NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
1.
|
The Company and basis of presentation
|
The consolidated financial statements
include the financial statements of Highpower International, Inc. ("Highpower") and its 100%-owned subsidiary Hong Kong
Highpower Technology Company Limited (“HKHTC”), HKHTC’s wholly-owned subsidiary Shenzhen Highpower Technology
Company Limited (“SZ Highpower”), SZ Highpower’s wholly owned subsidiary Huizhou Highpower Technology Company
Limited (“HZ HTC”) and SZ Highpower’s and HKHTC’s jointly owned subsidiaries, Springpower Technology (Shenzhen)
Company Limited (“SZ Springpower”) and Icon Energy System Company Limited (“ICON”). Highpower and its direct
and indirect wholly owned subsidiaries are collectively referred to as the "Company".
Basis of presentation
The condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. The interim financial information should be read in conjunction
with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017, filed with the SEC on April 4, 2018.
In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s consolidated
financial position as of June 30, 2018, its consolidated results of operations for the three and six months ended June 30, 2018
and cash flows for the six months ended June 30, 2018, as applicable, have been made. Operating results for the three and six months
period ended June 30, 2018 are not necessarily indicative of the operating results that may be expected for the year ending December
31, 2018 or any future periods.
Concentrations of credit risk
No customer accounted for 10.0% or
more of total sales during the three and six months ended June 30, 2018 and 2017.
One supplier accounted for 12.0% of
the total purchase amount during the three months ended June 30, 2018. One supplier accounted for 13.3% of the total purchase amount
during the six months ended June 30, 2018. No supplier accounted for 10% or more of the total purchase amount during the three
and six months ended June 30, 2017.
No customer accounted for 10.0% or
more of the accounts receivable as of June 30, 2018. One customer accounted for 10.1% of the accounts receivable as of December
31, 2017.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies
|
Recently issued accounting standards
In May 2014, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”), which was subsequently modified in August 2015 by ASU 2015-14, Revenue from Contracts with Customers: Deferral
of the Effective Date. This guidance will be effective for fiscal years (and interim reporting periods within those years) beginning
after December 15, 2017. 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.
Under Topic 606, an entity recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the
entity expects to receive in exchange for those goods or services. It also impacts certain other areas, such as the accounting
for costs to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers.
Management has adopted this standard
effective January 1, 2018 using the modified-retrospective approach, in which case the cumulative effect of applying the standard
would be recognized at the date of initial application. The adoption of ASC 606 did not have a material impact on the Company’s
condensed consolidated balance sheet, statement of operations and statement of cash flows for the six months period ended June
30, 2018. See Note 3 for disclosures required by ASC 606 and the updated accounting policy for revenue recognition.
On February 25, 2016, the FASB issued
ASU 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating leases.
A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a
right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or
less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and
lease liabilities. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities
and all nonpublic business entities upon issuance. In July 2018, the FASB issued Accounting Standards Update (ASU) 2018-11, Lease
(Topic 842) Targeted Improvements. The amendments in this Update provide entities with an additional (and optional) transition
method to adopt the new leases standard and provide lessors with a practical expedient, by class of underlying asset, to not separate
nonlease components from the associated lease component and, instead, to account for those components as a single component if
the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606). The Company is currently evaluating
the impact of adopting ASU 2016-02 and ASU 2018-11 on its consolidated financial statements.
In March 2018, the FASB issued ASU
No. 2018-05, Income Tax (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This update
adds SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application
of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Act was signed
into law. The Company is currently evaluating the impact of adopting ASU 2018-05 on its consolidated financial statements.
The Company does not believe other
recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated
financial position, statements of operations and cash flows.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
The Company adopted ASC 606 using
the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result,
financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial
information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy
for revenue recognition prior to the adoption of ASC 606.
