x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2007
|
OR
|
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
FOR
THE TRANSITION PERIOD FROM _______
TO ___________
|
Delaware
|
20-4062622
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
Building
A1, Luoshan Industrial Zone,
Shanxia,
Pinghu, Longgang,
Shenzhen,
Guangdong, 518111
People’s
Republic of China
|
N/A
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
ITEM
1.
|
BUSINESS
|
1
|
ITEM
1A:
|
RISK
FACTORS
|
10
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTs
|
24
|
ITEM
2.
|
PROPERTIES
|
24
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
25
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
25
|
PART II |
26
|
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER
|
|
MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
26
|
|
ITEM
6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
28
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
|
29
|
Item 7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
41
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
42
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
42
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
42
|
ITEM
9B.
|
OTHER
INFORMATION
|
43
|
PART III |
44
|
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|
44
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
46
|
Item
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER
|
|
MATTERS
|
49
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
50
|
ITEM
14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES.
|
52
|
PART IV |
53
|
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
53
|
54
|
· |
Our
reliance on our major customers for a large portion of our net
sales;
|
· |
Our
reliance on a limited number of suppliers for nickel, our principal
raw
material;
|
· |
Our
ability to develop and market new
products;
|
· |
Our
ability to establish and maintain a strong
brand;
|
· |
Protection
of our intellectual property
rights;
|
· |
The
market acceptance of our products;
|
· |
Exposure
to product liability and defect
claims;
|
· |
Changes
in the laws of the PRC that affect our
operations;
|
· |
Any
recurrence of severe acute respiratory syndrome, or
SARS;
|
·
|
Our
ability to obtain and maintain all necessary government certifications
and/or licenses to conduct our
business;
|
· |
Development
of a public trading market for our
securities;
|
·
|
The
cost of complying with current and future governmental regulations
and the
impact of any changes in the regulations on our operations; and
|
·
|
The
other factors referenced in this Form 10-K, including, without limitation,
under the sections entitled “Risk Factors,” “Financial Information,”
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” and “Business.”
|
·
High
capacity
-
Because of the use of hydrogen as a cathode material, Ni-MH batteries
have
up to a 40 percent longer service life than ordinary Ni-Cad batteries
of
equivalent size.
|
·
Long
cycle life
-
Up to 1,000 charge/discharge cycles.
|
·
No
memory effect
-
Ni-Cad batteries suffer from a memory effect - when charging, the
user
must ensure that they are totally flat first, otherwise they 'remember'
how much charge they used to have and die much quicker. Ni-MH batteries
have a negligible memory effect, making charging quicker and more
convenient.
|
·
Performs
at extreme temperatures
-
Capable of operation on discharge from -20°C
to 50°C
(-4°F
to 122°F)
and charge from 0°C
to 45°C
(32°F
to 113ºF).
|
·
Environmentally
friendly -
Zero percent cadmium or other toxic chemicals such as
mercury.
|
·
Cost
efficiency -
Rechargeable Ni-MH batteries are substantially less expensive than
rechargeable lithium-ion
batteries.
|
—
|
Low
Costs.
China continues to have a significant low cost of labor as well as
easy
access to raw materials and land.
|
—
|
Proximity
to electronics supply chain.
Electronics manufacturing in general continues to shift to China,
giving
China-based manufacturers a further cost and cycle time
advantage.
|
—
|
Proximity
to end-markets.
China has focused in recent years on building its research, development
and engineering skill base in all aspects of higher end manufacturing,
including batteries.
|
Year
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
Consumer
Batteries
|
80
|
%
|
77
|
%
|
84
|
%
|
||||
Industrial
Batteries
|
19
|
%
|
21
|
14
|
||||||
Materials
|
1
|
2
|
2
|
|||||||
100
|
%
|
100
|
%
|
100
|
%
|
·
|
setting
internal controls and regulations for semi-finished and finished
products;
|
·
|
testing
samples of raw materials from
suppliers;
|
·
|
implementing
sampling systems and sample files;
|
·
|
maintaining
quality of equipment and instruments;
and
|
·
|
articulating
the responsibilities of quality control
staff.
|
Year
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
China
and Hong Kong
|
39.5
|
%
|
65.4
|
%
|
68.5
|
%
|
||||
Europe
|
34.6
|
16.4
|
11.2
|
|||||||
North
America
|
17.5
|
10.2
|
7.5
|
|||||||
Asia
|
8.1
|
7.4
|
12.8
|
|||||||
South
America and Others
|
0.3
|
0.6
|
-
|
|||||||
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
— |
Convention
establishing the World Intellectual Property Organization (WIPO
Convention) (June 4, 1980);
|
— |
Paris
Convention for the Protection of Industrial Property (March 19,
1985);
|
— |
Patent
Cooperation Treaty (January 1, 1994);
and
|
— |
The
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPs)
(November 11, 2001).
|
— |
maintain
our leading position in the Ni-MH battery
market;
|
— |
retain
existing customers or acquire new
customers;
|
— |
diversify
our revenue sources by successfully developing and selling our
products in
the global battery market and other
markets;
|
— |
keep
up with evolving industry standards and market
developments;
|
— |
respond
to competitive market conditions;
|
— |
maintain
adequate control of our expenses;
|
· |
manage
our relationships with our
suppliers;
|
·
|
attract,
train, retain and motivate qualified personnel;
or
|
· |
protect
our proprietary
technologies.
|
· |
our
ability raise capital to acquire additional raw materials and expand
our
manufacturing facilities;
|
· |
delays
and cost overruns, due to increases in raw material prices and problems
with equipment vendors;
|
· |
delays
or denial of required approvals and certifications by relevant government
authorities;
|
· |
diversion
of significant management attention and other resources;
and
|
· |
failure
to execute our expansion plan effectively.
|
— |
vulnerability
of our business to a general economic downturn in China;
|
— |
fluctuation
and unpredictability of costs related to the raw material used to
manufacture our
products;
|
— |
seasonality
of our business;
|
— |
changes
in the laws of the PRC that affect our operations;
|
— |
competition
from our competitors; and
|
— |
Our
ability to obtain necessary government certifications and/or licenses
to
conduct our
business.
|
— |
levying
fines;
|
— |
revoking
our
business license, other licenses or
authorities;
|
— |
requiring
that we
restructure our ownership or operations;
and
|
— |
requiring
that we
discontinue any portion or all of our
business.
|
— |
quarantines
or closures of some of our
manufacturing
facilities, which would severely disrupt our
operations,
|
— |
the
sickness or death of our
key
officers and employees, and
|
— |
a
general slowdown in the Chinese
economy.
