Company Quick10K Filing
Quick10K
Highpower International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$4.50 16 $70
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-30 M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-10-29 Shareholder Vote, Other Events, Exhibits
8-K 2019-09-30 Other Events, Exhibits
8-K 2019-08-13 Earnings, Regulation FD, Exhibits
8-K 2019-06-27 Enter Agreement, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-05-13 Earnings, Regulation FD, Exhibits
8-K 2019-04-18 Other Events, Exhibits
8-K 2019-03-28 Earnings, Regulation FD, Exhibits
8-K 2019-03-13 Regulation FD, Other Events, Exhibits
8-K 2018-12-01 Shareholder Vote
8-K 2018-11-13 Earnings, Regulation FD, Exhibits
8-K 2018-08-13 Earnings, Regulation FD, Exhibits
8-K 2018-06-25 Regulation FD, Exhibits
8-K 2018-06-02 Other Events, Exhibits
8-K 2018-04-06 Other Events, Exhibits
8-K 2018-04-02 Earnings, Regulation FD, Exhibits
8-K 2018-03-13 Regulation FD, Exhibits
8-K 2018-03-12 Earnings, Regulation FD, Exhibits
ROP Roper Technologies 37,629
HRS Harris 17,240
BC Brunswick 3,850
NVT Nvent Electric 3,425
JBT John Bean Technologies 3,191
ENR Energizer Holdings 2,620
AAON AAON 2,437
ACA Arcosa 1,548
RTEC Rudolph Technologies 679
TBLT ToughBuilt Industries 7
HPJ 2019-06-30
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
Item 3. Default Upon Senior Securities
Item 4. Mine Safety Disclosures.
Item 5. Other Information
Item 6. Exhibits
EX-10.1 tv527142_ex10-1.htm
EX-10.2 tv527142_ex10-2.htm
EX-10.3 tv527142_ex10-3.htm
EX-10.3(A) tv527142_ex10-3a.htm
EX-10.3(B) tv527142_ex10-3b.htm
EX-10.3(C) tv527142_ex10-3c.htm
EX-10.3(D) tv527142_ex10-3d.htm
EX-10.3(E) tv527142_ex10-3e.htm
EX-10.4 tv527142_ex10-4.htm
EX-10.5 tv527142_ex10-5.htm
EX-10.6 tv527142_ex10-6.htm
EX-10.6(A) tv527142_ex10-6a.htm
EX-10.6(B) tv527142_ex10-6b.htm
EX-10.6(C) tv527142_ex10-6c.htm
EX-10.6(D) tv527142_ex10-6d.htm
EX-10.6(E) tv527142_ex10-6e.htm
EX-10.7 tv527142_ex10-7.htm
EX-10.8 tv527142_ex10-8.htm
EX-10.9 tv527142_ex10-9.htm
EX-10.9(A) tv527142_ex10-9a.htm
EX-10.9(B) tv527142_ex10-9b.htm
EX-10.9(C) tv527142_ex10-9c.htm
EX-10.9(D) tv527142_ex10-9d.htm
EX-31.1 tv527142_ex31-1.htm
EX-31.2 tv527142_ex31-2.htm
EX-32.1 tv527142_ex32-1.htm

Highpower International Earnings 2019-06-30

HPJ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv527142_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended June 30, 2019

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Transition Period From             To          

 

COMMISSION FILE NO.001-34098

 

HIGHPOWER INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   20-4062622
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

Building A1, 68 Xinxia Street, Pinghu, Longgang,

Shenzhen, Guangdong, 518111, People’s Republic of China

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

 

(86) 755-89686238

(COMPANY’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x     No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” as defined in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
Emerging growth company ¨  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨     No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.0001   HPJ   Nasdaq Stock Market LLC (Nasdaq Global Market)
Preferred Stock Purchase Rights   HPJ   Nasdaq Stock Market LLC (Nasdaq Global Market)

 

The registrant had 15,690,533 shares of common stock, par value $0.0001 per share, outstanding as of August 13, 2019.

 

 

 

 

 

 

HIGHPOWER INTERNATIONAL, INC.

FORM10-Q

 FOR THE QUARTERLY PERIOD ENDED June 30, 2019

INDEX

 

        Page
Part I   Financial Information  
           
    Item 1.   Consolidated Financial Statements  
             
        (a) Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018 2
             
        (b) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited) 4
             
        (c) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited) 5
             
        (d) Condensed Consolidated Statements of Change in Equity for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited) 6
             
        (e) Notes to Condensed Consolidated Financial Statements (Unaudited) 7
             
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
           
    Item 3.   Quantitative and Qualitative Disclosures About Market Risk 24
           
    Item 4.   Controls and Procedures 24
           
Part II   Other Information  
           
    Item 1.   Legal Proceedings 25
           
    Item 1A.   Risk Factors 25
           
    Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds 25
           
    Item 3.   Default Upon Senior Securities 25
           
    Item 4.   Mine Safety Disclosures 25
           
    Item 5.   Other Information 25
           
    Item 6.   Exhibits 29
           
Signatures 31

 

 1 

 

 

Item 1. Consolidated Financial Statements

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
ASSETS          
Current Assets:          
Cash   18,092,242    24,916,484 
Restricted cash   29,154,304    44,495,633 
Accounts receivable, net   68,999,026    77,279,817 
Amount due from a related party   146,119    477,663 
Notes receivable   3,664,108    256,712 
Advances to suppliers   463,891    2,292,843 
Prepayments and other receivables   6,419,803    10,457,789 
Inventories   51,980,426    54,790,461 
Total Current Assets   178,919,919    214,967,402 
           
Property, plant and equipment, net   65,089,990    56,523,177 
Long-term prepayments   2,373,543    2,617,419 
Land use right, net   2,406,173    2,445,751 
Other assets   770,717    643,128 
Deferred tax assets, net   935,443    865,370 
Long-term investments   8,387,618    9,993,852 
Right-of-use assets   10,213,704    - 
           
TOTAL ASSETS   269,097,107    288,056,099 
           
LIABILITIES AND EQUITY          
           
LIABILITIES          
Current Liabilities:          
Accounts payable   64,413,566    66,486,690 
Deferred government grants   680,915    464,206 
Short-term loans   24,662,933    24,856,744 
Non-financial institution borrowing   -    8,761,426 
Notes payable   60,168,272    73,607,284 
Foreign exchange derivative liabilities   932,378    521,509 
Amount due to related parties   101,869    6,116,851 
Other payables and accrued liabilities   21,818,077    25,860,703 
Income taxes payable   3,394,112    4,124,719 
Lease liabilities, current   2,334,110    - 
Total Current Liabilities   178,506,232    210,800,132 
           
Long-term payable   359,033    - 
Lease liabilities, non current   8,040,487    - 
           
TOTAL LIABILITIES   186,905,752    210,800,132 
           
COMMITMENTS AND CONTINGENCIES   -    - 

 

See notes to condensed consolidated financial statements

  

 2 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
EQUITY          
Stockholders’ equity          
Preferred stock          
(Par value: $0.0001, Authorized: 10,000,000 shares, Issued and outstanding: none)   -    - 
Common stock          
(Par value: $0.0001, Authorized: 100,000,000 shares, 15,567,953 shares issued and outstanding at June 30, 2019 and 15,559,658 at December 31, 2018, respectively)   1,557    1,556 
Additional paid-in capital   14,257,469    13,863,282 
Statutory and other reserves   8,012,052    8,012,052 
Retained earnings   61,169,856    56,173,912 
Accumulated other comprehensive loss   (1,249,579)   (794,835)
           
TOTAL EQUITY   82,191,355    77,255,967 
           
TOTAL LIABILITIES AND EQUITY   269,097,107    288,056,099 

 

See notes to condensed consolidated financial statements

 

 3 

 

  

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Stated in US Dollars)

 

  

Three months ended

June 30,

  

Six months ended

June 30,

 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Net sales   75,807,093    64,923,960    133,920,573    114,707,413 
Cost of sales   (57,436,018)   (53,614,034)   (102,888,969)   (95,831,160)
Gross profit   18,371,075    11,309,926    31,031,604    18,876,253 
                     
Research and development expenses   (4,380,399)   (3,592,760)   (7,367,108)   (6,154,597)
Selling and distribution expenses   (3,279,570)   (2,121,650)   (6,072,432)   (4,096,746)
General and administrative expenses   (5,027,418)   (3,910,188)   (9,850,907)   (8,024,998)
Foreign currency transaction gain (loss)   1,213,623    1,670,932    (37,272)   656,239 
Total operating expenses   (11,473,764)   (7,953,666)   (23,327,719)   (17,620,102)
                     
