NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
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.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
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
|
|
|
|
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
|
|
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.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
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
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
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
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
|
|
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.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
Highpower and its direct and
indirect wholly owned subsidiaries file tax returns separately.
1) VAT
Pursuant to the Provisional
Regulation of the PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are
engaged in the sale of products in the PRC are generally required to pay VAT, at a rate of which was changed from 17% to 16% on
May 1, 2018, 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.
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
Hong Kong
HKHTC, which was incorporated
in Hong Kong, is subject to a corporate income tax rate of 16.5%.
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
|
|
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)
(Stated in US Dollars)
3) Deferred tax assets,
net
Deferred tax assets and deferred
tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of
temporary difference.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
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.
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.
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.
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.
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.
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.
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.
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
|
|
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.
|
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
|
|
|
|
-
|
|
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.