PROSPECTUS
SUMMARY
|
2
|
SUMMARY
FINANCIAL DATA
|
6
|
RISK
FACTORS
|
7
|
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
|
24
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
27
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
28
|
DESCRIPTION
OF BUSINESS
|
42
|
MANAGEMENT
|
53
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
59
|
BENEFICIAL
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
59
|
DESCRIPTION
OF SECURITIES
|
60
|
SELLING
STOCKHOLDERS
|
64
|
LEGAL
MATTERS
|
72
|
EXPERTS
|
72
|
ADDITIONAL
INFORMATION
|
72
|
FINANCIAL
INFORMATION
|
F-1
|
·
|
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
|
3,709,893 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 3,709,893 shares of our common stock that were issued to the selling
stockholders.
|
|
(2)
|
The
number of shares of our common stock outstanding as of April 21, 2009
excludes 52,500 shares of our common stock issuable upon exercise of
outstanding warrants.
|
Consolidated
Statements of Operations
|
Year
Ended December 31,
|
|||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands, except share and per share amounts)
|
||||||||||||
Net
sales
|
$ | 75,004 | $ | 73,262 | $ | 44,376 | ||||||
Cost
of sales
|
(62,239 | ) | (63,791 | ) | (36,959 | ) | ||||||
Gross
profit
|
12,765 | 9,470 | 7,417 | |||||||||
Depreciation
|
(194 | ) | (121 | ) | (80 | ) | ||||||
Selling
and distribution costs
|
(2,416 | ) | (2,096 | ) | (1,634 | ) | ||||||
General
and administrative costs
|
(6,098 | ) | (3,461 | ) | (1,960 | ) | ||||||
Loss
on exchange rate difference
|
(1,182 | ) | (855 | ) | (199 | ) | ||||||
Fees
and costs related to reorganization
|
- | (582 | ) | (75 | ) | |||||||
Income
(loss) from operations
|
2,875 | 2,357 | 3,468 | |||||||||
Change
in fair value of currency forwards
|
116 | - | - | |||||||||
Change
in fair value of warrants
|
(276 | ) | - | - | ||||||||
Other
income
|
463 | 149 | 59 | |||||||||
Interest
expense
|
(642 | ) | (696 | ) | (254 | ) | ||||||
Income
(loss) before taxes
|
2,535 | 1,809 | 3,273 | |||||||||
Income
taxes
|
(529 | ) | (145 | ) | (241 | ) | ||||||
Net
income (loss)
|
$ | 2,006 | $ | 1,664 | $ | 3,032 | ||||||
Net
income (loss) per common share – basic and diluted
|
$ | 0.15 | $ | 0.17 | $ | 0.33 | ||||||
Weighted
average common shares outstanding
|
||||||||||||
–
basic
|
13,205,599 | 9,832,493 | 9,248,973 | |||||||||
–
diluted
|
13,233,353 | 9,832,493 | 9,248,973 | |||||||||
Dividends
declared per common share
|
$ | - | $ | 0.07 | $ | - |
Consolidated
Balance Sheets
|
As
of December 31,
|
|||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands)
|
||||||||||||
Current
Assets
|
$ | 31,375 | $ | 40,167 | $ | 28,573 | ||||||
Total
Assets
|
43,324 | 48,920 | 31,736 | |||||||||
Current
Liabilities
|
27,045 | 37,366 | 24,571 | |||||||||
Total
Liabilities
|
27,045 | 37,366 | 24,571 | |||||||||
Total
Stockholders’ Equity
|
16,280 | 11,554 | 7,165 |
●
|
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.
|
●
|
actual
or anticipated fluctuations in our annual and quarterly results of
operations;
|
●
|
changes
in securities analysts’
expectations;
|
●
|
variations
in our operating results, which could cause us to fail to meet analysts’
or investors’ expectations;
|
●
|
announcements
by our competitors or us of significant new products, contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
|
●
|
conditions
and trends in our industry;
|
●
|
general
market, economic, industry and political
conditions;
|
●
|
changes
in market values of comparable
companies;
|
●
|
additions
or departures of key personnel;
|
●
|
stock
market price and volume fluctuations attributable to inconsistent trading
volume levels; and
|
●
|
future
sales of equity or debt securities, including sales which dilute existing
investors.
|
●
|
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.
|
●
|
The
current economic downturn adversely affecting demand for our
products;
|
●
|
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, including our new line of Lithium-ion
batteries;
|
●
|
Our
ability to successfully manufacture Lithium-ion batteries in the time
frame and amounts expected;
|
●
|
Exposure
to product liability and defect
claims;
|
●
|
Changes
in the laws of the PRC that affect our
operations;
|
●
|
Our
ability to obtain and maintain all necessary government certifications
and/or licenses to conduct our
business;
|
●
|
Development
of an active 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
|
|||||||
Year
Ended December 31, 2008
|
||||||||
Second
Quarter (June 19, 2008 to June 30, 2008)
|
$ | 8.35 | $ | 4.75 | ||||
Third
Quarter
|
4.78 | 1.68 | ||||||
Fourth
Quarter
|
3.85 | 2.50 |
Consolidated
Statements of Operations
|
Year
Ended December 31,
|
|||||||||||
2008
|
2007
|
2006
|
||||||||||
(in
thousands)
|
||||||||||||
Net
Sales
|
$
|
75,004
|
$
|
73,262
|
$
|
44,376
|
||||||
Cost
of Sales
|
(62,239)
|
(63,791)
|
(36,959)
|
|||||||||
Gross
profit
|
$
|
12,765
|
$
|
9,470
|
$
|
7,417
|
||||||
Depreciation
|
(194)
|
(121)
|
(80)
|
|||||||||
Selling
and distribution costs
|
(2,416)
|
(2,096)
|
(1,634)
|
|||||||||
General
and administrative costs including stock-based
compensation
|
(6,098)
|
(3,461)
|
(1,960)
|
|||||||||
Loss
on exchange rate difference
|
(1,182)
|
(855)
|
(199)
|
|||||||||
Fees
and costs related to reorganization
|
-
|
(582)
|
(75)
|
|||||||||
Income
from operations
|
$
|
2,875
|
$
|
2,357
|
$
|
3,468
|
||||||
Change
in fair value of currency forwards
|
116
|
-
|
-
|
|||||||||
Change
in fair value of warrants
|
(276)
|
-
|
-
|
|||||||||
Other
Income
|
463
|
149
|
59
|
|||||||||
Interest
expense
|
(642)
|
(696)
|
(254)
|
|||||||||
Income
before taxes
|
$
|
2,535
|
$
|
1,809
|
$
|
3,273
|
||||||
Income
taxes
|
(529)
|
(145)
|
(241)
|
|||||||||
Net
income
|
$
|
2,006
|
$
|
1,664
|
$
|
3,032
|
||||||
Net
income per common share – basic and diluted
|
$
|
0.15
|
$
|
0.17
|
$
|
0.33
|
||||||
Weighted
average common shares outstanding
|
||||||||||||
-basic
|
13,205,599
|
9,832,493
|
9,248,973
|
|||||||||
-diluted
|
13,233,353
|
9,832,493
|
9,248,973
|
|||||||||
Dividends
declared per common share
|
-
|
$
|
0.07
|
-
|
●
|
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.