Revenue is recognized when (or as)
the Company satisfies performance obligations by transferring a promised goods to a customer. Revenue is measured at the transaction
price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised
goods to the customer. Contracts with customers are comprised of customer purchase orders, invoices and written contracts. Given
the nature of our business, customer product orders are fulfilled at a point in time and not over a period of time.
The majority of domestic sales contracts
transfer control to customers upon receipt of product by customers. The majority of oversea sales contracts transfer control to
customers when goods were delivered to the carriers. In most jurisdictions where the Company operates, sales are subject to Value
Added Tax (“VAT”). Revenue is presented net of VAT.
The Company does not have arrangements
for returns from customers and does not have any future obligations directly or indirectly related to product resale by customers.
The Company has no sales incentive programs.
The following table disaggregates
product sales by business segment by geography which provides information as to the major source of revenue. See Note 15 for additional
description of our reportable business segments and the products being sold in each segment.
|
|
Three months ended June 30, 2018
|
|
|
Six months ended June 30, 2018
|
|
|
|
Lithium
Business
|
|
|
Ni-MH
Batteries and
Accessories
|
|
|
Consolidated
|
|
|
Lithium
Business
|
|
|
Ni-MH
Batteries and
Accessories
|
|
|
Consolidated
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Primary Geographic Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
24,282,910
|
|
|
|
8,597,095
|
|
|
|
32,880,005
|
|
|
|
46,873,862
|
|
|
|
14,311,906
|
|
|
|
61,185,768
|
|
Asia, others
|
|
|
22,323,852
|
|
|
|
2,860,048
|
|
|
|
25,183,900
|
|
|
|
35,094,564
|
|
|
|
5,843,732
|
|
|
|
40,938,296
|
|
Europe
|
|
|
1,161,586
|
|
|
|
3,687,774
|
|
|
|
4,849,360
|
|
|
|
2,066,755
|
|
|
|
7,320,508
|
|
|
|
9,387,263
|
|
North America
|
|
|
735,508
|
|
|
|
1,262,735
|
|
|
|
1,998,243
|
|
|
|
1,065,330
|
|
|
|
2,097,744
|
|
|
|
3,163,074
|
|
Others
|
|
|
-
|
|
|
|
12,452
|
|
|
|
12,452
|
|
|
|
-
|
|
|
|
33,012
|
|
|
|
33,012
|
|
Total sales
|
|
|
48,503,856
|
|
|
|
16,420,104
|
|
|
|
64,923,960
|
|
|
|
85,100,511
|
|
|
|
29,606,902
|
|
|
|
114,707,413
|
|
The Company has elected to apply the
practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations that
have original expected durations of one year or less.
We do not have amounts of contract
assets since revenue is recognized as control of goods is transferred. Our contract liabilities consist of advance payments from
customers. Our contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting
period. All contract liabilities are expected to be recognized as revenue within one year and are included in Other payables and
accrued liabilities in our Condensed Consolidated Balance Sheet.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
4.
|
Accounts receivable, net
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
64,623,597
|
|
|
|
61,431,785
|
|
Less: allowance for doubtful accounts
|
|
|
3,183,022
|
|
|
|
3,178,786
|
|
|
|
|
61,440,575
|
|
|
|
58,252,999
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
36,615,871
|
|
|
|
21,428,315
|
|
Work in progress
|
|
|
13,137,127
|
|
|
|
6,931,486
|
|
Finished goods
|
|
|
19,133,423
|
|
|
|
14,284,563
|
|
Packing materials
|
|
|
23,777
|
|
|
|
36,797
|
|
Consumables
|
|
|
290,474
|
|
|
|
265,483
|
|
|
|
|
69,200,672
|
|
|
|
42,946,644
|
|
|
6.
