PROSPECTUS
SUMMARY
|
2
|
SUMMARY
FINANCIAL DATA
|
6
|
RISK
FACTORS
|
7
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|
23
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
26
|
ACCOUNTING
FOR THE SHARE EXCHANGE
|
26
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
27
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
28
|
DESCRIPTION
OF BUSINESS
|
44
|
MANAGEMENT
|
55
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
62
|
BENEFICIAL
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
63
|
DESCRIPTION
OF SECURITIES
|
64
|
SELLING
STOCKHOLDERS
|
68
|
SHARES
ELIGIBLE FOR FUTURE SALE
|
70
|
LEGAL
MATTERS
|
75
|
EXPERTS
|
75
|
ADDITIONAL
INFORMATION
|
75
|
FINANCIAL
STATEMENTS
|
F-1
|
(continued)
|
F-2
|
HONG
KONG HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES
|
F-3
|
·
|
personal
portable electronic devices, such as digital cameras, DVD players,
electric razors and electric
toothbrushes;
|
·
|
electric
toys, such as radio-controlled
cars;
|
·
|
industrial
applications, such as industrial lighting, medical devices and
communications equipment;
|
·
|
power
tools; and
|
·
|
electric
bikes.
|
Common
stock offered we are offering
|
1,119,649
shares (1)
|
Common
stock outstanding after the offering
|
13,562,596
shares
(2)
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock by
the
selling stockholders.
|
Risk
factors
|
Investing
in these securities involves a high degree of risk. As an investor
you
should be able to bear a complete loss of your investment. You should
carefully consider the information set forth in the “Risk Factors” section
beginning on page 7.
|
(1)
|
Consists
of 1,119,649 shares of our common stock that were issued to the selling
stockholders.
|
(2)
|
The
number of shares of our common stock outstanding as of July 21, 2007
excludes 52,500 shares of our common stock issuable upon exercise
of
outstanding warrants.
|
Consolidated
Statements of Operations
|
Three Months Ended March 31,
|
Year Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(unaudited)
|
(unaudited)
|
(restated)
|
(restated)
|
|
(unaudited)
|
||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||||
Net
sales
|
$
|
17,832
|
$
|
11,540
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
$
|
10,956
|
$
|
3,599
|
||||||||
|
||||||||||||||||||||||
Cost
of sales
|
(15,123
|
)
|
(10,483
|
)
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
(9,306
|
)
|
(3,290
|
)
|
||||||||
|
||||||||||||||||||||||
Gross
profit
|
2,708
|
1,056
|
9,471
|
7,417
|
4,253
|
1,651
|
309
|
|||||||||||||||
|
||||||||||||||||||||||
Depreciation
|
(49
|
)
|
(26
|
)
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
(25
|
)
|
(10
|
)
|
||||||||
Selling
and distribution costs
|
(414
|
)
|
(473
|
)
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
(641
|
)
|
(61
|
)
|
||||||||
General
and administrative costs
|
(770
|
)
|
(935
|
)
|
(3,461
|
)
|
(1,960
|
)
|
(854
|
)
|
(549
|
)
|
(181
|
)
|
||||||||
Loss
on exchange rate difference
|
(505
|
)
|
(72
|
)
|
(855
|
)
|
(199
|
)
|
-
|
-
|
-
|
|||||||||||
Fees
and costs related to reorganization
|
-
|
-
|
(582
|
)
|
(75
|
)
|
-
|
-
|
-
|
|||||||||||||
Income
(loss) from operations
|
970
|
(450
|
)
|
2,357
|
3,468
|
2,496
|
435
|
57
|
||||||||||||||
Change
in fair value of currency forwards
|
29
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other
income
|
105
|
42
|
149
|
59
|
58
|
33
|
-
|
|||||||||||||||
|
||||||||||||||||||||||
Interest
expense
|
(207
|
)
|
(137
|
)
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
(10
|
)
|
-
|
|||||||||
|
||||||||||||||||||||||
Income
(loss) before taxes
