NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
1.
|
Organization and basis of presentation
|
The consolidated financial statements
include the financial statements of Highpower International, Inc. ("Highpower") and its subsidiaries, Hong Kong Highpower
Technology Company Limited ("HKHTC"), Shenzhen Highpower Technology Company Limited ("SZ Highpower"), Springpower
Technology (Shenzhen) Company Limited ("SZ Springpower"), Ganzhou Highpower Technology Company Limited ("GZ Highpower"),
Icon Energy System Company Limited ("ICON") and Huizhou Highpower Technology Co., Ltd (HZ HTC). Highpower and its subsidiaries
are collectively referred to as the "Company".
Highpower was incorporated in the
State of Delaware on January 3, 2006. HKHTC was incorporated in Hong Kong on July 4, 2003. All other subsidiaries are incorporated
in the People’s Republic of China (“PRC”).
On May 15, 2013, GZ Highpower increased
its paid-in capital from RMB15,000,000 ($2,381,293) to RMB30,000,000 ($4,807,847). On November 13, 2014, GZ Highpower increased
its paid-in capital from RMB30,000,000 ($4,898,119) to RMB40,000,000 ($6,530,825) and the additional capital of RMB10,000,000 was
contributed by SZ Highpower. As of March 31, 2016, SZ Highpower holds 70% of the equity interest of GZ Highpower, and four founding
management members of GZ Highpower hold the remaining 30%.
In April 2014, the Company and certain
institutional investors entered into a securities purchase agreement, pursuant to which the Company sold 1,000,000 shares of common
stock and warrants exercisable for 500,000 shares of common stock in a registered direct offering at a price of $5.05 per fixed
combination for aggregate proceeds of $5.05 million. The shares and warrants were sold in multiples of a fixed combination consisting
of (i) one share of common stock and (ii) one immediately exercisable warrant to purchase 0.50 shares of common stock. The net
proceeds from the offering were $4,633,164, after deducting fees due the placement agent and offering expenses.
Highpower Energy Technology (Huizhou)
Company Limited (“HZ Highpower”) which was formed by HKHTC in 2008, was dissolved in September 2015. The subsidiary
did not commence operation since establishment. Therefore, the Company did not consider it as a strategic shift.
The subsidiaries of the Company and
their principal activities are described as follows:
Name of company
|
|
Place and date
incorporation
|
|
Attributable equity
interest held
|
|
|
Principal activities
|
HKHTC
|
|
Hong Kong
July 4, 2003
|
|
|
100
|
%
|
|
Investment holding and marketing of batteries
|
|
|
|
|
|
|
|
|
|
SZ Highpower
|
|
PRC
October 8, 2002
|
|
|
100
|
%
|
|
Manufacturing & marketing of NiMH batteries
|
|
|
|
|
|
|
|
|
|
SZ Springpower
|
|
PRC
June 4, 2008
|
|
|
100
|
%
|
|
Research & manufacturing of lithium batteries
|
|
|
|
|
|
|
|
|
|
GZ Highpower
|
|
PRC
September 21, 2010
|
|
|
70
|
%
|
|
Processing, marketing and research of battery materials
|
|
|
|
|
|
|
|
|
|
ICON
|
|
PRC
February 23, 2011
|
|
|
100
|
%
|
|
Design and production of advanced battery packs and systems
|
|
|
|
|
|
|
|
|
|
HZ HTC
|
|
PRC
March 8, 2012
|
|
|
100
|
%
|
|
Manufacturing & marketing of lithium batteries
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies
|
Basis of presentation
The accompanying consolidated balance
sheet as of December 31, 2015, which has been derived from audited financial statements, and the unaudited interim consolidated
financial statements as of March 31, 2016 and for the three ended March 31, 2016 and 2015 have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures, which are
normally included in financial statements prepared in accordance with United States generally accepted accounting principles (U.S.
GAAP), have been condensed or omitted pursuant to such rules and regulations. 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 fiscal year ended December 31, 2015, previously filed with the SEC on March 29, 2016.
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 March 31, 2016, its consolidated results of operations and cash flows for the three months ended March
31, 2016 and 2015, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating
results for the full fiscal year or any future periods.
Principles of consolidation
The consolidated financial statements
include the accounts of Highpower and its subsidiaries. All significant inter-company accounts and transactions have been eliminated
in consolidation. Non-controlling interests represent the equity interest in the GZ Highpower that is not attributable to the Company.
Use of estimates
The preparation of financial statements
in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and
assumptions include revenues; the allowance for doubtful receivables; recoverability of the carrying amount of inventory; fair
values of financial instruments; and the assessment of deferred tax assets or liabilities. These estimates are often based on complex
judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results
could differ significantly from these estimates.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Concentrations of credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist principally of accounts receivable. The Company extends
credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security.
In order to minimize the credit risk, the management of the Company has delegated a team responsible for determining credit limits,
credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the
Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment
losses are made for irrecoverable amounts. In this regard, the management of the Company considers that the Company’s credit
risk is significantly reduced.
No customer accounted for 10% or
more of total sales during the three months ended March 31, 2016 and 2015.
There was one major supplier that
accounted for 14.4% of the total purchase amount during the three months ended March 31, 2016. And no supplier accounted for 10%
or more of the total purchase amount during the three months ended March 31, 2015.
There was one major customer that
accounted for 11.5% and 11.3% of the accounts receivable as of March 31, 2016 and December 31, 2015, respectively.
Cash
Cash include all cash and deposits
in banks with initial maturities of three months or less.
Restricted cash
Restricted cash include time deposits
and cash security for bank acceptance bills included in notes payable.
Accounts receivable
Accounts receivable are stated at
the original amount less an allowance for doubtful receivables, if any, based on a review of all outstanding amounts at period
end. An allowance is also made when there is objective evidence that the Company will not be able to collect all amounts due according
to the original terms of the receivables. Bad debts are written off against the allowance after all collection efforts have ceased.
The Company extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess
of the allowances for doubtful receivables to be fully collectible. The Company does not accrue interest on trade accounts receivable.
