Attached files
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EX-32.2 - China Ritar Power Corp. | v172968_ex32-2.htm |
EX-31.1 - China Ritar Power Corp. | v172968_ex31-1.htm |
EX-31.2 - China Ritar Power Corp. | v172968_ex31-2.htm |
EX-32.1 - China Ritar Power Corp. | v172968_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Amendment
1)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended: December 31, 2008
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from __________ to ____________
Commission
File Number: 000-51908
CHINA
RITAR POWER CORP.
(Exact
name of registrant as specified in its charter)
Nevada
|
87-0422564
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification Number)
|
Room
405, Tower C, Huahan Building,
16
Langshan Road, North High-Tech Industrial Park, Nanshan
District,
Shenzhen,
China, 518057
|
|
(Address
of principal executive office and zip code)
|
|
(86)
755-83475380
|
|
(Registrant’s
telephone number, including area code)
|
|
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value
$0.001
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes o No x
As of
June 30, 2008, the aggregate market value of the shares of the Registrant’s
common stock held by non-affiliates (based upon the closing price of such shares
as reported on the Over-the-Counter Bulletin Board) was approximately $49.5
million. Shares of the Registrant’s common stock held by each executive officer
and director and by each person who owns 10 percent or more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates of the Registrant. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of
March 11, 2009 there were 19,134,992 shares of the Registrant’s common stock
outstanding.
Explanatory Note
China
Ritar Power Corp. (the “Company”) is filing this Amendment No. 1 to its Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with
the Securities and Exchange Commission (“SEC”) on March 31, 2009 (the “Original
Filing”). The purpose of this amendment is to correct the entity name set forth
in exhibit 32.2 to the Original Filing to correctly refer to the Company. The
remainder of the Company’s Annual Report on Form 10-K remains
unchanged.
This
report speaks as of the filing date of the Original Filing and has not been
updated to reflect events occurring subsequent to March 31, 2009. Accordingly,
in conjunction with reading this Form 10-K/A, you should also read all other
filings that the Company has made with the SEC since the date of the Original
Filing.
CHINA
RITAR POWER CORP.
FORM
10-K
For
the Fiscal Year Ended December 31, 2008
Page
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|||
PART
I
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|||
Item
1.
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Business
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2
|
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Item
1A.
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Risk
Factors
|
10
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|
Item
2.
|
Properties
|
18
|
|
Item
3.
|
Legal
Proceedings
|
19
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
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|
PART
II
|
|||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
19
|
|
Item
6.
|
Selected
Financial Data
|
20
|
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Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
20
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|
Item
8.
|
Financial
Statements and Supplementary Financial Data
|
34
|
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
34
|
|
Item
9A(T)
|
Controls
and Procedures
|
36
|
|
Item
9B.
|
Other
Information.
|
36
|
|
PART
III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
37
|
|
Item
11.
|
Executive
Compensation
|
40
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
41
|
|
Item
13.
|
Certain
Relationships and Related Party Transactions, and director
independence
|
42
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
43
|
|
PART
IV
|
|||
Item
15.
|
Exhibits,
Financial Statements Schedules
|
44
|
Use
of Term
Except as
otherwise indicated by the context, all references in this annual report to (i)
“Ritar,” the “Company,” “we,” “us” or “our” are to China Ritar Power Corp., a
Nevada corporation, and its direct and indirect subsidiaries; (ii) “Ritar BVI”
are to our subsidiary Ritar International Group Limited, a British Virgin
Islands corporation, and/or its operating subsidiaries, as the case may be;
(iii) “Shenzhen Ritar” are to our subsidiary Shenzhen Ritar Power Co., Ltd., a
corporation incorporated in the People’s Republic of China; (iv) “Shanghai
Ritar” are to our subsidiary Shanghai Ritar Power Co., Ltd., a corporation
incorporated in the People’s Republic of China; (v)“Securities Act” are to the
Securities Act of 1933, as amended; (vi) “Exchange Act” means the Securities
Exchange Act of 1934, as amended; (vii) “RMB” are to Renminbi, the legal
currency of China; (viii) “U.S. dollar,” “$” and “US$” are to the legal currency
of the United States; (ix) “China” and “PRC” are to the People’s Republic of
China; (x) “BVI” are to the British Virgin Islands; and (xi) “SEC” are to the
United States Securities and Exchange Commission.
Forward-Looking
Statements
Statements
contained in this annual report include “forward-looking statements” within the
meaning of such term in Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which could cause actual financial or operating
results, performances or achievements expressed or implied by such
forward-looking statements not to occur or be realized. Forward-looking
statements made in this Report generally are based on our best estimates of
future results, performances or achievements, predicated upon current conditions
and the most recent results of the companies involved and their respective
industries. Forward-looking statements may be identified by the use of
forward-looking terminology such as “may,” “will,” “could,” “should,” “project,”
“expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,”
“potential,” “opportunity” or similar terms, variations of those terms or the
negative of those terms or other variations of those terms or comparable words
or expressions. Potential risks and uncertainties include, among other things,
such factors as:
·
|
our
heavy reliance on limited number of consumers;
|
|
·
|
strong
competition in our industry;
|
·
|
increases
in our raw material costs; and
|
|
·
|
an
inability to fund our capital
requirements.
|
Additional
disclosures regarding factors that could cause our results and performance to
differ from results or performance anticipated by this annual report are
discussed in Item 1A. “Risk Factors.” Readers are urged to carefully review and
consider the various disclosures made by us in this annual report and our other
filings with the SEC. These reports attempt to advise interested parties of the
risks and factors that may affect our business, financial condition and results
of operations and prospects. The forward-looking statements made in this annual
report speak only as of the date hereof and we disclaim any obligation to
provide updates, revisions or amendments to any forward-looking statements to
reflect changes in our expectations or future events.
1
PART
I
ITEM
1.
|
BUSINESS
|
Overview
We are
one of the leading manufacturers of lead-acid batteries in China. Through our
Chinese subsidiaries, we design, develop, manufacture and sell environmentally
friendly lead-acid batteries with a wide range of applications and capacities,
including telecommunications, uninterrupted powers source devices, light
electric vehicles and alternative energy production (solar and wind power). We
conduct all of our operations in China. Our access to China’s supply of low-cost
skilled labor, raw materials, machinery and facilities enables us to price our
products competitively in an increasingly price-sensitive market. We market,
sell and service our 6 series and 197 models of “Ritar” branded, cadmium-free,
valve-regulated lead-acid, or VRLA, batteries in China and
internationally.
Our
client base mainly includes alternative energy production manufacturers such as
Suntech, and Servico e Desenvolvimento S.A, Angola, international
uninterruptible power source, or UPS, manufacturers, including Delta Electronics
(Jiangsu) Ltd. and SSB Battery Service GmbH, and telecommunications operators
such as Bharti Infratel Limited, India, Smart communications Inc ., Philippines
, China Telecom Corporation Limited, China Mobile Communication Corporation,
China Network Communications Group Corporation, Siemens AG, and Lucent
Technologies. A majority of our products are sold outside of China, with
overseas sales accounting for 76.2% of our total revenue in fiscal year 2008.
Our major export markets are India, Italy, Germany, the United States, Australia
and Brazil.
Through
our manufacturing facilities located in Shenzhen and Shanghai, we currently have
19 lead acid battery production lines that are operational. Three of them are
located at Shanghai Ritar, eleven production lines are located at Shenzhen
Ritar, and five production lines are located at Hengyang Ritar. Our current
annual designed production capacity of lead acid battery is approximately 2.51
million kilowatt-hours. We have completed construction of the first phase of our
new technical and manufacturing complex in Hengyang City, Hunan Province and
Lead acid battery production at this facility began in April 2008. In addition,
in July of 2008, production of lead plates began at the Hengyang
facility.
History
and Corporate Structure
We were
originally organized under the laws of the State of Utah on May 21, 1985 under
the name Concept Capital Corporation. On July 7, 2006, in order to change the
domicile of Concept Capital Corporation from Utah to Nevada, Concept Capital
Corporation merged with and into Concept Ventures Corporation, a Nevada
corporation. From our inception in 1985 until February 16, 2007 when we
completed a reverse acquisition transaction with Ritar International Group
Limited, a BVI company, whose subsidiary companies originally commenced business
in May 2002, we were a blank check company and did not engage in active business
operations other than our search for, and evaluation of, potential business
opportunities for acquisition or participation.
