ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
|
OR
|
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
FOR
THE TRANSITION PERIOD FROM _______
TO ___________
|
Delaware
|
20-4062622
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
Building
A1, Luoshan Industrial Zone,
Shanxia,
Pinghu, Longgang,
Shenzhen,
Guangdong, 518111
People’s
Republic of China
|
N/A
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated filer
x
|
Smaller
reporting company o
|
Consolidated
Statements of Operations
|
Year Ended December 31,
|
|||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||
|
(restated)
|
(restated)
|
|
(unaudited)
|
||||||||||||
|
(in thousands)
|
|||||||||||||||
Net
sales
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
$
|
10,956
|
$
|
3,599
|
||||||
|
||||||||||||||||
Cost
of sales
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
(9,306
|
)
|
(3,290
|
)
|
||||||
|
||||||||||||||||
Gross
profit
|
9,471
|
7,417
|
4,253
|
1,651
|
309
|
|||||||||||
|
||||||||||||||||
Depreciation
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
(25
|
)
|
(10
|
)
|
||||||
Selling
and distribution costs
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
(641
|
)
|
(61
|
)
|
||||||
General
and administrative costs
|
(3,461
|
)
|
(1,960
|
)
|
(854
|
)
|
(549
|
)
|
(181
|
)
|
||||||
Loss
on exchange rate difference
|
(855
|
)
|
(199
|
)
|
-
|
-
|
-
|
|||||||||
Fees
and costs related to reorganization
|
(582
|
)
|
(75
|
)
|
-
|
-
|
-
|
|||||||||
|
||||||||||||||||
Income
from operations
|
2,357
|
3,468
|
2,496
|
435
|
57
|
|||||||||||
Other
income
|
149
|
59
|
58
|
33
|
-
|
|||||||||||
|
||||||||||||||||
Interest
expense
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
(10
|
)
|
-
|
|||||||
|
||||||||||||||||
Income
before taxes
|
1,809
|
3,273
|
2,499
|
458
|
57
|
|||||||||||
|
||||||||||||||||
Income
taxes
|
(145
|
)
|
(241
|
)
|
(188
|
)
|
17
|
-
|
||||||||
Net
income
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
$
|
475
|
$
|
57
|
||||||
Net
income per common share – basic and diluted
|
$
|
0.11
|
$
|
0.20
|
$
|
0.16
|
$
|
0.03
|
$
|
0.00
|
||||||
Weighted
average common shares outstanding – basic and diluted
|
15,731,988
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
|||||||||||
Dividends
declared per common share
|
$
|
0.045
|
-
|
-
|
-
|
-
|
Consolidated
Balance Sheets
|
As of December 31,
|
|||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||
(unaudited)
|
||||||||||||||||
(in thousands)
|
||||||||||||||||
Current
Assets
|
$
|
40,167
|
$
|
28,573
|
$
|
12,851
|
$
|
6,322
|
$
|
1,910
|
||||||
Total
Assets
|
48,920
|
31,736
|
14,585
|
7,378
|
2,317
|
|||||||||||
Current
Liabilities
|
37,366
|
24,571
|
10,728
|
5,907
|
2,056
|
|||||||||||
Total
Liabilities
|
37,366
|
24,571
|
10,728
|
5,907
|
2,140
|
|||||||||||
Total
Stockholders’ Equity
|
11,554
|
7,165
|
3,857
|
1,472
|
177
|
Year Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
(restated)
|
(restated)
|
|||||||||
(in thousands)
|
||||||||||
|
|
|
|
|||||||
Net
sales
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
||||
|
||||||||||
Cost
of sales
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
||||
|
||||||||||
Gross
profit
|
9,471
|
7,417
|
4,253
|
|||||||
|
||||||||||
Depreciation
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
||||
Selling
and distribution costs
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
||||
General
and administrative costs
|
(3,461
|
)
|
(1,960
|
)
|
(854
|
)
|
||||
Loss
on exchange rate difference
|
(855
|
)
|
(199
|
)
|
-
|
|||||
Fees
and costs related to reorganization
|
(582
|
)
|
(75
|
)
|
-
|
|||||
Income
from operations
|
2,357
|
3,468
|
2,496
|
|||||||
Other
income
|
149
|
59
|
58
|
|||||||
|
||||||||||
Interest
expense
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
||||
|
||||||||||
Income
before taxes
|
1,809
|
3,273
|
2,499
|
|||||||
|
||||||||||
Income
taxes
|
(145
|
)
|
(241
|
)
|
(188
|
)
|
||||
Net
income
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
||||
Net
income per common share – basic and diluted
|
$
|
0.11
|
$
|
0.20
|
$
|
0.16
|
||||
Weighted
average common shares outstanding – basic and diluted
|
15,731,988
|
14,798,328
|
14,798,328
|
·
|
EBITDA
(1) does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments; (2) does not reflect
changes in, or cash requirements for, our working capital needs;
(3) does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt;
(4) does not reflect income taxes or the cash requirements for any
tax payments; and (5) does not reflect all of the costs associated
with operating our business;
|
·
|
although
depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future,
and EBITDA
does not reflect any cash requirements for such replacements;
and
|
·
|
other
companies may calculate EBITDA differently than we do, limiting its
usefulness as a comparative
measure.