|
Years
Ended December 31,
|
||||||||||||
2008
$
|
2007
$
|
2006
$
|
||||||||||
Net
Income
|
2,006,487
|
1,663,690
|
3,032,327
|
|||||||||
Interest
expense
|
642,161
|
696,132
|
253,617
|
|||||||||
Income
taxes
|
528,950
|
145,458
|
240,487
|
|||||||||
Depreciation
|
838,725
|
560,073
|
343,841
|
|||||||||
Amortization
|
111,939
|
50,000
|
-
|
|||||||||
EBITDA
|
4,128,262
|
3,115,353
|
3,870,272
|
Name
of Bank
|
Amount
Granted
|
Amount
Outstanding
Under
Loan
|
Guaranteed
by Officers
|
||||||||
Bank
Of China
|
$ | 5.27 million | $ | 0.87 million |
Dang
Yu Pan, Wen Liang Li,
Wen
Wei Ma
|
||||||
Shenzhen
Development Bank Co., Ltd
|
$ | 4.93 million | $ | 3.62 million |
Dang
Yu Pan
|
||||||
Shanghai
Pudong Development Bank Co. Ltd.
|
$ | 9.52 million | $ | 8.19 million |
Dang
Yu Pan
|
||||||
Citibank
(China) Co., Ltd.
|
$ | 3.46 million | $ | 2.15 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
|
$ | 14,829,228 | $ | 14,829,228 | $ | - | $ | - | $ | - | ||||||||||
Purchase
Obligations (1)
|
$ | 8,306,123 | $ | 8,306,123 | $ | - | $ | - | $ | - | ||||||||||
License
Agreement
|
$ | 1,540,900 | $ | 1,540,900 | $ | - | $ | - | $ | - | ||||||||||
Capital
Commitment
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Total
|
$ | 24,676,251 | $ | 24,676,251 | $ | - | $ | - | $ | - |
(1)
|
Primarily
represents obligations to purchase specified quantities of raw
materials.
|
●
|
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.
|
●
|
High
capacity— up to 100% higher energy density compared to standard
nickel-cadmium batteries.
|
●
|
Low
self-discharge— self-discharge can be less than half that of
nickel-based batteries.
|
●
|
Low
maintenance — no periodic discharge is needed and there is no
memory effect. Specialty cells can provide very high current to
applications such as power tools.
|
●
|
Flexible
form factor— prismatic lithium
polymer batteries can be produced in a wide variety of form factors for
different products and
applications.
|
●
|
Requires
protection circuit to maintain voltage and current within safe
limits.
|
●
|
Subject
to aging when not in use — storage in a cool place at 40% charge reduces
the aging effect.
|
●
|
Transportation
restrictions — shipment of larger quantities may be subject to regulatory
control.
|
●
|
Manufacturing
cost is approximately 40% greater than
nickel-cadmium.
|
●
|
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 and Li-ion
batteries offer higher power capacity allowing for longer working time and
shortened charging time during equivalent working periods. We produce A,
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.
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Consumer
Batteries
|
80
|
%
|
80
|
%
|
77
|
%
|
||||||
Industrial
Batteries
|
19
|
%
|
19
|
%
|
21
|
%
|
||||||
Materials
|
1
|
%
|
1
|
%
|
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,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
China
and Hong Kong
|
41.2
|
%
|
39.5
|
%
|
65.4
|
%
|
||||||
Europe
|
37.3
|
34.6
|
16.4
|
|||||||||
North
America
|
14.5
|
17.5
|
10.2
|
|||||||||
Asia
|
6.4
|
8.1
|
7.4
|
|||||||||
South
America and Others
|
0.6
|
0.3
|
0.6
|
|||||||||
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
●
|
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, 2010
|
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
|
41
|
Chairman
of the Board and Chief Executive Officer
|
Wen
Liang Li
|
43
|
Vice
President, Chief Technology Officer and Director
|
Wen
Wei Ma
|
39
|
Vice
President of Manufacturing
|
Henry
Ngan
|
36
|
Chief
Financial Officer
|
Wen
Jia Xiao
|
32
|
Vice
President of Quality Control
|
Xinhai
Li
|
46
|
Director
|
Chao
Li
|
64
|
Director
|
Ping
Li
|
44
|
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
|
2008
|
$ | 18,000 | $ | - | $ | 25,000 | (2) | $ | 43,000 | ||||||||
Chief
Executive Officer and
|
2007
|
$ | 18,000 | $ | - | $ | 25,000 | (3) | $ | 43,000 | ||||||||
Chairman
of the Board
|
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 | - | - | - | - | - | 20,000 | |||||||||||||||||||||
Chao
Li
|
18,000 | - | - | - | - | - | 18,000 | |||||||||||||||||||||
Xinhai
Li
|
18,000 | - | - | - | - | - | 18,000 | |||||||||||||||||||||
Ping
Li
|
18,000 | - | - | - | - | - | 18,000 |
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding
options,
warrants
and rights
|
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
|
Number of securities remaining available for future issuance under equity compensation plans | |||||||||
Equity
compensation plans approved by security holders
|
- | $ | - | 2,000,000 | (1) | |||||||
Equity
compensation plans not approved by security holders
|
- | - | - | |||||||||
Total
|
- | N/A | 2,000,000 |
(1)
|
In
October 2008, the Company adopted the 2008 Omnibus Incentive Plan. The
Incentive Plan currently has 2,000,000 shares authorized for
issuance. No awards have been issued pursuant to the Incentive
Plan.