On
February 16, 2007, we acquired Ritar BVI through a share exchange transaction
pursuant to which the stockholders of Ritar BVI transferred all capital stock of
Ritar BVI to us in exchange for a majority ownership of our Company. Our
acquisition of Ritar BVI is accounted for as a recapitalization effected by a
share exchange, wherein Ritar BVI is considered the acquirer for accounting and
financial reporting purposes. The assets and liabilities of the acquired entity
have been brought forward at their book value and no goodwill has been
recognized.
The
following chart reflects our organization structure as of the date of this
annual report.
2
Business
Strategy
Our goal
is to build on our existing strengths to become a global leader in the
development and manufacturing of lead-acid batteries. We are committed to
providing high quality products, responsive service and competitive prices in
the niche market of lead-acid batteries. We intend to profitably grow our
business by pursuing the following strategies:
·
|
Increase production
capacity. The construction of the first phase of our new technical
and manufacturing complex at our wholly-owned subsidiary Hengyang Ritar
Power Co., Ltd., or Hengyang Ritar, has been completed and our lead acid
battery production began in April of 2008. The new production lines
increased our production capacity for lead acid batteries by about 100% by
the end of 2008. In addition, in July of 2008, the production of lead
plates commenced at Hengyang Ritar.
|
·
|
Improve production
cost-efficiency through vertical integration. Hengyang Ritar is
strategically located near lead mining reserves in Shuikou Shan, Hunan,
which will allow us to more readily secure a long-term supply of lead for
our batteries. In July of 2008, Hengyang Ritar commenced production of
lead plates, which comprises approximately 70.2% of the total cost of lead
acid batteries. We expect that vertically integrating the production of
lead plates will provide an approximate 3%-5% improvement in gross margins
for the Company in the long-term.
|
·
|
Targeting niche applications.
We target niche applications within the lead acid battery market,
avoiding the highly competitive automotive market. Our batteries are
primarily used in UPS, telecommunications, alternative energy (solar and
wind power), and LEV applications. We expect that in these markets, where
our gel compound/photovoltaic batteries have demonstrated competitive
advantages, our revenues will grow at faster rates than the overall
economy for the next few years.
|
·
|
Strengthen our research and
development efforts. We intend to continue to strengthen our
research and development capacities in order to provide high-quality
products and a wide spectrum of value-added services and further build up
our brand in both Chinese and the international market. In particular, our
research and development efforts will focus on the
following:
|
o
|
Developing
our Nano Battery, which has a higher storage capacity, longer life cycle
and higher discharge rate than our other lead acid battery products with
the same storage capacity, yet will be smaller and lighter. We expect to
be the first company in China for commercial production of this
product.
|
3
o
|
Developing
United Liquid Alloy Batteries, which have longer life cycle and weigh less
than half of our other lead acid batteries with the same storage
capacity.
|
Our
Products
We
market, sell and service our six series and 197 models of “Ritar” branded valve
regulated lead-acid batteries in China and Internationally.
Our
battery series, applicable voltage, capacity and applications are as
follows:
Series
Name
|
Voltage
|
Capacity
(Ampere-
hour
or AH)
|
Application
|
|||
RT
Series
|
2V
4V
6V
8V
10V
12V
18V
24V
36V
|
Less
than or equal to
28AH
|
UPS
Emergency
lights
Automatic
control systems
Medical
equipment
Electric
toys and tools
|
|||
RA
Series
|
6V
12V
|
28AH
– 240AH
|
UPS
Telecommunications
and power systems
Automatic
control systems
Solar
and wind powered systems
Medical
equipment
|
|||
RL
Series
|
2V
|
200AH
|
Emergency
power system, or EPS
Telecommunications
and power systems
Automatic
control systems
Solar
and wind powered systems
|
|||
Gel
Series
|
2V
|
UPS
Telecommunications
and power systems
Automatic
control systems
Solar
and wind powered systems
|
||||
LEV
Series
|
12V
|
14AH
22AH
24AH
(20 hours)
|
Electric
bicycles
Electric
motorcycles
Electric
three wheelers
Golf
carts
Electric
scooters
|
|||
FT
Series
|
12V
|
55AH
– 180AH
|
UPS
EPS
Telecommunications
and power systems
Automatic
control systems
Solar
and wind powered systems
|
Sales of
our products can be categorized among the different applications for our
products. These applications consist of:
·
|
UPS
– a device which maintains a continuous supply of electric power to
connected equipment by supplying power from a separate source when utility
power is not available. While not limited to any particular type of
equipment, a UPS is typically used to protect computers, telecommunication
equipment or other computer-controlled electrical equipment where an
unexpected power disruption could cause injuries, fatalities, serious
business disruption or data loss
|
4
·
|
LEV
– basically electric bicycles, electric motorcycles, electric scooters,
electric three wheelers, and electric golf
carts
|
·
|
Telecommunications
– such as wireless, wire line and internet access systems, central and
local switching systems, satellite stations and radio transmission
stations
|
·
|
Power
– used in electric utilities and energy
pipelines
|
·
|
EPS
and alarm systems
|
·
|
Others
(electric toys, solar power and wind
power)
|
Manufacturing
Our
manufacturing facilities are located in Shenzhen, Shanghai and Hengyang in the
PRC. We currently have 19 lead acid battery production lines that are
operational. Three of them are located at Shanghai Ritar, eleven production
lines are located at Shenzhen Ritar, five production lines are located at
Hengyang Ritar. Our current annual designed production capacity of lead acid
battery is approximately 2.51 million kilowatt-hours. We have completed
construction of the first phase of our new technical and manufacturing complex
in Hengyang City, Hunan Province and Lead acid battery production at this
facility began in April 2008. In addition, in July of 2008, production of lead
plates began at the Hengyang facility.
Raw
Materials
We have
developed a complete supply chain utilizing a group of primarily Chinese
material and equipment suppliers.
The major
components of lead-acid batteries are the positive and negative lead plates,
which account for approximately 78% of the total cost of raw materials, and the
battery case, including the battery container, cover and top lid, accounting for
over 12% of the total cost of raw materials. The remaining portion of our raw
materials cost is comprised of the separators, electrolytes, active substances
and other miscellaneous raw materials used in the production of our products.
The prices of these raw materials are determined according to prevailing market
conditions, supply and demand.
Our
sourcing system and good business relationships with leading raw materials
manufacturers, particularly manufacturers of positive and negative lead plates
(an important factor for lead-acid battery manufacturers), ensures quality,
stability and availability of the raw materials used to produce our products. We
have maintained stable and good relationships with all of these suppliers since
the commencement of our business in 2002.
Lead is
the most important raw material used in the production of our products. The cost
of lead accounts for approximately 80.5% of the total cost of positive and
negative lead plates, and approximately 62.8% of the total cost of raw
materials.
We take
the following measures to mitigate the adverse effects of fluctuations in the
cost of lead:
·
|
We
enter into fixed-term (generally one year) and fixed-priced agreements
with plate suppliers.
|
·
|
Since
2004, we have provided in our agreements with our clients that the price
of our products will rise 0.6% every time the price of lead increases by
1%. Because lead is traded on the world’s commodity markets and its price
fluctuates daily, our lead price is based on the average price in Shanghai
Nonferrous Metals (the net web). Meanwhile, we also agree that the price
changes of our products only occur if the lead price rises or decreases
over RMB 500 (approximately $73) per
ton.
|
5
·
|
Our
research and development department and production department jointly
initiated a design improvement process intended to reduce the costs of raw
materials without sacrificing product
quality.
|
·
|
Hengyang
Ritar is strategically located near lead mining reserves in Shuikou Shan,
Hunan, which will allow us to more readily secure a long-term supply of
lead for our batteries.
|
China has
also already announced new measures to adjust the export tax rebate. This
announcement came on September 14, 2006 and was effective September 15, 2006. As
a result of this measure, the export rebate tax previously imposed on lead-acid
batteries was abolished. We expect the Chinese government to introduce other
measures which will increase the supply of lead to the Chinese lead market and
which should reduce the cost of lead in the Chinese market. Regardless of the
introduction of such governmental measures, lead prices have decreased as a
result of the downturn in the global economy.