|
Years Ended December 31
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
|
|||
|
$
|
|
|
$
|
|
|
$
|
|||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Interest
expense
|
696,132
|
253,617
|
54,971
|
|||||||
Income
taxes
|
145,458
|
240,487
|
187,634
|
|||||||
Depreciation
|
560,073
|
343,841
|
182,307
|
|||||||
Amortization
|
50,000
|
-
|
-
|
|||||||
EBITDA
|
3,115,353
|
3,870,272
|
2,735,943
|
Name
of Bank
|
Amount
Granted
|
Amount
Outstanding
Under Loan
|
Guaranteed by Officers
|
|||||||
DBS
Bank (China) Limited
|
$
|
11.18
million
|
$
|
5.03
million
|
Dang Yu Pan, Wen Liang Li,
Wen Wei Ma
|
|||||
Shenzhen
Development Bank Co., Ltd
|
$
|
6.82
million
|
$
|
5.17
million
|
Dang
Yu Pan
|
|||||
Shanghai
Pudong Development Bank Co. Ltd.
|
$
|
3.9
million
|
$
|
2.96
million
|
Dang
Yu Pan
|
|||||
Citibank
China Co., Ltd.
|
$
|
2.0
million
|
$
|
0.68
million
|
Dang Yu Pan, Wen Liang Li,
Wen Wei Ma
|
Payments due by period
|
|
|
|
|||||||||||||
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than
5 years
|
||||||
Credit
Facilities
|
$
|
15,410,542
|
$
|
15,410,542
|
-
|
-
|
-
|
|||||||||
Purchase
Obligations (1)
|
$
|
19,561,118
|
$
|
19,561,118
|
-
|
-
|
-
|
|||||||||
License
Agreement
|
$
|
1,327,026
|
$
|
1,327,026
|
-
|
-
|
-
|
|||||||||
Capital
commitment
|
$
|
146,647
|
$
|
146,647
|
||||||||||||
Total
|
$
|
36,445,333
|
$
|
36,445,333
|
-
|
-
|
-
|
(1) |
Primarily
represents obligations to purchase specified quantities of raw
materials.
|
1. |
Financial
Statements: See “Index to Consolidated Financial Statements” in Part II,
Item 8 of this annual report on Form 10-K/A.
|
2. |
Financial
Statement Schedule: Not applicable.
|
3. |
Exhibits:
The exhibits listed in the accompanying “Index to Exhibits” are filed or
incorporated by reference as part of this Form
10-K/A.
|
Hong Kong Highpower Technology, Inc.
|
||
(Registrant)
|
||
Dated:
June 27, 2008
|
/s/
Dang Yu Pan
|
|
By:
Dang Yu Pan
|
||
Chief Executive Officer and
|
||
Chairman
of the Board
|
||
(Principal Executive Officer)
|
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Financial
Statements:
|
||||
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-3
|
|||
Consolidated
Statements of Operations for the years ended December 31, 2007 (restated),
2006 (restated), and 2005
|
F-5
|
|||
Consolidated
Statements of Stockholders' Equity for the years ended December 31,
2007,
2006 and 2005
|
F-6
|
|||
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006
and
2005
|
F-7
|
|||
Notes
to Consolidated Financial Statements
|
F-8
|
At December 31,
|
|
||||||
|
|
2007
|
|
2006
|
|
||
|
|
$
|
|
$
|
|
||
ASSETS
|
|||||||
Current
Assets :
|
|||||||
Cash
and cash equivalents
|
1,489,262
|
488,070
|
|||||
Restricted
cash
|
5,453,650
|
1,010,580
|
|||||
Accounts
receivable
|
15,906,175
|
8,127,170
|
|||||
Notes
receivable
|
386,482
|
76,764
|
|||||
Prepaid
expenses and other receivables - Note 6
|
2,501,796
|
2,612,091
|
|||||
Advance
to related parties – Note 11
|
-
|
634,161
|
|||||
Inventories–
Note 7
|
14,371,289
|
15,623,791
|
|||||
Prepaid
lease payments
|
58,570
|
-
|
|||||
Total
Current Assets
|
40,167,224
|
28,572,627
|
|||||
Deferred
tax assets – Note 6
|
28,277
|
8,443
|
|||||
Deposit
paid for acquisition of machinery –Note 15
|
1,115,123
|
-
|
|||||
Plant
and equipment, net – Note 8
|
3,789,382
|
3,154,660
|
|||||
Leasehold
land – Note 9
|
2,869,925
|
-
|
|||||
Intangible
asset, net – Note 10
|
950,000
|
-
|
|||||
TOTAL
ASSETS
|
48,919,931
|
31,735,730
|
