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 September 30, 2018, its consolidated results of operations for the three and nine months ended September
30, 2018, cash flows for the nine months ended September 30, 2018 and change in equity for the three and nine months ended September
30, 2018, as applicable, have been made. Operating results for the three and nine months ended September 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
One major customer accounted
for 12.6% and 11.6% of the total sales for the three months ended September 30, 2018 and 2017, respectively. No customer accounted
for 10.0% or more of total sales during the nine months ended September 30, 2018 and 2017.
One supplier accounted for 21.1%
and 13.5% of the total purchase amount during the three and nine months ended September 30, 2018, respectively. No supplier accounted
for 10% or more of the total purchase amount during the three and nine months ended September 30, 2017.
No customer accounted for 10.0%
or more of the accounts receivable as of September 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 nine months period ended September
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 16 for additional
description of our reportable business segments and the products being sold in each segment.
|
|
Three months ended September 30, 2018
|
|
|
Nine months ended September 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
|
|
|
27,534,539
|
|
|
|
8,964,442
|
|
|
|
36,498,981
|
|
|
|
74,408,401
|
|
|
|
23,276,348
|
|
|
|
97,684,749
|
|
Asia, others
|
|
|
38,657,192
|
|
|
|
5,955,794
|
|
|
|
44,612,986
|
|
|
|
73,751,756
|
|
|
|
11,799,526
|
|
|
|
85,551,282
|
|
Europe
|
|
|
1,670,050
|
|
|
|
5,651,287
|
|
|
|
7,321,337
|
|
|
|
3,736,805
|
|
|
|
12,971,795
|
|
|
|
16,708,600
|
|
North America
|
|
|
732,342
|
|
|
|
1,139,319
|
|
|
|
1,871,661
|
|
|
|
1,797,672
|
|
|
|
3,237,063
|
|
|
|
5,034,735
|
|
Others
|
|
|
-
|
|
|
|
252,514
|
|
|
|
252,514
|
|
|
|
-
|
|
|
|
285,526
|
|
|
|
285,526
|
|
Total sales
|
|
|
68,594,123
|
|
|
|
21,963,356
|
|
|
|
90,557,479
|
|
|
|
153,694,634
|
|
|
|
51,570,258
|
|
|
|
205,264,892
|
|
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
(i) contracts that have an original expected length of one year or less; and (ii) contracts where revenue is recognized as invoiced.
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
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
82,024,427
|
|
|
|
61,431,785
|
|
Less: allowance for doubtful accounts
|
|
|
414,186
|
|
|
|
3,178,786
|
|
|
|
|
81,610,241
|
|
|
|
58,252,999
|
|
The Company wrote off $2,430,392
for the three and nine months ended September 30, 2018, respectively.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
30,485,367
|
|
|
|
21,428,315
|
|
Work in progress
|
|
|
11,460,231
|
|
|
|
6,931,486
|
|
Finished goods
|
|
|
16,246,238
|
|
|
|
14,284,563
|
|
Packing materials
|
|
|
32,108
|
|
|
|
36,797
|
|
Consumables
|
|
|
343,719
|
|
|
|
265,483
|
|
|
|
|
58,567,663
|
|
|
|
42,946,644
|
|
|
6.
|
Property, plant and equipment, net
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
4,518,370
|
|
|
|
1,330,643
|
|
Furniture, fixtures and office equipment
|
|
|
6,895,368
|
|
|
|
5,794,983
|
|
Leasehold improvement
|
|
|
6,856,560
|
|
|
|
7,080,409
|
|
Machinery and equipment
|
|
|
37,235,730
|
|
|
|
33,176,416
|
|
Motor vehicles
|
|
|
1,495,382
|
|
|
|
1,498,605
|
|
Buildings
|
|
|
19,034,923
|
|
|
|
20,169,197
|
|
|
|
|
76,036,333
|
|
|
|
69,050,253
|
|
Less: accumulated depreciation
|
|
|
24,583,427
|
|
|
|
22,529,477
|
|
|
|
|
51,452,906
|
|
|
|
46,520,776
|
|
The Company recorded depreciation
expenses of $4,407,773 and $3,688,755 for the nine months ended September 30, 2018 and 2017, respectively, and $1,462,535 and $1,327,273
for the three months ended September 30, 2018 and 2017, respectively.