|
— |
access
to the capital markets of the United
States;
|
—
|
the
increased market liquidity expected to result from exchanging stock
in a
private company
for securities of a public company that may eventually be
traded;
|
— |
the
ability to use registered securities to make acquisition of assets
or
businesses;
|
— |
increased
visibility in the financial
community;
|
— |
enhanced
access to the capital markets;
|
— |
improved
transparency of operations; and
|
— |
perceived
credibility and enhanced corporate image of being a publicly traded
company.
|
Location
|
Area
(square
feet)
|
Principal
Use
|
Lease
expiration
date
|
|||
Workshop
A1 & dormitory, Luo Shan Industrial Park, Shan Xia Community, Ping Hu
Street, Long Gang District, Shenzhen
|
58,986
|
Industry
& Residence
|
September
30, 2009
|
|||
Workshop
A2 & dormitory, Luo Shan Industrial Park, Shan Xia Community, Ping Hu
Street, Long Gang District, Shenzhen
|
81,117
|
Industry
& Residence
|
September
30, 2009
|
|||
4th
Floor, Building A, (4th
Floor, Building 1 & 2nd
Floor, Building B2 ) Workshop, B2 Area, Luo Shan Industrial Park,
Shan Xia
Community, Ping Hu Street, Long Gang District, Shenzhen
|
94,722
|
Industry
& Residence
|
June
14, 2010
|
|||
Storage,
Building 2, (6th
Floor, Building 1)Area B2, Luo Shan Industrial Park, Shan Xia Community,
Ping Hu Street, Long Gang District, Shenzhen
|
50,698
|
Industry
& Residence
|
December
31, 2010
|
|||
1st-4th
Floor, Building 12, (1st-7th
Floor, Building 9), Da Wang Industrial Park, Xin Xia Road, Ping Hu
Street,
Long Gang District, Shenzhen
|
55,897
|
Industry
& Residence
|
September
30, 2008
|
|||
Workshop
& dormitory , chong Tou Hu village, Renming Road,Guang Lan Street,
Bao
An District, Shenzhen
|
146,336
|
Industry
& Residence
|
September
15,2010
|
·
|
Our
ability to obtain additional financing and, if available, the terms
and
conditions of the financing;
|
·
|
Our financial position and results of operations; |
·
|
Concern
as to, or other evidence of, the reliability and efficiency of our
proposed products and services or our competitors’ products and
services;
|
·
|
Announcements of innovations or new products or services by us or our competitors; |
·
|
Federal
and state governmental regulatory actions and the impact of such
requirements on our business;
|
·
|
The
development of litigation against
us;
|
·
|
Period-to-period
fluctuations in our operating
results;
|
·
|
Changes
in estimates of our performance by any securities
analysts;
|
·
|
The
issuance of new equity securities pursuant to a future offering or
acquisition;
|
·
|
Changes
in interest rates;
|
·
|
Competitive
developments, including announcements by competitors of new products
or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
|
·
|
Investor
perceptions of our company; and
|
·
|
General
economic and other national
conditions.
|
Year
Ended December 31,
|
||||||||||||||||
Consolidated Statements of Operations |
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||
(unaudited)
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||
Net
Sales
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
$
|
10,956
|
$
|
3,599
|
||||||
Cost
of Sales
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
(9,306
|
)
|
(3,290
|
)
|
||||||
Gross
profit
|
$
|
9,470
|
$
|
7,417
|
$
|
4,253
|
$
|
1,651
|
$
|
309
|
||||||
Depreciation
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
(25
|
)
|
(10
|
)
|
||||||
Selling
and distributing costs
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
(641
|
)
|
(61
|
)
|
||||||
Administrative
and other operating expenses
|
(4,178
|
)
|
(2,160
|
)
|
(854
|
)
|
(549
|
)
|
(181
|
)
|
||||||
Income
from operations
|
$
|
3,076
|
$
|
3,543
|
$
|
2,495
|
$
|
435
|
$
|
57
|
||||||
Fees
and costs related to reorganization
|
719
|
(75
|
)
|
-
|
-
|
-
|
||||||||||
Other
Income
|
149
|
59
|
58
|
33
|
0
|
|||||||||||
Interest
expenses
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
(10
|
)
|
0
|
|||||||
|
||||||||||||||||
Income
before taxes
|
$
|
1,809
|
$
|
3,273
|
$
|
2,499
|
$
|
458
|
$
|
57
|
||||||
Income
taxes
|
(145
|
)
|
(240
|
)
|
(188
|
)
|
17
|
0
|
||||||||
Net
income
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
$
|
475
|
$
|
57
|
||||||
Basic
and diluted net income per common share
|
$
|
0.11
|
$
|
0.20
|
$
|
0.16
|
$
|
0.03
|
$
|
0.00
|
||||||
Basic
weighted average common shares outstanding
|
15,731,988
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
|||||||||||
Dividends
declared per common share
|
$
|
0.045
|
-
|
-
|
-
|
-
|
|
As
of December 31,
|
|||||||||||||||
Consolidated
Balance Sheets
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||
(unaudited)
|
||||||||||||||||
(in
thousands)
|
||||||||||||||||
Current
Assets
|
$
|
40,167
|
$
|
28,573
|
$
|
12,851
|
$
|
6,322
|
$
|
1,910
|
||||||
Total
Assets
|
48,920
|
31,736
|
14,585
|
7,378
|
2,317
|
|||||||||||
Current
Liabilities
|
37,366
|
24,571
|
10,728
|
5,907
|
2,056
|
|||||||||||
Total
Liabilities
|
37,366
|
24,571
|
10,728
|
5,907
|
2,140
|
|||||||||||
Total
Stockholders’ Equity
|
11,554
|
7,165
|
3,857
|
1,472
|
177
|
Year
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
(in
thousands)
|
||||||||||
Net
sales
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
||||
Cost
of sales
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
||||
Gross
profit
|
$
|
9,470
|
$
|
7,417
|
$
|
4,253
|
||||
Depreciation
|
(120
|
)
|
(80
|
)
|
(46
|
)
|
||||
Selling
and distributing costs
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
||||
Administrative
and other operating expenses
|
(4,178
|
)
|
(2,160
|
)
|
(854
|
)
|
||||
Income
from operations
|
$
|
3,076
|
$
|
3,543
|
$
|
2,496
|
||||
Other
income
|
149
|
59
|
58
|
|||||||
Fees
and costs related to reorganization
|
(719
|
)
|
(75
|
)
|
-
|
|||||
Interest
expense
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
||||
|
||||||||||
Income
before taxes
|
$
|
1,809
|
$
|
3,273
|
$
|
2,499
|
||||
Income
taxes
|
(145
|
)
|
(240
|
)
|
(188
|
)
|
||||
Net
income
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
||||
Net
income per common share - basic and diluted
|
$
|
0.11
|
$
|
0.20
|
$
|
0.16
|
||||
Weighted
average common shares outstanding - basic and diluted
|
15,731,988
|
14,798,328
|
14,798,328
|
·
|
EBITDA
(1) does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments; (2) does not reflect
changes in, or cash requirements for, our working capital needs;
(3) does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt;
(4) does not reflect income taxes or the cash requirements for any
tax payments; and (5) does not reflect all of the costs associated
with operating our business;
|
·
|
although
depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future,
and EBITDA
does not reflect any cash requirements for such
replacements;
|
·
|
other
companies may calculate EBITDA differently than we do, limiting its
usefulness as a comparative
measure.