|||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
LIABILITIES
|
|||||||
Current
Liabilities :
|
|||||||
Accounts
payable
|
19,561,118
|
17,327,402
|
|||||
Other
payables and accrued liabilities – Note 11
|
2,320,956
|
1,170,275
|
|||||
Income
taxes payable
|
73,768
|
122,710
|
|||||
Bank
borrowings – Note 13
|
15,410,542
|
5,950,626
|
|||||
Total
Current Liabilities
|
37,366,384
|
24,571,013
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
|
$
|
|
$
|
||||
STOCKHOLDERS’
EQUITY
|
|||||||
Preferred
Stock
|
|||||||
Par
value: US$0.0001
|
|||||||
Authorized:
10,000,000 shares
|
|||||||
Issued
and outstanding: none
|
-
|
-
|
|||||
Common
stock
|
|||||||
Par
value : $0.0001
|
|||||||
Authorized:
100,000,000 shares
|
|||||||
Issued
and outstanding: 2007 –20,478,090 shares (2006 –14,798,328
shares)
|
2,048
|
1,480
|
|||||
Additional
paid-in capital
|
2,765,102
|
62,837
|
|||||
Accumulated
other comprehensive income
|
1,157,872
|
470,383
|
|||||
Retained
earnings
|
7,628,525
|
6,630,017
|
|||||
TOTAL
STOCKHOLDERS’ EQUITY
|
11,553,547
|
7,164,717
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
48,919,931
|
31,735,730
|
Year
ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
|
$
|
$
|
$
|
|||||||
|
(restated –
Note 1)
|
(restated –
Note 1)
|
||||||||
Net
sales
|
73,261,720
|
44,375,682
|
25,010,030
|
|||||||
Cost
of sales
|
(63,791,248
|
)
|
(36,958,529
|
)
|
(20,757,320
|
)
|
||||
Gross
profit
|
9,470,472
|
7,417,153
|
4,252,710
|
|||||||
Depreciation
|
(120,517
|
)
|
(80,213
|
)
|
(46,209
|
)
|
||||
Selling
and distribution costs
|
(2,095,594
|
)
|
(1,634,366
|
)
|
(856,526
|
)
|
||||
General
and administrative costs
|
(3,460,592
|
)
|
(1,960,271
|
)
|
(854,246
|
)
|
||||
Loss
on exchange rate difference
|
(854,873
|
)
|
(199,231
|
)
|
-
|
|||||
Fees
and costs related to reorganization
|
(582,269
|
)
|
(75,229
|
)
|
-
|
|||||
Income
from operations
|
2,356,627
|
3,467,843
|
2,495,729
|
|||||||
Other
income – Note 3
|
148,653
|
58,588
|
57,907
|
|||||||
Interest
expense – Note 4
|
(696,132
|
)
|
(253,617
|
)
|
(54,971
|
)
|
||||
Income
before taxes
|
1,809,148
|
3,272,814
|
2,498,665
|
|||||||
Income
taxes – Note 6
|
(145,458
|
)
|
(240,487
|
)
|
(187,634
|
)
|
||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Net
Income per share
|
||||||||||
- Basic
and diluted
|
0.11
|
0.20
|
0.16
|
|||||||
Weighted
average common shares outstanding
|
||||||||||
-
Basic and diluted
|
15,731,988
|
14,798,328
|
14,798,328
|
Accumulated
|
|||||||||||||||||||
Additional
|
other
|
||||||||||||||||||
Common stock
|
paid-in
|
comprehensive
|
Retained
|
||||||||||||||||
Shares
|
Amount
|
capital
|
income
|
earnings
|
Total
|
||||||||||||||
$
|
$
|
$
|
$
|
$
|
|||||||||||||||
Balance,
January 1, 2005
|
14,798,328
|
1,480
|
62,837
|
43
|
1,286,659
|
1,351,019
|
|||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
2,311,031
|
2,311,031
|
|||||||||||||
Foreign
currency translation adjustments
|
-
|
-
|
-
|
195,010
|
-
|
195,010
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
-
|
-
|
2,506,041
|
|||||||||||||
Balance,
December 31, 2005
|
14,798,328
|
1,480
|
62,837
|
195,053
|
3,597,690
|
3,857,060
|
|||||||||||||
Comprehensive
income
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
3,032,327
|
3,032,327
|
|||||||||||||
Foreign
currency translation adjustments
|
-
|
-
|
-
|
275,330
|
-
|
275,330
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
3,307,657
|
|||||||||||||||
Balance,
December 31, 2006
|
14,798,328
|
1,480
|
62,837
|
470,383
|
6,630,017
|
7,164,717
|
