x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
For
the Quarterly Period Ended March 31, 2008
|
||
OR
|
||
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Delaware
|
20-4062622
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer x
|
Smaller
reporting company ¨
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$
|
$
|
||||||
ASSETS
|
|||||||
Current
Assets :
|
|||||||
Cash
and cash equivalents
|
1,716,864
|
1,489,262
|
|||||
Restricted
cash
|
4,825,030
|
5,453,650
|
|||||
Accounts
receivable, net
|
15,881,092
|
15,906,175
|
|||||
Notes
receivable
|
732,249
|
386,482
|
|||||
Prepaid
expenses and other receivables – Note 7
|
3,535,281
|
2,501,796
|
|||||
Inventories,
net – Note 8
|
15,869,431
|
14,371,289
|
|||||
Total
Current Assets
|
42,559,947
|
40,114,054
|
|||||
Currency
forwards – Note 6
|
29,102
|
-
|
|||||
Deferred
tax assets – Note 5
|
37,596
|
28,277
|
|||||
Deposit
paid for acquisition of machinery
|
1,364,088
|
1,115,123
|
|||||
Plant
and equipment, net – Note 9
|
3,933,139
|
3,789,382
|
|||||
Leasehold
land
|
3,021,907
|
2,928,495
|
|||||
Intangible
asset – Note 10
|
937,500
|
950,000
|
|||||
TOTAL
ASSETS
|
51,883,279
|
48,919,931
|
|||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
LIABILITIES
|
|||||||
Current
Liabilities :
|
|||||||
Accounts
payable
|
20,716,101
|
19,561,118
|
|||||
Other
payables and accrued liabilities – Note 11
|
2,659,425
|
2,320,956
|
|||||
Income
taxes payable
|
260,001
|
73,768
|
|||||
Bank
borrowings – Note 12
|
15,742,319
|
15,410,542
|
|||||
Total
Current Liabilities
|
39,377,846
|
37,366,384
|
|||||
TOTAL
LIABILITIES
|
39,377,846
|
37,366,384
|
|||||
COMMITMENTS
AND CONTINGENCIES – Note 14
|
As
of
|
|||||||
March
31,
|
|
December
31,
|
|
||||
|
|
2008
|
|
2007
|
|
||
|
|
(Unaudited)
|
|
|
|||
$ |
$
|
||||||
STOCKHOLDERS’
EQUITY
|
|||||||
Preferred
stock
|
|||||||
Par
value: US$0.0001
|
|||||||
Authorized:
10,000,000 shares
|
|||||||
Issued
and outstanding: none
|
-
|
-
|
|||||
Common
stock
|
|||||||
Par
value : US$0.0001
|
|||||||
Authorized:
100,000,000 shares
|
|||||||
Issued
and outstanding:
2008
and 2007: 20,478,090 shares
|
2,048
|
2,048
|
|||||
Additional
paid-in capital
|
2,765,102
|
2,765,102
|
|||||
Accumulated
other comprehensive income
|
1,397,352
|
1,157,872
|
|||||
Retained
earnings
|
8,340,931
|
7,628,525
|
|||||
TOTAL
STOCKHOLDERS’ EQUITY
|
12,505,433
|
11,553,547
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
51,883,279
|
48,919,931
|
Three months ended March 31,
|
|||||||
2008
|
|
2007
|
|
||||
|
|
(Unaudited)
|
|
(Unaudited)
|
|
||
|
|
$
|
|
$
|
|
||
Net
sales
|
17,831,562
|
11,539,505
|
|||||
Cost
of sales
|
(15,123,264
|
)
|
(10,483,090
|
)
|
|||
Gross
profit
|
2,708,298
|
1,056,415
|
|||||
Depreciation
– Notes 2 and 9
|
(49,371
|
)
|
(25,804
|
)
|
|||
Selling
and distribution costs
|
(414,023
|
)
|
(473,086
|
)
|
|||
General
and administrative costs
|
(769,696
|
)
|
(935,299
|
)
|
|||
Loss
on exchange rate difference
|
(504,887
|
)
|
(72,333
|
)
|
|||
Income
(loss) from operations
|
970,321
|
(450,107
|
)
|
||||
Change
in fair value of currency forwards - Note 6
|
29,102
|
-
|
|||||
Other
income - Note 3
|
104,534
|
41,670
|
|||||
Interest
expense – Note 4
|
(206,750
|
)
|
(137,475
|
)
|
|||
Income
before income taxes
|
897,207
|
(545,912
|
)
|
||||
Income
taxes - Note 5
|
(166,880
|
)
|
43,249
|
||||
Net
income (loss)
|
