
|
(366,544
|
)
|
|
|
3.47
|
|
|
|
-
|
|
Outstanding, December 31, 2016
|
|
|
555,392
|
|
|
|
2.70
|
|
|
|
7.39
|
|
Granted
|
|
|
665,000
|
|
|
|
4.59
|
|
|
|
-
|
|
Exercised
|
|
|
(246,009
|
)
|
|
|
2.58
|
|
|
|
-
|
|
Forfeited
|
|
|
(3,619
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Canceled
|
|
|
(7,064
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Outstanding, September 30, 2017
|
|
|
963,700
|
|
|
|
4.04
|
|
|
|
9.08
|
|
Exercisable, September 30, 2017
|
|
|
938,710
|
|
|
|
4.02
|
|
|
|
9.11
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
12.
|
Share-based Compensation (continued)
|
The Company determined the estimated
grant-date fair value of share options based on the Black-Scholes pricing model using the following assumptions:
|
|
Nine
months ended
September 30
|
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
76.16%-76.74
|
%
|
|
76.98%-79.55
|
%
|
Risk-free interest rate
|
|
|
2.0%-2.06
|
%
|
|
|
1.21%-1.4
|
%
|
Expected term from grant date (in years)
|
|
|
6-6.05
|
|
|
|
5-6.05
|
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The aggregate intrinsic value
of options vested and expected to vest as of September 30, 2017 and December 31, 2016 was approximately $566,706 and $8,000, respectively.
Intrinsic value is calculated as the amount by which the current market value of a share of common stock exceeds the exercise price
multiplied by the number of option shares.
During the nine months
ended September 30, 2017, the Company granted options to purchase 665,000 shares to twenty-three employees at a weighted
average grant date fair value of $3.10 per share. During the nine months ended September 30, 2017, thirty-two employees
exercised their options to purchase 246,009 shares of the Company’s common stock. During the nine months ended September
30, 2017, three employees resigned and their options to purchase a total of 3,619 shares of the Company’s common stock
were forfeited. These employees had resigned with 17,100 shares vested, which if not exercised with 90 days after
termination, will be cancelled. Of these vested shares 10,036 shares were exercised and 7,064 shares were cancelled in the
period, and no outstanding and exercisable share as of September 30, 2017.
During the nine
months ended September 30, 2016, the Company granted options to purchase 190,000 shares to two employees at a weighted
average fair value of $1.49 per share. During the nine months ended September 30, 2016, eleven employees resigned and their
options to purchase a total of 39,610 shares of the Company’s common stock were forfeited. These employees had resigned
with 376,754 shares vested, which if not exercised with 90 days after termination, will be cancelled. Of these vested shares
7,340 shares were exercised and 18,635 shares were cancelled in the period, and 350,779 were outstanding and exercisable as
of September 30, 2016.
Restricted stock awards
During the nine months ended
September 30, 2017, the Company granted 115,000 shares of restricted stock to one employee and five members of the Board of Directors.
The Restricted Stock Awards (“RSAs”) granted in 2017 had the following vesting periods, that each Award of Restricted
Shares shall vest over a three-year period on the anniversary date of such grant at 30%, 30% and 40%, respectively, with the 30%
cliff vesting on the first anniversary date of the grant and, thereafter on each subsequent anniversary date of grant vesting in
equal installments on a 1/12th basis each month per year for the applicable percentage. RSAs granted under 2008 Plan are governed
by agreements between the Company and recipients of the awards. Terms of the agreements are determined by the Compensation Committee.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
13.
|
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 $1,824,009 and $1,203,584 for the nine months ended September 30, 2017 and 2016, respectively,
and $698,912 and $448,921 for the three months ended September 30, 2017 and 2016, respectively.
|
14.
|
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 parties have stipulated to engage in a court-sponsored mediation, which is
scheduled to take place on January 19, 2018. The Company believes that it has meritorious defenses and counterclaims and
intends to defend and prosecute them vigorously.
From time to time, the Company
is involved in legal matters arising in the ordinary course of business. While the Company believes that such matters are currently
not material, there can be no assurance that matters arising in the ordinary course of business for which the Company is, or could
be, involved in litigation, will not have a material adverse effect on its business, financial condition or results of operations.