|||||||||||||
Shares
Issued in connection with reverse merger
|
2,834,398
|
284
|
(35,451
|
)
|
-
|
-
|
(35,167
|
)
|
|||||||||||
Shares
issued in private placement, net of offering cost of $382,000
|
2,836,364
|
284
|
2,737,716
|
-
|
-
|
2,738,000
|
|||||||||||||
Comprehensive
income
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
1,663,690
|
1,663,690
|
|||||||||||||
Foreign
currency translation adjustments
|
-
|
-
|
-
|
687,489
|
-
|
687,489
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
2,351,179
|
|||||||||||||||
Dividends
|
-
|
-
|
-
|
-
|
(665,182
|
)
|
(665,182
|
)
|
|||||||||||
Balance,
December 31, 2007
|
20,478,090
|
2,048
|
2,765,102
|
1,157,872
|
7,628,525
|
11,553,547
|
Year ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$ |
$
|
$
|
||||||||
Cash
flows from operating activities
|
||||||||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities :
|
||||||||||
Bad
debts written off
|
3,649
|
22,878
|
9,645
|
|||||||
Depreciation
|
560,073
|
343,841
|
182,307
|
|||||||
Amortization
of intangible asset
|
50,000
|
-
|
-
|
|||||||
Loss
on disposal of plant and equipment
|
20,046
|
32,844
|
5,261
|
|||||||
Changes
in operating assets and liabilities :
|
||||||||||
(Increase)
decrease in -
|
||||||||||
Accounts
receivable
|
(7,018,013
|
)
|
(3,155,007
|
)
|
(1,778,398
|
)
|
||||
Notes
receivable
|
(309,829
|
)
|
620,101
|
(511,456
|
)
|
|||||
Prepaid
expenses and other receivables
|
305,785
|
(1,826,594
|
)
|
(313,424
|
)
|
|||||
Inventories
|
2,183,344
|
(9,556,898
|
)
|
(3,148,845
|
)
|
|||||
Increase
(decrease) in -
|
||||||||||
Accounts
payable
|
1,082,433
|
8,387,286
|
3,814,931
|
|||||||
Other
payables and accrued liabilities
|
78,974
|
(32,771
|
)
|
154,267
|
||||||
Income
taxes payable
|
(74,825
|
)
|
27
|
126,803
|
||||||
Net
cash provided by (used in) operating activities
|
(1,454,673
|
)
|
(2,132,020
|
)
|
852,122
|
|||||
Cash
flows from investing activities
|
||||||||||
Acquisition
of plant and equipment
|
(1,030,725
|
)
|
(1,733,167
|
)
|
(849,768
|
)
|
||||
Acquisition
of land
|
(2,832,348
|
)
|
-
|
-
|
||||||
Proceeds
from disposal of plant and equipment
|
32,976
|
13,747
|
11,186
|
|||||||
Deposit
paid for acquisition of machinery
|
(1,115,123
|
)
|
-
|
-
|
||||||
Net
cash used in investing activities
|
(4,945,220
|
)
|
(1,719,420
|
)
|
(838,582
|
)
|
||||
Cash
flows from financing activities
|
||||||||||
Proceeds
from issuance of common stock
|
2,738,000
|
-
|
-
|
|||||||
Proceeds
from new short-term bank loans
|
2,374,241
|
879,630
|
977,681
|
|||||||
Repayment
of short-term bank loans
|
(923,316
|
)
|
(973,876
|
)
|
(274,973
|
)
|
||||
Proceeds
from (repayment of) other loans
|
4,173,106
|
-
|
(85,547
|
)
|
||||||
Net
advancement of other bank borrowings
|
3,155,109
|
4,955,996
|
-
|
|||||||
Increase
in restricted cash
|
(4,234,327
|
)
|
(991,050
|
)
|
-
|
|||||
Repayment
from (advance to)
|
726,169
|
(38,495
|
)
|
(468,151
|
)
|
|||||
Dividend
paid
|
(665,182
|
)
|
-
|
-
|
||||||
Net
cash provided by financing activities
|
7,343,800
|
3,832,205
|
149,010
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
943,907
|
(19,235
|
)
|
162,550
|
||||||
Effect
of foreign currency translation on cash and cash
equivalents
|
57,285
|
40,279
|
5,968
|
|||||||
Cash
and cash equivalents - beginning of year
|
488,070
|
467,026
|
298,508
|
|||||||
Cash
and cash equivalents - end of year
|
1,489,262
|
488,070
|
467,026
|
1. |
Organization
and Basis of Presentation
|
1. |
Organization
and Basis of Presentation
(continued)
|
2.