|
Property, plant and equipment, net
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
2,122,511
|
|
|
|
1,330,643
|
|
Furniture, fixtures and office equipment
|
|
|
6,632,609
|
|
|
|
5,794,983
|
|
Leasehold improvement
|
|
|
7,048,452
|
|
|
|
7,080,409
|
|
Machinery and equipment
|
|
|
35,538,190
|
|
|
|
33,176,416
|
|
Motor vehicles
|
|
|
1,556,477
|
|
|
|
1,498,605
|
|
Buildings
|
|
|
19,840,548
|
|
|
|
20,169,197
|
|
|
|
|
72,738,787
|
|
|
|
69,050,253
|
|
Less: accumulated depreciation
|
|
|
24,603,636
|
|
|
|
22,529,477
|
|
|
|
|
48,135,151
|
|
|
|
46,520,776
|
|
The Company recorded depreciation
expenses of $2,945,238 and $2,361,482 for the six months ended June 30, 2018 and 2017, respectively, and $1,499,538 and $1,121,356
for the three months ended June 30, 2018 and 2017, respectively.
During the six months ended June
30, 2018, the Company deducted deferred income related to government grants of $nil on the carrying amount of property, plant and
equipment. During the year ended December 31, 2017, the Company deducted deferred income related to government grants of $263,948
in calculating the carrying amount of property, plant and equipment.
The buildings comprising the Huizhou
facilities were pledged as collateral for bank loans. The net carrying amounts of the buildings were $8,955,311 and $9,224,694
as of June 30, 2018 and December 31, 2017, respectively.
The building located in Shenzhen,
Guangdong was pledged as collateral for bank loans. The net carrying amount of the buildings was $378,280 and $396,843 as of June
30, 2018 and December 31, 2017, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Interest%
|
|
|
$
|
|
|
Interest%
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Ganzhou Highpower Technology Company Limited (“GZ Highpower”) (1)
|
|
|
8,294,952
|
|
|
|
31.294
|
%
|
|
|
8,102,520
|
|
|
|
31.294
|
%
|
-Shenzhen V-power Innovative Technology Co., Ltd (“V-power”) (2)
|
|
|
721,464
|
|
|
|
49.000
|
%
|
|
|
-
|
|
|
|
N/A
|
|
Cost method investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Huizhou Yipeng Energy Technology Co Ltd. (“Yipeng”) (3)
|
|
|
1,774,466
|
|
|
|
4.654
|
%
|
|
|
1,803,859
|
|
|
|
4.654
|
%
|
|
|
|
10,790,882
|
|
|
|
|
|
|
|
9,906,379
|
|
|
|
|
|
(1) Investment in GZ Highpower
On December 21, 2017, after the
completion of the capital increase to GZ Highpower by other shareholders, the Company lost the controlling power over GZ Highpower
and deconsolidated GZ Highpower. Thereafter, the investment was recorded under the equity method.
The equity in earnings of investee
was $179,964 and $336,214 for the three and six months ended June 30, 2018.
(2) Investment in V-power
On February 28, 2018, the Company
signed an investment agreement (the “Agreement”) with a related company and a group of individuals (the “Founder
Team”) with an aggregate amount of RMB4.9 million (approximately $0.7 million) for 49% of the equity interest of V-power,
which was recorded under the equity method. Pursuant to the terms of the Agreement, the Company shall complete the capital injection
to V-power no later than December 31, 2018. In addition, the Company agrees to transfer the 15% of original equity interest of
V-power to the Founder Team as compensation under voluntary assignment as any of the following requirements met: 1. annual sales
revenue higher or equal to RMB30 million before the first capital increase of V-power; 2. valuation of V-power higher or equal
to RMB30 million before equity issuance. As of June 30, 2018, the Company injected RMB2.1million (approximately $0.3 million) to
V-power, and the unpaid amount was recorded as amount due to a related party (See Note 16).
The equity in loss of investee was
$19,894 for the three and six months ended June 30, 2018, respectively.
(3) Investment in Yipeng
In 2017, after the completion of
the capital injection to Yipeng and the equity transfer payment received by the Company from the other shareholder, the Company’s
equity ownership in Yipeng decreased from 35.4% to 4.654%, and the Company lost the ability to exercises significant influence
over Yipeng, discontinued the use of equity method and applied the cost method in accounting.