Notes receivable
Notes receivable represent banks’
and commercial acceptances that have been arranged with third-party financial institutions by certain customers to settle their
purchases from us. These banks’ acceptances are non-interest bearing and are collectible within one year.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Inventories
Inventories are stated at lower of
cost or market. Cost is determined using the weighted average method. Inventory includes raw materials, packing materials, consumables,
work in progress and finished goods. The variable production overhead is allocated to each unit of production on the basis of the
actual use of the production facilities. The allocation of fixed production overhead to the costs of conversion is based on the
normal capacity of the production facilities.
Property, plant and equipment
Property, plant and equipment, net
are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring
the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense;
major additions to physical properties are capitalized.
Depreciation of property, plant and
equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:
Buildings
|
|
|
2.5% -5
|
%
|
Furniture, fixtures and office equipment
|
|
|
20
|
%
|
Leasehold improvement
|
|
|
Shorter of the remaining lease terms or estimated useful lives
|
|
Machinery and equipment
|
|
|
10
|
%
|
Motor vehicles
|
|
|
20
|
%
|
Upon sale or disposal, the applicable
amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal
is charged or credited to income.
Construction in progress represents
capital expenditures for direct costs of construction or acquisition and design fees incurred, and the interest expenses directly
related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate
category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended
use are completed. Construction in progress is not depreciated.
Land use rights
Land use rights represent payments
for the rights to use certain parcels of land for a certain period of time in the PRC. Land use rights are carried at cost and
charged to expense on a straight-line basis over the period the rights are granted.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Other assets
Other assets represent a royalty-bearing,
non-exclusive license to use certain patents owned by an unrelated party ("License Provider"), to manufacture rechargeable
nickel metal hydride batteries for portable consumer applications (“Consumer Batteries”) in the PRC, and a royalty-bearing,
non-exclusive worldwide license to use certain patents owned by License Provider to manufacture, sell and distribute Consumer Batteries.
The value of the licenses was established based on historic acquisition costs.
An exclusive proprietary technology
contributed by the four founding management members of GZ Highpower in exchange for the paid-in capital of GZ Highpower is recorded
at the four management members’ historical cost basis of $nil.
Government grants
Government grants are recognized
when received and all the conditions for their receipt have been met.
Specifically, government grants whose
primary condition is that the Company should purchase, construct or otherwise acquire non-current assets is recognized on the consolidated
balance sheet as deferred income and subsequently deducted in calculating the carrying amount of the related asset after the purchase,
construction or acquisition completed. As of March 31, 2016 and December 31, 2015, the Company recorded deferred income of $861,369
and $879,944, respectively, for the government grants to purchase non-current assets.
Government grants for the purpose
of giving immediate financial support to the Company by local government are recognized as other income when received. In the three
months ended March 31, 2016 and 2015, $6,669 and $109,295 of government grants were recognized as other income, respectively.
Revenue recognition
The Company recognizes revenue when
persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery of the product has occurred, title
and risk of loss have transferred to the customers and collectability of the receivable is reasonably assured. The majority of
domestic sales contracts transfer title and risk of loss to customers upon receipt. The majority of oversea sales contracts transfer
title and risk of loss to customers when goods were delivered to the carriers. Revenue is presented net of any sales tax and value
added tax.
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.
Cost of sales
Cost of revenues consists primarily
of material costs, employee compensation, depreciation and related expenses, which are directly attributable to the production
of products. Write-down of inventories to lower of cost or market is also recorded in cost of revenues.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Research and development
Research and development expenses
include expenses directly attributable to the conduct of research and development programs, including the expenses of salaries,
employee benefits, materials, supplies, and maintenance of research equipment. All expenses associated with research and development
are expensed as incurred.
Advertising
Advertising, which generally represents
the cost of promotions to create or stimulate a positive image of the Company or a desire to buy the Company’s products and
services, is expensed as incurred. No significant advertising expense was recorded for the three months ended March 31, 2016 and
2015.
Share-based compensation
The Company recognizes compensation
expense associated with the issuance of equity instruments to employees for their services. The fair value of the equity instruments
is estimated on the date of grant and is expensed in the financial statements over the vesting period. The input assumptions used
in determining fair value are the expected life, expected volatility, risk-free rate and the dividend yield.
Share-based compensation associated
with the issuance of equity instruments to non-employees is measured at the fair value of the equity instrument issued or committed
to be issued, as this is more reliable than the fair value of the services received. The fair value is measured at the earlier
of date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete.
Income taxes
The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and
statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Uncertain tax positions
The Company accounts for uncertainty
in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company
classifies the liability for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt)
of cash within one year. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in
the provision for income taxes. There were no uncertain tax positions as of March 31, 2016 and December 31, 2015.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Comprehensive loss
Recognized revenue, expenses, gains
and losses are included in net income or loss. Although certain changes in assets and liabilities are reported as separate components
of the equity section of the consolidated balance sheet, such items, along with net income or loss, are components of comprehensive
income or loss. The components of other comprehensive income or loss are consisted solely of foreign currency translation adjustments,
net of the income tax effect.
Foreign currency translation and
transactions
Highpower’s functional currency
is the United States dollar ("US$"). HKHTC's functional currency is the Hong Kong dollar ("HK$"). The functional
currency of the Company’s subsidiaries in the PRC is the Renminbi ("RMB").
Most of the Company’s oversea
sales are priced and settled with US$. At the date a foreign currency transaction is recognized, each asset, liability, revenue,
expense, gain, or loss arising from the transaction is measured initially in the functional currency of the recording entity by
use of the exchange rate in effect at that date. The increase or decrease in expected functional currency cash flows upon settlement
of a transaction resulting from a change in exchange rates between the functional currency and the currency in which the transaction
is denominated is recognized as foreign currency transaction gain or loss that is included in determining net income for the period
in which the exchange rate changes. At each balance sheet date, recorded balances that are denominated in a foreign currency are
adjusted to reflect the current exchange rate.