|
897
|
(546
|
)
|
1,809
|
3,273
|
2,499
|
458
|
57
|
||||||||||||||
|
||||||||||||||||||||||
Income
taxes
|
(167
|
)
|
43
|
(145
|
)
|
(241
|
)
|
(188
|
)
|
17
|
-
|
|||||||||||
Net
income (loss)
|
$
|
730
|
$
|
(503
|
)
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
$
|
475
|
$
|
57
|
|||||||
Net
income (loss) per common share – basic and diluted
|
$
|
0.06
|
$
|
(0.05
|
)
|
$
|
0.17
|
$
|
0.33
|
$
|
0.25
|
$
|
0.05
|
$
|
0.01
|
|||||||
Weighted
average common shares outstanding – basic and diluted
|
12,798,846
|
9,248,973
|
9,832,493
|
9,248,973
|
9,248,973
|
9,248,973
|
9,248,973
|
|||||||||||||||
Dividends
declared per common share
|
$
|
-
|
$
|
-
|
$
|
0.07
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Consolidated
Balance Sheets
|
As of March 31,
|
As of December 31,
|
|||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||
|
(unaudited)
|
|
|
|
(unaudited)
|
||||||||||||||
|
(in
thousands)
|
||||||||||||||||||
Current
Assets
|
$
|
42,560
|
$
|
40,167
|
$
|
28,573
|
$
|
12,851
|
$
|
6,322
|
$
|
1,910
|
|||||||
Total
Assets
|
51,883
|
48,920
|
31,736
|
14,585
|
7,378
|
2,317
|
|||||||||||||
Current
Liabilities
|
39,378
|
37,366
|
24,571
|
10,728
|
5,907
|
2,056
|
|||||||||||||
Total
Liabilities
|
39,378
|
37,366
|
24,571
|
10,728
|
5,907
|
2,140
|
|||||||||||||
Total
Stockholders’ Equity
|
12,505
|
11,554
|
7,165
|
3,857
|
1,472
|
177
|
—
|
maintain
our leading position in the Ni-MH battery
market;
|
—
|
successfully
develop our Li-ion battery
business;
|
—
|
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.
|
· |
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;
|
· |
Continued
maintenance of certificates, permits and licenses required to conduct
business in China;
|
· |
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 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 prospectus, including, without
limitation, under the sections entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
and “Business.”
|
High
|
Low
|
||||||
Quarter
ended June 30, 2008 (from June 19, 2008)
|
$
|
8.35
|
$
|
4.75
|
Consolidated
Statements of Operations
|
Three Months Ended March 31,
|
Year Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(unaudited)
|
(unaudited)
|
(restated)
|
(restated)
|
|
(unaudited)
|
||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||||
Net
sales
|
$
|
17,832
|
$
|
11,540
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
$
|
10,956
|
$
|
3,599
|
||||||||
|
||||||||||||||||||||||
Cost
of sales
|
(15,123
|
)
|
(10,483
|
)
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
(9,306
|
)
|
(3,290
|
)
|
||||||||
|
||||||||||||||||||||||
Gross
profit
|
2,708
|
1,056
|
9,471
|
7,417
|
4,253
|
1,651
|
309
|
|||||||||||||||
|
||||||||||||||||||||||
Depreciation
|
(49
|
)
|
(26
|
)
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
(25
|
)
|
(10
|
)
|
||||||||
Selling
and distribution costs
|
(414
|
)
|
(473
|
)
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
(641
|
)
|
(61
|
)
|
||||||||
General
and administrative costs
|
(770
|
)
|
(935
|
)
|
(3,461
|
)
|
(1,960
|
)
|
(854
|
)
|
(549
|
)
|
(181
|
)
|
||||||||
Loss
on exchange rate difference
|
(505
|
)
|
(72
|
)
|
(855
|
)
|
(199
|
)
|
-
|
-
|
-
|
|||||||||||
Fees
and costs related to reorganization
|
-
|
-
|
(582
|
)
|
(75
|
)
|
-
|
-
|
-
|
|||||||||||||
Income
(loss) from operations
|
970
|
(450
|
)
|
2,357
|
3,468
|
2,496
|
435
|
57
|
||||||||||||||
Change
in fair value of currency forwards
|
29
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Other
income
|
105
|
42
|
149
|
59
|
58
|
33
|
-
|
|||||||||||||||
|