Customers
We serve
about 800 clients in 81 countries with approximately $28.4 million, or 23.8%, of
our net sales in fiscal year 2008 attributable to China and $91.2 million, or
76.2%, attributable to other countries. Our overseas sales cover 80 countries,
such as India, Italy, Germany, the United States, Australia and Brazil. Our
overseas sales accounted for approximately 76.2%, 64.6% and 47.0% of total sales
for the years ended December 31, 2008, 2007 and 2006, respectively.
We
market, sell and service our products nationally and globally through a
combination of company-owned offices and independent manufacturers’
representatives. We believe we are well positioned to meet our clients’ delivery
and servicing requirements. We have targeted our approach to meet local market
conditions, which we believe provides the best possible service for our regional
clients and our global accounts.
We serve
a broad client base of LEV manufacturers, international UPS manufacturers, and
telecommunications operators. The following table provides information on our
top ten clients in fiscal years 2008.
TOP TEN CLIENTS IN
2008
|
No.
|
Name
|
Description of
Client
|
Sales
(in thousands
of US dollars)
|
Percentage of
Total Sales
|
||||||
1
|
Bharti
Infratel Limited
|
Telecommunications
operator in India
|
6,513
|
5.4
|
%
|
|||||
2
|
Sanat
Rayan Pars Ltd
|
UPS
battery distributor in Hongkong
|
6,266
|
5.2
|
%
|
|||||
3
|
OKIN
Gesellschaft fur Antriebstechnik GmbH
|
Massage
chair manufacturer in China
|
4,610
|
3.8
|
%
|
|||||
4
|
Smart
communications Inc.
|
Telecommunications
supplier in Philippines
|
4,186
|
3.5
|
%
|
|||||
5
|
SSB
Battery Service GmbH
|
UPS
battery distributor in Germany
|
3,423
|
2.9
|
%
|
|||||
6
|
Electrical
APAC Region Eaton
|
UPS
manufacturer in China
|
3,318
|
2.8
|
%
|
|||||
7
|
Shandong
Shenyang Electric Co. Ltd.
|
Telecommunications
supplier in China
|
3,296
|
2.8
|
%
|
|||||
8
|
Unicoba
Ind.De Comp.Eletronicos Einformatica Ltda.
|
UPS
manufacturer in Brazil
|
2,395
|
2.0
|
%
|
|||||
9
|
Material
In Motion
|
UPS
manufacturer in USA
|
2,286
|
1.9
|
%
|
|||||
10
|
Whitesand
Capital Inc.
|
Telecommunications
supplier in Russia
|
2,215
|
1.9
|
%
|
|||||
Total
|
38,510
|
32.2
|
%
|
6
Sales
and Marketing
For
domestic sales, we have about 600 domestic original equipment manufacturers, or
OEM clients that we sell our products to directly. Our domestic sales accounted
for about 23.8%, 35.4% and 53.0% of total sales for the years ended December 31,
2008, 2007 and 2006, respectively.
Our
overseas (outside of China) sales cover 80 countries, such as India, Italy,
Germany, the United States, Australia and Brazil. Our overseas sales accounted
for approximately 76.2%, 64.6% and 47.0% of total sales for the years ended
December 31, 2008, 2007 and 2006, respectively. Our sales staff continually
works to explore new and better ways to provide services, as a core part of the
company’s business strategy.
Our
marketing approach focuses on the demands of our clients. We develop new
business by identifying and contacting potential new clients through referrals
or as a result of new clients contacting us because of our reputation in the
industry. Prospective clients are invited to evaluate our research and
development capabilities, tour our production facilities, review our quality
control functions, and discuss other operating aspects of our business with our
management. If a prospective client retains us, we normally initially enter into
small volume sales contracts. We undertake a series of tests on the performance
of the products that we will produce for the new client and then begin to supply
these products to the client in small batches. Typically, the purchase volume
will then grow over time. Eventually, we strive to become a major supplier to
each of our clients. The time that this process takes varies for different
product segments, different markets and different clients. For example, it
usually takes from one week to one month for Chinese LEV market clients and one
to two months for the UPS market segment. While in the overseas market, it
usually takes half a year to one year for us to become the supplier because all
of our overseas clients are high-end OEMs. Furthermore, sales in China have
relatively higher margins, a larger potential market and large number of
potential customers, but the overseas sales are relatively more stable, and are
less of a credit risk.
We work
to strengthen our market presence through various types of campaigns. We
participate in several domestic and international trade fairs such as CeBIT,
which is the world’s largest trade fair showcasing digital IT and
telecommunications solutions for home and work environments. We also participate
in SuperComm, the
world’s premier annual communications and information technology exhibition and
conference, each year to raise our recognition and promote our products
internationally. These trade fairs not only promote our company reputation, but
also our brand name.
Competition
Foreign
battery companies are seeking to take advantage of growth of the Chinese battery
market. These foreign battery manufacturers also desire to reduce production
costs. Many foreign battery manufacturers are investing in joint ventures or
investing directly in China. At present, Japanese companies like Panasonic are
setting up plants in China.
Many new
energy storage technologies, other than lead acid, which have been introduced
over the past several years, also compete with our products for customers who
may decide to use these new battery technologies instead of our products. In
addition, we now face potential competition from fuel cell manufacturers as a
result of recent developments in fuel cell technology.
7
We
compete based upon the price and quality of our products, ability to produce a
diverse range of products and customer service. In the UPS and telecommunication
product segments, which we believe are our fastest growing segments, we compete
principally with Harbin Guangyu Battery Co., Ltd., or Guangyu, and Exide
Technologies, or Exide.
We
believe that the price of our products is significantly lower than that of Exide
and approximately equivalent to the prices charged by our other competitors. We
believe that the quality of our products is superior to the quality of Guangyu’s
products, but is equivalent to the quality of Exide’s products. Our product mix
is more diverse than the product mix of all of our competitors. Finally, we
believe that our customer service is better than that of our
competitors.
Intellectual
Property
We
currently have the following patents either issued or pending
approval:
Patent Name
|
Patent type
|
Patent
No./Application No.
|
Expiration
Date
|
Status
|
|||||
Construct
of Sealed
terminal
of VRLA battery
|
Utility
Model
|
|
ZL 200420042736.7
|
|
February 17, 2014
|
Approved
|
|||
Nano-Silicon
Fiber Stationary
Storage
lead acid battery
|
Invention Patent
|
200610061139.2
|
N/A
|
Pending
|
|||||
Nano-Silicon
Fiber Stationary
Storage
lead acid battery
|
Utility
Model
|
ZL
200620014068.6
|
May
18, 2016
|
Approved
|
We have
registered the trademark for the logo with the
Trademark Office of the State Administration for Industry and Commerce of China.
We use our trademark for the sales and marketing of our products. Our trademark
expires in August 2013 and may be continually renewed thereafter.
In
addition, we protect our know-how technologies through confidentiality
provisions of the employment contracts we enter into with our
employees.
Research
and Development Efforts
We
currently operate one research and development center located in Shenzhen. As of
December 31, 2008, we had 79 research and development staff (26 of whom hold
Master/PhD degrees) who independently manage new product development projects.
Our research and development center’s mission is to develop advanced
technologies, advanced battery materials, new gel and photovoltaic battery
development, and training.
Unlike
other major lead-acid battery manufacturers, we do not solely depend on
joint-development programs with universities. Instead, we emphasize the
independent development of proprietary technology. Our Chief Technology Officer,
Mr. He, has led our research and development team’s efforts relating to the
development of several series of new products, including, the LEV battery
series, and gel battery series (including solar energy storage batteries), all
of which are revenue generating products for us. All of these new products
contribute and we expect that they will continue to contribute revenues to us in
the future.
8
During
the fiscal years 2008, 2007 and 2006, our research and development expenses
amounted to approximately $0.47, $0.27 million and $0.21 million, representing
approximately 0.39%, 0.36% and 0.52% of our sales, respectively. These expenses
were mainly composed of staff costs and depreciation of testing equipment used
in a variety of projects and other research and development
expenses.
Employees
As of
December 31, 2008, we had about 1700 full-time employees. The following table
illustrates the allocation of these employees among the various job functions
conducted at our company.