The Company’s reporting currency
is US$. Assets and liabilities of HKHTC and the PRC subsidiaries are translated at the current exchange rate at the balance sheet
dates, revenues and expenses are translated at the average exchange rates during the reporting periods, and equity accounts are
translated at historical rates. Translation adjustments are reported in other comprehensive income.
Segment Reporting
The Company uses the “management
approach” in determining reportable operating segments. The management approach considers the internal organization and reporting
used by the Company's chief operating decision maker for making operating decisions and assessing performance as the source for
determining the Company's reportable segments. The Company’s reportable segments are based on products, geography, legal
structure, management structure, or any other manner in which management disaggregates a company. Therefore the Company categorizes
its business into three reportable segments, namely (i) Lithium Batteries; (ii) Ni-MH Batteries; and (iii) New Material.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Fair value of financial instruments
The carrying values of the Company’s
financial instruments, including cash, restricted cash, trade and other receivables, deposits, trade and other payables and bank
borrowings, approximate their fair values due to the short-term maturity of such instruments.
The Company defines fair value as
the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted
to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.
The Company establishes a fair value
hierarchy that requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair
value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement.
The Company measures fair value using
three levels of inputs that may be used to measure fair value:
-Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
-Level 2 applies to assets or liabilities
for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such
as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated by, observable market data.
-Level 3 applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value
of the assets or liabilities.
Warrant Liabilities
For warrants that are not indexed
to the Company’s stock, the Company records the fair value of the issued warrants as a liability at each balance sheet date
and records changes in the estimated fair value as a non-cash gain or loss in the consolidated statement of operations and comprehensive
income. The fair values of these warrants have been determined using the Black-Scholes pricing model. The Black-Scholes pricing
model provides for assumptions regarding volatility, call and put features and risk-free interest rates within the total period
to maturity. These values are subject to a significant degree of judgment on the part of the Company.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
Loss per share
Basic loss per share is computed
by dividing loss attributable to holders of common shares by the weighted average number of common shares outstanding during the
year. Diluted earnings per share (“EPS”) reflect the potential dilution that could occur if securities or other contracts
to issue common shares were exercised or converted into common shares. Potential dilutive securities are excluded from the calculation
of diluted EPS in loss periods as their effect would be anti-dilutive.
Recently issued accounting pronouncements
In May 2014, the FASB issued Accounting
Standards Update 2014-09, Revenue from Contracts with Customers, or ASU 2014-09. This new standard will replace all current U.S.
GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified
model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to correlate
with the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity
expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to defer the effective date of ASU
2014-09 by one year, while allowing a company to adopt the new revenue standard early but not before the original effective date.
This guidance will be effective as to us on January 1, 2018 and can be applied either retrospectively to each period presented
or as a cumulative-effect adjustment as of the date of adoption. In April 2016, the FASB issued Accounting Standards Update 2016-10,
Revenue from Contracts with Customers, or ASU 2016-10. These new standards will identify performance obligations. The Company is
currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.
In November
2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). To simplify the presentation of deferred income taxes, the amendments
in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial
position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current
requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single
amount is not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective
for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
Earlier application is permitted. The adoption of this guidance is not expected to have a material impact on the Company's consolidated
financial condition, results of operations or cash flows.
In July 2015,
the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. Under this ASU, inventory will be measured at the “lower
of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The
ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement.
ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should
be applied prospectively. The Company plans to early adopt this standard beginning with the 2016 fiscal year, but does not expect
the adoption of this standard to have a material impact on the Company's consolidated financial position, results of operations,
or related disclosures.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
2.
|
Summary of significant accounting policies (continued)
|
On February
25, 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). It requires that a lessee recognize the
assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability
to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize
and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities
should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business
entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact of adopting ASU 2016-02
on our consolidated financial statements.
In March 2016,
the FASB issued Accounting Standards Update (ASU) 2016-09, Compensation—Stock Compensation (Topic 718). Under this update,
share-based payment transactions simplified several aspects of the accounting, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification
apply only to nonpublic entities. For public business entities, the amendments in this Update are effective for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity
in any interim or annual period. The Company is currently evaluating the impact of adopting ASU 2016-09 on our consolidated financial
statements.
We do 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 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
As of March 31, 2016 and December
31, 2015, restricted cash consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Securities for bank acceptance bill
|
|
|
9,250,815
|
|
|
|
11,392,231
|
|
Time deposits
|
|
|
-
|
|
|
|
263,973
|
|
|
|
|
9,250,815
|
|
|
|
11,656,204
|
|
|
4.
|
Accounts receivable, net
|
As of March 31, 2016 and December
31, 2015, accounts receivable consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
32,077,851
|
|
|
|
38,211,951
|
|
Less: allowance for doubtful debts
|
|
|
2,073,129
|
|
|
|
2,072,085
|
|
|
|
|
30,004,722
|
|
|
|
36,139,866
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Purchase deposits paid
|
|
|
4,424,535
|
|
|
|
3,752,125
|
|
Value-added tax (“VAT”) prepayment
|
|
|
118,580
|
|
|
|
546,358
|
|
Rental deposit
|
|
|
417,625
|
|
|
|
414,843
|
|
Prepaid insurance fee
|
|
|
287,969
|
|
|
|
206,424
|
|
Advances to employee for daily operations
|
|
|
349,562
|
|
|
|
39,886
|
|
Other deposits and prepayments
|
|
|
380,755
|
|
|
|
394,916
|
|
|
|
|
5,979,026
|
|
|
|
5,354,552
|
|
Other deposits and prepayments represent
prepaid expenses and prepayments to services providers.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Compensation receivable for land occupation
|
|
|
489,736
|
|
|
|
486,370
|
|
Others
|
|
|
302,159
|
|
|
|
219,982
|
|
|
|
|
791,895
|
|
|
|
706,352
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Raw materials
|
|
|
6,295,049
|
|
|
|
4,320,455
|
|
Work in progress
|
|
|
3,809,284
|
|
|
|
4,568,530
|
|
Finished goods
|
|
|
9,481,031
|
|
|
|
9,994,401
|
|
Packing materials
|
|
|
18,608
|
|
|
|
17,167
|
|
Consumables
|
|
|
318,960
|
|
|
|
317,778
|
|
|
|
|
19,922,932
|
|
|
|
19,218,331
|
|
Where there is evidence that the
utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration,
obsolescence, changes in price levels, or other causes, the inventories are written down to net realizable value. $991,784 was
written down for inventories in the three months ended March 31, 2016 and $1,451,553 was written down for inventories in the year
ended December 31, 2015.