|
·
|
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
|
||||||
Bank
Of China
|
$ | 5.27 | $ | 0.87 |
Dang
Yu Pan, Wen Liang Li,
Wen
Wei Ma
|
||||
Shenzhen
Development Bank Co., Ltd
|
$ | 4.93 | $ | 3.62 |
Dang
Yu Pan
|
||||
Shanghai
Pudong Development Bank Co. Ltd.
|
$ | 9.52 | $ | 8.19 |
Dang
Yu Pan
|
||||
Citibank
China Co., Ltd.
|
$ | 3.46 | $ | 2.15 |
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) | 38.19 | % | |||||
Wen
Liang Li
|
Vice
President, Chief Technology Officer and Director
|
2,034,770 | 15.00 | % | ||||||
Wen
Wei Ma
|
Vice
President of Manufacturing
|
924,897 | 6.82 | % | ||||||
Xinhai
Li
|
Director
|
- | - | |||||||
Chao
Li
|
Director
|
- | - | |||||||
Ping
Li
|
Director
|
- | - | |||||||
Officers
and Directors as a Group
(total
of 8 persons)
|
8,139,096 | (1) | 60.01 | % |
(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, 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.
|
|
(i)
|
have
equal ratable rights to dividends from funds legally available therefore,
if declared by our Board of
Directors;
|
|
(ii)
|
are
entitled to share ratably in all our assets available for distribution to
holders of common stock upon our liquidation, dissolution or winding
up;
|
|
(iii)
|
do
not have preemptive, subscription or conversion rights or redemption or
sinking fund provisions; and
|
|
(iv)
|
are
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our
stockholders.
|
●
|
Our
financial position and results of
operations;
|
●
|
Our
ability to obtain additional financing and, if available, the terms and
conditions of the financing;
|
●
|
Concern
as to, or other evidence of, the reliability and efficiency of our
proposed products or our competitors’
products;
|
●
|
Announcements
of innovations or new products 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
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.
|
|
Section
203 defines a business combination to
include:
|
·
|
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;
|
·
|
the
percentage owned by each
stockholder;
|
·
|
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)
|
|||||||||||||||
Debbie Schwartzberg
|
671,015 | 4.9 | % | 671,015 | -- | -- | % | |||||||||||||
Richard
Rappaport
|
639,765 | (3) | 4.7 | % | 639,765 | -- | -- | |||||||||||||
Black
Diamond Fund
|
284,091 | (4) | 2.1 | % | 284,091 | -- | -- | |||||||||||||
MidSouth
Investor Fund, LP
|
284,091 | (5) | 2.1 | % | 284,091 | -- | -- | |||||||||||||
Anthony
Pintsopoulos
|
266,569 | (6) | 2.0 | % | 266,569 | -- | ||||||||||||||
Mirador
Consulting, Inc.
|
160,000 | 1.2 | % | 160,000 | -- | -- | ||||||||||||||
J&N
Invest, LLC
|
113,637 | (7) | * | 113,637 | -- | -- | ||||||||||||||
Glenn
Krinsky
|
88,857 | * | 88,857 | -- | -- | |||||||||||||||
Charles
Frisco
|
88,857 | * | 88,857 | -- | -- | |||||||||||||||
Enable
Opportunity Partners, LP
|
85,228 | (8) | * | 85,228 | -- | -- | ||||||||||||||
Fredric
Colman
|
59,219 | * | 59,219 | -- | -- | |||||||||||||||
Stellar
Capital Fund, LLC
|
56,819 | (9) | * | 56,819 | -- | -- | ||||||||||||||
F
Berdon Co LP
|
56,813 | (10) | * | 56,813 | -- | -- | ||||||||||||||
Howard
Berg
|
56,819 | * | 56,819 | -- | -- | |||||||||||||||
David
Clarke
|
8,750 | * | 8,750 | -- | -- | |||||||||||||||
Kagel
Family Trust
|
43,750 | (11) | * | 43,750 | -- | -- | ||||||||||||||
Kevin
DePrimio
|
35,543 | (12) | * | 35,543 | -- | -- | ||||||||||||||
Mark
Nielsen
|
31,250 | * | 31,250 | -- | -- | |||||||||||||||
Paul
Masters IRA
|
28,415 | (13) | * | 28,415 | -- | -- | ||||||||||||||
Men,g
Yang
|
28,410 | * | 28,410 | -- | -- | |||||||||||||||
Continuum
Capital Partners L.P.
|
28,410 | (14) | * | 28,410 | -- | -- | ||||||||||||||
Brent
Butcher
|
28,410 | * | 28,410 | -- | -- | |||||||||||||||
Christine
Metsch
|
28,410 | * | 28,410 | -- | -- | |||||||||||||||
Paul
Rathwell
|
28,410 | * | 28,410 | -- | -- | |||||||||||||||
Tangiers
Investors, LP.