Department
|
Number of Employees
|
|||
Production
|
1,294
|
|||
Quality
Control
|
132
|
|||
Domestic
Sales
|
25
|
|||
After
Sales Service
|
15
|
|||
Human
Resources
|
45
|
|||
Planning
and Material Center
|
35
|
|||
Research
and Development
|
79
|
|||
International
Sales
|
60
|
|||
Finance
|
15
|
|||
Total
|
1,700
|
We
believe that our relationship with our employees is good. The remuneration
payable to employees includes basic salaries and allowances. We have not
experienced any significant problems or disruption to our operations due to
labor disputes, nor have we experienced any difficulties in recruitment and
retention of experienced staff.
As
required by applicable Chinese laws, we have entered into employment contracts
with all of our officers, managers and employees.
Our
employees in China participate in a state pension scheme organized by Chinese
municipal and provincial governments. We are required to contribute to the
scheme at a rate of 8% of the average monthly salary. In addition, we are
required by Chinese laws to cover employees in China with various types of
social insurance. We have purchased required social insurance for all of our
employees.
Regulation
Since our
operating subsidiaries Shenzhen Ritar, Hengyang Ritar and Shanghai Ritar are
located in China, we are subject to a variety of PRC environmental laws and
regulations related to air emission, noise, water discharge and storage and
disposal of solid and hazardous wastes. The primary environmental regulations
applicable to us include the PRC Environmental Protection Law, the PRC Law on
the Prevention and Control of Water Pollution and its Implementation Rules, the
PRC Law on the Prevention and Control of Air Pollution and its Implementation
Rules, the PRC Law on the Prevention and Control of Solid Waste Pollution, and
the PRC Law on the Prevention and Control of Noise Pollution. Our production
sites in the PRC are also subject to regulation and periodic monitoring by the
relevant environmental protection authorities.
9
We
believe that it is important to carry out our operations in an environmentally
friendly manner. As such, we attempt to reduce the consumption of natural
resources in our operations as much as possible. We also take steps to ensure
that waste and by-products produced as a result of our operations are properly
disposed of in accordance with applicable laws so as to minimize adverse effects
to the environment. These steps include : (1) making sure there is no waste
water drained off from our operations; (2) entering into an agreement with Waste
Disposal Station, Bao’an District, Shenzhen for wasted acid and hazardous
materials disposal; (3) collectively recycling the wasted old materials of the
productions by Qiaotou Village Committee; (4) hiring professional waste battery
recycling companies to be in charge of waste batteries within the territory of
PRC; and (5) being a member of Portable Rechargeable Battery Association, or
PRBA an international organization which endeavors to obtain consistent domestic
and international solutions to environmental and other selected issues affecting
the use, recycling and disposal of small sealed rechargeable batteries. We have
signed a recycling agreement with PRBA which authorizes PRBA to be in charge of
battery recycling outside the territory of PRC.
In
addition, we are also subject to PRC’s foreign currency regulations. The PRC
government has control over RMB reserves through, among other things, direct
regulation of the conversion or RMB into other foreign currencies. Although
foreign currencies which are required for “current account” transactions can be
bought freely at authorized Chinese banks, the proper procedural requirements
prescribed by Chinese law must be met. At the same time, Chinese companies are
also required to sell their foreign exchange earnings to authorized Chinese
banks and the purchase of foreign currencies for capital account transactions
still requires prior approval of the Chinese government.
ITEM
1A.
|
RISK
FACTORS
|
RISKS
RELATED TO OUR BUSINESS
We
operate in an extremely competitive industry and are subject to continual
pricing pressure that could negatively affect our financial
results.
We
compete with a number of major domestic and international manufacturers and
distributors of lead-acid batteries, as well as a large number of smaller,
regional competitors. Due to excess capacity in some sectors of our industry,
consolidation among industrial battery purchasers and the financial difficulties
experienced by several of our competitors, we have been subject to continual and
significant pricing pressures. Several of our competitors have strong technical,
marketing, sales, manufacturing, distribution and other resources, as well as
significant name recognition, established positions in the market and
long-standing relationships with original equipment manufacturers and other
customers. In addition, some of our competitors own lead smelting facilities
which, during periods of lead cost increases or price volatility, may provide a
competitive pricing advantage and reduce their exposure to volatile raw material
costs. Our ability to maintain and improve our operating margins has depended,
and continues to depend, on our ability to control and reduce our costs. We
cannot assure you that we will be able to continue to reduce our operating
expenses, to raise or maintain our prices or increase our unit volume, in order
to maintain or improve our operating results.
Cyclical
industry conditions have adversely affected, and may continue to adversely
affect, the results of our operations.
Our
operating results are affected by the general cyclical pattern of the industries
in which our major customer groups operate, and the overall economic conditions
in which we and our customers operate. All of our target client segments are
heavily dependent on the end-user markets they serve, such as LEV,
telecommunications, and uninterruptible power systems. A weak capital
expenditure environment in these markets has had, and can be expected to have, a
material adverse effect on the results of our operations.
Our
results of operations can be significantly affected by the volatility in the
prices of the raw materials that we use to produce our products.
Our raw
materials costs are volatile and expose us to significant fluctuations in our
product costs. We employ significant amounts of lead, plastics, and other
materials in our manufacturing processes. Lead is our most significant raw
material and represents approximately 63.7% of our total raw materials costs.
The costs of these raw materials, particularly lead, are volatile and beyond our
control. Volatile raw materials costs can significantly affect our operating
results and make period-to-period comparisons extremely difficult. We may not be
able to hedge our raw material requirements at a reasonable cost or to pass on
to our customers the increased costs of our raw materials.
10
Compliance
with environmental regulations can be expensive, and our failure to comply with
these regulations may result in adverse publicity and a material adverse effect
on our business.
As a
manufacturer, we are subject to various Chinese environmental laws and
regulations on air emission, waste water discharge, solid wastes and noise.
Although we believe that our operations are in substantial compliance with
current environmental laws and regulations, we may not be able to comply with
these regulations at all times as the Chinese environmental legal regime is
evolving and becoming more stringent. Therefore, if the Chinese government
imposes more stringent regulations in the future, we will have to incur
additional and potentially substantial costs and expenses in order to comply
with new regulations, which may negatively affect our results of operations. If
we fail to comply with any of the present or future environmental regulations in
any material aspects, we may suffer from negative publicity and may be required
to pay substantial fines, suspend or even cease operations. Failure to comply
with Chinese environmental laws and regulations may materially and adversely
affect our business, financial condition and results of operations.
Our
failure to introduce new products and product enhancements and broad market
acceptance of new technologies introduced by our competitors could adversely
affect our business.
Many new
energy storage technologies, other than lead-acid, have been introduced over the
past few years. In addition, recent advances in fuel cell and flywheel
technology have been introduced for use in selected applications that compete
with the end uses for lead-acid industrial batteries. For many important and
growing markets, such as aerospace and defense, lithium-based battery
technologies have large and growing market shares and lead-acid technologies
have decreasing market shares. Our ability to achieve significant and sustained
penetration of key developing markets, including aerospace and defense, will
depend upon our success in developing or acquiring these and other technologies,
either independently, through joint ventures or through acquisitions. If we fail
to develop or acquire, and to manufacture and sell, products that satisfy our
customers’ demands, or if we fail to respond effectively to new product
announcements by our competitors by quickly introducing competitive products,
market acceptance of our products could be reduced and our business could be
adversely affected.
We
may not be able to adequately protect our proprietary intellectual property and
technology, which may harm our competitive position and result in increased
expenses incurred to enforce our rights.
We rely
on a combination of copyright, trademark, patent and trade secret laws,
non-disclosure agreements and other confidentiality procedures and contractual
provisions to establish, protect and maintain our proprietary intellectual
property and technology and other confidential information. Some of these
technologies, especially in thin plate pure lead technology, are important to
our business and are not protected by patents. Despite our efforts, the steps we
have taken to protect our proprietary intellectual property and technology and
other confidential information may not be adequate to preclude misappropriation
of our proprietary information or infringement of our intellectual property
rights. Protecting against the unauthorized use of our products, trademarks and
other proprietary rights is also expensive, difficult and, in some cases,
impossible. Litigation may be necessary in the future to enforce or defend our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of management resources, either of
which could harm our business, operating results and financial
condition.
Product
branding is important to us and if our brands are misappropriated or our
reputation otherwise harmed, our operations and financial results could be
negatively impacted.