|
8.
|
Property, plant and equipment, net
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
1,253,755
|
|
|
|
1,678,961
|
|
Furniture, fixtures and office equipment
|
|
|
4,007,455
|
|
|
|
3,882,594
|
|
Leasehold improvement
|
|
|
5,120,342
|
|
|
|
4,092,668
|
|
Machinery and equipment
|
|
|
29,518,487
|
|
|
|
29,295,041
|
|
Motor vehicles
|
|
|
1,691,856
|
|
|
|
1,643,173
|
|
Buildings
|
|
|
23,451,888
|
|
|
|
23,046,056
|
|
|
|
|
65,043,783
|
|
|
|
63,638,493
|
|
Less: accumulated depreciation
|
|
|
17,388,571
|
|
|
|
16,174,307
|
|
|
|
|
47,655,212
|
|
|
|
47,464,186
|
|
The Company recorded depreciation expenses of $1,220,977
and $1,209,252 for the three months ended March 31, 2016 and 2015, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
8.
|
Property, plant and equipment, net (continued)
|
During the three months ended March
31, 2016, the Company deducted deferred income related to government grants of $20,892 in calculating the carrying amount of property,
plant and equipment. During the year ended December 31, 2015, the Company deducted deferred income related to government grants
of $2,547,545 in calculating the carrying amount of property, plant and equipment.
The buildings comprising the Huizhou
facilities have been pledged as collateral for bank loans as of March 31, 2016 and December 31, 2015. The buildings comprising
the Ganzhou facilities have been pledged as collateral for short-term loans and bank acceptance bills drawn under certain lines
of credit (see Note 15) as of March 31, 2016 and December 31, 2015.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Land located in Huizhou
|
|
|
3,324,776
|
|
|
|
3,301,923
|
|
Land located in Ganzhou
|
|
|
1,297,061
|
|
|
|
1,288,146
|
|
|
|
|
4,621,837
|
|
|
|
4,590,069
|
|
Accumulated amortization
|
|
|
(654,515
|
)
|
|
|
(627,066
|
)
|
Net
|
|
|
3,967,322
|
|
|
|
3,963,003
|
|
As of March 31, 2016, land use rights
of the Company included certain parcels of land located in Huizhou City, Guangdong Province, PRC and Ganzhou City, Jiangxi Province,
PRC. Land use rights for land in Huizhou City with an area of 126,605 square meters and in Ganzhou City with an area of approximately
58,669 square meters will expire on May 23, 2057 and January 4, 2062, respectively.
Land use rights are being amortized
annually using the straight-line method over a contract term of 50 years. Estimated amortization for the coming years is as follows:
|
|
$
|
|
Remaining 2016
|
|
|
68,705
|
|
2017
|
|
|
91,607
|
|
2018
|
|
|
91,607
|
|
2019
|
|
|
91,607
|
|
2020
|
|
|
91,607
|
|
thereafter
|
|
|
3,532,189
|
|
|
|
|
3,967,322
|
|
The Company recorded amortization
expenses of $22,902 and $24,291 for the three months ended March 31, 2016 and 2015, respectively.
The land use right for land located
in Huizhou City was pledged as collateral for bank loans as of March 31, 2016 and December 31, 2015.
As
of March 31, 2016 and December 31, 2015,
the land use right for
land located in Ganzhou City was pledged as collateral for line of credit, which was used for short-term loans and bank acceptance
bills.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Cost
|
|
|
|
|
|
|
|
|
Consumer battery license fee
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(462,500
|
)
|
|
|
(450,000
|
)
|
Net
|
|
|
537,500
|
|
|
|
550,000
|
|
The Company is amortizing the $1,000,000
cost of the Consumer Battery License Agreement with a License Provider over a period of 20 years on the straight line basis over
the terms of license.
As of March 31, 2016 and December
31, 2015, the Company has an exclusive proprietary technology with historical cost of zero but still in use. The exclusive proprietary
technology was contributed by four founding management members of GZ Highpower in exchange for the paid-in capital of GZ Highpower.
The historical cost basis was recorded at $nil at the four management members’ historical cost basis.
Amortization expenses included in
research and development expenses were $12,500 for the three months ended March 31, 2016 and 2015.
|
11.
|
Other payables and accrued liabilities
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accrued expenses
|
|
|
3,526,616
|
|
|
|
3,816,940
|
|
Royalty payable
|
|
|
464,246
|
|
|
|
461,055
|
|
VAT payable
|
|
|
759,350
|
|
|
|
959,422
|
|
Sales deposits received
|
|
|
801,859
|
|
|
|
562,696
|
|
Other payables
|
|
|
1,330,003
|
|
|
|
492,379
|
|
|
|
|
6,882,074
|
|
|
|
6,292,492
|
|
Other payables mainly represent department
expenses payable and scholarship funds payable.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
The Company and its subsidiaries
file tax returns separately.
1) VAT
Pursuant to the Provisional Regulation
of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in
the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any
deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to a portion of
or all the refund of VAT that it has already paid or incurred. The Company’s PRC subsidiaries are subject to VAT at 17% of
their revenues.
2) Income tax
United States
Highpower was incorporated in Delaware
and is subject to U.S. federal income tax with a system of graduated tax rates ranging from 15% to 35%. As Highpower does not conduct
any business in the U.S., it is not subject to U.S. federal income tax or Delaware state corporate income tax. No deferred U.S.
taxes are recorded since all accumulated profits in the PRC will be permanently reinvested in the PRC.
Hong Kong
HKHTC, which is 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. As of March 31, 2016, SZ Higpower, SZ Springpower, GZ Highpower, ICON and HZ HTC received
NHTE status. If
these subsidiaries
fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration of NHTE status.