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 INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
Highpower and its direct and indirect
wholly owned subsidiaries file tax returns separately.
1) VAT
Pursuant to the Provisional Regulation
of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in
the sale of products in the PRC are generally required to pay VAT, at a rate of which was changed from 17% to 16% on May 1, 2018
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 of their revenues.
2) Income tax
United States
Tax Reform
On December 22, 2017, the Tax Cuts
and Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate
income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax
on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to
U.S. tax.
On December 22, 2017, the Securities
and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting
for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act
enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must
reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent
that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable
estimate, it must record a provisional estimate in the financial statements.
As of June 30, 2018, the Company
has not completed its accounting for certain tax effects of enactment of the Tax Act; however, the Company has made reasonable
estimates of the effects on our existing deferred tax balances and the one-time transition tax. The Company expects to finalize
these provisional estimates before the end of 2018 after completing our reviews and analysis, including reviews and analysis of
any interpretations issued during this re-measurement period.
The one-time transition tax is based
on the total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred U.S. income taxes.
The Company expects to make adjustments to this provisional estimate based on additional clarifying and interpretative technical
guidance to be issued related to the calculation of the one-time transition tax.
The Tax Act subjects a U.S. shareholder
to tax on Global Intangible Low Taxed Income (GILTI) earned by foreign subsidiaries. The Company currently does not expect to incur
GILTI in 2018. The Company has not determined its accounting policy with respect to GILTI and has therefore included the 2018 estimate
of current year GILTI, if any, as a period cost and included as part of the estimated annual effective tax rate. The 2018 estimated
annual effective tax rate also includes the 2018 impact of all other U.S. tax reform provisions that were effective on January
1, 2018.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
Hong Kong
HKHTC, which was incorporated in
Hong Kong, is subject to a corporate income tax rate of 16.5%.
PRC
In accordance with the relevant
tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable
tax rate on taxable income.
In China, the companies granted
with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every
three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration
of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2018 and 2017.
The components of the provision
for income taxes expense are:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
551,583
|
|
|
|
456,583
|
|
|
|
898,520
|
|
|
|
919,800
|
|
Deferred
|
|
|
(142,262
|
)
|
|
|
139,125
|
|
|
|
(498,878
|
)
|
|
|
263,673
|
|
Total income taxes expenses
|
|
|
409,321
|
|
|
|
595,708
|
|
|
|
399,642
|
|
|
|
1,183,473
|
|
The reconciliation of income taxes
expenses computed at the PRC statutory tax rate to income tax expense is as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income before tax
|
|
|
3,123,636
|
|
|
|
5,057,908
|
|
|
|
1,995,021
|
|
|
|
8,258,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at PRC statutory income tax rate (25%)
|
|
|
780,909
|
|
|
|
1,264,477
|
|
|
|
498,755
|
|
|
|
2,064,554
|
|
Impact of different tax rates in other jurisdictions
|
|
|
37,886
|
|
|
|
3,382
|
|
|
|
96,546
|
|
|
|
6,637
|
|
Effect of PRC preferential tax rate
|
|
|
(272,880
|
)
|
|
|
(397,140
|
)
|
|
|
(266,427
|
)
|
|
|
(788,983
|
)
|
R&D expenses eligible for super deduction
|
|
|
(334,892
|
)
|
|
|
(442,939
|
)
|
|
|
(334,892
|
)
|
|
|
(442,939
|
)
|
Other non-deductible expenses
|
|
|
32,175
|
|
|
|
17,448
|
|
|
|
48,751
|
|
|
|
33,995
|
|
Change in valuation allowance of deferred tax assets