||||||||||||||||||||||
Interest
expense
|
(207
|
)
|
(137
|
)
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
(10
|
)
|
-
|
|||||||||
|
||||||||||||||||||||||
Income
(loss) before taxes
|
897
|
(546
|
)
|
1,809
|
3,273
|
2,499
|
458
|
57
|
||||||||||||||
|
||||||||||||||||||||||
Income
taxes
|
(167
|
)
|
43
|
(145
|
)
|
(241
|
)
|
(188
|
)
|
17
|
-
|
|||||||||||
Net
income (loss)
|
$
|
730
|
$
|
(503
|
)
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
$
|
475
|
$
|
57
|
|||||||
Net
income (loss) per common share – basic and diluted
|
$
|
0.06
|
$
|
(0.05
|
)
|
$
|
0.17
|
$
|
0.33
|
$
|
0.25
|
$
|
0.05
|
$
|
0.01
|
|||||||
Weighted
average common shares outstanding – basic and diluted
|
12,798,846
|
9,248,973
|
9,832,493
|
9,248,973
|
9,248,973
|
9,248,973
|
9,248,973
|
|||||||||||||||
Dividends
declared per common share
|
$
|
-
|
$
|
-
|
$
|
0.07
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
Consolidated
Balance Sheets
|
As of March 31,
|
As of December 31,
|
|||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||
|
(unaudited)
|
|
|
|
(unaudited)
|
||||||||||||||
|
(in
thousands)
|
||||||||||||||||||
Current
Assets
|
$
|
42,560
|
$
|
40,167
|
$
|
28,573
|
$
|
12,851
|
$
|
6,322
|
$
|
1,910
|
|||||||
Total
Assets
|
51,883
|
48,920
|
31,736
|
14,585
|
7,378
|
2,317
|
|||||||||||||
Current
Liabilities
|
39,378
|
37,366
|
24,571
|
10,728
|
5,907
|
2,056
|
|||||||||||||
Total
Liabilities
|
39,378
|
37,366
|
24,571
|
10,728
|
5,907
|
2,140
|
|||||||||||||
Total
Stockholders’ Equity
|
12,505
|
11,554
|
7,165
|
3,857
|
1,472
|
177
|
Three Months Ended
March 31,
|
Year Ended December 31,
|
|||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
||||||||||||
(unaudited)
|
(unaudited)
|
(restated)
|
(restated)
|
|||||||||||||
(in
thousands)
|
||||||||||||||||
|
|
|
|
|||||||||||||
Net
sales
|
$
|
17,832
|
$
|
11,540
|
$
|
73,262
|
$
|
44,376
|
$
|
25,010
|
||||||
|
||||||||||||||||
Cost
of sales
|
(15,123
|
)
|
(10,483
|
)
|
(63,791
|
)
|
(36,959
|
)
|
(20,757
|
)
|
||||||
|
||||||||||||||||
Gross
profit
|
2,708
|
1,056
|
9,471
|
7,417
|
4,253
|
|||||||||||
|
||||||||||||||||
Depreciation
|
(49
|
)
|
(26
|
)
|
(121
|
)
|
(80
|
)
|
(46
|
)
|
||||||
Selling
and distribution costs
|
(414
|
)
|
(473
|
)
|
(2,096
|
)
|
(1,634
|
)
|
(857
|
)
|
||||||
General
and administrative costs
|
(770
|
)
|
(935
|
)
|
(3,461
|
)
|
(1,960
|
)
|
(854
|
)
|
||||||
Loss
on exchange rate difference
|
(505
|
)
|
(72
|
)
|
(855
|
)
|
(199
|
)
|
-
|
|||||||
Fees
and costs related to reorganization
|
-
|
-
|
(582
|
)
|
(75
|
)
|
-
|
|||||||||
Income
(loss) from operations
|
970
|
(450
|
)
|
2,357
|
3,468
|
2,496
|
||||||||||
Change
in fair value of currency forwards
|
29
|
-
|
-
|
-
|
-
|
|||||||||||
Other
income
|
105
|
42
|
149
|
59
|
58
|
|||||||||||
|
||||||||||||||||
Interest
expense
|
(207
|
)
|
(137
|
)
|
(696
|
)
|
(254
|
)
|
(55
|
)
|
||||||
|
||||||||||||||||
Income
(loss) before taxes
|
897
|
(546
|
)
|
1,809
|
3,273
|
2,499
|
||||||||||
|
||||||||||||||||
Income
taxes
|
(167
|
)
|
43
|
(145
|
)
|
(241
|
)
|
(188
|
)
|
|||||||
Net
income (loss)
|
$
|
730
|
$
|
(503
|
)
|
$
|
1,664
|
$
|
3,032
|
$
|
2,311
|
|||||
Net
income (loss) per common share – basic and diluted
|
$
|
0.06
|
$
|
(0.05
|
)
|
$
|
0.17
|
$
|
0.33
|
$
|
0.25
|
|||||
Weighted
average common shares outstanding – basic and diluted
|
12,798,846
|
9,248,973
|
9,832,493
|
9,248,973
|
9,248,973
|
· |
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;
and
|
· |
other
companies may calculate EBITDA differently than we do, limiting its
usefulness as a comparative
measure.