730,327
|
(502,663
|
)
|
||||
Other
comprehensive income
|
|||||||
Foreign
currency translation gain
|
232,085
|
125,353
|
|||||
Comprehensive
income (loss)
|
962,412
|
(377,310
|
)
|
||||
Income
(loss) per common share
|
|||||||
-
Basic and diluted
|
0.04
|
(0.03
|
)
|
||||
Weighted
average common shares outstanding
|
|||||||
-
Basic and diluted
|
20,478,090
|
14,798,846
|
Three months ended March 31,
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
$ |
$
|
||||||
Cash
flows from operating activities
|
|||||||
Net
income (loss)
|
730,327
|
(502,663
|
)
|
||||
Adjustments
to reconcile net income (loss) to net cash
|
|||||||
provided
by operating activities :
|
|||||||
Amortization
of intangible asset
|
12,500
|
12,500
|
|||||
Depreciation
|
154,795
|
46,275
|
|||||
Change
in fair value of currency forwards
|
(29,102
|
)
|
-
|
||||
Loss
on disposal of plant and equipment
|
17,122
|
-
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
(Increase)
decrease in -
|
|||||||
Accounts
receivable
|
525,593
|
828,676
|
|||||
Notes
receivable
|
(342,368
|
)
|
76,567
|
||||
Prepaid
expenses and other receivables
|
(996,072
|
)
|
(1,172,155
|
)
|
|||
Inventories
|
(1,026,330
|
)
|
1,447,094
|
||||
Increase
(decrease) in -
|
|||||||
Accounts
payable
|
524,183
|
(163,069
|
)
|
||||
Other
payables and accrued liabilities
|
386,796
|
643,313
|
|||||
Income
taxes payable
|
348,391
|
(115,408
|
)
|
||||
Net
cash provided by operating activities
|
305,835
|
1,101,130
|
|||||
Cash
flows from investing activities
|
|||||||
Acquisition
of plant and equipment
|
(202,236
|
)
|
(342,788
|
)
|
|||
Deposit
paid for acquisition of machinery
|
(248,965
|
)
|
-
|
||||
Net
cash used in investing activities
|
(451,201
|
)
|
(342,788
|
)
|
|||
Cash
flows from financing activities
|
|||||||
Proceeds
from (repayment of) short-term bank loans
|
(3,925,349
|
)
|
200,040
|
||||
Net
advancement (repayment) of other bank borrowings
|
3,466,660
|
(298,671
|
)
|
||||
Increase
(decrease) in restricted cash
|
792,237
|
(285,944
|
)
|
||||
Advance
to related parties
|
-
|
(537,737
|
)
|
||||
Net
cash provided by (used in) financing activities
|
333,548
|
(922,312
|
)
|
||||
Net
increase (decrease) in cash and cash equivalents
|
188,182
|
(163,970
|
)
|
||||
Effect
of foreign currency translation on cash and
cash
equivalents
|
39,420
|
6,377
|
|||||
Cash
and cash equivalents - beginning of period
|
1,489,262
|
488,070
|
|||||
Cash
and cash equivalents - end of period
|
1,716,864
|
330,477
|
Three months ended March 31,
|
|||||||
2008
|
|
2007
|
|
||||
|
|
(Unaudited)
|
|
(Unaudited)
|
|
||
$ |
$
|
||||||
Supplemental
disclosures of cash flow information :
|
|||||||
Cash
paid for :
|
|||||||
Interest
|
206,750
|
137,475
|
|||||
Income
taxes
|
28,756
|
19,611
|
1.
|
Organization
and Basis of Presentation
|
1.
|
Organization
and Basis of Presentation
(continued)
|
2.
|
Summary
of significant accounting
policies
|
Basis
of presentation
|
The
accompanying consolidated financial statements of the Company have
been
prepared in accordance with generally accepted accounting principles
in
the United States of America. The consolidated financial statements
for
the interim periods are unaudited. In the opinion of management,
these
consolidated financial statements include all adjustments, including
normal recurring adjustments, necessary for their fair presentation.