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 nine months ended September 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
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
49,302,659
|
|
|
|
34,534,959
|
|
|
|
113,802,201
|
|
|
|
73,516,791
|
|
Ni-MH Batteries and Accessories
|
|
|
14,273,058
|
|
|
|
17,852,658
|
|
|
|
38,584,272
|
|
|
|
42,681,793
|
|
New Materials
|
|
|
7,829,843
|
|
|
|
1,755,299
|
|
|
|
12,585,865
|
|
|
|
3,773,697
|
|
Total
|
|
|
71,405,560
|
|
|
|
54,142,916
|
|
|
|
164,972,338
|
|
|
|
119,972,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
39,691,844
|
|
|
|
25,308,736
|
|
|
|
89,642,088
|
|
|
|
56,673,672
|
|
Ni-MH Batteries and Accessories
|
|
|
11,211,627
|
|
|
|
13,428,780
|
|
|
|
29,413,142
|
|
|
|
31,904,135
|
|
New Materials
|
|
|
6,941,753
|
|
|
|
1,738,304
|
|
|
|
10,350,172
|
|
|
|
4,206,668
|
|
Total
|
|
|
57,845,224
|
|
|
|
40,475,820
|
|
|
|
129,405,402
|
|
|
|
92,784,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
9,610,815
|
|
|
|
9,226,223
|
|
|
|
24,160,113
|
|
|
|
16,843,119
|
|
Ni-MH Batteries and Accessories
|
|
|
3,061,431
|
|
|
|
4,423,878
|
|
|
|
9,171,130
|
|
|
|
10,777,658
|
|
New Materials
|
|
|
888,090
|
|
|
|
16,995
|
|
|
|
2,235,693
|
|
|
|
(432,971
|
)
|
Total
|
|
|
13,560,336
|
|
|
|
13,667,096
|
|
|
|
35,566,936
|
|
|
|
27,187,806
|
|
|
|
September 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
Lithium Business
|
|
|
144,958,589
|
|
|
|
115,116,508
|
|
Ni-MH Batteries and Accessories
|
|
|
41,786,113
|
|
|
|
37,994,369
|
|
New Materials
|
|
|
17,699,495
|
|
|
|
10,220,873
|
|
Total
|
|
|
204,444,197
|
|
|
|
163,331,750
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
15.
|
Segment information (continued)
|
All long-lived assets of the
Company are located in the PRC. Geographic information about the sales and accounts receivable based on the location of the Company’s
customers were set out as follows:
|
|
Three
months ended
September 30,
|
|
|
Nine
months ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
40,140,175
|
|
|
|
30,591,678
|
|
|
|
94,387,905
|
|
|
|
67,976,689
|
|
Asia
|
|
|
24,496,337
|
|
|
|
13,848,563
|
|
|
|
50,284,507
|
|
|
|
32,123,986
|
|
Europe
|
|
|
6,456,220
|
|
|
|
6,954,787
|
|
|
|
14,921,627
|
|
|
|
13,479,114
|
|
North America
|
|
|
178,262
|
|
|
|
2,451,441
|
|
|
|
4,841,329
|
|
|
|
5,371,275
|
|
Others
|
|
|
134,566
|
|
|
|
296,447
|
|
|
|
536,970
|
|
|
|
1,021,217
|
|
|
|
|
71,405,560
|
|
|
|
54,142,916
|
|
|
|
164,972,338
|
|
|
|
119,972,281
|
|
|
|
September 30
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
40,340,828
|
|
|
|
29,663,633
|
|
Asia
|
|
|
11,089,397
|
|
|
|
10,441,358
|
|
Europe
|
|
|
4,470,007
|
|
|
|
3,875,979
|
|
North America
|
|
|
394,513
|
|
|
|
2,260,840
|
|
Others
|
|
|
19,196
|
|
|
|
38,959
|
|
|
|
|
56,313,941
|
|
|
|
46,280,769
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
16.
|
Related party balance and transaction
|
Related party balance
The outstanding amounts of Yipeng
were as follow:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
-
|
|
|
|
7,125,140
|
|
Other receivable
|
|
|
-
|
|
|
|
392,110
|
|
Account due from Yipeng
|
|
|
-
|
|
|
|
7,517,250
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
-
|
|
|
|
1,516,557
|
|
Other payable
|
|
|
-
|
|
|
|
5,756
|
|
Amount due to Yipeng
|
|
|
-
|
|
|
|
1,522,313
|
|
Prior to July 27, 2017,
Yipeng was considered as a related party of the Company (see Note 6).
Related party transaction
The details of the transactions
with Yipeng were as follows:
|
|
Period from
January 1, 2017
to
July 27, 2017
|
|
|
Period from
May 12, 2016
to
September 30, 2016
|
|
|
Period from
July 1, 2017
to
July 27, 2017
|
|
|
Three
Months Ended
September 30, 2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
2,781,745
|
|
|
|
3,944,645
|
|
|
|
734,889
|
|
|
|
2,687,419
|
|
Rental income
|
|
|
26,687
|
|
|
|
-
|
|
|
|
8,376
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical support fee
|
|
|
-
|
|
|
|
790,622
|
|
|
|
-
|
|
|
|
790,622
|
|
Equipment rental fee
|
|
|
383,351
|
|
|
|
36,678
|
|
|
|
58,121
|
|
|
|
11,585
|
|
The Company has evaluated subsequent
events through the issuance of the unaudited condensed consolidated financial statements and no subsequent event is identified
that would have required adjustment or disclosure in the consolidated financial statements.