|
Three
Months Ended March 31
|
|
Years
Ended December 31
|
||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||
Net
income (loss)
|
730,327
|
(502,663
|
)
|
1,663,690
|
3,032,327
|
2,311,031
|
||||||||||
Interest
expense
|
206,750
|
137,475
|
696,132
|
253,617
|
54,971
|
|||||||||||
Income
taxes
|
166,880
|
(43,249
|
)
|
145,458
|
240,487
|
187,634
|
||||||||||
Depreciation
|
154,795
|
46,275
|
560,073
|
343,841
|
182,307
|
|||||||||||
Amortization
|
12,500
|
12,500
|
50,000
|
-
|
-
|
|||||||||||
EBITDA
|
1,271,252
|
(349,662
|
)
|
3,115,353
|
3,870,272
|
2,735,943
|
Name
of Bank
|
Amount Granted
|
Amount
Outstanding
Under
Loan
|
Guaranteed
by Officers
|
|||||||
DBS
Bank (China) Limited
|
$
|
11.35
million
|
$
|
6.75
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
|||||
Shenzhen
Development Bank Co., Ltd
|
$
|
7.04
million
|
$
|
5.89
million
|
Dang
Yu Pan
|
|||||
Shanghai
Pudong Development Bank Co. Ltd.
|
$
|
8.25
million
|
$
|
2.25
million
|
Dang
Yu Pan
|
|||||
Citibank
China Co., Ltd.
|
$
|
2.0
million
|
$
|
0.57
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
|
$
|
15,742,319
|
$
|
15,742,319
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Purchase
Obligations (1)
|
$
|
20,716,101
|
$
|
20,716,101
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
License
Agreement
|
$
|
1,438,779
|
$
|
1,438,779
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Capital
Commitment
|
$
|
121,446
|
$
|
121,446
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Total
|
$
|
38,018,645
|
$
|
38,018,645
|
$
|
-
|
$
|
-
|
$
|
-
|
(1)
|
Primarily
represents obligations to purchase specified quantities of raw
materials.
|
—
|
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.
|
· |
Consumer
Batteries – Relative to ordinary Ni-Cad rechargeable batteries, as well as
their non-rechargeable counterparts, our Ni-MH batteries offer higher
power capacity allowing for longer working time and shortened charging
time during equivalent working periods. We produce AA and AAA sized
batteries in blister packing as well as chargers and battery
packs.
|
· |
Industrial
Batteries – These batteries are designed for electric bikes, power tools
and electric toys. They are specifically designed for high-drain
discharge
applications, possessing low internal resistance, more power, and
longer
discharging time.
|
Three Months Ended March 31,
|
Year Ended December 31,
|
|||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
||||||||||||
Consumer
Batteries
|
80
|
%
|
80
|
%
|
80
|
%
|
77
|
%
|
84
|
%
|
||||||
Industrial
Batteries
|
19
|
%
|
19
|
%
|
19
|
%
|
21
|
%
|
14
|
%
|
||||||
Materials
|
1
|
%
|
1
|
%
|
1
|
%
|
2
|
%
|
2
|
%
|
||||||
100
|
%
|
100
|
%
|
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.
|
Three Months Ended March 31,
|
Year Ended December 31,
|
|||||||||||||||
2008
|
2007
|
2007
|
2006
|
2005
|
||||||||||||
China
and Hong Kong
|
35.0
|
%
|
57.6
|
%
|
39.5
|
%
|
65.4
|
%
|
68.5
|
%
|
||||||
Europe
|
42.7
|
21.3
|
34.6
|
16.4
|
11.2
|
|||||||||||
North
America
|
16.0
|
12.9
|
17.5
|
10.2
|
7.5
|
|||||||||||
Asia
|
6.0
|
7.9
|
8.1
|
7.4
|
12.8
|
|||||||||||
South
America and Others
|
0.3
|
0.3
|
0.3
|
0.6
|
-
|
|||||||||||
Total
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Environmental |
Regulations
|
— |
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).