|
Summary
of significant accounting
policies
|
2.
|
Summary
of significant accounting policies
(continued)
|
2.
|
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
Furniture,
fixtures and office equipment
|
20
|
%
|
||
Leasehold
improvement
|
50
|
%
|
||
Machinery
and equipment
|
10
|
%
|
||
Motor
vehicles
|
20
|
%
|
2.
|
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
2007
|
2006
|
2005
|
||||||||
Year
end RMB : US$ exchange rate
|
7.332
|
7.804
|
8.070
|
|||||||
Average
yearly RMB : US$ exchange rate
|
7.581
|
7.958
|
8.183
|
2. |
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
3. |
Other
income
|
Years ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
||||||
$
|
|
$
|
|
$
|
||||||
Bank
interest income
|
75,546
|
11,626
|
3,625
|
|||||||
Net
exchange gains
|
-
|
-
|
15,989
|
|||||||
Sundry
income
|
73,107
|
46,962
|
37,293
|
|||||||
148,653
|
58,588
|
57,907
|
4. |
Interest
expense
|
Years ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
|
|||||
$
|
$
|
$
|
||||||||
Interest
on trade related bank loans
|
547,573
|
208,269
|
26,610
|
|||||||
Interest
on short-term bank loans
|
135,369
|
45,348
|
25,795
|
|||||||
Interest
on other loans
|
13,190
|
-
|
2,566
|
|||||||
696,132
|
253,617
|
54,971
|
5. |
Income
taxes
|
Years ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
||||||
|
|
$
|
$
|
$
|
||||||
United
States
|
(490,234
|
)
|
-
|
-
|
||||||
Hong
Kong
|
689,749
|
(76,601
|
)
|
(3,122
|
)
|
|||||
People’s
Republic of China
|
1,609,633
|
3,349,415
|
2,501,787
|
|||||||
1,809,148
|
3,272,814
|
2,498,665
|
Years ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
|
|||||
|
|
$
|
|
$
|
|
$
|
|
|||
PRC
income tax
|
||||||||||
Current
year
|
173,735
|
241,313
|
178,378
|
|||||||
Deferred
taxes
|
(28,277
|
)
|
(826
|
)
|
9,256
|
|||||
145,458
|
240,487
|
187,634
|
Years ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
||||||
$
|
|
$
|
$
|
|||||||
Income
before taxes
|
1,809,148
|
3,272,814
|
2,498,665
|
|||||||
Provision
for income taxes at applicable income tax rate
|
271,372
|
490,922
|
374,799
|
|||||||
Income
not subject to tax
|
(84,614
|
)
|
(2,522
|
)
|
-
|
|||||
Non-deductible
expenses for income tax purposes
|
229
|
11,490
|
468
|
|||||||
Tax
exemption of PRC subsidiary
|
(133,885
|
)
|
(243,835
|
)
|
(178,378
|
)
|
||||
Tax
rate differential
|
94,865
|
825
|
(9,255
|
)
|
||||||
Others
|
(2,509
|
)
|
(16,393
|
)
|
-
|
|||||
145,458
|
240,487
|
187,634
|
5. |
Income
taxes (continued)
|
At December 31
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Temporary
difference on:
|
|||||||
Recognition
of expenses
|
(24,527
|
)
|
(8,443
|
)
|
|||
Accelerated
tax depreciation on intangible assets
|
(3,750
|
)
|
-
|
||||
Deferred
tax assets, net
|
(28,277
|
)
|
(8,443
|
)
|
|||
Recognized
in the balance sheet:
|
|||||||
Net
deferred tax assets
|
(28,277
|
)
|
(8,443
|
)
|
Years ended December 31,
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
|
|||
|
|
$
|
|
$
|
|
$
|
||||
Statutory
income tax rate
|
15
|
%
|
15
|
%
|
15
|
%
|
||||
Exempted
income tax rate
|
7.5
|
%
|
7.5
|
%
|
7.5
|
%
|
||||
Income
tax exemption
|
133,885
|
243,835
|
178,378
|
|||||||
Tax
effect derived from exemption
|
||||||||||
(per
share)
|
$
|
0.01
|
$
|
0.02
|
$
|
0.01
|
5. |
Income
taxes (continued)
|
6. |
Prepaid
expenses and other
receivables
|
At December 31,
|
|
||||||
|
|
2007
|
|
2006
|
|
||
|
|
$
|
$
|
||||
Purchase
deposits paid
|
264,138
|
935,417
|
|||||
Advance
to staff
|
74,502
|
21,540
|
|||||
Other
deposits and prepayments
|
147,503
|
130,870
|
|||||
Value-added
tax prepayment
|
1,103,063
|
1,220,524
|
|||||
Other
receivables
|
912,590
|
303,740
|
|||||
2,501,796
|
2,612,091
|
7. |
Inventories
|
At December 31
|
|||||||