|
|
|
166,123
|
|
|
|
150,480
|
|
|
|
356,909
|
|
|
|
310,209
|
|
Effective enterprise income tax expenses
|
|
|
409,321
|
|
|
|
595,708
|
|
|
|
399,642
|
|
|
|
1,183,473
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
3) Deferred tax assets,
net
Deferred tax assets and deferred tax
liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of
temporary difference.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
1,767,265
|
|
|
|
991,766
|
|
Allowance for doubtful receivables
|
|
|
64,294
|
|
|
|
136,562
|
|
Impairment for inventory
|
|
|
296,516
|
|
|
|
222,289
|
|
Difference for sales cut-off
|
|
|
10,489
|
|
|
|
17,322
|
|
Deferred government grant
|
|
|
113,709
|
|
|
|
46,446
|
|
Property, plant and equipment subsidized by government grant
|
|
|
255,070
|
|
|
|
269,344
|
|
Impairment for property, plant and equipment
|
|
|
57,273
|
|
|
|
58,304
|
|
Total gross deferred tax assets
|
|
|
2,564,616
|
|
|
|
1,742,033
|
|
Valuation allowance
|
|
|
(1,345,095
|
)
|
|
|
(991,766
|
)
|
Total net deferred tax assets
|
|
|
1,219,521
|
|
|
|
750,267
|
|
As of June 30, 2018, the Company had
net operating loss carry-forwards in Hong Kong of $6,522,195 and United States of $1,280,635 without expiration and in the PRC
of $2,814,462, which will expire in 2022.
The Company has deferred tax assets
which consisted of tax loss carry-forwards and other items that can be carried forward to offset future taxable income. Management
determined it is more likely than not that part of the deferred tax assets could not be utilized, so a valuation allowance was
provided for as of June 30, 2018 and December 31, 2017. The net valuation allowance increased by approximately $0.2 million and
$0.2 million during the three months ended June 30, 2018 and 2017, respectively. The net valuation allowance increased by approximately
$0.4 million and $0.3 million during the six months ended June 30, 2018 and 2017, respectively.
Notes payable presented to certain
suppliers as a payment against the outstanding trade payables.
Notes payable are mainly bank acceptance
bills which are non-interest bearing and generally mature within six months. The outstanding bank acceptance bills are secured
by restricted cash deposited in banks. Outstanding bank acceptance bills were $51,710,779 and $54,859,478 as of June 30, 2018 and
December 31, 2017, respectively.
As of June 30, 2018 and December 31,
2017, short-term loans consisted of bank borrowings for working capital and capital expenditure purposes and were secured by personal
guarantees executed by certain directors of the Company, time deposits with a carrying amount of $5,636,635 and $3,982,226, land
use right with a carrying amount of $2,564,161 and $2,639,631, and buildings with a carrying amount of $9,333,591 and $9,621,537,
respectively.
The loans were primarily obtained
from two banks with interest rates ranging from 5.0000% to 6.5102% per annum and 5.0000% to 5.8725% per annum as of June 30, 2018
and December 31, 2017, respectively. The interest expenses were $230,599 and $537,156 for the six months ended June 30, 2018 and
2017, respectively. The interest expenses were $118,886 and $277,319 for the three months ended June 30, 2018 and 2017, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
11.
|
Non-financial institution borrowings
|
As of June 30, 2018, the Company obtained
borrowings from a third-party individual in an amount of $9,069,335 which were used for working capital and capital expenditure
purposes. The interest rates for the borrowings were 5.66% per annum. The borrowings are personally guaranteed by the Company's
Chief Executive Officer, Mr. Dang Yu Pan.
The interest expense of the above
borrowings was $296,963 and $297,753 for the six months ended June 30, 2018 and 2017, respectively. The interest expense of the
above borrowings was $134,660 and $154,235 for the three months ended June 30, 2018 and 2017, respectively.
The Company entered into various credit
contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. As of June 30, 2018, the
total and unused lines of credit were $87.6 million and $22.4 million with maturity dates from July 2018 to July 2019. As of December
31, 2017, the total and unused lines of credit were $79.8 million and $31.3 million with maturity dates from March 2018 to July
2019.