|
28,410 | (15) | * | 28,410 | -- | -- | ||||||||||||||
Sharon
Mitchell
|
28,125 | * | 28,125 | -- | -- |
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)
|
|||||||||||||||
Linda
Rosenberg
|
25,000 | * | 25,000 | -- | -- | |||||||||||||||
Richard
Pawlinger
|
22,728 | * | 22,728 | -- | -- | |||||||||||||||
William
Lurie
|
22,728 | * | 22,728 | -- | -- | |||||||||||||||
George
Glenn Izmirian
|
22,557 | * | 22,557 | -- | -- | |||||||||||||||
John
Herbert William Rathwell
|
21,307 | * | 21,307 | -- | -- | |||||||||||||||
David
Chazanovitz
|
19,986 | * | 19,986 | -- | -- | |||||||||||||||
Douglas
Kuber
|
18,750 | * | 18,750 | -- | -- | |||||||||||||||
Jason
Stern
|
17,772 | (16) | * | 17,772 | -- | -- | ||||||||||||||
Michael
Glantz
|
17,046 | * | 17,046 | -- | -- | |||||||||||||||
Richard
and Donna Hoefer
|
17,046 | * | 17,046 | -- | -- | |||||||||||||||
Carl
Cooke
|
17,046 | * | 17,046 | -- | -- | |||||||||||||||
Steven
Rothstein
|
15,625 | * | 15,625 | -- | -- | |||||||||||||||
Joseph
and Randi Lauritano
|
14,205 | * | 14,205 | -- | -- | |||||||||||||||
Harold
Lefkowitz
|
14,205 | * | 14,205 | -- | -- | |||||||||||||||
John
Winfield
|
14,205 | * | 14,205 | -- | -- | |||||||||||||||
Jerry
Reiff
|
12,500 | * | 12,500 | -- | -- | |||||||||||||||
Dennis
Holman
|
12,500 | * | 12,500 | -- | -- | |||||||||||||||
Marvin
Rosenblatt
|
12,500 | * | 12,500 | -- | -- | |||||||||||||||
David
Boyer
|
12,500 | * | 12,500 | -- | -- | |||||||||||||||
Richard
Rudin
|
11,363 | * | 11,363 | -- | -- | |||||||||||||||
John
O. Forrer
|
8,523 | * | 8,523 | -- | -- | |||||||||||||||
Miriam
F. Mooney Trust F/B/O
David
Forrer
|
8,523 | (17) | * | 8,523 | -- | -- | ||||||||||||||
Miriam
F. Mooney Trust F/B/O
Catherine
Sotto
|
8,523 | (17) | * | 8,523 | -- | -- | ||||||||||||||
Miriam
F. Mooney Trust F/B/O
Joan
Connolly
|
8,523 | (17) | * | 8,523 | -- | -- | ||||||||||||||
John
Rathwell
|
7,103 | * | 7,103 | -- | -- | |||||||||||||||
William
and Ann Collins
|
6,819 | * | 6,819 | -- | -- | |||||||||||||||
Denise
Cooke
|
5,682 | * | 5,682 | -- | -- | |||||||||||||||
Michael
and Dindy Pawlinger
|
5,682 | * | 5,682 | -- | -- | |||||||||||||||
Heidtke
401 K Profit Sharing Plan
and
Trust
|
5,682 | (18) | * | 5,682 | -- | -- | ||||||||||||||
Richard
Charles Treesh
|
5,625 | * | 5,625 | -- | -- | |||||||||||||||
Mitchell
J. Lipcon Profit Sharing
Keough
Plan
|
4,546 | (19) | * | 4,546 | -- | -- |
(1)
|
Based
on 13,562,596 shares of common stock outstanding as of the date of this
prospectus.
|
(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)
|
Brandon
S. Goulding has voting and investment control over the shares owned by
this entity.
|
(5)
|
Lyman
O. Heidtke, as general partner, has voting and investment control over the
shares owned by this entity. Mr. Heidtke is President of Heidtke & Co,
Inc, a registered broker dealer affiliated with
MidSouth.
|
(6)
|
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.
|
(7)
|
Jeffrey
Rubin has voting and investment control over the shares owned by this
entity.
|
(8)
|
Brendan
O’Neil has voting and investment control over the shares owned by this
entity.
|
(9)
|
Richard
Schmidt, as the managing member, has voting and investment control over
the shares owned by this entity.
|
(10)
|
Frederick
Berden, as general partner, has voting and investment control over the
shares owned by this entity. F Berdon Co., LP is an affiliate of OTA, LLC,
a registered broker-dealer.
|
(11)
|
David
L. Kagel has voting and investment control over the shares owned by this
entity.
|
(12)
|
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.
|
(13)
|
Paul
Masters has voting and investment control over these shares. Paul Masters
IRA is an affiliate of OTA, LLC, a registered
broker-dealer.
|
(14)
|
Gil
Schwartzberg has voting and investment control over the shares owned by
this entity.
|
(15)
|
Edward
Liceaga has voting and investment control over the shares owned by this
entity.
|
(16)
|
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.
|
(17)
|
John
O. Forrer, as trustee, has voting and investment control over the shares
owned by this entity.
|
(18)
|
Lyman
O. Heidtke, as trustee, has voting and investment control over the shares
owned by this entity. Mr. Heidtke, is the President of Heidtke & Co,
Inc., a registered broker-dealer
|
(19)
|
Mitchell
J. Lipcon, as trustee, has voting and investment control over these
shares.
|
Approximate Number
of
Shares
Eligible for
Future
Sale
|
Date
|
|
603,750
|
Freely
tradeable shares sold in our public offering, registered under an
effective registration statement declared effective by the Securities and
Exchange Commission on June 19, 2008.
|
|
3,709,893
|
After
the date of this prospectus, these shares will be freely tradeable by the
selling stockholders named in this prospectus. Of the 3,709,893
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 NYSE Amex
(which occurred on June 19, 2008), when one-tenth of their shares were
released from the lock up, after which their shares are automatically
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 of her shares until June 20, 2012.
|
|
9,248,973
|
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.