2007
|
|
2006
|
|
||||
|
|
$
|
$
|
||||
Raw
materials
|
4,507,255
|
5,040,028
|
|||||
Work
in progress
|
1,694,997
|
1,415,942
|
|||||
Finished
goods
|
8,101,083
|
9,096,003
|
|||||
Consumables
|
49,197
|
52,122
|
|||||
Packing
materials
|
18,757
|
19,696
|
|||||
14,371,289
|
15,623,791
|
8. |
Plant
and equipment
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cost
|
|||||||
Furniture,
fixtures and office equipment
|
643,196
|
510,853
|
|||||
Leasehold
improvement
|
146,622
|
137,761
|
|||||
Machinery
and equipment
|
3,940,847
|
2,938,971
|
|||||
Motor
vehicles
|
344,088
|
250,655
|
|||||
5,074,753
|
3,838,240
|
||||||
Accumulated
depreciation
|
|||||||
Furniture,
fixtures and office equipment
|
211,342
|
92,092
|
|||||
Leasehold
improvement
|
100,864
|
25,888
|
|||||
Machinery
and equipment
|
834,206
|
475,767
|
|||||
Motor
vehicles
|
138,959
|
89,833
|
|||||
1,285,371
|
683,580
|
||||||
Net
|
|||||||
Furniture,
fixtures and office equipment
|
431,854
|
418,761
|
|||||
Leasehold
improvement
|
45,758
|
111,873
|
|||||
Machinery
and equipment
|
3,106,641
|
2,463,204
|
|||||
Motor
vehicles
|
205,129
|
160,822
|
|||||
3,789,382
|
3,154,660
|
Years ended December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Included
in factory overheads
|
439,556
|
263,628
|
|||||
Included
in operating expenses
|
120,517
|
80,213
|
|||||
560,073
|
343,841
|
9. |
Leasehold
land
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cost
|
2,928,495
|
-
|
|||||
Accumulated
amortization
|
-
|
-
|
|||||
Net
|
2,928,495
|
-
|
|||||
Analyzed
for reporting purposes as:
|
|||||||
Current
asset
|
58,570
|
-
|
|||||
Non-current
asset
|
2,869,925
|
-
|
|||||
2,928,495
|
-
|
10. |
Intangible
asset – Consumer
battery license
|
At December 31,
|
|||||||
2007
|
|
2006
|
|
||||
|
|
$
|
|
$
|
|||
Cost
|
|||||||
Consumer
battery license
|
1,000,000
|
-
|
|||||
Accumulated
amortization
|
50,000
|
-
|
|||||
Net
|
950,000
|
-
|
10. |
Intangible
asset (continued)
|
Years
ending December 31
|
$
|
|||
2008
|
50,000
|
|||
2009
|
50,000
|
|||
2010
|
50,000
|
|||
2011
|
50,000
|
|||
2012
|
50,000
|
|||
2013
and thereafter
|
700,000
|
11. |
Other
payables and accrued
liabilities
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Accrued
expenses
|
765,760
|
622,010
|
|||||
Accrued
staff welfare
|
90,316
|
111,749
|
|||||
Royalty
fee
|
1,327,026
|
112,580
|
|||||
Sales
deposits received
|
136,295
|
86,182
|
|||||
Other
payables
|
1,559
|
237,754
|
|||||
2,320,956
|
1,170,275
|
12. |
Advance
to related parties
|
At December 31,
|
|||||||
2007
|
|
2006
|
|
||||
|
|
$
|
|
$
|
|
||
Advance
to shareholders
|
-
|
634,161
|
13. |
Bank
borrowings
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Secured:
|
|||||||
Repayable
within one year
|
|||||||
Short
term bank loans
|
2,454,838
|
896,964
|
|||||
Other
trade related bank loans
|
12,955,704
|
5,053,662
|
|||||
15,410,542
|
5,950,626
|
Amount
|
||||||||||
Facilities
granted
|
Granted
|
Utilized
|
Unused
|
|||||||
$
|
$
|
$
|
||||||||
Short
term bank loans
|
4,170,000
|
2,454,838
|
1,715,162
|
|||||||
Other
trade related loan facilities including:
|
||||||||||
-
Accounts payable financing
|
14,000,000
|
7,928,535
|
6,071,465
|
|||||||
-
Accounts receivable financing
|
6,000,000
|
5,027,169
|
972,831
|
|||||||
24,170,000
|
15,410,542
|
8,759,458
|
(a)
|
charge
over bank deposits of $5,453,620 which is included in restricted
cash on
the Balance sheet;
|
(b) |
corporate
guarantee executed by a third party and Shenzhen Science and Technology
Bureau;
|
(c)
|
personal
guarantee executed by the directors of the
Company;
|
(d)
|
the
legal charge over leasehold land with carrying amount $2,928,495
(see Note
9); and
|
(e)
|
other
financial covenant.