Income from operations   6,897,311    3,356,260    7,703,885    1,256,151 
                     
Changes in fair value of foreign exchange derivatives   (996,012)   (1,125,140)   (608,912)   (421,425)
Government grants   729,204    988,679    950,639    1,318,499 
Other income   15,550    56,581    82,248    80,142 
Equity in (loss) earnings of investees   (1,177,639)   160,070    (1,595,843)   316,320 
Interest expenses, net   (38,675)   (312,814)   (509,098)   (554,666)
Income before taxes   5,429,739    3,123,636    6,022,919    1,995,021 
                     
Income taxes expenses   (741,516)   (409,321)   (1,026,975)   (399,642)
Net income   4,688,223    2,714,315    4,995,944    1,595,379 
                     
Comprehensive income                    
Net income   4,688,223    2,714,315    4,995,944    1,595,379 
Foreign currency translation loss   (2,160,506)   (4,168,216)   (454,744)   (1,331,660)
Comprehensive income (loss)   2,527,717    (1,453,901)   4,541,200    263,719 
                     
Earnings per share of common stock                    
- Basic   0.30    0.17    0.32    0.10 
- Diluted   0.30    0.17    0.32    0.10 
                     
Weighted average number of common stock outstanding                    
- Basic   15,567,953    15,556,361    15,567,220    15,533,139 
- Diluted   15,626,265    15,629,413    15,615,590    15,619,771 

 

See notes to condensed consolidated financial statements

 

 4 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

 

   Six Months Ended June 30, 
   2019   2018 
   (Unaudited)   (Unaudited) 
   $   $ 
Cash flows from operating activities          
Net income   4,995,944    1,595,379 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   3,616,314    3,003,872 
Bad debt expense   93,576    (472,799)
Loss on disposal of property, plant and equipment   94,147    159,458 
Impairment of plant and equipment   75,783    - 
Deferred taxes   (73,794)   (498,878)
Changes in fair value of foreign exchange derivatives   608,912    955,790 
Equity in loss (earnings) of investees   1,595,843    (316,320)
Share based compensation   394,188    488,117 
Changes in operating assets and liabilities:          
Accounts receivable   8,198,062    (3,877,577)
Notes receivable   (3,459,522)   986,591 
Advances to suppliers   1,848,529    (2,154,883)
Prepayments and other receivables   4,064,320    (4,921,059)
Amount due from a related party   334,879    740,408 
Amount due to related parties   (138,767)   - 
Inventories   2,668,278    (27,915,901)
Accounts payable   (7,588,132)   21,683,401 
Deferred government grants   221,572    469,895 
Other payables and accrued liabilities   (3,379,969)   3,578,815 
Income taxes payable   (727,876)   (1,140,753)
Net cash flows provided by (used in) operating activities   13,442,287    (7,636,444)
           
Cash flows from investing activities          
Acquisitions of plant and equipment   (6,700,225)   (5,681,723)
Payment for long-term investment   (310,201)   (328,927)
Net cash flows used in investing activities   (7,010,426)   (6,010,650)
           
Cash flows from financing activities          
Proceeds from short-term bank loans   14,771,485    15,664,587 
Repayments of short-term bank loans   (14,882,292)   - 
Proceeds from a related party   2,954,297    - 
Repayment of loan from a related party   (8,589,619)   - 
Repayments of non-financial institution borrowing   (8,862,891)   (1,566,318)
Proceeds from notes payable   58,314,662    53,584,205 
Repayments of notes payable   (71,701,335)   (55,920,682)
Payment of derivative instruments   (190,062)   - 
Net cash flows (used in) provided by financing activities   (28,185,755)   11,761,792 
Effect of foreign currency translation on cash   (411,677)   (1,130,850)
Net decrease in cash and restricted cash   (22,165,571)   (3,016,152)
Cash and restricted cash- beginning of year   69,412,117    40,456,117 
Cash and restricted cash- end of year   47,246,546    37,439,965 
           
Supplemental disclosures for cash flow information:          
Cash paid for:          
Income taxes   1,960,545    2,039,273 
Interest expenses   1,394,561    1,002,653 
Non-cash investing and financing activities:          
Shares issued for legal case settlement   -    212,500 
Purchase of plant and equipment financed by accounts payable   5,715,931    - 
Reconciliation of cash and restricted cash:          
Cash   18,092,242    7,280,576 
Restricted cash   29,154,304    30,159,389 
Total cash and restricted cash shown in the condensed consolidated statements of cash flows   47,246,546    37,439,965 

 

See notes to condensed consolidated financial statements

 

 5 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(Stated in US Dollars)

 

 

                       Accumulated     
           Additional   Statutory       other     
   Common stock   paid-in   and other   Retained   comprehensive     
   Shares   Amount   capital   reserves   earnings   income (loss)   Total 
       $   $   $   $   $   $ 
Balance, January 1, 2018   15,509,658    1,551    12,709,756    6,549,815    44,481,568    3,469,495    67,212,185 
Foreign currency translation adjustments   -    -    -    -    -    2,836,556    2,836,556 
Share-based compensation expenses   -    -    241,421    -    -    -    241,421 
Net loss   -    -    -    -    (1,118,936)   -    (1,118,936)
Balance, March 31, 2018   15,509,658    1,551    12,951,177    6,549,815    43,362,632    6,306,051    69,171,226 
                                    
Shares issued for legal case settlement   50,000    5    212,495    -    -    -    212,500 
Foreign currency translation adjustments   -    -    -    -    -    (4,168,216)   (4,168,216)
Share-based compensation expenses   -    -    246,696    -    -    -    246,696 
Net income   -    -    -    -    2,714,315    -    2,714,315 
Balance, June 30, 2018   15,559,658    1,556    13,410,368    6,549,815    46,076,947    2,137,835    68,176,521 
                                    
Balance, January 1, 2019   15,559,658    1,556    13,863,282    8,012,052    56,173,912    (794,835)   77,255,967 
Exercise of the warrants   8,295    1    (1)   -    -    -    - 
Foreign currency translation adjustments   -    -    -    -    -    1,705,762    1,705,762 
Share-based compensation expenses   -    -    204,602    -    -    -    204,602 
Net income   -    -    -    -    307,721    -    307,721 
Balance, March 31, 2019   15,567,953    1,557    14,067,883    8,012,052    56,481,633    910,927    79,474,052 
                                    
Foreign currency translation adjustments   -    -    -    -    -    (2,160,506)   (2,160,506)
Share-based compensation expenses   -    -    189,586    -    -    -    189,586 
Net income   -    -    -    -    4,688,223    -    4,688,223 
Balance, June 30, 2019   15,567,953    1,557    14,257,469    8,012,052    61,169,856    (1,249,579)   82,191,355 

 

See notes to condensed consolidated financial statements

 

 6 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

1.Organization

 

The consolidated financial statements include the financial statements of Highpower International, Inc. ("Highpower") and its 100%-owned subsidiary Hong Kong Highpower Technology Company Limited (“HKHTC”), HKHTC’s wholly-owned subsidiary Shenzhen Highpower Technology Company Limited (“SZ Highpower”), SZ Highpower’s and HKHTC’s jointly owned subsidiaries, Springpower Technology (Shenzhen) Company Limited (“SZ Springpower”) and Icon Energy System Company Limited (“ICON”) and SZ Highpower’s and SZ Springpower’s jointly owned subsidiary Huizhou Highpower Technology Company Limited (“HZ HTC”). Highpower and its direct and indirect wholly owned subsidiaries are collectively referred to as the "Company".

 

2.Summary of significant accounting policies

 

Basis of presentation

 

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s consolidated financial position as of June 30, 2019, its consolidated results of operations for the three and six months ended June 30, 2019, cash flows for the six months ended June 30, 2019 and change in equity for the three and six months ended June 30, 2019, as applicable, have been made. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2019 or any future periods.

 

Concentrations of credit risk

 

One major customer accounted for 12.7% and 12.2% of the total sales for the three and six months ended June 30, 2019, respectively. No customer accounted for over 10% or more of the total sales during the three and six months ended June 30, 2018.

 

One supplier accounted for 12.1% and 12.2% of the total purchase amount during the three and six months ended June 30, 2019, respectively. One supplier accounted for 12.0% and 13.3% of the total purchase amount during the three and six months ended June 30, 2018, respectively.

 

One customer accounted for 16.4% of the accounts receivable as of June 30, 2019. No customer accounted for 10% or more of the accounts receivable as of December 31, 2018.

 

Recently issued accounting standards

 

On February 25, 2017, the FASB issued ASU 2016-02, Leases (Topic 842). It requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset (“ROU asset) representing its right to use the underlying asset for the lease term. We adopted this guidance in the first quarter of 2019 using the modified retrospective approach, electing the package of practical expedients, and the practical expedient to not separate lease and non-lease components for data center operating leases. We also elected the optional transition method that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented.

 

See Note 7 for disclosure required by ASC 842.