We rely
upon a combination of trademark, licensing and contractual covenants to
establish and protect the brand names of our products. We have registered our
trademark in the Trademark Office of China. In many market segments, our
reputation is closely related to our brand names. Monitoring unauthorized use of
our brand names is difficult, and we cannot be certain that the steps we have
taken will prevent their unauthorized use, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in China. Our
brand names may be misappropriated or utilized without our consent and such
actions may have a material adverse effect on our reputation and on the results
of our operations.
11
If
we grow through acquisitions and fail to successfully integrate acquired
companies, our operations could be disrupted and management could become
distracted by integration issues.
As part
of our business strategy, we plan to grow in part by acquiring other product
lines, technologies or facilities that complement or expand our existing
business. We may be unable to implement this part of our business strategy and
may not be able to make acquisitions to continue our growth. There is
significant competition for acquisition targets in the industrial battery
industry. We may not be able to identify suitable acquisition candidates or
negotiate attractive terms. In addition, we may have difficulty obtaining the
financing necessary to complete transactions that we pursue. Future acquisitions
may involve the issuance of our equity securities as payment, in part or in
full, for the businesses or assets acquired. Any future issuances of equity
securities would dilute your ownership interests. In addition, future
acquisitions might not increase, and may even decrease, our earnings or earnings
per share and the benefits derived by us from an acquisition might not outweigh
or might not exceed the dilutive effect of the acquisition. We also may incur
additional debt or suffer adverse tax and accounting consequences in connection
with any future acquisitions, although we currently do not have any identified
future acquisition targets.
Where we
are successful in completing acquisitions, we might experience difficulties in
integrating the acquired business or assets. Acquisitions might result in
unanticipated liabilities, unforeseen expenses and distraction of management’s
time and attention. We cannot assure you that our acquisition strategy will be
successful.
A
significant portion of our sales are derived from a limited number of customers,
and results from operations could be adversely affected and stockholder value
harmed if we lose these customers.
A
significant portion of our revenues has been historically derived from a limited
number of customers. For the fiscal years ended December 31, 2008, 2007 and
2006, over 32.2 %, 41% and 45% of our revenues, respectively, were derived from
our ten largest customers. The loss of any of these significant customers that
is not accompanied by the retention of new business in similar volume would
adversely affect our revenues and stockholder value.
Our
products could be subject to product liability claims by customers and/or
consumers, which would adversely affect our profit margins, results of
operations and stockholder value.
A
significant portion of our products are used in light electric vehicles, such as
electric scooters. If our products are not properly designed or built and/or
personal injuries are sustained as a result of our equipment, we could be
subject to claims for damages based on theories of product liability and other
legal theories. The costs and resources to defend such claims could be
substantial and, if such claims are successful, we could be responsible for
paying some or all of the damages. Also, our reputation could be adversely
affected, regardless of whether such claims are successful. Any of these results
would adversely affect our profit margins, results from operations and
stockholder value.
We
may be exposed to liabilities under the Foreign Corrupt Practices Act, and any
determination that we violated the Foreign Corrupt Practices Act could have a
material adverse effect on our business.
We are
subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and
their officials and political parties by U.S. persons and issuers as defined by
the statute for the purpose of obtaining or retaining business. We have
operations, agreements with third parties and make sales in China, which may
experience corruption. Our activities in China create the risk of unauthorized
payments or offers of payments by one of the employees, consultants, sales
agents or distributors of our Company, even though these parties are not always
subject to our control. It is our policy to implement safeguards to discourage
these practices by our employees. However, our existing safeguards and any
future improvements may prove to be less than effective, and the employees,
consultants, sales agents or distributors of our Company may engage in conduct
for which we might be held responsible. Violations of the FCPA may result in
severe criminal or civil sanctions, and we may be subject to other liabilities,
which could negatively affect our business, operating results and financial
condition. In addition, the government may seek to hold our Company liable for
successor liability FCPA violations committed by companies in which we invest or
that we acquire.
12
Expansion
of our business may put added pressure on our management and operational
infrastructure impeding our ability to meet any increased demand for our
cadmium-free, valve-regulated lead-acid products and possibly hurting our
operating results.
Our
business plan is to significantly grow our operations to meet anticipated growth
in demand for existing products, and by the introduction of new product
offerings. Our planned growth includes the construction of new production lines
to be put into operation over the next twelve months. Growth in our business may
place a significant strain on our personnel, management, financial systems and
other resources. The evolution of our business also presents numerous risks and
challenges, including:
·
|
our
ability to successfully and rapidly expand sales to potential customers in
response to potentially increasing
demand;
|
·
|
the
costs associated with such growth, which are difficult to quantify, but
could be significant; and
|
·
|
rapid
technological change.
|
To
accommodate any such growth and compete effectively, we may need to obtain
additional funding to improve information systems, procedures and controls and
expand, train, motivate and manage our employees, and such funding may not be
available in sufficient quantities, if at all. If we are not able to manage
these activities and implement these strategies successfully to expand to meet
any increased demand, our operating results could suffer.
We
depend heavily on key personnel, and turnover of key employees and senior
management could harm our business.
Our
future business and results of operations depend in significant part upon the
continued contributions of our key technical and senior management personnel,
including Jiada Hu, our Chief Executive Officer, President, Secretary and
Treasurer, Jianjun Zeng, our Chief Operating Officer, Degang He, our Chief
Technology Officer, and Zhenghua Cai, our Chief Financial Officer. They also
depend in significant part upon our ability to attract and retain additional
qualified management, technical, marketing and sales and support personnel for
our operations. If we lose a key employee or if a key employee fails to perform
in his or her current position, or if we are not able to attract and retain
skilled employees as needed, our business could suffer. Significant turnover in
our senior management could significantly deplete our institutional knowledge
held by our existing senior management team. We depend on the skills and
abilities of these key employees in managing the manufacturing, technical,
marketing and sales aspects of our business, any part of which could be harmed
by further turnover.
We may be exposed
to potential risks relating to our internal controls over financial reporting
and our ability to have the operating
effectiveness of our internal controls attested to by our independent
auditors.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC
adopted rules requiring public companies to include a report of management on
the company’s internal controls over financial reporting in their annual
reports, including Form 10-K. In addition, the independent registered public
accounting firm auditing a company’s financial statements must also attest to
and report on the operating effectiveness of our internal controls. We are
subject to this requirement commencing with our fiscal year ended December 31,
2007 and a report of our management on our internal control over financial
reporting for the fiscal year ended December 31, 2008 is included under Item
9A(T) of this Annual Report on Form 10-K. Our management has concluded that our
internal controls over our financial reporting are effective for the period
covered by this Annual Report. However, in the future, our management may
conclude that our internal controls over our financial reporting are not
effective due to the identification of one or more material weaknesses, or our
independent registered public accounting firm may issue an adverse opinion on
our internal control over financial reporting if one or more material weaknesses
are identified. We can provide no assurance that we will comply with all of the
requirements imposed by SOX 404 and there can be no positive assurance that we
will receive a positive attestation from our independent auditors. In the event
we identify significant deficiencies or material weaknesses in our internal
controls that we cannot remediate in a timely manner or we are unable to receive
a positive attestation from our independent auditors with respect to our
internal controls, investors and others may lose confidence in the reliability
of our financial statements.
13
Our
holding company structure may limit the payment of dividends to our
stockholders.
China
Ritar Power Corp. has no direct business operations, other than its ownership of
our subsidiaries. While we have no current intention of paying dividends, should
we decide in the future to do so, as a holding company, our ability to pay
dividends and meet other obligations depends upon the receipt of dividends or
other payments from our operating subsidiaries and other holdings and
investments. In addition, our operating subsidiaries, from time to time, may be
subject to restrictions on their ability to make distributions to us, including
as a result of restrictive covenants in loan agreements, restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions as discussed below. If future dividends are paid in RMB,
fluctuations in the exchange rate for the conversion of RMB into U.S. dollars
may reduce the amount received by U.S. stockholders upon conversion of the
dividend payment into U.S. dollars.
PRC
regulations currently permit the payment of dividends only out of accumulated
profits as determined in accordance with PRC accounting standards and
regulations. Our subsidiaries in China are also required to set aside a portion
of their after tax profits according to PRC accounting standards and regulations
to fund certain reserve funds. Currently, our subsidiaries in China are the only
sources of revenues or investment holdings for the payment of dividends. If they
do not accumulate sufficient profits under PRC accounting standards and
regulations to first fund certain reserve funds as required by PRC accounting
standards, we will be unable to pay any dividends.