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Financial
Statements:
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-3
|
Consolidated
Statements of Operations for the years ended
|
|
December
31, 2008, 2007, and 2006
|
F-5
|
Consolidated
Statements of Stockholders' Equity and Comprehensive Income for the years
ended
|
|
December
31, 2008, 2007, and 2006
|
F-6
|
Consolidated
Statements of Cash Flows for the years ended
|
|
December
31, 2008, 2007, and 2006
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-8
|
At
December 31,
|
||||||||
2008
$
|
2007
$
|
|||||||
|
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash and cash
equivalents
|
4,175,780 | 1,489,262 | ||||||
Restricted
cash
|
4,845,478 | 5,453,650 | ||||||
Accounts
receivable
|
8,765,593 | 15,906,175 | ||||||
Notes
receivable
|
429,815 | 386,482 | ||||||
Prepaid expenses and
other receivables – Note
6
|
1,732,709 | 2,501,796 | ||||||
Deferred charges –
Stock-based compensation – Note
7
|
216,667 | - | ||||||
Inventories –
Note 8
|
11,208,697 | 14,371,289 | ||||||
Prepaid
lease payments
|
- | 58,570 | ||||||
Total Current
Assets
|
31,374,739 | 40,167,224 | ||||||
Deferred tax assets
– Note
5
|
104,556 | 28,277 | ||||||
Deposit
paid for acquisition of machinery
|
- | 1,115,123 | ||||||
Plant and equipment,
net – Note
9
|
7,778,477 | 3,789,382 | ||||||
Leasehold land
– Note
10
|
3,050,510 | 2,869,925 | ||||||
Intangible asset,
net – Note
11
|
900,000 | 950,000 | ||||||
Currency forward
– Note
12
|
116,157 | - | ||||||
TOTAL
ASSETS
|
43,324,439 | 48,919,931 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
LIABILITIES
|
||||||||
Current Liabilities
:
|
||||||||
Non-trading
foreign currency derivatives liabilities
|
293,830 | - | ||||||
Accounts
payable
|
8,306,123 | 19,561,118 | ||||||
Other payables and
accrued liabilities – Note
14
|
3,139,275 | 2,320,956 | ||||||
Income taxes
payable
|
476,330 | 73,768 | ||||||
Bank borrowings
–
Note 15
|
14,829,228 | 15,410,542 | ||||||
|
||||||||
Total Current
Liabilities
|
27,044,786 | 37,366,384 | ||||||
COMMITMENTS AND
CONTINGENCIES –
Note 17
|
At
December 31,
|
||||||||
2008
$
|
2007
$
|
|||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Preferred
Stock
|
||||||||
Par
value: $0.0001
|
||||||||
Authorized:
10,000,000 shares
|
||||||||
Issued
and outstanding: none
|
- | - | ||||||
|
||||||||
Common
stock
|
||||||||
Par
value : $0.0001
|
||||||||
Authorized:
100,000,000 shares
|
||||||||
Issued
and outstanding: 2008 –13,562,596 shares
(2007 –12,798,846
shares)
|
1,356 | 1,280 | ||||||
Additional paid-in
capital
|
5,048,194 | 2,765,870 | ||||||
Accumulated other
comprehensive income
|
1,595,091 | 1,157,872 | ||||||
Retained
earnings
|
9,635,012 | 7,628,525 | ||||||
TOTAL
STOCKHOLDERS’ EQUITY
|
16,279,653 | 11,553,547 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
43,324,439 | 48,919,931 |
Years
Ended December 31,
|
||||||||||||
2008
$
|
2007
$
|
2006
$
|
||||||||||
Net
sales
|
75,004,242 | 73,261,720 | 44,375,682 | |||||||||
Cost
of sales
|
(62,238,982 | ) | (63,791,248 | ) | (36,958,529 | ) | ||||||
Gross
profit
|
12,765,260 | 9,470,472 | 7,417,153 | |||||||||
Depreciation
|
(194,496 | ) | (120,517 | ) | (80,213 | ) | ||||||
Selling
and distribution costs
|
(2,416,220 | ) | (2,095,594 | ) | (1,634,366 | ) | ||||||
General
and administrative costs including stock-based
compensation
|
(6,097,580 | ) | (3,460,592 | ) | (1,960,271 | ) | ||||||
Loss
on exchange rate difference
|
(1,182,076 | ) | (854,873 | ) | (199,231 | ) | ||||||
Fees
and costs related to reorganization
|
- | (582,269 | ) | (75,229 | ) | |||||||
Income
from operations
|
2,874,888 | 2,356,627 | 3,467,843 | |||||||||
Change
in fair value of currency forwards – Note 12
|
115,568 | - | - | |||||||||
Change
in fair value of warrants – Note
13
|
(276,000 | ) | - | - | ||||||||
Other
income – Note
3
|
463,142 | 148,653 | 58,588 | |||||||||
Interest
expense – Note
4
|
(642,161 | ) | (696,132 | ) | (253,617 | ) | ||||||
Income
before taxes
|
2,535,437 | 1,809,148 | 3,272,814 | |||||||||
Income
taxes – Note
5
|
(528,950 | ) | (145,458 | ) | (240,487 | ) | ||||||
Net
income
|
2,006,487 | 1,663,690 | 3,032,327 | |||||||||
Net
Income per common share
|
||||||||||||
-
Basic
|
0.15 | 0.17 | 0.33 | |||||||||
-
Diluted
|
0.15 | 0.17 | 0.33 | |||||||||
Weighted
average common shares outstanding
|
||||||||||||
-
Basic
|
13,205,599 | 9,832,493 | 9,248,973 | |||||||||
-
Diluted
|
13,233,353 | 9,832,493 | 9,248,973 |
Accumulated
|
||||||||||||||||||||||||
Additional
|
other
|
|||||||||||||||||||||||
Common
stock
|
paid-in
|
comprehensive
|
Retained
|
|||||||||||||||||||||
Shares
|
Amount
|
capital
|
income
|
earnings
|
Total
|
|||||||||||||||||||
$
|
$
|
$
|
$
|
$
|
||||||||||||||||||||
Balance,
January 1, 2006
|
9,248,973 | 925 | 63,392 | 195,053 | 3,597,690 | 3,857,060 | ||||||||||||||||||
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 | ||||||||||||||||||