|
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
|
Name
|
Age
|
Position
|
||
Dang
Yu Pan
|
40
|
Chairman
of the Board and Chief Executive Officer
|
||
Wen
Liang Li
|
42
|
Vice
President, Chief Technology Officer and Director
|
||
Wen
Wei Ma
|
38
|
Vice
President of Manufacturing
|
||
Yu
Zhi Qiu
|
36
|
Chief
Financial Officer
|
||
Wen
Jia Xiao
|
31
|
Vice
President of Quality Control
|
||
Xinhai
Li
|
45
|
Director
|
||
Chao
Li
|
63
|
Director
|
||
Ping
Li
|
43
|
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 Chairman of the Board
|
2006
|
$
|
9,000
|
$
|
-
|
$
|
24,000(2
|
)
|
$
|
33,000
|
||||||
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 and Former Director
|
2006
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
Anthony
Pintsopoulos (3)
|
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
Form
Chief Financial Officer and Former Director
|
2006
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
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
|
)
|
·
|
indemnify
officers and directors against certain liabilities that may arise
because
of their status as officers or directors;
|
·
|
advance
expenses, as incurred, to officers and directors in connection with
a
legal proceeding, subject to limited exceptions; or
|
·
|
obtain
directors’ and officers’ insurance.
|
Name
of Bank
|
Amount Granted
|
Amount
Outstanding
Under Loan
|
Guaranteed by Officers
|
|||||||
DBS
Bank (China) Limited
|
$
|
11.35
million
|
$
|
6.75
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
|||||
Shenzhen
Development Bank Co., Ltd
|
$
|
7.04
million
|
$
|
5.89
million
|
Dang
Yu Pan
|
|||||
Shanghai
Pudong Development Bank Co. Ltd.
|
$
|
8.25
million
|
$
|
2.25
million
|
Dang
Yu Pan
|
|||||
Citibank
China Co., Ltd.
|
$
|
2.0
million
|
$
|
0.57
million
|
Dang
Yu Pan, Wen Liang Li, Wen Wei Ma
|
·
|
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
|
Beneficially
Owned
|
Percent of
Class
Beneficially
Owned
|
|||||||
|
|
|
||||||||
Directors
and Executive Officers
|
|
|||||||||
Dang
Yu Pan
|
Chief
Executive Officer and Chairman
of the Board
|
5,179,429(1
|
)
|
38.2
|
%
|
|||||
|
||||||||||
Wen
Liang Li
|
Vice
President, Chief Technology Officer and Director
|
2,034,770
|
15.0
|
%
|
||||||
|
||||||||||
Wen
Wei Ma
|
Vice
President of Manufacturing
|
924,897
|
6.8
|
%
|
||||||
|
||||||||||
Yu
Zhi Qiu
|
Chief
Financial Officer
|
191,454
|
1.4
|
%
|
||||||
|
||||||||||
Wen
Jia Xiao
|
Vice
President of Quality Control
|
166,482
|
1.2
|
%
|
||||||
Xinhai
Li
|
Director
|
-
|
-
|
|||||||
Chao
Li
|
Director
|
-
|
-
|
|||||||
Ping
Li
|
Director
|
-
|
-
|
|||||||
|
||||||||||
Officers
and Directors as a Group (total of 8 persons)
|
8,139,096(1
|
)
|
60.0
|
%
|
(1)
|
Includes
(i) an aggregate of 1,387,356 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 191,454 shares and, Wen Jia
Xiao,
Vice President of Quality Control, who holds 166,482 shares, and
(ii)
369,959 shares held by a company that is 100% owned by Mr.
Pan.
|
·
|
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 safety of our products
and services or our competitors’ products and
services;
|
·
|
Announcements
of innovations or new products or services by us or our
competitors;
|
·
|
U.S.