|
14.
|
Pension
plans
|
15.
|
Commitments
and contingencies
|
Year
ending December 31
|
$
|
|||
2008
|
612,156
|
|||
2009
|
780,136
|
|||
2010
|
428,547
|
|||
2011
|
204,952
|
|||
2,025,791
|
|
|
|
$
|
|
Contracted
value
|
1,261,770
|
|||
Less:
deposit paid
|
(1,115,123
|
)
|
||
Capital
commitment
|
146,647
|
15. |
Commitments
and contingencies
(continued)
|
At December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Bills
discounted
|
106,378
|
1,323,442
|
Year ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Management
fee paid to Canhold International Limited
|
21,134
|
15,302
|
12,138
|
17. |
Segment
information
|
17. |
Segment
information (continued)
|
Years
ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
Net
revenue
|
$
|
$
|
$
|
|||||||
Hong
Kong and China
|
28,919,384
|
29,009,277
|
17,126,358
|
|||||||
Asia
|
5,965,339
|
3,294,838
|
3,198,143
|
|||||||
Europe
|
25,318,608
|
7,288,751
|
2,807,580
|
|||||||
North
America
|
12,851,807
|
4,511,914
|
1,877,949
|
|||||||
South
America
|
206,582
|
270,902
|
-
|
|||||||
73,261,720
|
44,375,682
|
25,010,030
|
At
December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
Accounts
receivable
|
$
|
$
|
$
|
|||||||
Hong
Kong and China
|
4,258,010
|
5,545,244
|
3,913,344
|
|||||||
Asia
|
1,023,284
|
262,743
|
119,359
|
|||||||
Europe
|
6,761,615
|
1,857,294
|
525,633
|
|||||||
North
America
|
3,863,266
|
461,889
|
212,315
|
|||||||
15,906,175
|
8,127,170
|
4,770,651
|
At December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Dividends
|
||||||||||
Interim
dividend declared and paid on September 30, 2007 of approximately
$
0.045 per share:
|
665,182
|
-
|
-
|
19. |
Quarterly
Results of Operations
(unaudited)
|
Three Months Ended
|
Year Ended
|
|||||||||||||||
March 31,
|
June 30,
|
September 30,
|
December 31,
|
December 31,
|
||||||||||||
2007
|
2007
|
2007
|
2007
|
2007
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Net
revenue
|
11,539,505
|
20,466,844
|
19,879,829
|
21,375,542
|
73,261,720
|
|||||||||||
Gross
profit
|
1,056,415
|
2,847,274
|
2,610,045
|
2,956,738
|
9,470,472
|
|||||||||||
Net
income (loss)
|
(502,663
|
)
|
1,174,090
|
838,119
|
154,144
|
1,663,690
|
||||||||||
Net
income (loss) per common share
|
||||||||||||||||
Basic
and diluted
|
(0.03
|
)
|
0.08
|
0.06
|
0.01
|
0.11
|
||||||||||
Weighted
average common shares outstanding
|
||||||||||||||||
Basic
and diluted
|
14,798,328
|
14,798,328
|
14,798,328
|
18,502,521
|
15,731,988
|
Three Months Ended
|
Year Ended
|
|||||||||||||||
March 31,
|
June 30,
|
September 30,
|
December 31
|
December 31,
|
||||||||||||
2006
|
2006
|
2006
|
2006
|
2006
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Net
revenue
|
7,612,812
|
10,026,403
|
13,571,303
|
13,165,164
|
44,375,682
|
|||||||||||
Gross
profit
|
1,539,541
|
1,909,390
|
1,615,066
|
2,353,156
|
7,417,153
|
|||||||||||
Net
income
|
808,562
|
930,832
|
392,134
|
900,799
|
3,032,327
|
|||||||||||
Net
income per common share
|
||||||||||||||||
Basic
and diluted
|
0.05
|
0.06
|
0.03
|
0.06
|
0.20
|
|||||||||||
Weighted
average common shares outstanding
|
||||||||||||||||
Basic
and diluted
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
Exhibit
Number
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated as of October 20, 2007, by and among the
Registrant, Hong Kong Highpower Technology Company Limited and all
of the
shareholders of Hong Kong Highpower Technology Company Limited
(incorporated by reference to Exhibit 2.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 5, 2007).
|
|
3.1
|
Certificate
of Incorporation (incorporated by reference from Exhibit 3.1 to the
Registration Statement on Form 10-SB (File No. 000-52103) filed with
the
Securities and Exchange Commission on July 5, 2006).