All the PRC subsidiaries received
NHTE status and enjoy 15% income tax rate for calendar year 2016 and 2015.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
1) The components of the provision
for income taxes expenses (benefit) are:
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Current
|
|
|
162,621
|
|
|
|
92,117
|
|
Deferred
|
|
|
(127,117
|
)
|
|
|
(187,373
|
)
|
Total income taxes expenses (benefit)
|
|
|
35,504
|
|
|
|
(95,256
|
)
|
2) The reconciliation of income tax
expense computed at the statutory tax rate applicable to the Company to income taxes expenses (benefit) is as follows:
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Loss before tax
|
|
|
(440,625
|
)
|
|
|
(263,823
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes at applicable income tax rate
|
|
|
(103,599
|
)
|
|
|
(86,173
|
)
|
Effect of preferential tax rate
|
|
|
(23,670
|
)
|
|
|
(6,295
|
)
|
Non-deductible expenses
|
|
|
17,620
|
|
|
|
14,954
|
|
Change in valuation allowance
|
|
|
145,153
|
|
|
|
(17,742
|
)
|
Effective enterprise income taxes expenses (benefit)
|
|
|
35,504
|
|
|
|
(95,256
|
)
|
3) Deferred tax assets
Deferred tax assets and deferred
tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of
temporary difference.
|
|
March 31
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Tax loss carry-forward
|
|
|
3,736,800
|
|
|
|
3,382,543
|
|
Allowance for doubtful receivables
|
|
|
47,523
|
|
|
|
47,197
|
|
Allowance for inventory obsolescence
|
|
|
148,768
|
|
|
|
217,733
|
|
Difference for sales cut-off
|
|
|
30,023
|
|
|
|
33,071
|
|
Deferred income
|
|
|
129,205
|
|
|
|
131,992
|
|
Property, plant and equipment subsidized by government grant
|
|
|
494,883
|
|
|
|
490,883
|
|
Total gross deferred tax assets
|
|
|
4,587,202
|
|
|
|
4,303,419
|
|
Valuation allowance
|
|
|
(2,904,133
|
)
|
|
|
(2,759,105
|
)
|
Total net deferred tax assets
|
|
|
1,683,069
|
|
|
|
1,544,314
|
|
The deferred tax assets arising from net operating losses
will expire from 2018 if not utilized.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
As of March 31, 2016, valuation allowance
was provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the
deferred tax assets will not be realized. The Company had deferred tax assets which consisted of tax loss carry-forwards and others,
which can be carried forward to offset future taxable income. The management determines it is more likely than not that part of
deferred tax assets could not be utilized, so allowance was provided as of March 31, 2016 and December 31, 2015.
Notes payable are 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 $25,065,717 and $30,379,170 as of March 31, 2016
and December 31, 2015, respectively.
As of March 31, 2016 and December
31, 2015, the outstanding trade acceptances to suppliers were $111,765 and $110,996. These trade acceptances were non-interest
bearing and mature within one year. No security deposit is needed.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Short- term bank loans guaranteed and repayable within one year
|
|
|
15,406,054
|
|
|
|
13,839,341
|
|
As of March 31, 2016, the above bank
borrowings were for working capital and capital expenditure purposes and were secured by personal guarantees executed by certain
directors of the Company, land use right with a carrying amount of $3,967,322, and the building with a carrying amount of $12,566,740.
These short-term loans are drawn from the lines of credit (Note 15).
The loans as of March 31, 2016 were
primarily obtained from three banks with interest rates ranging from 4.35% to 6.06% per annum. The interest expenses were $207,108
and $201,014 for the three months ended March 31, 2016 and 2015, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
The Company entered into various
credit contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. The following tables
summarize the unused lines of credit as of March 31, 2016 and December 31, 2015:
|
|
March 31, 2016 (Unaudited)
|
Lender
|
|
Starting
date
|
|
Maturity
date
|
|
Line of credit
|
|
|
Unused line of
credit
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Bank of China
|
|
7/13/2015
|
|
9/13/2016
|
|
|
13,857,707
|
|
|
|
5,204,681
|
|
Bank of China
|
|
7/1/2015
|
|
6/30/2016
|
|
|
11,280,815
|
|
|
|
2,651,596
|
|
Ping An Bank Co., Ltd
|
|
12/10/2015
|
|
12/9/2016
|
|
|
10,838,430
|
|
|
|
3,264,890
|
|
China Minsheng Banking Corp., LTD
|
|
7/16/2015
|
|
7/16/2016
|
|
|
4,423,849
|
|
|
|
3,601,771
|
|
Industrial Bank CO., LTD.
|
|
7/15/2015
|
|
7/15/2016
|
|
|
9,290,083
|
|
|
|
7,159,752
|
|
China Everbright Bank
|
|
6/13/2015
|
|
6/22/2016
|
|
|
7,741,736
|
|
|
|
2,402,503
|
|
Industrial and Commercial Bank of China
|
|
10/1/2015
|
|
10/1/2016
|
|
|
7,741,736
|
|
|
|
4,645,041
|
|
Jiang Su Bank Co., Ltd (i)
|
|
11/4/2015
|
|
11/3/2016
|
|
|
2,862,379
|
|
|
|
10,642
|
|
Hong Kong and Shanghai Banking Corporation
|
|
9/1/2015
|
|
7/15/2016
|
|
|
8,000,000
|
|
|
|
8,000,000
|
|
Total
|
|
|
|
|
|
|
76,036,735
|
|
|
|
36,940,876
|
|
(i) The lines of credit from the
bank are terminated at the maturity date. Jiang Su Bank Co., Ltd provided a $2.3M line of credit which was without secure deposit
on November 4, 2015. As of December 31, 2015, Jiangsu Bank did not request for secure deposit and the disclosed line of credit
was $2.3M. As of March 31, 2016, Jiangsu bank required 35% of deposit. The disclosed line of credit was changed accordingly to
$2.86M.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
15.