|
Years
Ended December 31
|
|
|||||||||
|
|
2007
|
|
2006
|
|
2005
|
|
|||
|
|
$
|
|
$
|
|
$
|
||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Interest
expense
|
696,132
|
253,617
|
54,971
|
|||||||
Income
taxes
|
145,458
|
240,487
|
187,634
|
|||||||
Depreciation
|
560,073
|
343,841
|
182,307
|
|||||||
Amortization
|
-
|
-
|
-
|
|||||||
EBITDA
|
3,065,353
|
3,870,272
|
2,735,943
|
Name
of Bank
|
|
Amount
Granted
|
|
Amount
Outstanding
Under
Loan
|
|
Guaranteed
by
Officers
|
DBS
Bank (China) Limited
|
$11.18
million
|
$5.03
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
|||
Shenzhen
Development Bank Co., Ltd
|
$6.82
million
|
$5.17
million
|
Dang
Yu Pan
|
|||
Shanghai
Pudong Development Bank Co. Ltd.
|
$3.9
million
|
$2.96
million
|
Dang
Yu Pan
|
|||
Citibank
China Co., ltd.
|
$2.0
million
|
$0.68
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
Payments
due by period
|
||||||||||||||||
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
||||||||||||
Credit
Facilities
|
$
|
15,410,542
|
$
|
15,410,542
|
-
|
-
|
-
|
|||||||||
Purchase
Obligations (1)
|
$
|
19,561,118
|
$
|
19,561,118
|
-
|
-
|
-
|
|||||||||
License
Agreement
|
$
|
1,327,026
|
$
|
1,327,026
|
-
|
-
|
-
|
|||||||||
Capital
commitment
|
$
|
146,647
|
$
|
146,647
|
||||||||||||
Total
|
$
|
36,445,333
|
$
|
36,445,333
|
-
|
-
|
-
|
(1)
|
Primarily
represents obligations to purchase specified quantities of raw
materials.
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of our assets;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that our receipts and expenditures are
being
made only in accordance with authorizations of our management and
directors; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use of disposition of our assets that could
have
a material effect on the financial
statements.
|
Name
|
Age
|
Position
|
||
Dang
Yu Pan
|
39
|
Chairman
of the Board and Chief Executive Officer
|
||
Wen
Liang Li
|
42
|
Vice
President, Chief Technology Officer and Director
|
||
Wen
Wei Ma
|
37
|
Vice
President of Manufacturing
|
||
Yu
Zhi Qiu
|
36
|
Chief
Financial Officer
|
||
Wen
Jia Xiao
|
31
|
Vice
President of Quality Control
|
||
Xinhai
Li
|
44
|
Director
|
||
Chao
Li
|
63
|
Director
|
||
Ping
Li
|
42
|
Director
|
|
·
|
The
appointment, replacement, compensation, and oversight of work of
the
independent auditor, including resolution of disagreements between
management and the independent auditor regarding financial reporting,
for
the purpose of preparing or issuing an audit report or performing
other
audit, review or attest services.
|
|
·
|
Reviewing
and discussing with management and the independent auditor various
topics
and events that may have significant financial impact on our company
or
that are the subject of discussions between management and the independent
auditors.
|
Name
and Position
|
Year
|
Salary
|
Bonus
|
All
other compensation (1)
|
Total
|
|||||||||||
Dang
Yu Pan
|
2007
|
$
|
18,000
|
$
|
-
|
25,000
|
(2)
|
43,000
|
||||||||
Chief
Executive Officer and
|
2006
|
$
|
9,000
|
$
|
-
|
$
|
24,000
|
(2)
|
$
|
33,000
|
||||||
Chairman
of the Board
|
||||||||||||||||
Yu
Zhi Qiu
|
2007
|
$
|
15,000
|
$
|
16,000
|
$
|
-
|
$
|
31,000
|
|||||||
Chief
Financial Officer
|
2006
|
$
|
15,000
|
$
|
16,000
|
$
|
-
|
$
|
31,000
|
|||||||
Richard
Rappaport(3)
|
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
Former
Chief Executive Officer
|
2006
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
and
Former Director
|
||||||||||||||||
Anthony
Pintsopoulos (3)
|
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
Form
Chief Financial Officer
|
2006
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
and
Former Director
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
|
All
Other Compensation
($)
|
Total
($)
|
|||||||||||||||
Wen
Liang Li
|
20,000
|
(1)
|
-
|
-
|
-
|
-
|
-
|
20,000
|
(1)
|
·
|
Each
person known to be the beneficial owner of 5% or more of the outstanding
common stock of our company;
|
·
|
Each
executive officer;
|
·
|
Each
director; and
|
·
|
All
of the executive officers and directors as a
group.
|
Name
and Address
of
Beneficial Owner
|
Title
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class
|
|||||||
Directors
and Executive Officers
|
|
|||||||||
Dang
Yu Pan
|
Chief Executive Officer and Chairman of the Board |
8,287,061
|
(1)
|
40.5
|
%
|
|||||
|
||||||||||
Wen
Liang Li
|
Vice President, Chief Technology Officer and Director |
3,255,632
|
15.9
|
%
|
||||||
|
||||||||||
Wen
Wei Ma
|
Vice President of Manufacturing |
1,479,835
|
7.2
|
%
|
||||||
|
||||||||||
Yu
Zhi Qiu
|
Chief Financial Officer |
306,325
|
1.5
|
%
|
||||||
|
||||||||||
Wen
Jia Xiao
|
Vice President of Quality Control |
266,370
|
1.3
|
%
|
||||||
Xinhai
Li
|
Director |
-
|
-
|
|||||||
Chao
Li
|
Director |
-
|
-
|
|||||||
Ping
Li
|
Director |
-
|
-
|
|||||||
|
||||||||||
Officers
and Directors as a Group (total of 8 persons)
|
13,022,528
|
(1)
|
63.6
|
%
|
(1) |
Includes
(i) an aggregate of 2,219,747 shares over which Mr. Pan has voting
power
and the right to acquire ownership pursuant to a loan agreement dated
February 5, 2007 between Mr. Pan and other shareholders, including
Yu Zhi
Qiu, Chief Financial Officer, who holds 306,325 shares and, Wen Jia
Xiao,
Vice President of Quality Control, who holds 266,370 shares, and
(ii)
591,933 shares held by a company that is 100% owned by Mr.