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.
|
·
|
prior
to such date, the Board of Directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
|
·
|
upon
consummation of the transaction that resulted in the stockholder
becoming
an interested stockholder, the interested stockholder owned at least
85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the
number of
shares outstanding those shares owned by persons who are directors
and
also officers and by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares
held
subject to the plan will be tendered in a tender or exchange offer;
or
|
·
|
on
or subsequent to such date, the business combination is approved
by the
Board of Directors and authorized at an annual meeting or special
meeting
of stockholders and not by written consent, by the affirmative vote
of at
least 66 2/3% of the outstanding voting stock that is not owned by
the
interested stockholder.
|
·
|
any
merger or consolidation involving the corporation and the interested
stockholder;
|
·
|
any
sale, transfer, pledge or other disposition of 10% or more of the
assets
of the corporation involving the interested stockholder;
|
·
|
subject
to certain exceptions, any transaction that results in the issuance
or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
|
·
|
any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
|
·
|
the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided
by or
through the corporation.
|
·
|
provide
our board of directors with the ability to alter our bylaws without
stockholder approval;
|
·
|
provide
for an advance notice procedure with regard to the nomination of
candidates for election as directors and with regard to business
to be
brought before a meeting of stockholders;
and
|
·
|
provide
that vacancies on our board of directors may be filled by a majority
of
directors in office, although less than a
quorum.
|
· |
the
number of shares owned by each stockholder prior to this
offering;
|
· |
the
percentage owned by each stockholder prior to completion of the
offering;
|
· |
the
total number of shares that will be owned by each stockholder upon
completion of the offering; and
|
· |
the
percentage owned by each stockholder upon completion of the
offering.
|
Name of Selling Shareholder
|
Number of Shares
of Common Stock
Beneficially Owned
Prior to Offering
|
Percentage of Shares
of Common Stock
Beneficially Owned
Prior
to the Offering
(1)
|
Number of
Shares of
Common Stock
Registered for
Sale Hereby
|
Number of Shares
of Common stock
Beneficially
Owned After
Completion of the
Offering (2)
|
Percentage of Shares
of Common Stock
Beneficially Owned
After Completion of
the Offering (2)
|
|||||||||||
Richard
Rappaport (3)
|
639,765
|
4.7
|
%
|
639,765
|
—
|
—
|
%
|
|||||||||
Anthony
Pintsopoulos (4)
|
266,569
|
2.0
|
%
|
266,569
|
—
|
—
|
||||||||||
Mirador
Consulting, Inc.
|
160,000
|
1.2
|
%
|
160,000
|
—
|
—
|
||||||||||
Kevin
DePrimio (5)
|
35,543
|
*
|
35,543
|
—
|
—
|
|||||||||||
Jason
Stern (6)
|
17,772
|
*
|
17,772
|
—
|
—
|
(1) |
Based
on 13,562,596 shares
of common stock outstanding as of the date of this prospectus. The
number
of shares of our common stock outstanding excludes 52,500 shares
of our
common stock issuable upon exercise of outstanding
warrants.
|
(2) |
Represents
the amount of shares that will be held by the selling stockholders
after
completion of this offering based on the assumption that all shares
registered for sale hereby will be sold. However, the selling stockholders
may offer all, some or none of the shares pursuant to this prospectus,
and
to our knowledge there are currently no agreements, arrangements
or
understanding with respect to the sale of any of the shares that
may be
held by the selling stockholders after completion of this
offering.
|
(3) |
Mr.
Rappaport is chief executive officer of WestPark Capital, Inc., a
registered Financial Industry Regulatory Authority (“FINRA”) member. For
purposes of this offering, Mr. Rappaport may be considered an underwriter.
Mr. Rappaport acquired these securities in the ordinary course of
business
and that at the time of the acquisition of these securities, he had
no
agreements or understandings, directly or indirectly, with any person
to
distribute these securities.
|
(4) |
Mr.
Pintsopoulos is chief financial officer of WestPark Capital, Inc.
For
purposes of this offering, Mr. Pintsopoulos may be considered an
underwriter. Mr. Pintsopoulos acquired these securities in the ordinary
course of business and that at the time of the acquisition of these
securities, he had no agreements or understandings, directly or
indirectly, with any person to distribute these securities.
|
(5) |
Mr.
DePrimio is the Vice President of Corporate Finance of WestPark Capital,
Inc. For purposes of this offering, Mr. DePrimio may be considered
an
underwriter. Mr. DePrimio acquired these securities in the ordinary
course
of business and that at the time of the acquisition of these securities,
he had no agreements or understandings, directly or indirectly, with
any
person to distribute these
securities.
|
(6) |
Mr.