Gross
proceeds from shares
sold
in offering – interim
closing
|
160,000 | 16 | 519,984 | - | - | 520,000 | ||||||||||||||||||
Gross
proceeds from shares
sold
in offering – final closing
|
603,750 | 60 | 1,486,340 | - | - | 1,486,400 | ||||||||||||||||||
Stock
based compensation
|
- | - | 276,000 | - | - | 276,000 | ||||||||||||||||||
Comprehensive
income
|
||||||||||||||||||||||||
Net
income
|
- | - | - | - | 2,006,487 | 2,006,487 | ||||||||||||||||||
Foreign
currency translation
adjustments
|
- | - | 731,049 | - | 731,049 | |||||||||||||||||||
Net
deferred loss from cash
flow
hedges
|
- | - | - | (293,830 | ) | - | (293,830 | ) | ||||||||||||||||
Total
comprehensive income
|
- | - | - | - | - | 2,443,706 | ||||||||||||||||||
Balance,
December 31, 2008
|
13,562,596 | 1,356 | 5,048,194 | 1,595,091 | 9,635,012 | 16,279,653 |
Years
ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$
|
$
|
||||||||||
Cash
flows from operating activities
|
||||||||||||
Net income
|
2,006,487 | 1,663,690 | 3,032,327 | |||||||||
Adjustments to reconcile net
income to net cash flows
|
||||||||||||
provided by (used
in) operating activities :
|
||||||||||||
Bad debts written
off
|
4,460 | 3,649 | 22,878 | |||||||||
Depreciation
|
838,725 | 560,073 | 343,841 | |||||||||
Amortization
of intangible asset
|
50,000 | 50,000 | - | |||||||||
Amortization
of leasehold land
|
61,939 | |||||||||||
Loss on disposal of plant and
equipment
|
44,198 | 20,046 | 32,844 | |||||||||
Change
in fair value of currency forwards
|
(115,568 | ) | - | - | ||||||||
Change
in fair value of warrants
|
276,000 | - | - | |||||||||
Stock
based compensation
|
303,333 | - | - | |||||||||
Changes in operating assets and
liabilities :
|
||||||||||||
(Increase)
decrease in -
|
||||||||||||
Accounts
receivable
|
8,095,692 | (7,018,013 | ) | (3,155,007 | ) | |||||||
Notes
receivable
|
(40,702 | ) | (309,829 | ) | 620,101 | |||||||
Prepaid expenses and other
receivables
|
2,093,103 | 305,785 | (1,826,594 | ) | ||||||||
Inventories
|
4,046,251 | 2,183,344 | (9,556,898 | ) | ||||||||
Increase
(decrease) in -
|
||||||||||||
Accounts
payable
|
(12,422,508 | ) | 1,082,433 | 8,387,286 | ||||||||
Other payables and accrued
liabilities
|
721,654 | 78,974 | (32,771 | ) | ||||||||
Income taxes
payable
|
321,781 | (74,825 | ) | (27 | ) | |||||||
Net
cash provided by (used in) operating activities
|
6,284,845 | (1,454,673 | ) | (2,132,020 | ) | |||||||
Cash
flows from investing activities
|
||||||||||||
Acquisition of plant and
equipment
|
(4,614,385 | ) | (1,030,725 | ) | (1,733,167 | ) | ||||||
Acquisition
of land
|
- | (2,832,348 | ) | - | ||||||||
Proceeds from disposal of
plant and equipment
|
- | 32,976 | 13,747 | |||||||||
Deposit
paid for acquisition of machinery
|
- | (1,115,123 | ) | - | ||||||||
Net
cash used in investing activities
|
(4,614,385 | ) | (4,945,220 | ) | (1,719,420 | ) | ||||||
Cash
flows from financing activities
|
||||||||||||
Proceeds from issuance of common stock
|
1,486,400 | 2,738,000 | - | |||||||||
Proceeds from new short-term
bank loans
|
2,932,586 | 2,374,241 | 879,630 | |||||||||
Repayment of short-term bank
loans
|
(2,573,781 | ) | (923,316 | ) | (973,876 | ) | ||||||
Proceeds from/(repayment of)
other loans
|
(5,316,389 | ) | 4,173,106 | - | ||||||||
Net advancement of other bank
borrowings
|
3,414,456 | 3,155,109 | 4,955,996 | |||||||||
Decrease / (Increase) in
restricted cash
|
946,508 | (4,234,327 | ) | (991,050 | ) | |||||||
Repayment from / (Advance to)
related parties
|
- | 726,169 | (38,495 | ) | ||||||||
Dividend
paid
|
- | (665,182 | ) | - | ||||||||
Net
cash provided by financing activities
|
889,780 | 7,343,800 | 3,832,205 | |||||||||
Net
increase (decrease) in cash and cash equivalents
|
2,560,240 | 943,907 | (19,235 | ) | ||||||||
Effect
of foreign currency translation on cash and cash
equivalents
|
126,278 | 57,285 | 40,279 | |||||||||
Cash
and cash equivalents - beginning of year
|
1,489,262 | 488,070 | 467,026 | |||||||||
Cash
and cash equivalents - end of year
|
4,175,780 | 1,489,262 | 488,070 |
1.
|
Organization
and Basis of Presentation
|
1.
|
Organization
and Basis of Presentation (continued)
|
1.
|
Organization and Basis of
Presentation (continued)
|
|
Description of
business
|
|
The
subsidiaries of the Company include the
following:
|
Name
of company
|
Place
and date of
incorporation
|
Attributable
equity
interest
held
|
Principal
activities
|
|||
Hong
Kong Highpower
Technology
Co., Ltd
(“HKHTC”)
|
Hong
Kong
Jul
4, 2003
|
100%
|
Investment
holding
|
|||
Shenzhen
Highpower
Technology
Co., Ltd
(“SZ
Highpower”)
|
PRC
Oct
8, 2002
|
100%
|
Manufacturing
of
batteries
|
|||
HZ
Highpower
Technology
Co.,
Ltd
(“HZ
Highpower”)
|
PRC
Jan
29, 2008
|
100%
|
Inactive
|
|||
Spring
Power Technology
(Shenzhen)
Co., Ltd
(“SZ
Spring Power”)
|
PRC
Jun
4, 2008
|
100%
|
Manufacturing
of
batteries
|
|||
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)
|
2.