|
Lines of credit (continued)
|
|
|
December 31, 2015
|
Lender
|
|
Starting
date
|
|
Maturity
date
|
|
Line of
credit
|
|
|
Unused line of
credit
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Bank of China
|
|
7/13/2015
|
|
9/13/2016
|
|
|
13,762,455
|
|
|
|
4,707,595
|
|
Bank of China
|
|
7/1/2015
|
|
6/30/2016
|
|
|
11,203,276
|
|
|
|
155,498
|
|
Ping An Bank Co., Ltd
|
|
12/10/2015
|
|
12/9/2016
|
|
|
10,763,931
|
|
|
|
3,878,818
|
|
China Minsheng Banking Corp., LTD.
|
|
7/16/2015
|
|
7/16/2016
|
|
|
4,393,441
|
|
|
|
1,916,253
|
|
Industrial Bank CO., LTD.
|
|
7/15/2015
|
|
7/15/2016
|
|
|
9,226,227
|
|
|
|
7,079,785
|
|
China Everbright Bank
|
|
6/23/2015
|
|
6/22/2016
|
|
|
7,688,523
|
|
|
|
3,647,289
|
|
Industrial and Commercial Bank of China
|
|
10/1/2015
|
|
10/1/2016
|
|
|
7,688,523
|
|
|
|
4,613,113
|
|
Jiang Su Bank Co., Ltd
|
|
11/4/2015
|
|
11/3/2016
|
|
|
2,306,557
|
|
|
|
995,703
|
|
Hongkong and Shanghai Banking Corporation Limited
|
|
9/1/2015
|
|
7/15/2016
|
|
|
8,000,000
|
|
|
|
8,000,000
|
|
Total
|
|
|
|
|
|
|
75,032,933
|
|
|
|
34,994,054
|
|
The lines of credits from Bank of
China, Ping An Bank Co., Ltd, China Minsheng Banking Corp., LTD., Industrial Bank CO., LTD., China Everbright Bank, Industrial
and Commercial Bank of China, and Hongkong and Shanghai Banking Corporation Limited are guaranteed by the Company’s Chief
Executive Officer, Mr. Dang Yu Pan. The lines of credits from Jiang Su Bank Co., Ltd are guaranteed by the Company’s Chief
Executive Officer, Mr. Dang Yu Pan, and his wife. Certain of the agreements governing the Company’s loans include standard
affirmative and negative covenants.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Long-term loans from Bank of China
|
|
|
1,393,512
|
|
|
|
1,845,245
|
|
Less: current portion of long-term borrowings
|
|
|
1,393,512
|
|
|
|
1,845,245
|
|
Long- term bank loans, net of current portion
|
|
|
-
|
|
|
|
-
|
|
On January 13, 2012, the Company
borrowed $8,198,065 (RMB50 million) from Bank of China, which is guaranteed by the Company’s Chief Executive Officer, Mr.
Dang Yu Pan. It is five-year long-term loan, with an annual interest equals to 110% of the benchmark-lending rate of the People’s
Bank of China (“PBOC”), which was 5.23% as of March 31, 2016. Interest expenses are to be paid quarterly.
The interest expenses were $25,636
and $67,628 for the three months ended March 31, 2016 and 2015, respectively.
The principal is to be repaid quarterly from September
30, 2012. 2% of the principal was repaid on each of September 30, 2012 and December 30, 2012, respectively. Thereafter 6% of the
principal is to be repaid every quarter after December 31, 2012 until the maturity date.
|
17.
|
Share-based Compensation
|
The 2008 Omnibus Incentive Plan
The 2008 Omnibus Incentive Plan (the
"2008 Plan") was approved by the Company’s Board of Directors on October 29, 2008 to be effective at such date,
subject to approval of the Company’s stockholders, which occurred on December 11, 2008. The 2008 Plan has a ten year term.
The 2008 Plan reserves two million shares of common stock for issuance, subject to adjustment in the event of a recapitalization
in accordance with the terms of the 2008 Plan.
The 2008 Plan authorizes the issuance
of awards including stock options, restricted stock units (RSUs), restricted stock, unrestricted stock, stock appreciation rights
(SARs) and other equity and/or cash performance incentive awards to employees, directors, and consultants of the Company. Subject
to certain restrictions, the Compensation Committee of the Board of Directors has broad discretion to establish the terms and conditions
for awards under the 2008 Plan, including the number of shares, vesting conditions and the required service or performance criteria.
Options and SARs may have a contractual term of up to ten years and generally vest over three to five years with an exercise price
equal to the fair market value on the date of grant. Incentive stock options (ISOs) granted must have an exercise price equal to
or greater than the fair market value of the Company’s common stock on the date of grant. Repricing of stock options and
SARs is permitted without stockholder approval. If a particular award agreement so provides, certain change in control transactions
may cause such awards granted under the 2008 Plan to vest at an accelerated rate, unless the awards are continued or substituted
for in connection with the transaction. As of March 31, 2016, 393,141 shares of common stock remained available for issuance pursuant
to awards granted under the 2008 Plan.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
17.
|
Share-based Compensation (continued)
|
Options Granted to Employees
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
$
|
|
|
|
|
Outstanding, January 1, 2015
|
|
|
760,286
|
|
|
|
2.92
|
|
|
|
7.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
75,000
|
|
|
|
4.43
|
|
|
|
-
|
|
Exercised
|
|
|
(16,933
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Forfeited
|
|
|
(26,336
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Canceled
|
|
|
(5,091
|
)
|
|
|
2.63
|
|
|
|
-
|
|
Outstanding, December 31, 2015
|
|
|
786,926
|
|
|
|
3.08
|
|
|
|
6.90
|
|
Exercisable, December 31, 2015
|
|
|
587,407
|
|
|
|
3.16
|
|
|
|
6.56
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
$
|
|
|
|
|
Outstanding, January 1, 2016
|
|
|
786,926
|
|
|
|
3.08
|
|
|
|
6.90
|
|
Granted
|
|
|
190,000
|
|
|
|
2.66
|
|
|
|
-
|
|
Outstanding, March 31, 2016
|
|
|
976,926
|
|
|
|
3.00
|
|
|
|
7.26
|
|
Exercisable, March 31, 2016
|
|
|
617,407
|
|
|
|
3.21
|
|
|
|
6.49
|
|
The
aggregate intrinsic value of options vested and expected to vest as of March 31, 2016 and
December
31, 2015 was approximately $1,000 and $178,000, respectively. Intrinsic value is calculated as the amount by which the current
market value of a share of common stock exceeds the exercise price multiplied by the number of option shares.