Stern is an employee of WestPark Capital, Inc. For purposes of this
offering, Mr. Stern may be considered an underwriter. Mr. Stern acquired
these securities in the ordinary course of business and that at the
time
of the acquisition of these securities, he had no agreements or
understandings, directly or indirectly, with any person to distribute
these securities
|
· |
Westpark
Capital, Inc. acted as the placement agent for the Private Placement,
which is the $3.1 million equity financing conducted by us on the
close of
the Share Exchange. For its services in connection with the Share
Exchange
and as placement agent, WestPark received an aggregate commission
equal to
10.0% of the gross proceeds from the Private Placement, in addition
to a
$30,000 in connection with the signing of the Exchange Agreement
and a
$40,000 success fee for the Share Exchange, for an aggregate fee
of
$382,000. No other consideration was paid to WestPark or to SRKP
11 in
connection with the Share Exchange or Private Placement. Richard
Rappaport, our President and one of our controlling stockholders
prior to
the Share Exchange, indirectly holds a 100% interest in Westpark,
a FINRA
member. Anthony C. Pintsopoulos, one of our controlling stockholders
and
an officer and director prior to the Share Exchange, is the Chief
Financial Officer of Westpark. Each of Messrs. Rappaport and Pintsopoulos
resigned from all of their executive and director positions with
us upon
the closing of the Share Exchange.
|
· |
WestPark
also acted as the managing underwriter for our initial public offering.
Upon the closing of the offering in June 2008, we issued to WestPark
warrants to purchase up to 52,500 shares of our common stock. The
warrants
are exercisable at a per share exercise price of $3.90, subject to
standard anti-dilution adjustments for stock splits and similar
transactions, and will expire after five years. The holders of shares
of
common stock acquired upon exercise of the warrants have the right
to
include such shares in any future registration statements filed by
us and
to demand one registration for the shares. In addition, we agreed
to
indemnify the underwriters against some liabilities, including liabilities
under the Securities Act of 1933, as amended, and to contribute to
payments that the underwriters may be required to make in respect
thereof.
We paid WestPark a non-accountable expense allowance of $51,188 and
an
underwriters’ discount of $196,219.
|
Approximate Number of
Shares Eligible for
Future Sale
|
Date
|
|
603,750
|
Freely tradeable shares sold in
our
initial public offering, registered under an effective registration
statement declared effective by the Securities and Exchange Commission
on
June 19, 2008.
|
|
2,590,224
|
Shares
freely tradeable by certain selling stockholders listed in an effective
registration statement declared effective by the Securities and Exchange
Commission on June 19, 2008. Of the 2,590,244 shares, selling stockholders
holding an aggregate of 1,772,745 shares of common stock have agreed
that
they will not sell any of such securities until ninety (90) days
after our
common stock was listed on the American Stock Exchange, when one-tenth
of
their shares are released from the lock up, after which their shares
will
automatically be released from the lock up on a monthly basis pro
rata
over a nine month period. Additionally, one selling stockholder agreed
not
to sell 31,250 shares until June 20, 2012.
|
|
1,119,649
|
After
the date of this prospectus, these shares will be freely tradeable
by the
selling stockholders named in this prospectus.
|
|
9,248,973
|
On
November 5, 2008, which is one year after the filing of a current
report
on form 8-K reporting the closing of the Share Exchange, these shares,
which were issued in connection with the Share Exchange, may be sold
under
and subject to Rule 144. However, all of the holders of these shares
have
agreed with WestPark Capital not to directly or indirectly sell,
offer,
contract or grant any option to sell, pledge, transfer (excluding
intra-family transfers, transfers to a trust for estate planning
purposes
or to beneficiaries of officers, directors and shareholders upon
their
death), or otherwise dispose of or enter into any transaction which
may
result in the disposition of any shares of our common stock or securities
convertible into, exchangeable or exercisable for any shares of our
common
stock, without the prior written consent of WestPark Capital, until
June
20, 2009.
|
• |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
• |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
• |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
• |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
• |
privately
negotiated transactions;
|
• |
settlement
of short sales entered into after the date of this
prospectus;
|
• |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
• |
a
combination of any such methods of sale;
|
• |
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
• |
any
other method permitted pursuant to applicable law.