|
Summary
of significant accounting policies (continued)
|
2008
|
2007
|
2006
|
|||
Year
end RMB : US$ exchange rate
|
6.898
|
7.332
|
7.804
|
||
Average
yearly RMB : US$ exchange rate
|
6.933
|
7.581
|
7.958
|
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$ | $ | ||||||||||
Bank
interest income
|
149,558 | 75,546 | 11,626 | |||||||||
Gain
on forward contract
|
50,357 | - | - | |||||||||
Sundry
income
|
263,227 | 73,107 | 46,962 | |||||||||
463,142 | 148,653 | 58,588 |
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$
|
$ | ||||||||||
Interest
on trade related bank loans
|
166,867 | 547,573 | 208,269 | |||||||||
Interest
on short-term bank loans
|
475,294 | 135,369 | 45,348 | |||||||||
Interest
on other loans
|
- | 13,190 | - | |||||||||
642,161 | 696,132 | 253,617 |
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$ | $ | $ | ||||||||||
United
States
|
(579,333 | ) | (490,234 | ) | - | |||||||
Hong
Kong
|
(6,367 | ) | 689,749 | (76,601 | ) | |||||||
People’s
Republic of China
|
3,121,137 | 1,609,633 | 3,349,415 | |||||||||
2,535,437 | 1,809,148 | 3,272,814 |
5.
|
Income
taxes (continued)
|
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$ | $ | $ | ||||||||||
PRC
income tax
|
||||||||||||
Current
year
|
603,072 | 173,735 | 241,313 | |||||||||
Deferred
taxes
|
(74,122 | ) | (28,277 | ) | (826 | ) | ||||||
528,950 | 145,458 | 240,487 |
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$ | $ |
$
|
||||||||||
Income
before taxes
|
2,535,437 | 1,809,148 | 3,272,814 | |||||||||
Provision
for income taxes at applicable
income
tax rate
|
633,859 | 271,372 | 490,922 | |||||||||
Change
in valuation allowance
|
(44,218 | ) | - | - | ||||||||
Income
not subject to tax
|
(17,335 | ) | (84,614 | ) | (2,522 | ) | ||||||
Non-deductible
expenses for income tax
purposes
|
400,153 | 229 | 11,490 | |||||||||
Tax
exemption of PRC subsidiary
|
(413,605 | ) | (133,885 | ) | (243,835 | ) | ||||||
Tax
rate differential
|
(29,904 | ) | 94,865 | 825 | ||||||||
Others
|
- | (2,509 | ) | (16,393 | ) | |||||||
528,950 | 145,458 | 240,487 |
5.
|
Income
taxes (continued)
|
At
December 31
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Temporary
difference on:
|
||||||||
Recognition
of expenses
|
(93,300 | ) | (24,527 | ) | ||||
Accelerated
tax depreciation on intangible assets
|
(11,256 | ) | (3,750 | ) | ||||
Deferred
tax assets, net
|
(104,556 | ) | (28,277 | ) | ||||
Recognized
in the balance sheet:
|
||||||||
Net
deferred tax assets
|
(104,556 | ) | (28,277 | ) |
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$ | $ |
$
|
||||||||||
Statutory
income tax rate
|
25 | % | 15 | % | 15 | % | ||||||
Exempted
income tax rate
|
10 | % | 7.5 | % | 7.5 | % | ||||||
Income
tax exemption
|
413,605 | $ | 133,885 | $ | 243,835 | |||||||
Tax
effect derived from exemption
|
||||||||||||
(per
share)
|
$ | 0.03 | $ | 0.01 | $ | 0.03 |
5.
|
Income
taxes (continued)
|
As
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Purchase
deposits paid
|
88,459 | 264,138 | ||||||
Advance
to staff
|
143,595 | 74,502 | ||||||
Other
deposits and prepayments
|
495,325 | 147,503 | ||||||
Value-added
tax prepayment
|
- | 1,103,063 | ||||||
Other
receivables
|
1,005,330 | 912,590 | ||||||
1,732,709 | 2,501,796 |
As
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Cost
|
||||||||
Stock-based
compensation – consulting fee
|
520,000 | - | ||||||
Accumulated
amortization
|
303,333 | - | ||||||
Net
|
216,667 | - |
|
Amortization
expenses included in general and administrative costs for the year ended
2008 and 2007 were $303,000 and $Nil
respectively.
|
|
The
Company is amortizing the $520,000 cost of stock-based compensation over a
period of one year on the straight line
basis.
|
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Raw
materials
|
1,708,431 | 4,507,255 | ||||||
Work
in progress
|
1,434,517 | 1,694,997 | ||||||
Finished
goods
|
8,049,138 | 8,101,083 | ||||||
Consumables
|
- | 49,197 | ||||||
Packing
materials
|
16,611 | 18,757 | ||||||
11,208,697 | 14,371,289 |
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Cost
|
||||||||
Furniture,
fixtures and office equipment
|
598,496 | 643,196 | ||||||
Leasehold
improvement
|
712,120 | 146,622 | ||||||
Machinery
and equipment
|
8,155,270 | 3,940,847 | ||||||
Motor
vehicles
|
476,910 | 344,088 | ||||||
9,942,796 | 5,074,753 | |||||||
Accumulated
depreciation
|
||||||||
Furniture,
fixtures and office equipment
|
235,613 | 211,342 | ||||||
Leasehold
improvement
|
220,746 | 100,864 | ||||||
Machinery
and equipment
|
1,486,624 | 834,206 | ||||||
Motor
vehicles
|
221,336 | 138,959 | ||||||
2,164,319 | 1,285,371 | |||||||
Net
|
||||||||
Furniture,
fixtures and office equipment
|
362,883 | 431,854 | ||||||
Leasehold
improvement
|
491,374 | 45,758 | ||||||
Machinery
and equipment
|
6,668,646 | 3,106,641 | ||||||
Motor
vehicles
|
255,574 | 205,129 | ||||||
7,778,477 | 3,789,382 |
Years
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Included
in cost of sales and selling and
distribution
costs
|
644,229 | 439,556 | ||||||
Included
in operating expenses
|
194,496 | 120,517 | ||||||
838,725 | 560,073 |
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Cost
|
3,112,765 | 2,869,925 | ||||||
Accumulated
amortization
|
(62,255 | ) | - | |||||
Net
|
3,050,510 | 2,869,925 |
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
· Cost
|
||||||||
· Consumer
battery license
|
1,000,000 | 1,000,000 | ||||||
Accumulated
amortization
|
(100,000 | ) | (50,000 | ) | ||||
Net
|
900,000 | 950,000 |
|
Amortization
expenses are included in selling and distributing costs during the
years.