During the nine months ended
September 30, 2018, the Company deducted deferred government grants of $66,398 on the carrying amount of property, plant and equipment.
During the year ended December 31, 2017, the Company deducted deferred 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 $8,534,563 and $9,224,694
as of September 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 $357,117 and $396,843 as of September
30, 2018 and December 31, 2017, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Interest %
|
|
|
$
|
|
|
Interest %
|
|
Equity method investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Ganzhou Highpower Technology Company Limited (“GZ Highpower”) (1)
|
|
|
8,187,264
|
|
|
|
31.294
|
%
|
|
|
8,102,520
|
|
|
|
31.294
|
%
|
-Shenzhen V-power Innovative Technology Co., Ltd (“V-power”) (2)
|
|
|
645,499
|
|
|
|
49.000
|
%
|
|
|
-
|
|
|
|
N/A
|
|
Cost method investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Huizhou Yipeng Energy Technology Co Ltd. (“Yipeng”) (3)
|
|
|
1,702,414
|
|
|
|
4.654
|
%
|
|
|
1,803,859
|
|
|
|
4.654
|
%
|
|
|
|
10,535,177
|
|
|
|
|
|
|
|
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 $233,531 and $569,745 for the three and nine months ended September 30, 2018, respectively.
(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 agreed 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 September 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 $48,728 and $68,622 for the three and nine months ended September 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 earnings of investee
was $1,087 and $106,412 for the three and nine months ended September 30, 2017, respectively.
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 September 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
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
992,371
|
|
|
|
1,123,967
|
|
|
|
1,890,891
|
|
|
|
2,043,767
|
|
Deferred
|
|
|
(82,832
|
)
|
|
|
(110,048
|
)
|
|
|
(581,710
|
)
|
|
|
153,625
|
|
Total income tax expenses
|
|
|
909,539
|
|
|
|
1,013,919
|
|
|
|
1,309,181
|
|
|
|
2,197,392
|
|
The reconciliation of income
taxes expenses computed at the PRC statutory tax rate to income tax expense is as follows:
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income before tax
|
|
|
7,023,567
|
|
|
|
6,166,814
|
|
|
|
9,018,588
|
|
|
|
14,425,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at PRC statutory income tax rate (25%)
|
|
|
1,755,892
|
|
|
|
1,541,704
|
|
|
|
2,254,647
|
|
|
|
3,606,257
|
|
Impact of different tax rates in other jurisdictions
|
|
|
(59,978
|
)
|
|
|
(12,220
|
)
|
|
|
36,568
|
|
|
|
(5,582
|
)
|
Effect of PRC preferential tax rate
|
|
|
(606,360
|
)
|
|
|
(675,946
|
)
|
|
|
(872,787
|
)
|
|
|
(1,464,929
|
)
|
R&D expenses eligible for super deduction
|
|
|
(193,645
|
)
|
|
|
(4,571
|
)
|
|
|
(528,537
|
)
|
|
|
(447,510
|
)
|
Other non-deductible expenses
|
|
|
62,508
|
|
|
|
31,769
|
|
|
|
111,259
|
|
|
|
65,764
|
|
Change in valuation allowance of deferred tax assets
|
|
|
(48,878
|
)
|
|
|
133,183
|
|
|
|
308,031
|
|
|
|
443,392
|
|
Effective enterprise income tax expenses
|
|
|
909,539
|
|
|
|
1,013,919
|
|
|
|
1,309,181
|
|
|
|
2,197,392
|
|
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.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
1,598,750
|
|
|
|
991,766
|
|
Allowance for doubtful receivables
|
|
|
62,127
|
|
|
|
136,562
|
|
Impairment for inventory
|
|
|
436,679
|
|
|
|
222,289
|
|
Difference for sales cut-off
|
|
|
3,691
|
|
|
|
17,322
|
|
Deferred government grants
|
|
|
70,942
|
|
|
|
46,446
|
|
Property, plant and equipment subsidized by government grant
|
|
|
248,358
|
|
|
|
269,344
|
|
Impairment for property, plant and equipment
|
|
|
137,171
|
|
|
|
58,304
|
|
Total gross deferred tax assets
|
|
|
2,557,718
|
|
|
|
1,742,033
|
|
Valuation allowance
|
|
|
(1,297,610
|
)
|
|
|
(991,766
|
)
|
Total net deferred tax assets
|
|
|
1,260,108
|
|
|
|
750,267
|
|
As of September 30, 2018, the
Company had net operating loss carry-forwards in Hong Kong of $5,584,833 and United States of $1,791,016 without expiration and
in the PRC of $2,007,596, 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 September 30, 2018 and December 31, 2017. The net valuation allowance decreased by $47,485 and increased
by approximately $0.1 million during the three months ended September 30, 2018 and 2017, respectively. The net valuation
allowance increased by approximately $0.3 million and $0.4 million during the nine months ended September 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 $54,989,994 and $54,859,478 as of September
30, 2018 and December 31, 2017, respectively.