RISKS
RELATED TO DOING BUSINESS IN CHINA
Adverse
changes in China’s political or economic situation could harm us and our
operational results.
Economic
reforms adopted by the Chinese government have had a positive effect on the
economic development of the country, but the government could change these
economic reforms or any of the legal systems at any time. This could either
benefit or damage our operations and profitability. Some of the things that
could have this effect are:
•
|
Level
of government involvement in the
economy;
|
•
|
Control
of foreign exchange;
|
•
|
Methods
of allocating resources;
|
•
|
Balance
of payments position;
|
•
|
International
trade restrictions; and
|
•
|
International
conflict.
|
The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many ways. As
a result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy were similar to those of the
OECD member countries.
Our
business is largely subject to the uncertain legal environment in China and your
legal protection could be limited.
The
Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which precedents set in earlier legal
cases are not generally used. The overall effect of legislation enacted over the
past 20 years has been to enhance the protections afforded to foreign invested
enterprises in China. However, these laws, regulations and legal requirements
are relatively recent and are evolving rapidly, and their interpretation and
enforcement involve uncertainties. These uncertainties could limit the legal
protections available to foreign investors, such as the right of foreign
invested enterprises to hold licenses and permits such as requisite business
licenses. In addition, all of our executive officers are residents of China and
not of the U.S., and substantially all the assets of these persons are located
outside the U.S. As a result, it could be difficult for investors to effect
service of process in the U.S., or to enforce a judgment obtained in the U.S.
against us or any of these persons.
14
The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.
China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.
Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
Future
inflation in China may inhibit our ability to conduct business profitably in
China.
In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten years, the rate of inflation in China
has been as high as 20.7% and as low as -2.2%. These factors have led to the
adoption by the Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. High inflation may in the future cause the Chinese government
to impose controls on credit and/or prices, or to take other action, which could
inhibit economic activity in China, and thereby harm the market for our
products.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could harm our operations.
A renewed
outbreak of SARS or another widespread public health problem in China, where our
operations are conducted, could have a negative effect on our
operations.
Our
operations may be impacted by a number of health-related factors, including the
following:
·
|
quarantines
or closures of some of our offices which would severely disrupt our
operations,
|
·
|
the
sickness or death of our key officers and employees,
and
|
·
|
a
general slowdown in the Chinese
economy.
|
Any of
the foregoing events or other unforeseen consequences of public health problems
could damage our operations.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
The
majority of our revenues will be settled in RMB and U.S. dollars, and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside China or to make
dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign-invested enterprises may only buy, sell
or remit foreign currencies after providing valid commercial documents, at those
banks in China authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in China, and companies are required
to open and maintain separate foreign exchange accounts for capital account
items. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the
RMB.
15
Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.
In
October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
the Notice on Relevant Issues in the Foreign Exchange Control over Financing and
Return Investment Through Special Purpose Companies by Residents Inside China,
generally referred to as Circular 75, which required PRC residents to register
with the competent local SAFE branch before establishing or acquiring control
over an offshore special purpose company, or SPV, for the purpose of engaging in
an equity financing outside of China on the strength of domestic PRC assets
originally held by those residents. Internal implementing guidelines issued by
SAFE, which became public in June 2007 (known as Notice 106), expanded the reach
of Circular 75 by (i) purporting to cover the establishment or acquisition of
control by PRC residents of offshore entities which merely acquire “control”
over domestic companies or assets, even in the absence of legal ownership; (ii)
adding requirements relating to the source of the PRC resident’s funds used to
establish or acquire the offshore entity; (iii) covering the use of existing
offshore entities for offshore financings; (iv) purporting to cover situations
in which an offshore SPV establishes a new subsidiary in China or acquires an
unrelated company or unrelated assets in China; and (v) making the domestic
affiliate of the SPV responsible for the accuracy of certain documents which
must be filed in connection with any such registration, notably, the business
plan which describes the overseas financing and the use of proceeds. Amendments
to registrations made under Circular 75 are required in connection with any
increase or decrease of capital, transfer of shares, mergers and acquisitions,
equity investment or creation of any security interest in any assets located in
China to guarantee offshore obligations, and Notice 106 makes the offshore SPV
jointly responsible for these filings. In the case of an SPV which was
established, and which acquired a related domestic company or assets, before the
implementation date of Circular 75, a retroactive SAFE registration was required
to have been completed before March 31, 2006; this date was subsequently
extended indefinitely by Notice 106, which also required that the registrant
establish that all foreign exchange transactions undertaken by the SPV and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV’s affiliates being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China.
We
believe our stockholders who are PRC residents as defined in Circular 75 have
registered with the relevant branch of SAFE, as currently required, in
connection with their equity interests in us and our acquisitions of equity
interests in our PRC subsidiaries. However, we cannot provide any assurances
that their existing registrations have fully complied with, and they have made
all necessary amendments to their registration to fully comply with, all
applicable registrations or approvals required by Circular 75. Moreover, because
of uncertainty over how Circular 75 will be interpreted and implemented, and how
or whether SAFE will apply it to us, we cannot predict how it will affect our
business operations or future strategies. For example, our present and
prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency-denominated borrowings,
may be subject to compliance with Circular 75 by our PRC resident beneficial
holders. In addition, such PRC residents may not always be able to complete the
necessary registration procedures required by Circular 75. We also have little
control over either our present or prospective direct or indirect stockholders
or the outcome of such registration procedures. A failure by our PRC resident
beneficial holders or future PRC resident stockholders to comply with Circular
75, if SAFE requires it, could subject these PRC resident beneficial holders to
fines or legal sanctions, restrict our overseas or cross-border investment
activities, limit our subsidiaries’ ability to make distributions or pay
dividends or affect our ownership structure, which could adversely affect our
business and prospects.
16
We
may be unable to complete a business combination transaction efficiently or on
favorable terms due to complicated merger and acquisition regulations that
became effective on September 8, 2006.
On August
8, 2006, six PRC regulatory agencies promulgated the Regulation on Mergers and
Acquisitions of Domestic Companies by Foreign Investors, which became effective
on September 8, 2006. This new regulation, among other things, governs the
approval process by which a PRC company may participate in an acquisition of
assets or equity interests. Depending on the structure of the transaction, the
new regulation will require the PRC parties to make a series of applications and
supplemental applications to the government agencies. In some instances, the
application process may require the presentation of economic data concerning a
transaction, including appraisals of the target business and evaluations of the
acquirer, which are designed to allow the government to assess the transaction.
Government approvals will have expiration dates by which a transaction must be
completed and reported to the government agencies. Compliance with the new
regulations is likely to be more time consuming and expensive than in the past
and the government can now exert more control over the combination of two
businesses. Accordingly, due to the new regulation, our ability to engage in
business combination transactions has become significantly more complicated,
time consuming and expensive, and we may not be able to negotiate a transaction
that is acceptable to our stockholders or sufficiently protect their interests
in a transaction.
The new
regulation allows PRC government agencies to assess the economic terms of a
business combination transaction. Parties to a business combination transaction
may have to submit to the Ministry of Commerce and other relevant government
agencies an appraisal report, an evaluation report and the acquisition
agreement, all of which form part of the application for approval, depending on
the structure of the transaction. The regulations also prohibit a transaction at
an acquisition price obviously lower than the appraised value of the PRC
business or assets and in certain transaction structures, require that
consideration must be paid within defined periods, generally not in excess of a
year. The regulation also limits our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and liabilities. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, such regulation may impede our ability to negotiate and complete a
business combination transaction on financial terms that satisfy our investors
and protect our stockholders’ economic interests.
The
value of our securities will be affected by the foreign exchange rate between
U.S. dollars and RMB.
The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and RMB, and between those currencies and other currencies in which our
sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into RMB for our operational needs and should the RMB appreciate
against the U.S. dollar at that time, our financial position, the business of
the company, and the price of our common stock may be harmed. Conversely, if we
decide to convert our RMB into U.S. dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the RMB, the U.S. dollar equivalent of our earnings from our
subsidiaries in China would be reduced.
RISKS
RELATED TO THE MARKET FOR OUR STOCK
Our
common stock is quoted on the OTC Bulletin Board, which may have an unfavorable
impact on our stock price and liquidity.