Pan.
|
Name
of Bank
|
Amount
Granted
|
Amount
Outstanding
Under
Loan
|
Guaranteed
by Officers
|
|||
DBS
Bank (China) Limited
|
$11.18
million
|
$5.03
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
|||
Shenzhen
Development Bank Co., Ltd
|
$6.82
million
|
$5.17
million
|
Dang
Yu Pan
|
|||
Shanghai
Pudong Development Bank Co. Ltd.
|
$3.9
million
|
$2.96
million
|
Dang
Yu Pan
|
|||
Citibank
(China) Co., ltd.
|
$2.0
million
|
$0.68
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
Year
ended December 31,
|
|||||||
2007
|
|
2006
|
|||||
Audit
Fees(1)
|
$
|
67,000
|
$
|
85,000
|
|||
Audit-Related
Fees
|
-
|
-
|
|||||
Tax
Fees
|
-
|
-
|
|||||
All
Other Fees
|
-
|
-
|
|||||
Total
|
$
|
67,000
|
$
|
85,000
|
1. |
Financial
Statements: See “Index to Consolidated Financial Statements” in Part II,
Item 8 of this annual report on Form 10-K.
|
2. |
Financial
Statement Schedule: Not applicable.
|
3. |
Exhibits:
The exhibits listed in the accompanying “Index to Exhibits” are filed or
incorporated by reference as part of this Form
10-K.
|
Hong
Kong Highpower Technology, Inc.
|
||
(Registrant)
|
||
|
|
|
Dated: April 11, 2008 |
By:
|
/s/ Dang Yu Pan |
Dang Yu Pan |
||
Chief Executive Officer and | ||
Chairman of the Board | ||
(Principal Executive Officer) |
Signature
|
Capacity
|
Date
|
||
/s/
Dang Yu Pan
|
Chief
Executive Officer and
|
April
11, 2008
|
||
By:
Dang
Yu Pan
|
Chairman
of the Board
|
|||
(Principal
Executive Officer)
|
||||
/s/
Yu Zhi Qiu
|
Chief
Financial Officer
|
April
11, 2008
|
||
By:
Yu Zhi Qiu
|
(Principal
Financial and Accounting Officer)
|
|||
/s/
Wen Liang Li
|
Vice
President,
|
April
11, 2008
|
||
Wen
Liang Li
|
Chief Technology Officer and Director | |||
/s/
Xinhai Li
|
Director
|
April
11, 2008
|
||
Xinhai
Li
|
||||
/s/
Chao Li
|
Director
|
April
11, 2008
|
||
Chao
Li
|
||||
Director
|
April
11, 2008
|
|||
Ping
Li
|
Exhibit
Number
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated as of October 20, 2007, by and among
the
Registrant, Hong Kong Highpower Technology Company Limited and
all of the
shareholders of Hong Kong Highpower Technology Company Limited
(incorporated by reference to Exhibit 2.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 5, 2007).
|
|
3.1
|
Certificate
of Incorporation (incorporated by reference from Exhibit 3.1 to
the
Registration Statement on Form 10-SB (File No. 000-52103) filed
with the
Securities and Exchange Commission on July 5, 2006).
|
|
3.2
|
Bylaws
(incorporated by reference from Exhibit 3.2 to the Registration
Statement
on Form 10-SB (File No. 000-52103) filed with the Securities and
Exchange
Commission on July 5, 2006).
|
|
3.3
|
Articles
of Merger Effecting Name Change (incorporated by reference from
Exhibit
3.3 to the Current Report on Form 8-K filed with the Securities
and
Exchange Commission on November 5, 2007).
|
|
10.1
|
Form
of Subscription Agreement (incorporated by reference from Exhibit
10.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
10.2*
|
Amended
Consumer Battery License Agreement, amended as of August 8, 2007,
by and
between Shenzhen Highpower Technology Co., Ltd and Ovonic Battery
Company,
Inc.
|
|
10.3
|
State-owned
Land Use Rights Grant Contract No. 441302 - B - 112 dated as of
May 23,
2007, by and between the Land and Resources Bureau of Huizhou City,
Guangdong Province and Shenzhen Highpower Technology Co., Ltd.
(translated
to English) (incorporated by reference from Exhibit 10.4 to the
Current
Report on Form 8-K filed with the Securities and Exchange Commission
on
November 5, 2007).
|
|
10.4
|
Credit
Facility dated August 17, 2007 by and between DBS Bank (China)
Limited
Company Shenzhen Branch and Shenzhen Highpower Technology Co.,
Ltd.
(translated to English). (incorporated by reference from Exhibit
10.5 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
10.4(a)
|
Letter
of Undertaking executed by Dan Yu Pan, Wen Liang Li and Wen Wei
Ma on
behalf of Shenzhen Highpower Technology Company Limited to and
in favor of
DBS Bank (China) Limited Shenzhen Branch (translated to English)
(incorporated by reference from Exhibit 10.4(a) to Amendment No.
1 to the
Registration Statement on Form S-1/A filed with the Securities
and
Exchange Commission on January 28, 2008).
|
|
10.5
|
Commercial
Acceptance Bill Discount Quotation Agreement dated as of June 18,
2007 by
and between Shenzhen Development Bank Shenzhen Ai Guo Road Branch
and
Shenzhen Highpower Technology Co., Ltd. (translated to English)
(incorporated by reference from Exhibit 10.6 to the Current Report
on Form
8-K filed with the Securities and Exchange Commission on November
5,
2007).
|
|
10.5(a)
|
Guaranty
Contract for Maximum Credit Line dated as of June 18, 2007 by and
between
Dang Yu Pan and Shenzhen Development Bank Shenzhen Ai Guo Road
Branch
(translated to English) (incorporated by reference from Exhibit
10.5(a) to
Amendment No. 1 to the Registration Statement on Form S-1/A filed
with the
Securities and Exchange Commission on January 28,
2008).