 

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.

 

 7 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

3.Revenue Recognition

 

The Company follows the guidance under ASC 606 effective January 1, 2018. The following table disaggregates product sales by business segment and by geography, which provides information as to the major source of revenue. See Note 16 for additional description of the reportable business segments and the products being sold in each segment.

 

   Three months ended June 30, 2019   Six months ended June 30, 2019 
   Lithium
Business
   Ni-MH Batteries
and Accessories
   Consolidated   Lithium
Business
   Ni-MH Batteries
and Accessories
   Consolidated 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $   $   $ 
Primary Geographic Markets                              
China Mainland   26,502,519    3,641,324    30,143,843    49,567,039    8,547,839    58,114,878 
Asia, others   33,804,072    1,911,993    35,716,065    50,815,302    7,971,477    58,786,779 
Europe   1,501,876    7,487,090    8,988,966    2,905,190    10,704,107    13,609,297 
North America   446,867    511,352    958,219    1,697,970    1,577,775    3,275,745 
Others   -    -    -    -    133,874    133,874 
Total sales   62,255,334    13,551,759    75,807,093    104,985,501    28,935,072    133,920,573 

 

The Company has elected to apply the practical expedient in paragraph ASC 606-10-50-14 and does not disclose information about remaining performance obligations (i) contracts that have an original expected length of one year or less; and (ii) contracts where revenue is recognized as invoiced.

 

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are expected to be recognized as revenue within one year and are included in other payables and accrued liabilities in the condensed consolidated balance sheets.

 

4.Accounts receivable, net

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Accounts receivable   69,152,027    77,340,837 
Less: allowance for doubtful accounts   153,001    61,020 
    68,999,026    77,279,817 

 

5.Inventories

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Raw materials   20,577,090    25,952,099 
Work in progress   10,619,229    10,192,772 
Finished goods   20,560,649    18,348,119 
Packing materials   33,291    14,394 
Consumables   190,167    283,077 
    51,980,426    54,790,461 

 

 8 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

6.Property, plant and equipment, net

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Cost          
Construction in progress   8,615,548    6,991,889 
Furniture, fixtures and office equipment   8,011,061    7,221,527 
Leasehold improvement   7,707,640    7,090,162 
Machinery and equipment   49,048,270    40,316,428 
Motor vehicles   1,574,860    1,508,398 
Buildings   19,101,682    19,166,951 
    94,059,061    82,295,355 
Less: accumulated depreciation   28,969,071    25,772,178 
    65,089,990    56,523,177 

 

The construction in process represented buildings and machines under construction or testing as of June 30, 2019 and December 31, 2018.

 

The Company recorded depreciation expenses of $1,858,661 and $1,499,538 for the three months ended June 30, 2019 and 2018, respectively, and $3,559,595 and $2,945,238 for the six months ended June 30, 2019 and 2018, respectively.

 

During the six months ended June 30, 2019, the Company deducted deferred government grants of $nil on the carrying amount of property, plant and equipment. During the year ended December 31, 2018, the Company deducted deferred government grants of $75,584 in calculating the carrying amount of property, plant and equipment.

 

The buildings comprising the Huizhou facilities were pledged as collateral for bank loan. The net carrying amounts of the buildings were $8,392,542 and $8,536,246 as of June 30, 2019 and December 31, 2018, respectively.

 

The building located in Shenzhen, Guangdong was pledged as collateral for bank loans. The net carrying amount of the building was $340,901 and $353,752 as of June 30, 2019 and December 31, 2018, respectively.

 

 9 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

7.Leases

 

The Company has various non-cancelable lease agreements for certain of the warehouses and accommodations with original lease periods expiring between 2019 and 2024. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. Certain of the arrangements have free rent periods or escalating rent payment provisions. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets. The Company recognizes rental expense on a straight-line basis over the lease term.

 

The following table provides a summary of leases by balance sheet location as of June 30, 2019:

 

   Balance Sheet Location  June 30, 2019 
      (Unaudited) 
      $ 
Assets        
Operating  Right-of-use assets   10,213,704 
Total leased assets      10,213,704 
         
Liabilities        
Operating - current  Lease Liabilities, current   2,334,110 
Operating - non current  Lease liabilities, non current   8,040,487 
Total lease liabilities      10,374,597 

 

The components of lease expense for the three and six months ended June 30, 2019 were as follows:

 

   Statement of Income Location  Three months ended
June 30, 2019
   Six months ended
June 30, 2019
 
      (Unaudited)   (Unaudited) 
      $   $ 
Lease Costs             
Operating lease expense  Cost of sales, Selling and distribution expenses, General and administrative expenses, Research and development expenses   764,149    1,521,856 
Total net lease costs      764,149    1,521,856 

 

Maturity of lease liabilities under the non-cancelable operating leases as of June 30, 2019 were as follows:

 

    Operating 
    (Unaudited) 
     $ 
Remaining 2019    1,281,201 
2020    3,189,784 
2021    3,361,853 
2022    2,596,847 
2023    980,182 
2024    167,850 
Total lease payments    11,577,717 
Less: interest    1,203,120 
Present value of lease liabilities    10,374,597 

 

 10 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

7.Leases (continued)

 

Future minimum rental payments under the non-cancelable operating leases as of December 31, 2018 were as follows:

 

    Leases (1) 
    $ 
2019    2,288,437 
2020    1,790,861 
2021    1,621,298 
2022    668,792 
     6,369,388 

 

(1) Amounts are based on ASC 840, Leases that was superseded upon our adoption of ASC 842, Leases on January 1, 2019.

 

The following table provides a summary of the lease terms and discount rates as of June 30, 2019:

 

     June 30, 2019 
Weighted Average Remaining Lease Term       
Operating leases     3.52 years 
        
Weighted Average Discount Rate       
Operating leases     6.18%

 

As most of the leases do not provide an implicit rate, the Company use the incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments.

 

Supplemental information related to the leases for the three and six months ended June 30, 2019 is as follows:

 

   Three months ended
June 30, 2019
   Six months ended
June 30, 2019
 
   (Unaudited)   (Unaudited) 
   $   $ 
Cash paid for amounts included in the measurement of lease liabilities:          
Operating cash flows from operating leases   732,090    1,358,235 

 

 11 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

8.Long-term investments

 

   June 30, 2019   December 31, 2018 
   (Unaudited)         
   $   Interest
%
   $   Interest
%
 
Equity method investments                    
-Ganzhou Highpower Technology Company Limited (“GZ Highpower”) (1)   6,188,223    31.294%   7,683,900    31.294%
-Shenzhen V-power Innovative Technology Co., Ltd (“V-power”) (2)   491,011    49.000%   595,730    49.000%
Cost method investment                    
-Huizhou Yipeng Energy Technology Co Ltd.   1,708,384    4.654%   1,714,222    4.654%
    8,387,618         9,993,852      

 

(1) Investment in GZ Highpower

 

On December 21, 2017, after the completion of the capital increase to GZ Highpower by other shareholders, the Company lost the controlling power over GZ Highpower and deconsolidated GZ Highpower. Thereafter, the investment was recorded under the equity method.

 

The equity in loss of investee was $1,150,032 and $1,491,608 for the three and six months ended June 30, 2019, respectively. The equity in earnings of investee was $179,964 and $336,214 for the three and six months ended June 30, 2018, respectively.

 

(2) Investment in V-power

 

On February 28, 2018, the Company signed an investment agreement with a related company and a group of individuals (the “Founder Team”) with an aggregate amount of RMB4.9 million (approximately $0.7 million) for 49% of the equity interest of V-power, which was recorded under the equity method. In addition, the Company agreed to transfer the 15% of original equity interest of V-power to the Founder Team as compensation under voluntary assignment as any of the following requirements met: 1. annual sales revenue higher or equal to RMB30 million before the first capital increase of V-power; and 2. valuation of V-power higher or equal to RMB30 million before equity issuance. As of June 30, 2019, the requirements have not been met and no such transfer was needed. As of June 30, 2019, the Company has injected RMB4.2 million (approximately $0.6 million) to V-power, and the unpaid amount was recorded as amount due to a related party (See Note 17).

 

The equity in loss of investee was $27,607 and $104,235 for the three and six months ended June 30, 2019, respectively. The equity in loss of investee was $19,894 and $19,894 for the three and six months ended June 30, 2018, respectively.

 

 12 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

9.Taxation

 

Highpower and its direct and indirect wholly owned subsidiaries file tax returns separately.

 

1) VAT

 

Pursuant to the Provisional Regulation of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in the sale of products in the PRC are generally required to pay VAT, at a rate of which was changed from 17% to 16% on May 1, 2018, and changed from 16% to 13% on April 1, 2019 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 on their revenues.

 

2) Income tax

 

United States

 

Tax Reform

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax.