Our
common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a
significantly more limited market than the New York Stock Exchange or Nasdaq
system. The quotation of our shares on the OTC Bulletin Board may result in a
less liquid market available for existing and potential stockholders to trade
shares of our common stock, could depress the trading price of our common stock
and could have a long-term adverse impact on our ability to raise capital in the
future.
We
may be subject to penny stock regulations and restrictions and you may have
difficulty selling shares of our common stock.
The SEC
has adopted regulations which generally define so-called “penny stocks” to be an
equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. If our common
stock becomes a “penny stock”, we may become subject to Rule 15g-9 under the
Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales
practice requirements on broker-dealers that sell such securities to persons
other than established customers and “accredited investors” (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser’s written consent to the
transaction prior to sale. As a result, this rule may affect the ability of
broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market.
17
For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock.
There can
be no assurance that our common stock will qualify for exemption from the Penny
Stock Rule. In any event, even if our common stock were exempt from the Penny
Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.
Our
largest stockholder, Jiada Hu, holds a significant percentage of our outstanding
voting securities and accordingly may make decisions regarding our daily
operations, significant corporate transactions and other matters that other
stockholders may believe are not in their best interests.
Mr. Jiada
Hu, our CEO and President, is the beneficial owner of approximately 43% of our
outstanding voting securities. As a result, he possesses significant influence
over the election of our board of directors and significant corporate
transactions. His ownership may also have the effect of delaying or preventing a
future change in control, impeding a merger, consolidation, takeover or other
business combination or discourage a potential acquirer from making a tender
offer. Other stockholders may believe that these future decisions made by Mr. Hu
are not in their best interests.
ITEM
2.
|
PROPERTIES
|
All land
in China is owned by the State or collectives. Individuals and companies are
permitted to acquire rights to use land or land use rights for specific
purposes. In the case of land used for industrial purposes, the land use rights
are granted for a period of 50 years. This period may be renewed at the
expiration of the initial and any subsequent terms according to the relevant
Chinese laws. Granted land use rights are transferable and may be used as
security for borrowings and other obligations.
Our main
production facilities are located at our headquarters in Shenzhen, China. The
total site area is approximately 25,027 square meters. Among them are two
properties occupying 9,859 square meters and 6,100 leased from Shenzhen Qiaotou
Equity Cooperation Co. The term of the leases were renewed in January 2009 for
an additional one year term. About 6,968 square meters were leased from Shenzhen
Huadelin Investment Co., Ltd. The term of this lease is from July 9, 2007
through June 30, 2010. The other 2,100 square meters were leased from Fuyong
Yingfeng Machinery & Equipment Factory. The term of lease is renewed for
another 12 months period in March 2009. We manufacture all of our product types
at these facilities.
We have a
secondary production facility in Shanghai, China. The total site area of this
facility is approximately 13,000 square meters. We lease this facility under a
lease with Shanghai Fengxian Livestock and Fishery Co., Ltd. The term of this
lease is from July 1, 2003 through June 30, 2016. We expect that we will be able
to renew this lease on similar terms prior to its expiration. We manufacture LEV
lead-acid batteries at this facility.
Our third
production facility is located in Hengyang, China. On April 15, 2007, Shenzhen
Ritar entered into an agreement for stationing project into industrial park, or
Songmu Investment Agreement, with the Administrative Committee of Songmu
Industrial Park, Henyang City, Hunan Province, China, or Songmu Industrial Park.
Under the Songmu Investment Agreement, as amended, Songmu Industrial Park agreed
to grant to Shenzhen Ritar the land use rights over a land plot with an area
about 266,667 square meters at approximately $9.35 per square meter. We have
completed the first phase construction of Hengyang Ritar facility and its lead
acid battery production commenced in April 2008. In addition, in July 2008,
production of lead plates began at Hengyang Ritar. Approximately 46,000 square
meters of factory space has already been constructed. Another 40,000-60,000
square meters of factory space are expected to be constructed during the second
phase over the next three years which will be allocated to both lead acid
battery and lead plate production.
18
Our lease
in Huizhou, China, with Huizhou Huiyang Sanlian Iron Products Factory expired on
March 31, 2008 and was not renewed. We currently do not maintain any operation
in Huizhou, China.
We
currently have 19 assembly lines. Most of the key production equipment was
purchased in China. Production equipment consists of charging/discharging
machines, testing equipment, ultrasonic welders and filling machines of
electrolyte.
Our about
1,400 production workers currently work in two work shifts of eight to ten hours
over seven working days a week each, to maximize the capabilities of our
assembly lines.
We modify
our production to cater to client demands. Due to the similar construct of
different series of our products, our assembly lines are flexible and allow us
to change to the production of different batteries for different applications.
This helps us to change with market trends.
We
believe that all our properties have been adequately maintained, are generally
in good condition, and are suitable and adequate for our business.
ITEM
3.
|
LEGAL
PROCEEDINGS
|
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise, in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. We are currently not aware
of any such legal proceedings or claims that we believe will have a material
adverse affect on our business, financial condition or operating
results.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of our security holders during the fourth
quarter of 2008.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
Market
for Our Common Stock
Our
common stock is quoted under the symbol “CRTP.OB” on the Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc., but
had not been traded in the Over-The-Counter market except on a limited and
sporadic basis. The CUSIP number is 169423 100.
As of
March 11, 2009, the closing price for our common stock on the OTC Bulletin Board
was $1.28. The following table sets forth, for the periods indicated, the high
and low closing prices of our common stock. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
19
Closing
Prices (1)
|
||||||||
High
|
Low
|
|||||||
Year
Ended December 31, 2008
|
||||||||
1st
Quarter
|
$ | 11.25 | $ | 2.35 | ||||
2nd
Quarter
|
$ | 5.38 | $ | 2.59 | ||||
3rd
Quarter
|
$ | 4.95 | $ | 2.86 | ||||
4th
Quarter
|
$ | 4.20 | $ | 1.01 | ||||
Year
Ended December 31, 2007
|
||||||||
1st
Quarter
|
$ | 5.90 | $ | 5.00 | ||||
2nd
Quarter
|
$ | 6.20 | $ | 4.30 | ||||
3rd
Quarter
|
$ | 10.35 | $ | 4.95 | ||||
4th
Quarter
|
$ | 12.50 | $ | 4.95 |
|
(1)
|
The
above tables set forth the range of high and low closing prices per share
of our common stock as reported by OTC Bulletin Board for the periods
indicated.
|
Approximate
Number of Holders of Our Common Stock
On March
11, 2009, there were approximately 71 stockholders of record of our common
stock.
Dividend
Policy
We
anticipate that we will retain all of our future earnings, if any, for use in
the expansion and operation of our business and do not anticipate paying cash
dividends in the foreseeable future. Any future determination relating to our
dividend policy will be made at the discretion of our board of directors, based
on our financial condition, results of operations, earnings, contractual
restrictions, capital requirements, business prospects and other factors our
board of directors may deem relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
We
currently do not have any equity compensation plans.
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
Not
applicable.
ITEM7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Overview
We are a
holding company that only operates through our indirect Chinese subsidiaries.
Through our Chinese subsidiaries, we design, develop, manufacture and sell
environmentally friendly lead-acid batteries with a wide range of applications
and capacities, especially in the LEV segment, in China. We market, sell and
service our 6 series and 197 models of “Ritar” branded, cadmium-free, VRLA
batteries in China and internationally.
Our
revenue increased from $40.9 million in fiscal year 2006 to $73.3 million in
fiscal year 2007 and $119.6 million in fiscal year 2008, representing a
compounded annual growth rate of approximately 70.92%. These significant
increases reflect our success in expanding our production lines and our
increasing market penetration. We continually seek to broaden our market reach
by introducing new production lines and improving our profit margin through
increased vertical integration. We currently have 19 lead acid battery
production lines that are operational. Three of them are located at Shanghai
Ritar, eleven production lines are located at Shenzhen Ritar, five production
lines are located at Hengyang Ritar. We have completed construction of the first
phase of our new technical and manufacturing complex in Hengyang City, Hunan
Province and Lead acid battery production at this facility began in April 2008.
In addition, in July of 2008, production of lead plates began at the Hengyang
facility.
20
Revenue
Our
revenue is generated from sales of our lead-acid batteries. The following table
sets forth the breakdown of our revenues by battery cell type for the periods
indicated.