During the three months ended March
31, 2016, the Company granted options to purchase 190,000 shares to two employees at a weighted average exercise price of $2.66
per share. No employees exercised their options and no options were forfeited or canceled.
During the three months ended March
31, 2015, the Company did not grant any new options to employees. Three employees exercised their options to purchase 3,551 shares
of the Company’s common stock. No Options were forfeited or canceled.
The estimated fair value of share-based
compensation to employees is recognized on a ratable basis over the requisite service period, which is generally the vesting period
of the award.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
17.
|
Share-based Compensation (continued)
|
Restricted Stock Awards Granted
to Employees
There were no RSAs granted to employees
during the three months ended March 31, 2016.
Total Share-based
Compensation Expenses
As of March 31, 2016 the gross amount
of unrecognized share-based compensation expense relating to unvested share-based awards held by employees was approximately $484,000,
which the Company anticipates recognizing over a weighted average period of 1.81 years.
In connection with the grant of stock
options, restricted stock awards and warrants to employees, the Company recorded stock-based compensation expenses of $110,710
and $121,361 for the three-month period ended March 31, 2016 and 2015, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
Basic loss per common share is computed
by dividing loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the
period. Diluted earnings per common share is computed by dividing income available to common stockholders by the weighted-average
number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock
outstanding that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities
include outstanding stock options and restricted shares. The dilutive effect of potential dilutive securities is reflected in diluted
earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair
market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
The Company excludes potential common stock in the diluted EPS computation in periods of losses from continuing operations, as
their effect would be anti-dilutive.
The following table sets forth the
computation of basic and diluted earnings per common share for the three months ended March 31, 2016 and 2015.
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
attributable to Highpower
|
|
|
(342,608
|
)
|
|
|
(123,358
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
|
15,101,679
|
|
|
|
15,086,169
|
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
- Basic and Diluted
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
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.
There were 1,716,927 and 1,406,736
options and warrants outstanding as of March 31, 2016 and 2015, respectively, which were not included in the computation of diluted
EPS for the periods ended March 31, 2016 and 2015 because of the net loss sustained for the three months ended March 31, 2016 and
2015.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
19.
|
Securities Offering Transaction
|
In April 2014, the Company and certain
institutional investors entered into a securities purchase agreement, pursuant to which the Company sold 1,000,000 shares of common
stock and warrants exercisable for 500,000 shares of common stock in a registered direct offering at a price of $5.05 per fixed
combination for aggregate proceeds of $5.05 million. The shares and warrants were sold in multiples of a fixed combination consisting
of (i) one share of common stock and (ii) one immediately exercisable warrant to purchase 0.50 shares of common stock. The net
proceeds from the offering were $4,633,164, after deducting fees due the placement agent and offering expenses.
The warrants have an initial exercise
price of $6.33 per share and are exercisable until April 17, 2017. The exercise price of the warrants, and in some cases the number
of shares issuable upon exercise of the warrants, will be subject to appropriate adjustment in relation to certain events. In addition,
if the Company issues shares in the future at a price below $6.33 per share, the exercise price of the warrants will be reduced
to such lower price. No adjustment will be made to the number of shares purchasable in such event.
The warrants were classified as a
liability. The aggregate fair value of the warrant liability at issuance dates was $1,173,952. The residual balance of $3,459,212
was allocated to common shares issued.
The fair values of the warrants as
of April 17, 2014 were calculated using the Black-Scholes pricing model with the following assumptions:
|
|
April 17,2014
|
|
Expected volatility
|
|
|
85.76
|
%
|
Risk-free interest rate
|
|
|
0.9
|
%
|
Expected term (in years)
|
|
|
3.0
|
|
Dividend rate
|
|
|
-
|
|
Fair value
|
|
$
|
2.3
|
|
The fair value of the warrant liability
is re-measured at each reporting period and recorded as a gain or loss on fair value of warrant liability. As of March 31, 2016
and December 31, 2015 the fair value of warrant liability was $21,080 and $140,549, respectively. For the three months ended March
31, 2016 and 2015, the Company recognized a gain of $119,469 and $346,299, respectively, on the change in the fair value of the
warrant liability.
The fair values of the warrants as
of March 31, 2016 and December 31, 2015 were calculated using the Black-Scholes pricing model with the following assumptions:
|
|
March 31, 2016
|
|
|
December 31,2015
|
|
Expected volatility
|
|
|
69.45
|
%
|
|
|
79.85
|
%
|
Risk-free interest rate
|
|
|
0.6
|
%
|
|
|
0.56
|
%
|
Expected term (in years)
|
|
|
1.05
|
|
|
|
1.30
|
|
Dividend rate
|
|
|
-
|
|
|
|
-
|
|
Fair value
|
|
$
|
0.04
|
|
|
$
|
0.81
|
|
In conjunction with the securities
offering transaction, the Company issued three year warrants to investment bankers to purchase 40,000 shares of the Company’s
common stock at $6.33 per share. The aggregate fair value of the warrants was $94,982, which was recognized as a share-based compensation
and resulted in an increase of additional paid-in capital. As such compensation was offering cost, it resulted in a reduction in
additional paid-in capital.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
20.
|
Defined contribution plan
|
Full-time employees of the Company
in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical
care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC
operating subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the
employees’ salaries. Except for pension benefits, medical care, employee housing fund and other welfare benefits mentioned
above, the Company has no legal obligation for the benefits beyond the contributions made.
The total amounts for such employee
benefits, which were expensed as incurred, were $335,558 and $412,688 for the three months ended March 31, 2016 and 2015, respectively.
|
21.
|
Non-controlling interest
|
As of March 31, 2016 and December
31, 2015, non-controlling interest related to the 30% minority interest in GZ Highpower in the consolidated balance sheet was $724,661
and $853,483, respectively.