 

On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

 

The one-time transition tax is based on the total post-1986 earnings and profits (“E&P”) for which the Company has previously deferred U.S. income taxes.

 

The Company evaluated the Global Intangible Low Taxed Income ("GILTI") inclusion on current earnings and profits of greater than 10% owned foreign controlled corporations. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The law also provides that corporate taxpayers may benefit from a 50% reduction in the GILTI inclusion, which effectively reduces the 21% U.S. corporate tax rate on the foreign income to an effective rate of 10.5%. The GILTI inclusion further provides for a foreign tax credit in connection with the foreign taxes paid. In 2019, the Company recorded a GILTI inclusion of $8,210,686. However, the total tax of $898,875 is fully offset by the deemed paid foreign tax credit.

 

The Company completed quantification of the Tax Act impact in 2018. The final adjustment is not material.

  

 13 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

9.Taxation (continued)

 

Hong Kong

 

HKHTC, which was incorporated in Hong Kong, is subject to a corporate income tax rate of 16.5%.

 

In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. In March 2018, the Hong Kong Government introduced a two-tiered profit tax rate regime by enacting the Inland Revenue (Amendment) (No.3) Ordinance 2018 (the “Ordinance”). Under the two-tiered profits tax rate regime, the first $2 million of assessable profits of qualifying corporations is taxed at 8.25% and the remaining assessable profits at 16.5%. The Ordinance is effective from the year of assessment 2018-2019. According to the policy, if no election has been made, the whole of the taxpaying entity’s assessable profits will be chargeable to Profits Tax at the rate of 16.5% or 15%, as applicable. Because the preferential tax treatment is not elected by the Company, HKHTC is subject to income tax at a rate of 16.5%.

 

PRC

 

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income.

 

In China, the companies granted with National High-tech Enterprise (“NHTE”) status enjoy 15% income tax rate. This status needs to be renewed every three years. If these subsidiaries fail to renew NHTE status, they will be subject to income tax at a rate of 25% after the expiration of NHTE status. All the PRC subsidiaries received NHTE status and enjoy 15% income tax rate for calendar year 2019 and 2018.

 

The components of the income taxes expenses are:

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Current   712,944    551,583    1,100,769    898,520 
Deferred   28,572    (142,262)   (73,794)   (498,878)
Total income taxes expenses   741,516    409,321    1,026,975    399,642 

 

The reconciliation of income taxes expenses computed at the PRC statutory tax rate to income tax expense is as follows:

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Income before tax   5,429,739    3,123,636    6,022,919    1,995,021 
                     
Provision for income taxes at PRC statutory income tax rate (25%)   1,357,435    780,909    1,505,730    498,755 
Impact of different tax rates in other jurisdictions   88,722    37,886    207,343    96,546 
Effect of  PRC preferential tax rate   (494,344)   (272,880)   (684,651)   (266,427)
R&D expenses eligible for super deduction   (541,876)   (334,892)   (680,270)   (334,892)
Other non-deductible expenses   87,610    32,175    187,972    48,751 
Change in valuation allowance of deferred tax assets   243,969    166,123    490,851    356,909 
Effective enterprise income tax expenses   741,516    409,321    1,026,975    399,642 

 

 14 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

9.Taxation (continued)

 

3) Deferred tax assets, net

 

Deferred tax assets and deferred tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of temporary difference.

 

    June 30,     December 31,  
    2019     2018  
    (Unaudited)        
    $     $  
Deferred tax assets            
Tax loss carry-forward     1,604,854       1,096,956  
Allowance for doubtful receivables     22,950       9,153  
Impairment for inventory     409,863       382,375  
Difference for sales cut-off     33,519       15,526  
Deferred government grants     102,137       69,631  
Property, plant and equipment subsidized by government grant     233,274       250,563  
Impairment for property, plant and equipment     122,431       138,122  
Total gross deferred tax assets     2,529,028       1,962,326  
Valuation allowance     (1,403,764 )     (1,096,956 )
Total deferred tax assets, net of valuation allowance     1,125,264       865,370  
Deferred tax liability                
PPE, due to difference in depreciation     (189,821 )     -  
Total deferred tax liability     (189,821 )     -  
Total net deferred tax assets     935,443       865,370  

 

As of June 30, 2019, the Company had net operating loss carry-forwards in Hong Kong of $8,507,665 without expiration and in the PRC of $1,340,597, which will start to expire in 2023.

 

The Company has deferred tax assets which consisted of tax loss carry-forwards and other items that can be carried forward to offset future taxable income. Management determined it is more likely than not that part of the deferred tax assets could not be utilized, so a valuation allowance was provided for as of June 30, 2019 and December 31, 2018. The net valuation allowance increased by $0.3 million and $0.4 million during the six months ended June 30, 2019 and 2018, respectively.

 

10.Notes payable

 

Notes payable presented to certain suppliers as a payment against the outstanding trade payables.

 

Notes payable are mainly bank acceptance bills which are non-interest bearing and generally mature within one year. The outstanding bank acceptance bills are secured by restricted cash deposited in banks. Outstanding bank acceptance bills were $60,168,272 and $73,607,284 as of June 30, 2019 and December 31, 2018, respectively.

 

11.Short-term loans

 

As of June 30, 2019, the bank borrowings were for working capital and capital expenditure purposes with maturity of one year and were secured by personal guarantees executed by the Company’s Chief Executive Officer, Mr. Dang Yu Pan, the land use right with a net carrying amount of $2,406,173 and the buildings with a net carrying amount of $8,733,443, respectively.

 

The loans were primarily obtained from three banks with interest rates ranging from 5.2200% to 6.5253% per annum and 5.2300% to 6.5253% per annum as of June 30, 2019 and December 31, 2018, respectively. The interest expenses were $344,983 and $653,565 for the three and six months ended June 30, 2019, respectively. The interest expenses were $118,886 and $230,599 for the three and six months ended June 30, 2018, respectively.

 

 15 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

12.Non-financial institution borrowing

 

For the six months ended June 30, 2019, the Company paid back $8,862,891 to the third party non-financial institution.

 

The interest expense of the above borrowing was $nil and $4,877 for the three and six months ended June 30, 2019. The interest expense of the above borrowing was $134,660 and $296,963 for the three and six months ended June 30, 2018.

 

13.Lines of credit

 

The Company entered into various credit contracts and revolving lines of credit, which were used for short-term loans and bank acceptance bills. As of June 30, 2019, the total and unused lines of credit were $107.2 million and $27.6 million, respectively, with maturity dates from August 2019 to October 2021. As of December 31, 2018, the total and unused lines of credit were $102.6 million and $23.8 million, respectively, with maturity dates from March 2019 to October 2021.

 

These lines of credit were guaranteed by the Company’s Chief Executive Officer, Mr. Dang Yu Pan and his wife. The Company’s buildings and the land use right were pledged as collateral for these lines of credit.

 

14.Earnings per share

 

The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2019 and 2018.

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Numerator:                    
Net income   4,688,223    2,714,315    4,995,944    1,595,379 
                     
Denominator:                    
Weighted-average shares outstanding                    
- Basic   15,567,953    15,556,361    15,567,220    15,533,139 
- Dilutive effects of equity incentive awards   58,312    73,052    48,370    86,632 
- Diluted   

15,626,265

    15,629,413    15,615,590    15,619,771 
                     
Net income per share:                    
- Basic   0.30    0.17    0.32    0.10 
- Diluted   0.30    0.17    0.32    0.10 

 

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.

 

 16 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

15.Defined contribution plan

 

Full-time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits (“the Benefits”) are provided to employees. Chinese labor regulations require that the PRC operating subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries. Except for contributions made related to the Benefits, the Company has no legal obligation.

 

The total contributions made, which were expensed as incurred, were $996,410 and $1,979,784 for the three and six months ended June 30, 2019. The total contributions made, which were expensed as incurred, were $729,595 and $1,383,552 for the three and six months ended June 30, 2018.

 

16.Segment information

 

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 two reportable segments, namely (i) Lithium Business and (ii) Ni-MH Batteries and Accessories.