Interim results are not necessarily indicative of results of operations
to
be expected for a full year. The accompanying consolidated financial
statements have been prepared in accordance with the rules and
regulations
of the Securities and Exchange Commission and do not include all
information and footnotes necessary for a complete presentation
of
financial statements in conformity with accounting principles generally
accepted in the United States. These financial statements should
be read
in conjunction with the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31,
2007.
|
2.
|
Summary
of significant accounting policies
(continued)
|
The
consolidated financial statements include the accounts of the Company
and
its subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation
|
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)
|
March 31, 2008
|
March 31,2007
|
||||||
Quarter
end RMB : US$ exchange rate
|
7.1058
|
7.7232
|
|||||
Average
quarterly RMB : US$ exchange rate
|
7.1986
|
7.7500
|
2.
|
Summary
of significant accounting policies
(continued)
|
2.
|
Summary
of significant accounting policies
(continued)
|
3.
|
Other
income
|
Three months ended March 31,
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
$ |
$
|
||||||
Bank
interest income
|
38,013
|
1,984
|
|||||
Other
interest income
|
10,717
|
-
|
|||||
Sundry
income
|
55,804
|
39,686
|
|||||
104,534
|
41,670
|
4.
|
Interest
expense
|
Three months ended March 31,
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
$ |
$
|
||||||
Interest
on trade related bank loan
|
183,981
|
125,765
|
|||||
Interest
on short-term bank loans
|
22,769
|
11,710
|
|||||
206,750
|
137,475
|
5.
|
Income
taxes
|
Three
months ended March 31,
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
$ |
$
|
||||||
PRC
income taxes
|
166,880
|
(43,249
|
)
|
||||
166,880
|
(43,249
|
)
|
As
of
|
|||||||
March
31,
|
December
31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Temporary
difference on:
|
|||||||
Reorganization
of expenses
|
(32,909
|
)
|
(24,527
|
)
|
|||
Accelerated
tax depreciation on intangible asset
|
(4,687
|
)
|
(3,750
|
)
|
|||
Deferred
tax assets, net
|
(37,596
|
)
|
(28,277
|
)
|
|||
Presented
in the balance sheet:
|
|||||||
Net
deferred tax assets
|
(37,596
|
)
|
(28,277
|
)
|
6.
|
Derivative
instruments
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Currency
forwards (notional amount $5 million)
|
29,102
|
-
|
7.
|
Prepaid
expenses and other
receivables
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
|
2008
|
|
2007
|
|
|||
|
|
(Unaudited)
|
|
|
|
||
|
|
$
|
|
$
|
|
||
Purchase
deposits paid
|
642,523
|
264,138
|
|||||
Advance
to staff
|
-
|
74,502
|
|||||
Other
deposits and prepayments
|
735,681
|
147,503
|
|||||
Value-added
tax prepayment
|
1,170,693
|
1,103,063
|
|||||
Other
receivables
|
986,384
|
912,590
|
|||||
3,535,281
|
2,501,796
|
8.
|
Inventories
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Raw
materials
|
5,196,545
|
4,507,255
|
|||||
Work
in progress
|
1,994,710
|
1,694,997
|
|||||
Finished
goods
|
8,322,631
|
8,101,083
|
|||||
Consumables
|
59,557
|
49,197
|
|||||
Packing
materials
|
295,988
|
18,757
|
|||||
15,869,431
|
14,371,289
|
9.
|
Plant
and equipment
|
As
of
|
|||||||
|
March
31,
|
December
31,
|
|||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Cost
|
|||||||
Furniture,
fixtures and office equipment
|
699,233
|
643,196
|
|||||
Leasehold
improvement
|
151,299
|
146,622
|
|||||
Machinery
and equipment
|
4,210,731
|
3,940,847
|
|||||
Motor
vehicles
|
355,064
|
344,088
|
|||||
5,416,327
|
5,074,753
|
||||||
Accumulated
depreciation
|
|||||||
Furniture,
fixtures and office equipment
|
249,010
|
211,342
|
|||||
Leasehold
improvement
|
122,994
|
100,864
|
|||||
Machinery
and equipment
|
950,927
|
834,206
|
|||||
Motor
vehicles
|
160,257
|
138,959
|
|||||
1,483,188
|
1,285,371
|
||||||
Net
|
|||||||
Furniture,
fixtures and office equipment
|
450,223
|
431,854
|
|||||
Leasehold
improvement
|
28,305
|
45,758
|
|||||
Machinery
and equipment
|
3,259,804
|
3,106,641
|
|||||
Motor
vehicles
|
194,807
|
205,129
|
|||||
3,933,139
|
3,789,382
|
Three
months ended March 31,
|
|||||||
2008
|
2007
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
$ |
$
|
||||||
Included
in factory overheads
|
105,424
|
82,014
|
|||||
Included
in operating expenses
|
49,371
|
25,804
|
|||||
154,795
|
107,818
|
10.