As of September 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 $2,716,196
and $3,982,226, land use right with a carrying amount of $2,444,474 and $2,639,631, and buildings with a carrying amount of $8,891,680
and $9,621,537, respectively.
The loans were primarily obtained
from three banks with interest rates ranging from 5.2200% to 6.5250% per annum and 5.0000% to 5.8725% per annum as of September
30, 2018 and December 31, 2017, respectively. The interest expenses were $531,684 and $700,708 for the nine months ended September
30, 2018 and 2017, respectively. The interest expenses were $301,085 and $163,552 for the three months ended September 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 September 30, 2018, the
Company obtained borrowings from a third-party individual in an amount of $8,701,075 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 $422,554 and $468,817 for the nine months ended September 30, 2018 and 2017, respectively. The interest expense
was $125,591 and $171,064 for the three months ended September 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 September
30, 2018, the total and unused lines of credit were $107.9 million and $44.7 million with maturity dates from October 2018
to September 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 nine months ended September 30, 2018 and 2017.
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
|
6,114,028
|
|
|
|
5,024,193
|
|
|
|
7,709,407
|
|
|
|
11,931,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
15,559,658
|
|
|
|
15,369,674
|
|
|
|
15,542,076
|
|
|
|
15,270,898
|
|
- Dilutive effects of equity incentive awards
|
|
|
37,599
|
|
|
|
149,090
|
|
|
|
58,470
|
|
|
|
292,114
|
|
- Diluted
|
|
|
15,597,257
|
|
|
|
15,518,764
|
|
|
|
15,600,546
|
|
|
|
15,563,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic
|
|
|
0.39
|
|
|
|
0.33
|
|
|
|
0.50
|
|
|
|
0.78
|
|
- Diluted
|
|
|
0.39
|
|
|
|
0.32
|
|
|
|
0.49
|
|
|
|
0.77
|
|
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 $2,380,819 and $1,824,009 for the nine months ended September 30, 2018 and 2017, respectively,
and $997,267 and $698,912 for the three months ended September 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
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
68,594,123
|
|
|
|
49,302,659
|
|
|
|
153,694,634
|
|
|
|
113,802,201
|
|
Ni-MH Batteries and Accessories
|
|
|
21,963,356
|
|
|
|
14,273,058
|
|
|
|
51,570,258
|
|
|
|
38,584,272
|
|
New Materials
|
|
|
-
|
|
|
|
7,829,843
|
|
|
|
-
|
|
|
|
12,585,865
|
|
Total
|
|
|
90,557,479
|
|
|
|
71,405,560
|
|
|
|
205,264,892
|
|
|
|
164,972,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
54,730,548
|
|
|
|
39,691,844
|
|
|
|
125,277,530
|
|
|
|
89,642,088
|
|
Ni-MH Batteries and Accessories
|
|
|
18,316,515
|
|
|
|
11,211,627
|
|
|
|
43,600,693
|
|
|
|
29,413,142
|
|
New Materials
|
|
|
-
|
|
|
|
6,941,753
|
|
|
|
-
|
|
|
|
10,350,172
|
|
Total
|
|
|
73,047,063
|
|
|
|
57,845,224
|
|
|
|
168,878,223
|
|
|
|
129,405,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
13,863,575
|
|
|
|
9,610,815
|
|
|
|
28,417,104
|
|
|
|
24,160,113
|
|
Ni-MH Batteries and Accessories
|
|
|
3,646,841
|
|
|
|
3,061,431
|
|
|
|
7,969,565
|
|
|
|
9,171,130
|
|
New Materials
|
|
|
-
|
|
|
|
888,090
|
|
|
|
-
|
|
|
|
2,235,693
|
|
Total
|
|
|
17,510,416
|
|
|
|
13,560,336
|
|
|
|
36,386,669
|
|
|
|
35,566,936
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
15.