 

The CODM evaluates performance based on each reporting segment’s net sales, cost of sales, gross profit and total assets. Net sales, cost of sales, gross profit and total assets by segments is set out as follows:

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Net sales                    
Lithium Business   62,255,334    48,503,856    104,985,501    85,100,511 
Ni-MH Batteries and Accessories   13,551,759    16,420,104    28,935,072    29,606,902 
Total   75,807,093    64,923,960    133,920,573    114,707,413 
                     
Cost of Sales                    
Lithium Business   47,382,082    39,755,643    81,010,550    70,546,982 
Ni-MH Batteries and Accessories   10,053,936    13,858,391    21,878,419    25,284,178 
Total   57,436,018    53,614,034    102,888,969    95,831,160 
                     
Gross Profit                    
Lithium Business   14,873,252    8,748,213    23,974,951    14,553,529 
Ni-MH Batteries and Accessories   3,497,823    2,561,713    7,056,653    4,322,724 
Total   18,371,075    11,309,926    31,031,604    18,876,253 

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Total Assets          
Lithium Business   215,321,303    231,795,621 
Ni-MH Batteries and Accessories   53,775,804    56,260,478 
Total   269,097,107    288,056,099 

 

 17 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

16.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 locations of the Company’s customers is set out as follows:

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Net sales                    
China Mainland   30,143,843    32,880,005    58,114,878    61,185,768 
Asia, others   35,716,065    25,183,900    58,786,779    40,938,296 
Europe   8,988,966    4,849,360    13,609,297    9,387,263 
North America   958,219    1,998,243    3,275,745    3,163,074 
Others   -    12,452    133,874    33,012 
    75,807,093    64,923,960    133,920,573    114,707,413 

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Accounts receivable          
China Mainland   33,494,645    38,048,651 
Asia, others   28,138,970    33,237,051 
Europe   6,596,124    5,413,343 
North America   769,287    566,769 
Others   -    14,003 
    68,999,026    77,279,817 

 

17.Related party balance and transaction

 

Related party balance

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
   $   $ 
Accounts receivable   86,343    476,093 
Other receivable   59,776    1,570 
Amount due from a related party- GZ Highpower   146,119    477,663 
           
Other payable-investment (1)   101,869    408,867 
Loan from Mr. Dang Yu Pan (2)   -    5,707,984 
Amount due to related parties   101,869    6,116,851 

 

(1)The Company signed an investment agreement with an aggregate amount of RMB4.9 million (approximately $0.7 million) in investing for 49% of the equity interest of V-power which was set up on March 1, 2018. On April 28, 2018, the Company injected RMB2.1 million (approximately $0.3 million) to V-power. On January 14, 2019, the Company injected RMB2.1 million (approximately $0.3 million) to V-power and the unpaid amount was recorded as amount due to a related party. (See Note 8)

 

(2)The Company entered into a loan agreement with a maximum amount of RMB60 million (approximately $8.7 million) with Mr. Dang Yu Pan on July 20, 2018. As of June 30, 2019, the Company repaid the loans. The interest rate is 5.65% per annum. The Company accrued interest expense $20,135 and $133,930 for the three and six months ended June 30, 2019, respectively.

 

 18 

 

 

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Stated in US Dollars)

 

17.Related party balance and transaction (continued)

 

Related party transaction

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
GZ Highpower                    
Sales   239,573    433,147    440,306    658,934 
                     
V-Power                    
Payment of investment   -    -    310,201    - 
                     
Dang Yu Pan                    
Loan from Dang Yu Pan   -    -    2,954,297    - 
Repayment of Loan from Dang Yu Pan   8,589,619    -    8,589,619    - 
Interest expense   20,135    -    133,930    - 

 

18.Subsequent event

 

The Company has evaluated subsequent events through the issuance of the unaudited condensed consolidated financial statements and no other subsequent event is identified that would have required adjustment or disclosure in the consolidated financial statements.

 

 19 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes that are included in this Quarterly Report and the audited consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with SEC on March 28, 2019 (the “Annual Report”).

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview

 

Net sales increased by $10.9 million, or 16.8%, during the second quarter of 2019 compared to the same quarter in 2018. The main driver was our lithium business, including high-end consumer products, industrial applications and increased demand for artificial intelligence products. Lithium business net sales increased by $13.8 million, or 28.4%, during the second quarter of 2019 compared to the same quarter in 2018.

 

Gross profit during the second quarter of 2019 was $18.4 million, or 24.2% of net sales, compared to $11.3 million, or 17.4% of net sales, for the comparable period in 2018.

 

Critical Accounting Policies

 

See Note 2 to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies.

 

 20 

 

 

 

Results of Operations

 

The following table sets forth the unaudited consolidated statements of operations of the Company for the three and six months ended June 30, 2019 and 2018, both in US$ and as a percentage of net sales.

 

Consolidated Statements of Operations

 

(Dollars in Thousands, Except Per  Three months ended June 30,   Six months ended June 30, 
Share Amounts)  2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   %   $   %   $   %   $   % 
Net sales   75,807    100.0%   64,924    100.0%   133,921    100.0%   114,707    100.0%
Cost of sales   (57,436)   (75.8%)   (53,614)   (82.6%)   (102,889)   (76.8%)   (95,831)   (83.5%)
Gross profit   18,371    24.2%   11,310    17.4%   31,032    23.2%   18,876    16.5%
                                         
Research and development expenses   (4,380)   (5.8%)   (3,593)   (5.5%)   (7,367)   (5.5%)   (6,155)   (5.4%)
Selling and distribution expenses   (3,280)   (4.3%)   (2,122)   (3.3%)   (6,072)   (4.5%)   (4,097)   (3.6%)
General and administrative expenses   (5,027)   (6.6%)   (3,910)   (6.0%)   (9,851)   (7.4%)   (8,025)   (7.0%)
Foreign currency transaction gain (loss)   1,213    1.6%   1,671    2.6%   (38)   (0.0%)   657    0.6%
Income from operations   6,897    9.1%   3,356    5.2%   7,704    5.8%   1,256    1.1%
                                         
Changes in fair value of foreign exchange derivatives   (995)   (1.3%)   (1,125)   (1.7%)   (609)   (0.5%)   (421)   (0.4%)
Government grants   729    1.0%   989    1.5%   951    0.7%   1,318    1.1%
Other income   16    0.0%   57    0.1%   82    0.1%   81    0.1%
Equity in (loss) earnings of investees   (1,178)   (1.6%)   160    0.2%   (1,596)   (1.2%)   316    0.3%
Interest expenses, net   (39)   (0.1%)   (313)   (0.5%)   (509)   (0.4%)   (555)   (0.5%)
Income before taxes   5,430    7.2%   3,124    4.8%   6,023    4.5%   1,995    1.7%
                                         
Income taxes expenses   (742)   (1.0%)   (410)   (0.6%)   (1,027)   (0.8%)   (400)   (0.3%)
Net income   4,688    6.2%   2,714    4.2%   4,996    3.7%   1,595    1.4%
                                         
Diluted earnings per common stock   0.30         0.17         0.32         0.10      

 

Net sales

 

Net sales for the three months ended June 30, 2019 were $75.8 million compared to $64.9 million for the comparable period in 2018, an increase of $10.9 million, or 16.8%.

 

Net sales for the six months ended June 30, 2019 were $133.9 million compared to $114.7 million for the comparable period in 2018, an increase of $19.2 million, or 16.7%. Net sales of Lithium business increased by $19.9 million, or 23.4%, during the six months ended June 30, 2019, compared to the comparable period in 2018. Ni-MH batteries and accessories net sales decreased by $0.7 million, or 2.3%, during the six months ended June 30, 2019, compared to the comparable period in 2018. The increase in net sales was mainly due to the optimization of our sales structure.

 

Gross profit

 

Gross profit for the three months ended June 30, 2019 was $18.4 million, or 24.2% of net sales, compared to $11.3 million, or 17.4% of net sales, for the comparable period in 2018. This increase was attributed to the product mix and improvement in our labor efficiency.

 

 21 

 

 

Gross profit for the six months ended June 30, 2019 was $31.0 million, or 23.2% of net sales, compared to $18.9 million, or 16.5% of net sales, for the comparable period in 2018. This increase was attributed to the product mix and improvement in our labor efficiency.

 

Research and development expenses

 

Research and development expenses were $4.4 million, or 5.8% of net sales, for the three months ended June 30, 2019, compared to $3.6 million, or 5.5% of net sales, for the comparable period in 2018.

 

Research and development expenses were $7.4 million, or 5.5% of net sales, for the six months ended June 30, 2019, compared to $6.2 million, or 5.4% of net sales, for the comparable period in 2018. The Company will continue to invest on R&D activities in the future.

 

Selling and distribution expenses

 

Selling and distribution expenses were $3.3 million, or 4.3% of net sales, for the three months ended June 30, 2019, compared to $2.1 million, or 3.3% of net sales, for the comparable period in 2018.

 

Selling and distribution expenses were $6.1 million, or 4.5% of net sales, for the six months ended June 30, 2019, compared to $4.1 million, or 3.6% of net sales, for the comparable period in 2018. The increase of expenses was mainly driven by marketing expenses for more branded customers.

 

General and administrative expenses

 

General and administrative expenses were $5.0 million, or 6.6% of net sales, for the three months ended June 30, 2019, compared to $3.9 million, or 6.0% of net sales, for the comparable period in 2018.