|
Intangible
asset
|
As
of
|
|||||||
March
31,
|
December
31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Cost
|
|||||||
Consumer
battery license fee
|
1,000,000
|
1,000,000
|
|||||
Accumulated
amortization
|
62,500
|
50,000
|
|||||
Net
|
937,500
|
950,000
|
10.
|
Intangible
asset (continued)
|
11.
|
Other
payables and accrued
liabilities
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Accrued
expenses
|
866,607
|
765,760
|
|||||
Accrued
staff welfare
|
-
|
90,316
|
|||||
Royalty
payable
|
1,438,779
|
1,327,026
|
|||||
Sales
deposits received
|
319,337
|
136,295
|
|||||
Other
payables
|
34,702
|
1,559
|
|||||
2,659,425
|
2,320,956
|
12.
|
Bank
borrowings
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Secured:
|
|||||||
Repayable
within one year
|
|||||||
Short
term bank loans
|
281,460
|
2,454,838
|
|||||
Other
trade related bank loans
|
15,460,859
|
12,955,704
|
|||||
15,742,319
|
15,410,542
|
(a)
|
charge
over bank deposits of $4,825,030 which is included in restricted
cash on
the balance sheet;
|
(b)
|
personal
guarantee executed by the directors of the
Company;
|
(c)
|
the
legal charge over leasehold land with carrying amount $3,021,907
(see Note
9); and
|
(d)
|
other
financial covenant:
|
13.
|
Pension
plans
|
14.
|
Commitments
and contingencies
|
Period
ending March 31,
|
$
|
|||
2008
|
616,173
|
|||
2009
|
804,868
|
|||
2010
|
378,607
|
|||
1,799,648
|
$
|
||||
Purchase
of plant and equipment
|
121,446
|
As
of
|
|||||||
March
31,
|
December
31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
$ |
$
|
||||||
Bills
discounted
|
68,650
|
106,378
|
15.
|
Segment
Information
|
Three months ended March 31,
|
|||||||
2008
|
|
2007
|
|
||||
|
|
(Unaudited)
|
|
(Unaudited)
|
|
||
Net
revenue
|
|
$
|
$
|
||||
Hong
Kong and China
|
6,247,148
|
6,649,353
|
|||||
Asia
|
1,064,813
|
908,276
|
|||||
Europe
|
7,621,260
|
2,460,312
|
|||||
North
America
|
2,849,549
|
1,491,486
|
|||||
South
America
|
6,838
|
-
|
|||||
Others
|
41,954
|
30,078
|
|||||
17,831,562
|
11,539,505
|
As of
|
|||||||
March 31,
|
December 31,
|
||||||
2008
|
2007
|
||||||
(Unaudited)
|
|||||||
Accounts
receivable
|
$ |
$
|
|||||
Hong
Kong and China
|
4,527,169
|
4,258,010
|
|||||
Asia
|
997,435
|
1,023,284
|
|||||
Europe
|
6,590,811
|
6,761,615
|
|||||
North
America
|
3,765,677
|
3,863,266
|
|||||
South
America
|
-
|
-
|
|||||
15,881,092
|
15,906,175
|
Exhibit
Number
|
Description of Document
|
|
21.1
|
List
of Subsidiaries*
|
|
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.**
|
*
|
Previously
filed.
|
** |
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.
|
Hong
Kong Highpower Technology, Inc.
|
|||
Dated:
June 27, 2008
|
/s/
|
Dang
Yu Pan
|
|
By:
|
Dang
Yu Pan
|
||
Its:
|
Chairman
of the Board and Chief Executive
Officer
|
||
/s/
|
Yu
Zhi Qui
|
||
By:
|
Yu
Zhi Qui
|
||
Its:
|
Chief
Financial Officer
|