|
|
3.2
|
Bylaws
(incorporated by reference from Exhibit 3.2 to the Registration Statement
on Form 10-SB (File No. 000-52103) filed with the Securities and
Exchange
Commission on July 5, 2006).
|
|
3.3
|
Articles
of Merger Effecting Name Change (incorporated by reference from Exhibit
3.3 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 5, 2007).
|
|
10.1
|
Form
of Subscription Agreement (incorporated by reference from Exhibit
10.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
10.2*+
|
Amended
Consumer Battery License Agreement, amended as of August 8, 2007,
by and
between Shenzhen Highpower Technology Co., Ltd and Ovonic Battery
Company,
Inc.
|
|
10.3
|
State-owned
Land Use Rights Grant Contract No. 441302 - B - 112 dated as of May
23,
2007, by and between the Land and Resources Bureau of Huizhou City,
Guangdong Province and Shenzhen Highpower Technology Co., Ltd. (translated
to English) (incorporated by reference from Exhibit 10.4 to the Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 5, 2007).
|
|
10.4
|
Credit
Facility dated August 17, 2007 by and between DBS Bank (China) Limited
Company Shenzhen Branch and Shenzhen Highpower Technology Co., Ltd.
(translated to English). (incorporated by reference from Exhibit
10.5 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
10.4(a)
|
Letter
of Undertaking executed by Dan Yu Pan, Wen Liang Li and Wen Wei Ma
on
behalf of Shenzhen Highpower Technology Company Limited to and in
favor of
DBS Bank (China) Limited Shenzhen Branch (translated to English)
(incorporated by reference from Exhibit 10.4(a) to Amendment No.
1 to the
Registration Statement on Form S-1/A filed with the Securities and
Exchange Commission on January 28, 2008).
|
|
10.5
|
Commercial
Acceptance Bill Discount Quotation Agreement dated as of June 18,
2007 by
and between Shenzhen Development Bank Shenzhen Ai Guo Road Branch
and
Shenzhen Highpower Technology Co., Ltd. (translated to English)
(incorporated by reference from Exhibit 10.6 to the Current Report
on Form
8-K filed with the Securities and Exchange Commission on November
5,
2007).
|
|
10.5(a)
|
Guaranty
Contract for Maximum Credit Line dated as of June 18, 2007 by and
between
Dang Yu Pan and Shenzhen Development Bank Shenzhen Ai Guo Road Branch
(translated to English) (incorporated by reference from Exhibit 10.5(a)
to
Amendment No. 1 to the Registration Statement on Form S-1/A filed
with the
Securities and Exchange Commission on January 28,
2008).
|
10.6
|
Facility
Quotation Agreement dated as of September 18, 2007 by and between
Shanghai
Pudong Development Bank Shenzhen Long Hua Branch and Shenzhen Highpower
Technology Co., Ltd. (translated to English) (incorporated by reference
from Exhibit 10.7 to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 5,
2007).
|
|
10.6(a)
|
Contract
for Guarantee of Maximum Line of Credit dated as of September 18,
2007 by
and between Dang Yu Pan and Shanghai Pudong Development Bank Shenzhen
Branch (translated to English) (incorporated by reference from Exhibit
10.6(a) to Amendment No. 1 to the Registration Statement on Form
S-1/A
filed with the Securities and Exchange Commission on January 28,
2008).
|
|
10.7+
|
Non-Undertaking
Short-Term Revolving Financing Agreement dated as of October 11,
2007 by
and between Citibank China Co., Ltd. (“Lender”) and Shenzhen Highpower
Technology Col, Ltd. and corresponding Letters of Guarantee between
Lender
and Dang Yu Pan, Wen Wei Ma and Wen Liang Li (translated to
English).
|
|
16.1
|
Letter
from AJ. Robbins, PC to the Securities and Exchange Commission dated
November 2, 2007. (incorporated by reference to Exhibit 16.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
21.1
|
List
of Subsidiaries (incorporated by reference from Exhibit 21.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1**
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
+
|
Previously
filed.
|
* |
The
Registrant has applied with the Secretary of the Securities and Exchange
Commission for confidential treatment of certain information pursuant
to
Rule 24b-2 of the Securities Exchange Act of 1934. The Registrant
has filed separately with its application a copy of the exhibit including
all confidential portions, which may be made available for public
inspection pending the Commission’s review of the application in
accordance with Rule 24b-2.
|
** |
This
exhibit shall not be deemed "filed" for purposes of Section 18
of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities
of
that section, nor shall it be deemed incorporated by reference
in any
filing under the Securities Act of 1933 or the Securities Exchange
Act of
1934, whether made before or after the date hereof and irrespective
of any
general incorporation language in any
filings.
|