 

General and administrative expenses were $9.9 million, or 7.4% of net sales, for the six months ended June 30, 2019, compared to $8.0 million, or 7.0% of net sales, for the comparable period in 2018.

 

Foreign currency transaction gain (loss)

 

We experienced a gain of $1.2 million and $1.7 million for the three months ended June 30, 2019 and 2018, respectively, on the exchange rate difference between the US$ and the RMB.

 

We experienced a loss of $37,272 and a gain of $656,239 for the six months ended June 30, 2019 and 2018, respectively, on the exchange rate difference between the US$ and the RMB. The loss or gain in exchange rate difference was due to the influence of the RMB relative to the US$ over the respective periods.

 

Changes in fair value of foreign exchange derivatives

 

We experienced a loss on derivative instruments of $1.0 million and $1.1 million for the three months ended June 30, 2019 and 2018, respectively.

 

We experienced a loss on derivative instruments of $0.6 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

 

Government grants

 

Government grants were $0.7 million and $1.0 million for the three months ended June 30, 2019, and 2018, respectively.

 

Government grants were $1.0 million and $1.3 million for the six months ended June 30, 2019, and 2018, respectively.

 

 22 

 

 

Other income

 

Other income was $15,550 and $56,581 for the three months ended June 30, 2019 and 2018, respectively.

 

Other income was $82,248 and $80,142 for the six months ended June 30, 2019 and 2018, respectively.

 

Equity in (loss) earnings of investees 

 

Equity in loss of investees were $1.2 million for the three months ended June 30, 2019, compared to equity in earnings of investee $160,070 for the comparable period in 2018.

 

Equity in loss of investees were $1.6 million for the six months ended June 30, 2019, compared to equity in earnings of investee $316,320 for the comparable period in 2018.

 

Interest expenses, net

 

Interest expenses, net were $38,675 and $312,814 for the three months ended June 30, 2019 and 2018, respectively.

 

Interest expenses, net were $509,098 and $554,666 for the six months ended June 30, 2019 and 2018, respectively.

 

Income taxes expenses

 

Income taxes expenses were $0.7 million and $0.4 million for the three months ended June 30, 2019 and 2018, respectively.

 

Income taxes expenses were $1.0 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

 

Net income

 

Net income for the three months ended June 30, 2019 was $4.7 million compared to $2.7 million for the comparable period in 2018, increase of $2.0 million, or 72.7%.

 

Net income for the six months ended June 30, 2019 was $5.0 million compared to $1.6 million for the comparable period in 2018, increase of $3.4 million, or 213.2%.

 

Reconciliation of Net Income to EBITDA

 

A table reconciling earnings before interest, income tax, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, to the appropriate GAAP measure is included with the Company's financial information below. EBITDA was derived by taking earnings before interest expense, net, taxes, depreciation and amortization. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. The Company believes this non-GAAP measure is useful to investors as it provides a basis for evaluating the Company's operating results in the ordinary course of its operations. This non-GAAP measure is not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with, and not in lieu of, the corresponding GAAP measures.

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
   $   $   $   $ 
Net income   4,688,223    2,714,315    4,995,944    1,595,379 
                     

Interest expenses, net

   38,675    312,814    509,098    554,666 
Income taxes expenses   741,516    409,321    1,026,975    399,642 
Depreciation and Amortization   1,886,874    1,528,644    3,616,314    3,003,872 
                     
EBITDA   7,355,288    4,965,094    10,148,331    5,553,559 

 

 23 

 

 

Liquidity and Capital Resources

 

We had cash of approximately $18.1 million as of June 30, 2019, compared to $24.9 million as of December 31, 2018.

 

To provide liquidity and flexibility in funding our operations, we borrow funds under bank facilities and other external sources of financing. As of June 30, 2019, we had lines of credit with eight financial institutions aggregating $107.2 million. The maturities of these facilities vary from August 2019 to October 2021. The facilities are subject to regular review and approval. Certain of these bank facilities are guaranteed by our Chief Executive Officer, Mr. Dang Yu Pan and his wife, pledged by land use right and buildings, and contain customary affirmative and negative covenants for secured credit facilities of this type. Interest rates are generally based on the banks’ reference lending rates. No significant commitment fees are required to be paid for the bank facilities. As of June 30, 2019, we had utilized approximately $79.6 million under such general credit facilities and had available unused credit facilities of $27.6 million.

 

Net cash provided by operating activities was approximately $13.4 million for the six months ended June 30, 2019, compared to net cash used in operating activities of $7.6 million for the comparable period in 2018. The net cash increase of $21.1 million provided by operating activities is primarily due to an increase of $30.6 million in cash inflow from inventories, an increase of $12.1 million in cash inflow from accounts receivable, an increase of $9.0 million in cash inflow from prepayments and other receivables and an increase of $29.3 million in cash outflow from accounts payable.

 

Net cash used in investing activities was $7.0 million for the six months ended June 30, 2019, compared to net cash used in investing activities of $6.0 million for the comparable period in 2018. The net cash increase of $1.0 million used in investing activities is primarily due to an increase of $1.0 million in cash outflow from acquisitions of plant and equipment.

 

Net cash used in financing activities was $28.2 million for the six months ended June 30, 2019, compared to net cash provided by financing activities of $11.8 million for the comparable period in 2018. The net cash increase of $40.0 million in net cash used in financing activities was primarily attributable to an increase of $15.8 million in cash outflow from repayments of notes payable, an increase of $14.9 million in cash outflow from repayments of short-term bank loans and an increase of $8.6 million in cash outflow from repayment of loan from a related party.

 

Recent Accounting Standards

 

Please refer to Note 2 (Recently issued accounting standards).

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required for a smaller reporting company.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

Disclosure controls and procedures are controls and other procedures that are designed and adopted by management to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that all necessary information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

 

 24 

 

 

(b) Changes in Internal Control over Financial Reporting

 

There were no significant changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2019, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. Other Information

 

Item 1. Legal Proceedings

 

From time to time, we are subject to certain legal proceedings, claims and disputes that arise in the ordinary course of our business. Although we cannot predict the outcomes of these legal proceedings, we do not believe these actions, in the aggregate, will have a material adverse impact on our financial position, results of operations or liquidity. We are currently not a party to any material legal proceedings

 

Item 1A. Risk Factors

 

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described herein and in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 28, 2019 and all of the information contained in our public filings before deciding whether to purchase our common stock. Other than as set forth below, there have been no material revisions to the “Risk Factors” as set forth in our Annual Report on Form 10-K.

 

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Default Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information

 

Working Capital Loan Contract between SZ Highpower and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch

Working Capital Loan Contract between SZ Springpower and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch

 

On May 15, 2019, SZ Highpower entered into a working capital loan contract with Industrial and Commercial Bank of China Ltd., Shenzhen Henggang Branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used as current funds for production and operations. SZ Highpower must withdraw the facility before August 30, 2019, after which time the bank may cancel all or part of the facility. The term of the loan is 12 months from the first withdrawal date. The interest rate is 6.5250%, which equals to the one year benchmarked by interbank rates, float 51.4%. The loan is guaranteed by HK HTC, SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,455,265 as of June 30, 2019.

 

On June 25, 2019, SZ Highpower entered into a working capital loan contract with Industrial and Commercial Bank of China Ltd., Shenzhen Henggang Branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used as current funds for production and operations. SZ Highpower must withdraw the facility before September 24, 2019, after which time the bank may cancel all or part of the facility. The term of the loan is 12 months from the first withdrawal date. The interest rate is 6.5250%, which equals to the one year benchmarked by interbank rates, float 51.4%. The loan is guaranteed by HK HTC, SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,455,265 as of June 30, 2019.

 

On May 15, 2019, SZ Springpower entered into a working capital loan contract with Industrial and Commercial Bank of China Ltd., Shenzhen Henggang Branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used as current funds for production and operations. SZ Springpower must withdraw the facility before August 30, 2019, after which time the bank may cancel all or part of the facility. The term of the loan is 12 months from the first withdrawal date. The interest rate is 6.5250%, which equals to the one year benchmarked by interbank rates, float 51.4%. The loan is guaranteed by HK HTC, HZ HTC and our Chief Executive Officer, Dang Yu Pan. The Company’s real estate in Shenzhen also served as collateral for the loan. The balance of loan was $1,455,265 as of June 30, 2019.