|
|
Amortization
of the License for the next five years is as
follows:
|
Years
ending December 31
|
$
|
|||
2009
|
50,000 | |||
2010
|
50,000 | |||
2011
|
50,000 | |||
2012
|
50,000 | |||
2013
|
50,000 | |||
2014
and thereafter
|
650,000 |
As
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Currency
forwards (notional amount $11 million),
consisting
of a put and a call
|
116,157 | - |
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$
|
$
|
||||||||||
Foreign
exchange contracts, net
|
||||||||||||
Gains
recognized in Other income, net
|
50,357 | - | - |
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Accrued
expenses
|
1,072,331 | 765,760 | ||||||
Accrued
staff welfare
|
- | 90,316 | ||||||
Royalty
fee
|
1,540,900 | 1,327,026 | ||||||
Sales
deposits received
|
388,261 | 136,295 | ||||||
Value-added
tax payables
|
105,833 | - | ||||||
Other
payables
|
31,950 | 1,559 | ||||||
3,139,275 | 2,320,956 |
15.
|
Bank
borrowings
|
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Secured:
|
||||||||
Repayable
within one year
|
||||||||
Short
term bank loans
|
2,969,939 | 2,454,838 | ||||||
Other
trade related bank loans
|
11,859,289 | 12,955,704 | ||||||
14,829,228 | 15,410,542 |
Amount
|
||||||||||||
Facilities
granted
|
Granted
|
Utilized
|
Unused
|
|||||||||
$
|
$
|
$
|
||||||||||
Short
term bank loans
|
7,175,587 | 2,969,939 | 4,205,648 | |||||||||
Other
trade related loan facilities
including:
|
||||||||||||
-
Accounts payable financing
|
16,005,068 | 11,859,289 | 4,145,779 | |||||||||
23,180,655 | 14,829,228 | 8,351,427 |
15.
|
Bank
borrowings (continued)
|
|
(a)
|
charge
over bank deposits of $4,845,478 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 $3,050,510;
and
|
|
(d)
|
other
financial covenant:-
|
16.
|
Pension
plans
|
17.
|
Commitments
and contingencies
|
Years
ending December 31
|
$
|
|||
2009
|
936,869 | |||
2010
|
449,675 | |||
1,386,544 |
At
December 31,
|
||||||||
2008
|
2007
|
|||||||
$
|
$
|
|||||||
Bills
discounted
|
- | 106,378 |
18.
|
Related
party transactions
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$
|
$
|
||||||||||
Management
fee paid to Canhold
International
Limited
|
- | 21,134 | 15,302 |
19.
|
Segment
information
|
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Net
revenue
|
$
|
$
|
$
|
|||||||||
Hong
Kong and China
|
30,893,163 | 28,919,384 | 29,009,277 | |||||||||
Asia
|
4,810,282 | 5,965,339 | 3,294,838 | |||||||||
Europe
|
27,979,918 | 25,318,608 | 7,288,751 | |||||||||
North
America
|
10,885,903 | 12,851,807 | 4,511,914 | |||||||||
South
America
|
434,976 | 206,582 | 270,902 | |||||||||
75,004,242 | 73,261,720 | 44,375,682 |
At
December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Accounts
receivable
|
$
|
$
|
$
|
|||||||||
Hong
Kong and China
|
5,012,472 | 4,258,010 | 5,545,244 | |||||||||
Asia
|
169,376 | 1,023,284 | 262,743 | |||||||||
Europe
|
2,695,166 | 6,761,615 | 1,857,294 | |||||||||
North
America
|
875,022 | 3,863,266 | 461,889 | |||||||||
South
America
|
13,558 | - | - | |||||||||
8,765,594 | 15,906,175 | 8,127,170 |
At
December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
$
|
$
|
$
|
||||||||||
Dividends
|
||||||||||||
Interim
dividend declared and paid on September 30, 2007 of
approximately
$
0.07 per share:
|
- | 665,182 | - |
Three
Months Ended
|
Year
Ended
|
|||||||||||||||||||
March
31,
|
June
30,
|
September
30,
|
December
31,
|
December
31,
|
||||||||||||||||
2008
|
2008
|
2008
|
2008
|
2008
|
||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Net
revenue
|
17,831,562 | 19,021,476 | 20,473,472 | 17,677,732 | 75,004,242 | |||||||||||||||
Gross
profit
|
2,708,298 | 3,374,867 | 3,511,808 | 3,170,287 | 12,765,260 | |||||||||||||||
Net
income
|
730,327 | 684,247 | 289,356 | 302,557 | 2,006,487 | |||||||||||||||
Net
(loss) income per common share:
|
||||||||||||||||||||
Basic
|
0.06 | 0.05 | 0.02 | 0.02 | 0.15 | |||||||||||||||
Diluted
|
0.06 | 0.05 | 0.02 | 0.02 | 0.15 | |||||||||||||||
Weighted
average common shares
outstanding
|
||||||||||||||||||||
Basic
|
14,798,846 | 12,899,560 | 13,562,596 | 13,711,011 | 13,205,599 | |||||||||||||||
Diluted
|
14,798,846 | 12,906,483 | 13,615,096 | 13,708,139 | 13,233,353 |
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 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 |