|
CONTENTS
|
PAGE
|
|
MARCH
31, 2008 AND 2007 (UNAUDITED)
|
||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
F-2
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
F-4
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
F-5
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
F-7
|
|
DECEMBER
31, 2007, 2006 AND 2005
|
||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-26
|
|
CONSOLIDATED
BALANCE SHEETS
|
F-27
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F-29
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
F-30
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F-31
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-32
|
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: 12,798,846 shares
|
1,280
|
1,280
|
|||||
Additional
paid-in capital
|
2,765,870
|
2,765,870
|
|||||
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
|
0.06
|
(0.05
|
)
|
||||
Weighted
average common shares outstanding
|
|||||||
-
Basic and diluted
|
14,798,846
|
9,248,973
|
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
|
)
|
5. |
Income
taxes
(continued)
|
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
|
16. |
Subsequent
Event
|
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
|
|||||
COMMITMENTS
AND CONTINGENCIES – Note 15
|
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- 12,798,846 shares (2006-9,248,973
shares)
|
1,280
|
925
|
|||||
Additional
paid-in capital
|
2,765,870
|
63,392
|
|||||
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
|
Year
ended December 31,
|
||||||||||
2007
|
|
2006
|
|
2005
|
||||||
$
|
|
$
|
$
|
|||||||
(restated
–
Note
1)
|
(restated
–
Note
1)
|
|||||||||
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 distribution costs
|
(2,095,594
|
)
|
(1,634,366
|
)
|
(856,526
|
)
|
||||
General
and administrative costs
|
(3,460,592
|
)
|
(1,960,271
|
)
|
(854,246
|
)
|
||||
Loss
on exchange rate difference
|
(854,873
|
)
|
(199,231
|
)
|
-
|
|||||
Fees
and costs related to reorganization
|
(582,269
|
)
|
(75,229
|
)
|
-
|
|||||
Income
from operations
|
2,356,627
|
3,467,843
|
2,495,729
|
|||||||
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 6
|
(145,458
|
)
|
(240,487
|
)
|
(187,634
|
)
|
||||
Net
income
|
1,663,690
|
3,032,327
|
2,311,031
|
|||||||
Net
income per common share
|
||||||||||
-
Basic and diluted
|
0.17
|
0.33
|
0.25
|
|||||||
Weighted
average common shares outstanding
|
||||||||||
-
Basic and diluted
|
9,832,493
|
9,248,973
|
9,248,973
|
Accumulated
|
|||||||||||||||||||
Additional
|
other
|
||||||||||||||||||
Common
stock
|
paid-in
|
comprehensive
|
Retained
|
||||||||||||||||
Shares
|
Amount
|
capital
|
income
|
earnings
|
Total
|
||||||||||||||
$
|
$
|
$
|
$
|
$
|
|||||||||||||||
Balance,
January 1, 2005
|
9,248,973
|
925
|
63,392
|
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
|
9,248,973
|
925
|
63,392
|
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
|
9,248,973
|
925
|
63,392
|
470,383
|
6,630,017
|
7,164,717
|
|||||||||||||
Shares
Issued in connection with reverse merger
|
1,777,128
|
178
|
(35,345
|
)
|
-
|
-
|
(35,167
|
)
|
|||||||||||
Shares
issued in private placement, net of offering cost of
$382,000
|
1,772,745
|
177
|
2,737,823
|
-
|
-
|
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
|
12,798,846
|
1,280
|
2,765,870
|
1,157,872
|
7,628,525
|
11,553,547
|
Year
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) 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
|
)
|
-
|
|||||
Repayment
from (advance to) related parties
|
726,169
|
(38,495
|
)
|
(468,151
|
)
|
|||||
Dividend
paid
|
(665,182
|
)
|
-
|
-
|
||||||
Net
cash provided by financing activities
|
7,343,800
|
3,832,205
|
149,010
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
943,907
|
(19,235
|
)
|
162,550
|
||||||
Effect
of foreign currency translation on cash and cash equivalents
|
57,285
|
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
|
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
|
$
|
0.03
|
$
|
0.02
|
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
|
147,503
|
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)
|
Year
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;
|
I |
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
|
Year
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 approximately
$
0.07 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 (loss)
|
(502,663
|
)
|
1,174,090
|
838,119
|
154,144
|
1,663,690
|
||||||||||
Net
income (loss) per common share:
|
||||||||||||||||
Basic
and diluted
|
(0.06
|
)
|
0.13
|
0.09
|
0.01
|
0.17
|
||||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
9,248,973
|
9,248,973
|
9,248,973
|
11,564,076
|
9,832,493
|
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
and diluted
|
0.09
|
0.10
|
0.04
|
0.10
|
0.33
|
|||||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||
Basic
and diluted
|
9,248,973
|
9,248,973
|
9,248,973
|
9,248,973
|
9,248,973
|
20. |
Subsequent
Event
|