 

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The following constitute events of default under each loan agreement: failure to repay principal, interest, and other payables in accordance with the provisions specified in these contracts; or failure to fulfill any other obligations in these contracts, or contrary to the statements, guarantee and commitments in these contracts; the guarantees in these contracts have adversely changed to the lender’s loan, and the borrowers is not available to provide other guarantees approved by the lender failure to pay off any other debts due by the borrowers, or failure to fulfill or breach other obligations in these contracts, or likely to affect the performance of the obligations in these contracts; the financial performance of the profitability, debt payment ability, operating capacity and cash flow of the borrowers exceed the agreed standards, or deterioration has been or may affect the obligations in these contracts; the borrower’s ownership structure, operation, external investment has changed adversely, which have affected or may affect the fulfillment of the obligations in these contracts; the borrowers involves or may involve significant economic disputes, litigation, arbitration, or asset seizure, detention or enforcement, or judicial or administrative authorities for investigation or take disciplinary measures in accordance with the laws, or illegal with relevant state regulations or policies in accordance with the laws, or exposure by media, which have affected or may affect the fulfillment of the obligations in these contracts; the borrower’s principal individual investors, key management officer’s change, disappearances or restriction of personal liberty, likely to affect the performance of the obligations in these contracts; using false contracts with related parties, using no actual transaction to extract the lender’s funds or credit, or evasion of lender’s loan right through related party transactions; having been or may be out of business, dissolution, liquidation, business reorganizations, business license has been revoked or bankruptcy; breaches food safety, production safety, environmental protection and other environmental and social risk management related laws and regulations, regulatory requirements or industry standards, resulting in accidents, major environmental and social risk events, likely to affect the performance of the obligations in these contracts; in these contracts, the borrower's credit rating, level of profitability, asset-liability ratio, net cash flow of operating and other indicators do not meet the credit conditions of the lender; or without the lender’s written contract, pledges guarantee or provides assurance guarantees to other party, likely to affect the performance of the obligations in these contracts; other adverse situations may affect in the realization of loan right in these contracts.

 

Upon the occurrence of an event of default, the bank may: request the borrowers rectify the event of default within a specified time period; cancel or terminate the borrower’s the unused portion of the credit line and other financing arrangements in whole or in part; declare all amounts outstanding under the contract immediately due and payable; require the borrowers to compensate the bank for losses it incurs as a result of the event of default; or other measures permitted under applicable law or other necessary measures.

 

Working Capital Loan Contract between SZ Springpower and Bank of China, Buji Sub-branch

Working Capital Loan Contract between ICON and Bank of China, Buji Sub-branch

 

On April 25, 2019, SZ Springpower entered into a working capital loan contract with Bank of China, Buji Sub-branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used by SZ Springpower to purchase raw materials. The term of the loan is 12 months from the first withdrawal date. SZ Springpower must withdraw the facility within 30 days from April 29, 2019, after which time the bank may cancel all or part of the facility. The interest rate is 6.09%, which equals to the one year benchmarked by interbank rates, plus 112.75%. The loan is guaranteed by SZ Highpower, HZ HTC and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,455,265 as of June 30, 2019.

 

On June 18, 2019, ICON entered into a working capital loan contract with Bank of China, Buji Sub-branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used by ICON to purchase raw materials. The term of the loan is 12 months from the first withdrawal date. ICON must withdraw the facility within 30 days from June 19, 2019, after which time the bank may cancel all or part of the facility. The interest rate is 5.22%, which equals to the one year benchmarked by interbank rates, plus 0.91%. The loan is guaranteed by SZ Highpower, SZ Springpower, HZ HTC and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,455,265 as of June 30, 2019.

 

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The following constitute events of default under each loan agreement: failure to comply with repayment obligations under the agreement or any affiliated credit lines contract; failure to use borrowed funds according to the specified purposes; any statement made by the borrower in the agreement is untrue or in violation of any commitments in the loan agreement or affiliated loan contracts; failure to provide an additional guarantor as required by the loan agreement; significant business difficulties or risks, deteriorated financial losses or losses of assets, or other financial crisis; breach of covenants in other credit agreements with the bank or affiliated institutions of the bank; any guarantor breaches a contract or defaults under any agreement with the bank or affiliated institutions of the bank; termination of its business or engagement due to any wind-up, cancellation or bankruptcy issues; involvement or potential involvement in significant economic disputes, litigation, arbitration or assets seizure or confiscation, or its involvement in other judicial proceedings or administrative punishment proceedings that have affected or may affect its capacity to perform its obligations under the affiliated specific credit line contract; an abnormal change in any major individual investor or key management member of the borrower or such a person or entity’s becoming subject to investigation or restriction by the judiciary, which have or may affect the borrower’s performance of obligation under affiliated specific credit line contract; Bank of China’s discovery of any situation that may affect the financial position or performance capacities of the borrower or a guarantor after the bank’s annual review of the borrower’s financial position and performance; failure to provide the relevant documentation acceptable to Bank of China about the inflows and outflows of large-sum and abnormal capital in capital recovery account; or being in violation of other rights and obligations under the affiliated specific credit line contract.

 

Upon the occurrence of an event of default, the bank may: request the borrower or any guarantor to rectify the event of default within a specified time period; reduce, temporarily suspend or permanently terminate the borrower’s credit limit in whole or in part; temporarily suspend or permanently terminate in part or in whole the borrower’s application for specific credit line under the agreement; announce the immediate expiration of all the credit lines granted under the affiliated specific credit line contract as well as other contracts; terminate or release the contract, terminate or release in part or in whole any of the affiliated specific credit line contract as well as the other contracts executed between the borrower and the bank; require compensation from the borrower on the losses thereafter caused; hold the borrower’s deposit account at the bank in custody for repayment of amounts due under the contract; exercise the real rights for security; request repayment from a guarantor; or take any other procedures deemed necessary by the bank.

 

Working Capital Loan Contract between ICON and Bank of Jiangsu, Shenzhen Branch

 

On April 30, 2019, ICON entered into a working capital loan contract with Bank of Jiangsu, Shenzhen Branch providing for an aggregate loan of RMB10,000,000 ($1,455,265) to be used by ICON to purchase raw materials. The term of the loan from May 24, 2019 to March 23, 2020. The interest rate is 6.09%, which equals to the one year benchmarked by interbank rates, float 40.0%. The loan is guaranteed by SZ Highpower, SZ Springpower, HZ HTC and our Chief Executive Officer, Dang Yu Pan. The balance of loan was $1,455,265 as of June 30, 2019.

 

The following constitute events of default under the loan agreement: failure to fully and promptly perform its any obligations specified in this Contract and other relevant documents. if the borrower's aforesaid behavior can be corrected but the borrower fails to correct it to the extent satisfied by the lender within 20 days after the lender sends a written notice of correction; the borrower voluntarily or compulsively goes out of business, winds up, reorganizes, dissolves or goes into bankruptcy; the borrower provides false materials or conceals important business financial facts; the borrower breaks through the financial indicators stipulated the contract; the borrower suffers from financial loss or deterioration of financial conditions, which may affect the loan safety, or the borrower intentionally evades or cancels the creditor's rights of the Bank; the borrower's loan project plan is canceled or cannot be implemented; the borrower fraudulently obtains funds or credit from the lender or other bank by use of a false contract with an affiliated party; the borrower engages in or suspected of carrying out illegal business activities; the borrower goes into division, combination, major merger, acquisition or reorganization; the borrower violates any other contract signed with the lender or a third party, or there is any dispute arising from such contract, thereby causing or likely to cause litigation or arbitration; the controlling shareholder of the borrower transfers its shares held in the borrower, or the controlling shareholder, actual controller, legal representative or other senior management person has major events, including but not limited to engaging in or suspected of conducting illegal activities, or subject to litigation, arbitration or administrative punishment, going worse of its financial conditions, declaration of bankruptcy or dissolution, and so on; the guarantor has breach of contract, including but not limited to provision of false materials by the guarantor, the guarantor's violation of other contract signed with the lender or a third party, litigation or arbitration caused due to any dispute arising from such contract, forced or active suspension of business, major business failure, engaging in or suspected of conducting illegal activities, evasion or cancellation of creditor's rights of the Bank, merger and/or acquisition or reorganization, or other situations which may reduce its guarantee capability; An event of default occurs under other loan contract or guarantee contract made and entered into by and between the borrower and the lender; Other circumstances which endanger or may endanger the lender's loan safety.

 

Upon the occurrence of an event of default, the bank may: change the loan payment mode, stop payment of the loan not withdrawn by the borrower and/or ask the borrower to repay the loan in advance and announce acceleration of maturity of all the loan hereunder according to the stipulations of this contract; ask the borrower to repay the loan principal and interest hereunder in advance and pay all other relevant expenses, or ask the borrower to transfer its all debts hereunder to a transferee accepted by the lender, or ask the borrower to provide other guarantee measures accepted by the lender.

 

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Financing Quota Agreement between HZ HTC and Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch

 

On April 11, 2019, HZ HTC entered into a financing quota agreement with Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch, which provides for a revolving line of credit of up to RMB20,000,000 ($2,190,530). HZ HTC may issue bank acceptance, from time to time as needed, on or before April 1, 2020. The loan is guaranteed by SZ Highpower, ICON, SZ Springpower and our Chief Executive Officer, Dang Yu Pan. The used facility was $nil as of June 30, 2019.