|
10.6
|
Facility
Quotation Agreement dated as of September 18, 2007 by and between
Shanghai
Pudong Development Bank Shenzhen Long Hua Branch and Shenzhen Highpower
Technology Co., Ltd. (translated to English) (incorporated by reference
from Exhibit 10.7 to the Current Report on Form 8-K filed with
the
Securities and Exchange Commission on November 5,
2007).
|
|
10.6(a)
|
Contract
for Guarantee of Maximum Line of Credit dated as of September 18,
2007 by
and between Dang Yu Pan and Shanghai Pudong Development Bank Shenzhen
Branch (translated to English) (incorporated by reference from
Exhibit
10.6(a) to Amendment No. 1 to the Registration Statement on Form
S-1/A
filed with the Securities and Exchange Commission on January 28,
2008).
|
|
10.7
|
Non-Undertaking
Short-Term Revolving Financing Agreement dated as of October 11,
2007 by
and between Citibank China Co., Ltd. (“Lender”) and Shenzhen Highpower
Technology Col, Ltd. and corresponding Letters of Guarantee between
Lender
and Dang Yu Pan, Wen Wei Ma and Wen Liang Li (translated to
English).
|
|
16.1
|
Letter
from AJ. Robbins, PC to the Securities and Exchange Commission
dated
November 2, 2007. (incorporated by reference to Exhibit 16.1 to
the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
21.1
|
List
of Subsidiaries (incorporated by reference from Exhibit 21.1 to
the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007).
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation
S-K,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1**
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant
to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
*
|
The
Registrant has applied with the Secretary of the Securities and
Exchange
Commission for confidential treatment of certain information pursuant
to
Rule 24b-2 of the Securities Exchange Act of 1934. The Registrant
has filed separately with its application a copy of the exhibit
including
all confidential portions, which may be made available for public
inspection pending the Commission’s review of the application in
accordance with Rule 24b-2.
|
|
**
|
This
exhibit shall not be deemed "filed" for purposes of Section 18
of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities
of
that section, nor shall it be deemed incorporated by reference
in any
filing under the Securities Act of 1933 or the Securities Exchange
Act of
1934, whether made before or after the date hereof and irrespective
of any
general incorporation language in any
filings.
|
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
Financial
Statements:
|
||||
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
F-3
|
|||
Consolidated
Statements of Operations for the years ended December
31, 2007, 2006, and 2005
|
F-5
|
|||
Consolidated
Statements of Stockholders' Equity for the years ended December
31, 2007, 2006 and 2005
|
F-6
|
|||
Consolidated
Statements of Cash Flows for the years ended December
31, 2007, 2006 and 2005
|
F-7
|
|||
Notes
to Consolidated Financial Statements
|
F-8
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
ASSETS
|
|||||||
Current
Assets :
|
|||||||
Cash
and cash equivalents
|
1,489,262
|
488,070
|
|||||
Restricted
cash
|
5,453,650
|
1,010,580
|
|||||
Accounts
receivable
|
15,906,175
|
8,127,170
|
|||||
Notes
receivable
|
386,482
|
76,764
|
|||||
Prepaid
expenses and other receivables - Note 6
|
2,501,796
|
2,612,091
|
|||||
Advance
to related parties - Note 11
|
-
|
634,161
|
|||||
Inventories-
Note 7
|
14,371,289
|
15,623,791
|
|||||
Prepaid
lease payments
|
58,570
|
-
|
|||||
Total
Current Assets
|
40,167,224
|
28,572,627
|
|||||
Deferred
tax assets - Note 6
|
28,277
|
8,443
|
|||||
Deposit
paid for acquisition of machinery -Note 15
|
1,115,123
|
-
|
|||||
Plant
and equipment, net - Note 8
|
3,789,382
|
3,154,660
|
|||||
Leasehold
land - Note 9
|
2,869,925
|
-
|
|||||
Intangible
asset, net - Note 10
|
950,000
|
-
|
|||||
TOTAL
ASSETS
|
48,919,931
|
31,735,730
|
|||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
LIABILITIES
|
|||||||
Current
Liabilities :
|
|||||||
Accounts
payable
|
19,561,118
|
17,327,402
|
|||||
Other
payables and accrued liabilities - Note 11
|
2,320,956
|
1,170,275
|
|||||
Income
taxes payable
|
73,768
|
122,710
|
|||||
Bank
borrowings - Note 13
|
15,410,542
|
5,950,626
|
|||||
Total
Current Liabilities
|
37,366,384
|
24,571,013
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
STOCKHOLDERS’
EQUITY
|
|||||||
Preferred
Stock
|
|||||||
Par
value: US$0.0001
|
|||||||
Authorized:
10,000,000 shares
|
|||||||
Issued
and outstanding: none
|
-
|
-
|
|||||
Common
stock
|
|||||||
Par
value : $0.0001
|
|||||||
Authorized:
100,000,000 shares
|
|||||||
Issued
and outstanding: 2007 -20,478,090 shares (2006 -14,798,328
shares)
|
2,048
|
1,480
|
|||||
Additional
paid-in capital
|
2,765,102
|
62,837
|
|||||
Accumulated
other comprehensive income
|
1,157,872
|
470,383
|
|||||
Retained
earnings
|
7,628,525
|
6,630,017
|
|||||
TOTAL
STOCKHOLDERS’ EQUITY
|
11,553,547
|
7,164,717
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
48,919,931
|
31,735,730
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Net
sales
|
73,261,720
|
44,375,682
|
25,010,030
|
|||||||
Cost
of sales
|
(63,791,248
|
)
|
(36,958,529
|
)
|
(20,757,320
|
)
|
||||
Gross
profit
|
9,470,472
|
7,417,153
|
4,252,710
|
|||||||
Depreciation
|
(120,517
|
)
|
(80,213
|
)
|
(46,209
|
)
|
||||
Selling
and distributing costs
|
(2,095,594
|
)
|
(1,634,366
|
)
|
(856,526
|