These lines of credit were guaranteed
by the Company’s Chief Executive Officer, Mr. Dang Yu Pan or Mr. Dang Yu Pan and his wife. The Company’s buildings
and the land use right were pledged as collateral for these line of credit.
The following table sets forth the
computation of basic and diluted earnings per common share for the three and six months ended June 30, 2018 and 2017.
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
|
2,714,315
|
|
|
|
4,371,237
|
|
|
|
1,595,379
|
|
|
|
6,906,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,556,361
|
|
|
|
15,317,101
|
|
|
|
15,533,139
|
|
|
|
15,218,820
|
|
- Dilutive effects of equity incentive awards
|
|
|
73,052
|
|
|
|
162,256
|
|
|
|
86,632
|
|
|
|
85,953
|
|
- Diluted
|
|
|
15,629,413
|
|
|
|
15,479,357
|
|
|
|
15,619,771
|
|
|
|
15,304,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.17
|
|
|
|
0.29
|
|
|
|
0.10
|
|
|
|
0.45
|
|
- Diluted
|
|
|
0.17
|
|
|
|
0.28
|
|
|
|
0.10
|
|
|
|
0.45
|
|
Diluted earnings per share takes into
account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted
into common stock. Potential dilutive securities are excluded from the calculation of diluted EPS in loss periods as their effect
would be anti-dilutive.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
14.
|
Defined contribution plan
|
Full-time employees of the Company
in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical
care, employee housing fund and other welfare benefits (“the Benefits”) are provided to employees. Chinese labor regulations
require that the PRC operating subsidiaries of the Company make contributions to the government for these benefits based on certain
percentages of the employees’ salaries. Except for contributions made related to the Benefits, the Company has no legal obligation.
The total contributions made, which
were expensed as incurred, were $1,383,552 and $1,125,097 for the six months ended June 30, 2018 and 2017, respectively, and $729,595
and $620,577 for the three months ended June 30, 2018 and 2017, respectively.
The reportable segments are components
of the Company that offer different products and are separately managed, with separate financial information available that is
separately evaluated regularly by the Company’s chief operating decision maker (“CODM”), the Chief Executive
Officer, in determining the performance of the business. The Company categorizes its business into three reportable segments, namely
(i) Lithium Business; (ii) Ni-MH Batteries and Accessories; and (iii) New Materials.
The CODM evaluates performance based
on each reporting segment’s net sales, cost of sales, gross profit and total assets. Net sales, cost of sales, gross profit
and total assets by segments is set out as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
48,503,856
|
|
|
|
37,009,048
|
|
|
|
85,100,511
|
|
|
|
64,499,542
|
|
Ni-MH Batteries and Accessories
|
|
|
16,420,104
|
|
|
|
11,783,901
|
|
|
|
29,606,902
|
|
|
|
24,311,214
|
|
New Materials
|
|
|
-
|
|
|
|
2,906,981
|
|
|
|
-
|
|
|
|
4,756,022
|
|
Total
|
|
|
64,923,960
|
|
|
|
51,699,930
|
|
|
|
114,707,413
|
|
|
|
93,566,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
39,755,643
|
|
|
|
28,310,375
|
|
|
|
70,546,982
|
|
|
|
49,950,244
|
|
Ni-MH Batteries and Accessories
|
|
|
13,858,391
|
|
|
|
9,013,125
|
|
|
|
25,284,178
|
|
|
|
18,201,515
|
|
New Materials
|
|
|
-
|
|
|
|
2,304,664
|
|
|
|
-
|
|
|
|
3,408,419
|
|
Total
|
|
|
53,614,034
|
|
|
|
39,628,164
|
|
|
|
95,831,160
|
|
|
|
71,560,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
8,748,213
|
|
|
|
8,698,673
|
|
|
|
14,553,529
|
|
|
|
14,549,298
|
|
Ni-MH Batteries and Accessories
|
|
|
2,561,713
|
|
|
|
2,770,776
|
|
|
|
4,322,724
|
|
|
|
6,109,699
|
|
New Materials
|
|
|
-
|
|
|
|
602,317
|
|
|
|
-
|
|
|
|
1,347,603
|
|
Total
|
|
|
11,309,926
|
|
|
|
12,071,766
|
|
|
|
18,876,253
|
|
|
|
22,006,600
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
15.