 

The following constitute events of default under the loan agreement: violates any representation, warranty hereof or such representation; or warranty is certified to be incorrect, untrue, or missed or misleading or have been violated; and/or the borrower violates or does not fulfill any promised matter herein; and/or the borrower violates any regulation of this agreement; or any affiliated financing document hereunder; and or the borrower has any circumstance that may affect the safety of the financing bank’s loan; and/ or the guarantor violates the regulation of any guarantee document, all constitute the borrower’s default events of this agreement and affiliated financing documents.

 

Upon the occurrence of an event of default, the bank may: adjust or cancel the financing quota hereunder; announce all or a part of the debts under any affiliated financing document hereof to expire in advance; and /or terminate this agreement and all or a part of the affiliated financing documents, and require the customer to immediately return all or a part of the financing principal or interest; require the borrower to add margin amount, or transfer the borrower’s deposit or the deposit in the settlement account to its margin account for external payment or the margin of the advance payment that may occur to the borrower in the future for the bills already accepted or L/C, L/G/ SLC opened by the financing bank within the quota use term; require the borrower to immediately repay the advance payment if the financing bank already had advance payment; interest shall be calculated according to the penalty interest rate agreed herein or the penalty interest rate agreed in the affiliated financing document; and compound interest shall be calculated and collected to the payable and unpaid interest; deduct the borrower’s deposit in any account in the financing bank in accordance with the regulation in the contract.

 

Comprehensive Credit Contract between SZ Highpower and China Everbright Bank Co., Ltd., Shenzhen Branch

Comprehensive Credit Contract between SZ Springpower and China Everbright Bank Co., Ltd., Shenzhen Branch

 

On April 4, 2019, each of SZ Highpower and SZ Springpower entered into a comprehensive credit line contract with China Everbright Bank Co., Ltd., Shenzhen Branch. SZ Highpower’s loan agreement provides for a revolving line of credit of up to RMB20,000,000 ($2,190,530) and SZ Springpower’s loan agreement provides for a revolving line of credit of up to RMB30,000,000 ($4,365,795). Each Company may issue bank acceptance, from time to time as needed, but must make a specific drawdown application on or before April 3, 2020, after which time the bank may cancel all or part of the facilities. SZ Highpower’s loan is guaranteed by SZ Springpower, HZ HTC, ICON and our Chief Executive Officer, Dang Yu Pan and his wife. SZ Springpower’s loan is guaranteed by SZ Highpower, HZ HTC and ICON and our Chief Executive Officer, Dang Yu Pan and his wife. The used facility of SZ Highpower and SZ Springpower was $2,190,530 and $4,365,795 as of June 30, 2019 which was used for bank acceptance.

 

The following constitute events of default under the loan contracts: a significant monetary policy change in the PRC; a severe financial risk occurs or is likely to occur in borrower’s location; a significant change in borrower’s business market; the borrower has experienced or will encounter major operational difficulties or risks; a significant change in borrower’s corporate structure, such as a merger, acquisition, reorganization, separation, amalgamation or termination, which the bank believes might affect its ability to collect on the loan; the borrower’s refusal to accept the bank’s supervision and inspection of the use of loan funds and borrower’s operational and financial activities; borrower’s change in the use of the loan proceeds without the prior consent of the bank, or misappropriation of loan funds, or engagement in illegal or irregular transactions; the borrower’s providing of false materials or withholding of important financial or operational facts; the borrower’s transfer of assets, retrieval of capital, denial of indebtedness; the borrower’s being considered a “group account” according to the “Commercial Bank Group Guidelines for Customer Credit Risk Management Business,” or other relevant laws and regulations through related party transactions; the borrower’s violation of the contractual commitments stipulated in the contract; a guarantor is in critical shortage of working capital or encounters a major operational difficulty, which negatively affects the guarantor’s ability to guaranty the loan; any pledged object is damaged or lost, which jeopardizes the security and rights of the bank; the emergence of any other circumstance that the bank determines may affect the bank’s ability to collect on the loan or harm the bank’s rights and benefits; the borrower’s failure to perform any obligations in a specific business contract.

 

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Upon the occurrence of an event of default, the bank may: adjust the maximum amount of the line of credit, any specific line of credit and the effective period for credit extension and/or cancel the comprehensive contract, terminate the unused portion of the credit line.

 

Item 6. Exhibits

 

Exhibit
Number
  Description of Document
     
10.1   Working Capital Loan Contract dated May 15, 2019, between Shenzhen Highpower Technology Co., Ltd. and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch (translated to English).
     
10.2   Working Capital Loan Contract dated June 25, 2019, between Shenzhen Highpower Technology Co., Ltd. and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch (translated to English).
     
10.3   Comprehensive Credit Contract dated April 4, 2019, between Shenzhen Highpower Technology Co., Ltd.  and China Everbright Bank Shenzhen Branch (translated to English).
     
10.3(a)   Maximum Amount Guaranty Contract dated March 13, 2019, between Icon Energy System (Shenzhen) Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).
     
10.3(b)   Maximum Amount Guaranty Contract dated March 13, 2019, between Dang Yu Pan and China Everbright Bank Shenzhen Branch (translated to English).
     
10.3(c)   Maximum Amount Guaranty Contract dated March 13, 2019, between Zhou Tao Yin and China Everbright Bank Shenzhen Branch (translated to English).
     
10.3(d)   Maximum Amount Guaranty Contract dated March 13, 2019, between Huizhou Highpower Technology Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).
     
10.3(e)   Maximum Amount Guaranty Contract dated March 13, 2019, between Springpower Technology (Shenzhen) Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).
     
10.4   Working Capital Loan Contract dated April 25, 2019, between Springpower Technology (Shenzhen) Co., Ltd.. and Bank of China, Buji Sub-branch (translated to English).
     
10.5   Working Capital Loan Contract dated May 15, 2019, between Springpower Technology (Shenzhen) Co., Ltd.. and Industrial and Commercial Bank of China Ltd. Shenzhen Henggang Branch (translated to English).
     
10.6   Comprehensive Credit Contract dated April 4, 2019, between Springpower Technology (Shenzhen) Co., Ltd.. and China Everbright Bank Shenzhen Branch (translated to English).
     
10.6(a)   Maximum Amount Guaranty Contract dated March 13, 2019, between Icon Energy System (Shenzhen) Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).
     
10.6(b)   Maximum Amount Guaranty Contract dated March 13, 2019, between Dang Yu Pan and China Everbright Bank Shenzhen Branch (translated to English).
     
10.6(c)   Maximum Amount Guaranty Contract dated March 13, 2019, between Zhou Tao Yin and China Everbright Bank Shenzhen Branch (translated to English).
     
10.6(d)   Maximum Amount Guaranty Contract dated March 13, 2019, between Huizhou Highpower Technology Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).

     
10.6(e)   Maximum Amount Guaranty Contract dated March 13, 2019, between Shenzhen Highpower Technology Co., Ltd. and China Everbright Bank Shenzhen Branch (translated to English).

 

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10.7   Working Capital Loan Contract dated June 18, 2019, between Icon Energy System (Shenzhen) Co., Ltd. and Bank of China, Buji Sub-branch (translated to English).
     
10.8   Working Capital Loan Contract dated April 30, 2019, between Icon Energy System (Shenzhen) Co., Ltd. and Bank of Jiangsu Co., Ltd Shenzhen Branch (translated to English).
     
10.9   Financing Quota Agreement dated April 11, 2019, between Huizhou Highpower Technology Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd.,, Huizhou Branch (translated to English).
     
10.9(a)   Maximum Warranty Contract dated May 13, 2019, between Icon Energy System (Shenzhen) Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch, (translated to English).
     
10.9(b)   Maximum Warranty Contract dated May 13, 2019, between Dang Yu Pan and Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch (translated to English).
     
10.9(c)   Maximum Warranty Contract dated May 13, 2019, between Shenzhen Highpower Technology Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch (translated to English).
     
10.9(d)   Maximum Warranty Contract dated May 13, 2019, between Springpower Technology (Shenzhen) Co., Ltd. and Shanghai Pudong Development Bank Co., Ltd., Huizhou Branch (translated to English).
     
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*   Certification of the 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.

 

101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* This exhibit shall not be deemed “filed” for purposes of Section18 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.

 

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HIGHPOWER INTERNATIONAL, INC.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Highpower International, Inc.
     
     
Dated: August 13, 2019   /s/ Dang Yu Pan
  By: Dang Yu Pan
  Its: Chairman of the Board and Chief Executive Officer
(principal executive officer and duly authorized officer)
     
    /s/ Sunny Pan
  By: Sunny Pan
  Its: Chief Financial Officer
(principal financial and accounting officer)

 

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