)
|
||||
Administrative
and other operating expenses
|
(4,178,468
|
)
|
(2,159,502
|
)
|
(854,246
|
)
|
||||
Income
from operations
|
3,075,893
|
3,543,072
|
2,495,729
|
|||||||
Fees
and costs related to reorganization
|
(719,266
|
)
|
(75,229
|
)
|
-
|
|||||
Other
income - Note 3
|
148,653
|
58,588
|
57,907
|
|||||||
Interest
expense - Note 4
|
(696,132
|
)
|
(253,617
|
)
|
(54,971
|
)
|
||||
Income
before taxes
|
1,809,148
|
3,272,814
|
2,498,665
|
|||||||
Income
taxes - Note 5
|
(145,458
|
)
|
(240,487
|
)
|
(187,634
|
)
|
||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Net
Income per share
|
||||||||||
-
Basic and diluted
|
0.11
|
0.20
|
0.16
|
|||||||
Weighted
average common shares outstanding
|
||||||||||
-
Basic and diluted
|
15,731,988
|
14,798,328
|
14,798,328
|
Accumulated
|
|||||||||||||||||||
Additional
|
other
|
||||||||||||||||||
Common
stock
|
paid-in
|
comprehensive
|
Retained
|
||||||||||||||||
Shares
|
Amount
|
capital
|
income
|
earnings
|
Total
|
||||||||||||||
$
|
$
|
$
|
$
|
$
|
$
|
||||||||||||||
Balance,
January 1, 2005
|
14,798,328
|
1,480
|
62,837
|
43
|
1,286,659
|
1,351,019
|
|||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
2,311,031
|
2,311,031
|
|||||||||||||
Foreign
currency translation
|
|||||||||||||||||||
adjustments
|
-
|
-
|
-
|
195,010
|
-
|
195,010
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
-
|
-
|
2,506,041
|
|||||||||||||
Balance,
December 31, 2005
|
14,798,328
|
1,480
|
62,837
|
195,053
|
3,597,690
|
3,857,060
|
|||||||||||||
Comprehensive
income
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
3,032,327
|
3,032,327
|
|||||||||||||
Foreign
currency translation
|
|||||||||||||||||||
adjustments
|
-
|
-
|
-
|
275,330
|
-
|
275,330
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
3,307,657
|
|||||||||||||||
|
|||||||||||||||||||
Balance,
December 31, 2006
|
14,798,328
|
1,480
|
62,837
|
470,383
|
6,630,017
|
7,164,717
|
|||||||||||||
Shares
Issued in connection with reverse merger
|
2,834,398
|
284
|
(35,451
|
)
|
-
|
-
|
(35,167
|
)
|
|||||||||||
Shares
issued in private placement, net of offering cost of $382,000
|
2,836,364
|
284
|
2,737,716
|
-
|
-
|
2,738,000
|
|||||||||||||
Comprehensive
income
|
|||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
1,663,690
|
1,663,690
|
|||||||||||||
Foreign
currency translation
|
|||||||||||||||||||
adjustments
|
-
|
-
|
-
|
687,489
|
-
|
687,489
|
|||||||||||||
Total
comprehensive income
|
-
|
-
|
-
|
2,351,179
|
|||||||||||||||
Dividends
|
-
|
-
|
-
|
-
|
(665,182
|
)
|
(665,182
|
)
|
|||||||||||
|
|||||||||||||||||||
Balance,
December 31, 2007
|
20,478,090
|
2,048
|
2,765,102
|
1,157,872
|
7,628,525
|
11,553,547
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Cash
flows from operating activities
|
||||||||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Adjustments
to reconcile net income to net cash
|
||||||||||
provided
by (used in) operating activities :
|
||||||||||
Bad
debts written off
|
3,649
|
22,878
|
9,645
|
|||||||
Depreciation
|
560,073
|
343,841
|
182,307
|
|||||||
Amortization
of intangible asset
|
50,000
|
-
|
-
|
|||||||
Loss
on disposal of plant and equipment
|
20,046
|
32,844
|
5,261
|
|||||||
Changes
in operating assets and liabilities :
|
||||||||||
(Increase)
decrease in -
|
||||||||||
Accounts
receivable
|
(7,018,013
|
)
|
(3,155,007
|
)
|
(1,778,398
|
)
|
||||
Notes
receivable
|
(309,829
|
)
|
620,101
|
(511,456
|
)
|
|||||
Prepaid
expenses and other receivables
|
305,785
|
(1,826,594
|
)
|
(313,424
|
)
|
|||||
Inventories
|
2,183,344
|
(9,556,898
|
)
|
(3,148,845
|
)
|
|||||
(Increase)
decrease in -
|
||||||||||
Accounts
payable
|
1,082,433
|
8,387,286
|
3,814,931
|
|||||||
Other
payables and accrued liabilities
|
78,974
|
(32,771
|
)
|
154,267
|
||||||
Income
taxes payable
|
(74,825
|
)
|
27
|
126,803
|
||||||
Net
cash provided by (used in) operating activities
|
(1,454,673
|
)
|
(2,132,020
|
)
|
852,122
|
|||||
Cash
flows from investing activities
|
||||||||||
Acquisition
of plant and equipment
|
(1,030,725
|
)
|
(1,733,167
|
)
|
(849,768
|
)
|
||||
Acquisition
of land
|
(2,832,348
|
)
|
-
|
-
|
||||||
Proceeds
from disposal of plant and equipment
|
32,976
|
13,747
|
11,186
|
|||||||
Deposit
paid for acquisition of machinery
|
(1,115,123
|
)
|
-
|
-
|
||||||
Net
cash used in investing activities
|
(4,945,220
|
)
|
(1,719,420
|
)
|
(838,582
|
)
|
||||
Cash
flows from financing activities
|
||||||||||
Proceeds
from issuance of common stock
|
2,738,000
|
-
|
-
|
|||||||
Proceeds
from new short-term bank loans
|
2,374,241
|
879,630
|
977,681
|
|||||||
Repayment
of short-term bank loans
|
(923,316
|
)
|
(973,876
|
)
|
(274,973
|
)
|
||||
Proceeds
from/(repayment of) of other loans
|
4,173,106
|
-
|
(85,547
|
)
|
||||||
Net
advancement of other bank borrowings
|
3,155,109
|
4,955,996
|
-
|
|||||||
Increase
in restricted cash
|
(4,234,327
|
)
|
(991,050
|
)
|
-
|
|||||
Advance
to related parties
|
768,159
|
(38,495
|
)
|
(468,151
|
)
|
|||||
Dividend
paid
|
(665,182
|
)
|
-
|
-
|
||||||
Net
cash provided by financing activities
|
7,385,790
|
3,832,205
|
149,010
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
985,897
|
(19,235
|
)
|
162,550
|
||||||
Effect
of foreign currency translation on cash and cash
equivalents
|
15,295
|
40,279
|
5,968
|
|||||||
Cash
and cash equivalents - beginning of year
|
488,070
|
467,026
|
298,508
|
|||||||
Cash
and cash equivalents - end of year
|
1,489,262
|
488,070
|