|
Segment information (continued)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
207,643,314
|
|
|
|
171,881,450
|
|
Ni-MH Batteries and Accessories
|
|
|
47,364,193
|
|
|
|
48,383,088
|
|
Total
|
|
|
255,007,507
|
|
|
|
220,264,538
|
|
All long-lived assets of the Company
are located in the PRC. Geographic information about the sales and accounts receivable based on the locations of the Company’s
customers is set out as follows:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
32,880,005
|
|
|
|
32,086,138
|
|
|
|
61,185,768
|
|
|
|
54,247,730
|
|
Asia, others
|
|
|
25,183,900
|
|
|
|
12,092,612
|
|
|
|
40,938,296
|
|
|
|
25,788,170
|
|
Europe
|
|
|
4,849,360
|
|
|
|
3,612,677
|
|
|
|
9,387,263
|
|
|
|
8,465,407
|
|
North America
|
|
|
1,998,243
|
|
|
|
3,604,935
|
|
|
|
3,163,074
|
|
|
|
4,663,067
|
|
Others
|
|
|
12,452
|
|
|
|
303,568
|
|
|
|
33,012
|
|
|
|
402,404
|
|
|
|
|
64,923,960
|
|
|
|
51,699,930
|
|
|
|
114,707,413
|
|
|
|
93,566,778
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
34,536,671
|
|
|
|
37,636,478
|
|
Asia, others
|
|
|
20,347,914
|
|
|
|
15,294,527
|
|
Europe
|
|
|
5,481,322
|
|
|
|
5,189,859
|
|
North America
|
|
|
1,062,014
|
|
|
|
94,585
|
|
Others
|
|
|
12,654
|
|
|
|
37,550
|
|
|
|
|
61,440,575
|
|
|
|
58,252,999
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Stated in US Dollars)
|
16.
|
Related party balance and transaction
|
Related party balance
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
431,508
|
|
|
|
632,704
|
|
Other receivable
|
|
|
812
|
|
|
|
533,134
|
|
Amount due from a related party- GZ Highpower
|
|
|
432,320
|
|
|
|
1,165,838
|
|
|
|
|
|
|
|
|
|
|
Other payable-investment (1)
|
|
|
423,236
|
|
|
|
-
|
|
Amount due to a related party- V-power
|
|
|
423,236
|
|
|
|
-
|
|
(1) The Company signed an investment
agreement with an aggregate amount of RMB4.9 million (approximately $0.7 million) in investing for 49% of the equity interest of
V-power which was set up on March 1, 2018. On April 28, 2018, the Company injected RMB2.1million (approximately $0.3 million) to
V-power, and the unpaid amount was recorded as amount due to a related party. (See Note 7)
Related party transaction
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-GZ Highpower
|
|
|
433,147
|
|
|
|
-
|
|
|
|
658,934
|
|
|
|
-
|
|
-Yipeng
|
|
|
-
|
|
|
|
1,422,533
|
|
|
|
-
|
|
|
|
2,046,856
|
|
Rental income- Yipeng
|
|
|
-
|
|
|
|
7,012
|
|
|
|
-
|
|
|
|
18,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rental fee- Yipeng
|
|
|
-
|
|
|
|
162,927
|
|
|
|
-
|
|
|
|
325,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivable- GZ Highpower
|
|
|
-
|
|
|
|
-
|
|
|
|
543,447
|
|
|
|
-
|
|
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.