Non-controlling interest related
to GZ Highpower in the consolidated statements of operations was loss of $133,521 and $45,209 for the three months ended March
31, 2016 and 2015, respectively.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
22.
|
Commitments and contingencies
|
Operating leases commitments
The Company leases factory and office
premises under various non-cancelable operating lease agreements that expire at various dates through years 2016 to 2026, with
options to renew the leases. All leases are on a fixed repayment basis. None of the leases includes contingent rentals. Minimum
future commitments under these agreements as of March 31, 2016 are as follows:
|
|
$
|
|
Remaining 2016
|
|
|
1,230,144
|
|
2017
|
|
|
658,892
|
|
2018
|
|
|
340,892
|
|
2019
|
|
|
340,892
|
|
2020
|
|
|
340,892
|
|
2021 and after
|
|
|
1,874,908
|
|
|
|
|
4,786,620
|
|
Rent expenses for the three months
ended March 31, 2016 and 2015 were $405,573 and $404,194, respectively.
Contingencies
On January 14, 2016, FirsTrust China,
Ltd filed an amended complaint in the Delaware Chancery Court (amending its initial complaint filed February 25, 2015) naming Highpower
as the defendant asserting a cause of action for breach of contract and conversion of stock, and seeking damages in the form of
issuance of 150,000 shares or the value of such shares, plus interest thereon, attorneys’ fees and costs and expenses. On
February 4, 2016, Highpower filed an answer, affirmative defenses and counterclaim against FirsTrust asserting claims for equitable
rescission, declaratory relief and breach of contract, and seeking rescission of the contract, return of the 200,000 warrants and
150,000 shares of Highpower stock previously issued to FirsTrust, plus interest, attorneys’ fees and costs and expenses.
The Company believes that it has meritorious defenses to this claim and intends to defend the claim vigorously. Highpower has also
added as counter-defendants four individuals to whom it issued shares pursuant to FirsTrust’s request. In April 2016, FirsTrust
filed a motion for judgment on the pleadings with respect to its complaint and a hearing date is scheduled for July 2016.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
The reportable segments are components
of the Company that offer different products and are separately managed, with separate financial information available that is
separately evaluated regularly by the Company’s chief operating decision maker (“CODM”), the Chief Executive
Officer, in determining the performance of the business. The Company categorizes its business into three reportable segments, namely
(i) Lithium Batteries; (ii) Ni-MH Batteries; 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 March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
Lithium Batteries
|
|
|
15,314,945
|
|
|
|
16,820,628
|
|
Ni-MH Batteries
|
|
|
12,856,325
|
|
|
|
14,759,470
|
|
New Materials
|
|
|
925,785
|
|
|
|
557,550
|
|
Total
|
|
|
29,097,055
|
|
|
|
32,137,648
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
|
|
|
|
|
|
Lithium Batteries
|
|
|
12,507,331
|
|
|
|
14,333,392
|
|
Ni-MH Batteries
|
|
|
9,605,806
|
|
|
|
11,715,453
|
|
New Materials
|
|
|
1,106,879
|
|
|
|
533,089
|
|
Total
|
|
|
23,220,016
|
|
|
|
26,581,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Lithium Batteries
|
|
|
2,807,614
|
|
|
|
2,487,236
|
|
Ni-MH Batteries
|
|
|
3,250,519
|
|
|
|
3,044,017
|
|
New Materials
|
|
|
(181,094
|
)
|
|
|
24,461
|
|
Total
|
|
|
5,877,039
|
|
|
|
5,555,714
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31,2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Total Assets
|
|
|
|
|
|
|
|
|
Lithium Batteries
|
|
|
81,831,102
|
|
|
|
82,006,317
|
|
Ni-MH Batteries
|
|
|
36,166,431
|
|
|
|
41,590,201
|
|
New Materials
|
|
|
10,340,811
|
|
|
|
10,607,966
|
|
Total
|
|
|
128,338,344
|
|
|
|
134,204,484
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Stated in US Dollars)
|
23.
|
Segment information (continued)
|
All long-lived assets of the Company
are located in the PRC. Geographic information about the sales and accounts receivable based on the location of the Company’s
customers is set out as follows:
|
|
Three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
$
|
|
|
$
|
|
Net sales
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
8,529,079
|
|
|
|
14,025,332
|
|
Asia, others
|
|
|
11,980,367
|
|
|
|
10,441,887
|
|
Europe
|
|
|
6,315,779
|
|
|
|
5,816,186
|
|
North America
|
|
|
1,634,146
|
|
|
|
1,556,611
|
|
South America
|
|
|
464,897
|
|
|
|
153,929
|
|
Africa
|
|
|
24,033
|
|
|
|
103,807
|
|
Others
|
|
|
148,754
|
|
|
|
39,896
|
|
|
|
|
29,097,055
|
|
|
|
32,137,648
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
|
$
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
China Mainland
|
|
|
25,311,894
|
|
|
|
23,832,388
|
|
Asia, others
|
|
|
4,032,416
|
|
|
|
6,443,781
|
|
Europe
|
|
|
505,618
|
|
|
|
5,324,389
|
|
North America
|
|
|
122,191
|
|
|
|
433,458
|
|
South America
|
|
|
20,635
|
|
|
|
-
|
|
Africa
|
|
|
-
|
|
|
|
55,240
|
|
Others
|
|
|
11,968
|
|
|
|
50,610
|
|
|
|
|
30,004,722
|
|
|
|
36,139,866
|
|
On April 1, 2016, the Company entered
into an investment agreement to invest RMB 5 million (equal to $0.8 million) to Huizhou Yipeng Energy Technology Co. Ltd. (“Yipeng”)
in exchange of 5.26% of the equity of Yipeng and become the noncontrolling shareholder. On May 2, 2016, Yipeng completed the business
registration and was a related party of the Company from then on.
The Company has evaluated subsequent
events through the issuance of the consolidated financial statements and no other subsequent event is identified.