467,026
|
1. |
Organization
and Basis of Presentation
|
1. |
Organization
and Basis of Presentation
(continued)
|
2. |
Summary
of significant accounting
policies
|
2. |
Summary
of significant accounting policies
(continued)
|
2 |
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
Furniture,
fixtures and office equipment
|
20
|
%
|
||
Leasehold
improvement
|
50
|
%
|
||
Machinery
and equipment
|
10
|
%
|
||
Motor
vehicles
|
20
|
%
|
2. |
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
2007
|
2006
|
2005
|
||||||||
Year
end RMB : US$ exchange rate
|
7.332
|
7.804
|
8.070
|
|||||||
Average
yearly RMB : US$ exchange rate
|
7.581
|
7.958
|
8.183
|
2. |
Summary
of significant accounting policies
(continued)
|
2. |
Summary
of significant accounting policies
(continued)
|
3. |
Other
income
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Bank
interest income
|
75,546
|
11,626
|
3,625
|
|||||||
Net
exchange gains
|
-
|
-
|
15,989
|
|||||||
Sundry
income
|
73,107
|
46,962
|
37,293
|
|||||||
148,653
|
58,588
|
57,907
|
4. |
Interest
expense
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Interest
on trade related bank loans
|
547,573
|
208,269
|
26,610
|
|||||||
Interest
on short-term bank loans
|
135,369
|
45,348
|
25,795
|
|||||||
Interest
on other loans
|
13,190
|
-
|
2,566
|
|||||||
696,132
|
253,617
|
54,971
|
5. |
Income
taxes
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
United
States
|
(490,234
|
)
|
-
|
-
|
||||||
Hong
Kong
|
689,749
|
(76,601
|
)
|
(3,122
|
)
|
|||||
People’s
Republic of China
|
1,609,633
|
3,349,415
|
2,501,787
|
|||||||
1,809,148
|
3,272,814
|
2,498,665
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
PRC
income tax
|
||||||||||
Current
year
|
173,735
|
241,313
|
178,378
|
|||||||
Deferred
taxes
|
(28,277
|
)
|
(826
|
)
|
9,256
|
|||||
145,458
|
240,487
|
187,634
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Income
before taxes
|
1,809,148
|
3,272,814
|
2,498,665
|
|||||||
|
||||||||||
Provision
for income taxes at applicable income tax rate
|
271,372
|
490,922
|
374,799
|
|||||||
Income
not subject to tax
|
(84,614
|
)
|
(2,522
|
)
|
-
|
|||||
Non-deductible
expenses for income tax purposes
|
229
|
11,490
|
468
|
|||||||
Tax
exemption of PRC subsidiary
|
(133,885
|
)
|
(243,835
|
)
|
(178,378
|
)
|
||||
Tax
rate differential
|
94,865
|
825
|
(9,255
|
)
|
||||||
Others
|
(2,509
|
)
|
(16,393
|
)
|
-
|
|||||
|
||||||||||
|
145,458
|
240,487
|
187,634
|
5. |
Income
taxes (continued)
|
At
December 31
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Temporary
difference on:
|
|||||||
Recognition
of expenses
|
(24,527
|
)
|
(8,443
|
)
|
|||
Accelerated
tax depreciation on intangible assets
|
(3,750
|
)
|
-
|
||||
Deferred
tax assets, net
|
(28,277
|
)
|
(8,443
|
)
|
|||
Recognized
in the balance sheet:
|
|||||||
Net
deferred tax assets
|
(28,277
|
)
|
(8,443
|
)
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Statutory
income tax rate
|
15
|
%
|
15
|
%
|
15
|
%
|
||||
Exempted
income tax rate
|
7.5
|
%
|
7.5
|
%
|
7.5
|
%
|
||||
Income
tax exemption
|
133,885
|
243,835
|
178,378
|
|||||||
Tax
effect derived from exemption
|
||||||||||
(per
share)
|
$
|
0.01
|
$
|
0.02
|
$
|
0.37
|
5. |
Income
taxes (continued)
|
6. |
Prepaid
expenses and other
receivables
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Purchase
deposits paid
|
264,138
|
935,417
|
|||||
Advance
to staff
|
74,502
|
21,540
|
|||||
Other
deposits and prepayments
|
1,472,503
|
130,870
|
|||||
Value-added
tax prepayment
|
1,103,063
|
1,220,524
|
|||||
Other
receivables
|
912,590
|
303,740
|
|||||
2,501,796
|
2,612,091
|
7. |
Inventories
|
At
December 31
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Raw
materials
|
4,507,255
|
5,040,028
|
|||||
Work
in progress
|
1,694,997
|
1,415,942
|
|||||
Finished
goods
|
8,101,083
|
9,096,003
|
|||||
Consumables
|
49,197
|
52,122
|
|||||
Packing
materials
|
18,757
|
19,696
|
|||||
14,371,289
|
15,623,791
|
8. |
Plant
and equipment
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cost
|
|||||||
Furniture,
fixtures and office equipment
|
643,196
|
510,853
|
|||||
Leasehold
improvement
|
146,622
|
137,761
|
|||||
Machinery
and equipment
|
3,940,847
|
2,938,971
|
|||||
Motor
vehicles
|
344,088
|
250,655
|
|||||
5,074,753
|
3,838,240
|
||||||
Accumulated
depreciation
|
|||||||
Furniture,
fixtures and office equipment
|
211,342
|
92,092
|
|||||
Leasehold
improvement
|
100,864
|
25,888
|
|||||
Machinery
and equipment
|
834,206
|
475,767
|
|||||
Motor
vehicles
|
138,959
|
89,833
|
|||||
1,285,371
|
683,580
|
||||||
Net
|
|||||||
Furniture,
fixtures and office equipment
|
431,854
|
418,761
|
|||||
Leasehold
improvement
|
45,758
|
111,873
|
|||||
Machinery
and equipment
|
3,106,641
|
2,463,204
|
|||||
Motor
vehicles
|
205,129
|
160,822
|
|||||
3,789,382
|
3,154,660
|
Years
ended December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Included
in factory overheads
|
439,556
|
263,628
|
|||||
Included
in operating expenses
|
120,517
|
80,213
|
|||||
560,073
|
343,841
|
9. |
Leasehold
land
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cost
|
2,928,495
|
-
|
|||||
Accumulated
amortization
|
-
|
-
|
|||||
Net
|
2,928,495
|
-
|
|||||
Analyzed
for reporting purposes as:
|
|||||||
Current
asset
|
58,570
|
-
|
|||||
Non-current
asset
|
2,869,925
|
-
|
|||||
2,928,495
|
-
|
||||||
10. |
Intangible
asset - Consumer
battery license
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Cost
|