|
Segment information (continued)
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Lithium Business
|
|
|
212,524,600
|
|
|
|
171,881,450
|
|
Ni-MH Batteries and Accessories
|
|
|
51,273,575
|
|
|
|
48,383,088
|
|
Total
|
|
|
263,798,175
|
|
|
|
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
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
36,498,981
|
|
|
|
40,140,175
|
|
|
|
97,684,749
|
|
|
|
94,387,905
|
|
Asia, others
|
|
|
44,612,986
|
|
|
|
24,496,337
|
|
|
|
85,551,282
|
|
|
|
50,284,507
|
|
Europe
|
|
|
7,321,337
|
|
|
|
6,456,220
|
|
|
|
16,708,600
|
|
|
|
14,921,627
|
|
North America
|
|
|
1,871,661
|
|
|
|
178,262
|
|
|
|
5,034,735
|
|
|
|
4,841,329
|
|
Others
|
|
|
252,514
|
|
|
|
134,566
|
|
|
|
285,526
|
|
|
|
536,970
|
|
|
|
|
90,557,479
|
|
|
|
71,405,560
|
|
|
|
205,264,892
|
|
|
|
164,972,338
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
36,314,021
|
|
|
|
37,636,478
|
|
Asia, others
|
|
|
36,761,224
|
|
|
|
15,294,527
|
|
Europe
|
|
|
7,966,358
|
|
|
|
5,189,859
|
|
North America
|
|
|
493,677
|
|
|
|
94,585
|
|
Others
|
|
|
74,961
|
|
|
|
37,550
|
|
|
|
|
81,610,241
|
|
|
|
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
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
258,825
|
|
|
|
632,704
|
|
Other receivable
|
|
|
1,170
|
|
|
|
533,134
|
|
Amount due from a related party- GZ Highpower
|
|
|
259,995
|
|
|
|
1,165,838
|
|
|
|
|
|
|
|
|
|
|
Other payable-investment (1)
|
|
|
406,050
|
|
|
|
-
|
|
Loan from Mr. Dang Yu Pan (2)
|
|
|
5,720,957
|
|
|
|
-
|
|
Amount due to related parties
|
|
|
6,127,007
|
|
|
|
-
|
|
(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 RMB2.1 million
(approximately $0.3 million) to V-power, and the unpaid amount was recorded as amount due to a related party. (See Note
7)
(2) The Company entered into
a loan agreement with a maximum amount of RMB60 million (approximately $8.7 million) with Mr. Dang Yu Pan on July 20, 2018. As
of September 30, 2018, the Company withdrew an aggregate amount of RMB39.45 million (approximately $5.7 million). The interest
rate is 5.65% per annum. The Company accrued interest expense $58,037 for the three and nine months ended September 30, 2018, respectively.
Related party transaction
The details of the transactions
with GZ Highpower were as follows:
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
525,983
|
|
|
|
-
|
|
|
|
1,184,917
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivable
|
|
|
(12,986
|
)
|
|
|
-
|
|
|
|
530,461
|
|
|
|
-
|
|
The details of the transactions
with Yipeng were as follows:
|
|
Period from January 1, 2017 to
July 27, 2017
|
|
|
Period from July 1, 2017 to
July 27, 2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Income:
|
|
|
|
|
|
|
|
|
Sales
|
|
|
2,781,745
|
|
|
|
734,889
|
|
Rental income
|
|
|
26,687
|
|
|
|
8,376
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Equipment rental fee
|
|
|
383,351
|
|
|
|
58,121
|
|
The Company has evaluated subsequent
events through the issuance of the unaudited condensed consolidated financial statements and no other subsequent event is identified
that would have required adjustment or disclosure in the consolidated financial statements.