|||||||
Consumer
battery license
|
1,000,000
|
-
|
|||||
|
|||||||
Accumulated
amortization
|
50,000
|
-
|
|||||
|
|||||||
Net
|
950,000
|
-
|
10. |
Intangible
asset (continued)
|
Years
ending December 31
|
$
|
|||
2008
|
50,000
|
|||
2009
|
50,000
|
|||
2010
|
50,000
|
|||
2011
|
50,000
|
|||
2012
|
50,000
|
|||
2013
and thereafter
|
700,000
|
11. |
Other
payables and accrued
liabilities
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Accrued
expenses
|
765,760
|
622,010
|
|||||
Accrued
staff welfare
|
90,316
|
111,749
|
|||||
Royalty
fee
|
1,327,026
|
112,580
|
|||||
Sales
deposits received
|
136,295
|
86,182
|
|||||
Other
payables
|
1,559
|
237,754
|
|||||
2,320,956
|
1,170,275
|
12. |
Advance
to related parties
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Advance
to shareholders
|
-
|
634,161
|
13. |
Bank
borrowings
|
At
December 31,
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Secured:
|
|||||||
Repayable
within one year
|
|||||||
Short
term bank loans
|
2,454,838
|
896,964
|
|||||
Other
trade related bank loans
|
12,955,704
|
5,053,662
|
|||||
15,410,542
|
5,950,626
|
Amount
|
||||||||||
Facilities
granted
|
Granted
|
Utilized
|
Unused
|
|||||||
$
|
$
|
$
|
||||||||
Short
term bank loans
|
4,170,000
|
2,454,838
|
1,715,162
|
|||||||
Other
trade related loan facilities including:
|
||||||||||
-
Accounts payable financing
|
14,000,000
|
7,928,535
|
6,071,465
|
|||||||
-
Accounts receivable financing
|
6,000,000
|
5,027,169
|
972,831
|
|||||||
24,170,000
|
15,410,542
|
8,759,458
|
(a)
|
charge
over bank deposits of $5,453,620 which is included in restricted
cash on
the Balance sheet;
|
(b) |
corporate
guarantee executed by a third party and Shenzhen Science and Technology
Bureau;
|
(c)
|
personal
guarantee executed by the directors of the
Company;
|
(d)
|
the
legal charge over leasehold land with carrying amount $2,928,495
(see Note
9); and
|
(e)
|
other
financial covenant:-
|
14. |
Pension
plans
|
15. |
Commitments
and contingencies
|
YearS
ending December 31
|
$
|
|||
2008
|
612,156
|
|||
2009
|
780,136
|
|||
2010
|
428,547
|
|||
2011
|
204,952
|
|||
2,025,791
|
$
|
||||
Contracted
value
|
1,261,770
|
|||
Less:
deposit paid
|
(1,115,123
|
)
|
||
Capital
commitment
|
146,647
|
15. |
Commitments
and contingencies
(continued)
|
At
December 31
|
|||||||
2007
|
2006
|
||||||
$
|
$
|
||||||
Bills
discounted
|
106,378
|
1,323,442
|
16. |
Related
party transactions
|
Year
Ended December 31
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Management
fee paid to Canhold International Limited
|
21,134
|
15,302
|
12,138
|
17. |
Segment
information
|
17. |
Segment
information (continued)
|
Years
Ended December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
Net
revenue
|
$
|
$
|
$
|
|||||||
Hong
Kong and China
|
28,919,384
|
29,009,277
|
17,126,358
|
|||||||
Asia
|
5,965,339
|
3,294,838
|
3,198,143
|
|||||||
Europe
|
25,318,608
|
7,288,751
|
2,807,580
|
|||||||
North
America
|
12,851,807
|
4,511,914
|
1,877,949
|
|||||||
South
America
|
206,582
|
270,902
|
-
|
|||||||
73,261,720
|
44,375,682
|
25,010,030
|
At
December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
Accounts
receivable
|
$
|
$
|
$
|
|||||||
Hong
Kong and China
|
4,258,010
|
5,545,244
|
3,913,344
|
|||||||
Asia
|
1,023,284
|
262,743
|
119,359
|
|||||||
Europe
|
6,761,615
|
1,857,294
|
525,633
|
|||||||
North
America
|
3,863,266
|
461,889
|
212,315
|
|||||||
15,906,175
|
8,127,170
|
4,770,651
|
18. |
Dividends
|
At
December 31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||
$
|
$
|
$
|
||||||||
Dividends
|
||||||||||
Interim
dividend declared and paid on September 30, 2007 of approximately
$
0.045 per share:
|
665,182
|
-
|
-
|
19. |
Quarterly
Results of Operations
(unaudited)
|
Three
Months Ended
|
Year
Ended
|
|||||||||||||||
March
31,
|
June
30,
|
September
30,
|
December
31,
|
December
31,
|
||||||||||||
2007
|
2007
|
2007
|
2007
|
2007
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Net
revenue
|
11,539,505
|
20,466,844
|
19,879,829
|
21,375,542
|
73,261,720
|
|||||||||||
Gross
profit
|
1,056,415
|
2,847,274
|
2,610,045
|
2,956,738
|
9,470,472
|
|||||||||||
Net
income
|
(502,663
|
)
|
1,174,090
|
838,119
|
154,144
|
1,663,690
|
||||||||||
Net
income (loss) per common share
|
||||||||||||||||
Basic
|
(0.03
|
)
|
0.08
|
0.06
|
0.01
|
0.11
|
||||||||||
Diluted
|
(0.03
|
)
|
0.08
|
0.06
|
0.01
|
0.11
|
||||||||||
Weighted
average common shares outstanding
|
||||||||||||||||
Basic
|
14,798,328
|
14,798,328
|
14,798,328
|
18,502,521
|
15,731,988
|
|||||||||||
Diluted
|
14,798,328
|
14,798,328
|
14,798,328
|
18,502,521
|
15,731,988
|
Three
Months Ended
|
Year
Ended
|
|||||||||||||||
March
31,
|
June
30,
|
September
30,
|
|
December
31
|
|
December
31,
|
||||||||||
2006
|
2006
|
2006
|
2006
|
2006
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Net
revenue
|
7,612,812
|
10,026,403
|
13,571,303
|
13,165,164
|
44,375,682
|
|||||||||||
Gross
profit
|
1,539,541
|
1,909,390
|
1,615,066
|
2,353,156
|
7,417,153
|
|||||||||||
Net
income
|
808,562
|
930,832
|
392,134
|
900,799
|
3,032,327
|
|||||||||||
Net
income per common share
|
||||||||||||||||
Basic
|
0.05
|
0.06
|
0.03
|
0.06
|
0.20
|
|||||||||||
Diluted
|
0.05
|
0.06
|
0.03
|
0.06
|
0.20
|
|||||||||||
Weighted
average common shares outstanding
|
||||||||||||||||
Basic
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
|||||||||||
Diluted
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|
14,798,328
|