(All
amounts in thousands of U.S. dollar)
Years
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Components
of Revenues
|
||||||||||||
Total
revenue
|
$ | 119,584 | $ | 73,347 | $ | 40,933 | ||||||
Revenue
by Product
|
||||||||||||
UPS
|
$ | 38,482 | $ | 23,147 | $ | 7,528 | ||||||
Telecom
|
$ | 50,412 | $ | 27,138 | $ | 7,600 | ||||||
Renewable
Energy
|
$ | 18,308 | $ | 3,856 | ||||||||
LEV
|
$ | 12,382 | $ | 19,206 | $ | 25,805 |
Cost
of Revenue
Cost of
revenue includes our direct costs to manufacture our products, including the
cost of our raw materials, employee remuneration for staff engaged in production
activity, and related expenses that are directly attributable to the production
of products.
Gross
Profit and Gross Margin
Gross
profit is equal to the difference between our revenue and the cost of revenue.
Gross margin is equal to gross profit divided by revenue. Between fiscal years
2006 and 2008, we were able to maintain gross margins between approximately 19%
and 21%. Gross margins in such years for domestic and international sales were
approximately 18% and 22%, respectively. Changes in our gross margins are
primarily driven by small changes in cost of goods sold as percentage of
revenues due to our large-scale production and decreased raw materials per unit
product and decreased direct labor used per unit product.
To gain
market penetration, we price our products at levels that we believe are
competitive. Through our continuous efforts to improve manufacturing
efficiencies and reduce our production costs, we believe that we offer products
of comparable quality to our Chinese and international competitors at lower
prices. General economic conditions, cost of raw materials as well as supply and
demand of lead-acid batteries within our markets influence sales prices. Our
high-end, value-added products generally tend to have higher profit
margins.
Operating
Expenses
Our
operating expenses consist of salaries, sales commission and other selling
expense and general and administrative expenses. We expect most components of
our operating expenses will increase as our business grows and as we incur
increased costs related to being a public company.
21
Provision
for Income Taxes
United
States
The
Company was incorporated in the United States of America and is subject to
United States of America tax law. No provisions for income taxes have
been made as the Company has no taxable income for the years
presented. The applicable income tax rates for the Company for the
years ended December 31, 2008, 2007 and 2006 are 34%.
British Virgin
Islands
Ritar International was incorporated
in the British Virgin Islands and is not subject to income taxes under the
current laws of the British Virgin Islands.
PRC
The subsidiary, Shenzhen Ritar is
subject to PRC enterprises income tax at the applicable tax rates on the taxable
income as reported in its Chinese statutory accounts in accordance with the
relevant enterprises income tax laws applicable to foreign
enterprises. Pursuant to the same enterprises income tax laws, being
classified as a high technology company, Shenzhen Ritar is fully exempted from
PRC enterprises income tax for two years starting from the first profit-making
year, followed by a 50% tax exemption for the next three years (“Tax Holiday”).
Consequently, Shenzhen Ritar was exempted from enterprise income tax for the
fiscal years 2003 and 2004. For the following three fiscal years from
2005 to 2007, Shenzhen Ritar was subject to enterprise income tax at rate of
15%. From 2008, Shenzhen Ritar has been charged on preferential enterprise
income tax rate at 18% which is determined by the tax authority.
Shanghai
Ritar is charged at 2.31% of its total revenue in 2007 while the tax rate will
be charged on the taxable income with tax rate 25% from 2008.
Hengyang
Ritar commenced its business on April 27, 2008 and is subject to an income tax
rate of 25%.
Huizhou
Ritar did not commence business in 2008.
The Company uses the asset and
liability method, where deferred tax assets and liabilities are
determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. There are no material
timing differences and therefore no deferred tax asset or liability at December
31, 2008 and 2007. There are no net operating loss carry forwards at
December 31, 2008 and 2007.
The
provision for income taxes consists of the following:
2008
|
2007
|
2006
|
||||||||||
Current
tax
|
||||||||||||
-
PRC
|
$ | 2,400,314 | $ | 784,724 | $ | 353,436 | ||||||
-
Deferred tax provision
|
- | - | - | |||||||||
Total
|
$ | 2,400,314 | $ | 784,724 | $ | 353,436 |
22
Results
of Operations
The
following tables set forth key components of results of our operations for the
periods indicated, both in dollars and as a percentage of sales revenues and key
components of our revenues for the periods indicated in dollars.
|
Year
Ended December 31, 2008
|
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
|||||||||||||||||||||
|
In
Thousands
|
As
a
percentage
of
revenues
|
In
Thousands
|
As
a
percentage
of
revenues
|
In
Thousands
|
As
a
percentage
of
revenues
|
||||||||||||||||||
Revenues
|
119,585 | 100.00 | % | 73,347 | 100 | % | 40,933 | 100 | % | |||||||||||||||
Cost
of Sales
|
(97,039 | ) | (81.15 | )% | (57,966 | ) | (79.03 | )% | (32,646 | ) | (79.75 | )% | ||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Gross
Profit
|
22,546 | 18.85 | % | 15,381 | 20.97 | % | 8,287 | 20.25 | % | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Salaries
|
(5,567 | ) | (4.66 | )% | (5,024 | ) | (6.85 | )% | (622 | ) | (1.52 | )% | ||||||||||||
Sales
Commission
|
(1,566 | ) | (1.31 | )% | (1,236 | ) | (1.69 | )% | (507 | ) | (1.24 | )% | ||||||||||||
Shipping and handling
cost
|
(1,680 | ) | (1.40 | )% | (1,392 | ) | (1.90 | )% | (739 | ) | (1.80 | )% | ||||||||||||
Other selling,
general and administrative expenses
|
(5,283 | ) | (4.42 | )% | (3,466 | ) | (4.73 | )% | (1,735 | ) | (4.24 | )% | ||||||||||||
(14,096 | ) | (11.79 | )% | (11,118 | ) | (15.16 | )% | (3,602 | ) | (8.80 | )% | |||||||||||||
Operating
Profit
|
8,450 | 7.07 | % | 4,263 | 5.81 | % | 4,685 | 11.45 | % | |||||||||||||||
Other
Income and (Expenses)
|
||||||||||||||||||||||||
Interest
Income
|
200 | 0.17 | % | 51 | 0.07 | % | 7 | 0.02 | % | |||||||||||||||
Government
grants
|
- | - | 39 | 0.05 | % | - | - | |||||||||||||||||
Gain
on disposal of subsidiaries
|
- | - | - | - | 37 | 0.09 | % | |||||||||||||||||
Other
income
|
2 | 0.002 | % | 3 | 0.004 | % | 3 | 0.007 | % | |||||||||||||||
Interest
expenses
|
(512 | ) | (0.43 | )% | (278 | ) | (0.38 | )% | (185 | ) | (0.45 | )% | ||||||||||||
Foreign
currency exchange loss
|
(595 | ) | (0.50 | )% | (667 | ) | (0.91 | )% | (275 | ) | (0.67 | )% | ||||||||||||
Other
expenses
|
(10 | ) | (0.01 | )% | (10 | ) | (0.01 | )% | (6 | ) | (0.01 | )% | ||||||||||||
Other
income (expenses)
|
(915 | ) | (0.76 | )% | (861 | ) | (1.18 | )% | (418 | ) | (1.01 | )% | ||||||||||||
Income
before income taxes and minority interests
|
7,535 | 6.30 | % | 3,401 | 4.62 | % | 4,267 | 10.44 | % | |||||||||||||||
Income
taxes
|
(2,401 | ) | (2.01 | )% | (785 | ) | (1.07 | )% | (354 | ) | (0.86 | )% | ||||||||||||
Income
before minority interests
|
5,134 | 4.29 | % | 2,617 | 3.55 | % | 3,913 | 9.58 | % | |||||||||||||||
Minority
interests share in profit (loss)
|
30 | 0.03 | % | 26 | 0.03 | % | (51 | ) | (0.12 | )% | ||||||||||||||
Net
income
|
5,164 | 4.32 | % | 2,642 | 3.58 | % | 3,862 | 9.46 | % | |||||||||||||||
Other
comprehensive income (loss)
|
||||||||||||||||||||||||
Foreign
currency translation adjustments
|
1,688 | 1.41 | % | 1,353 | 1.84 | % | 52 | 0.13 | % | |||||||||||||||
Comprehensive
income
|
6,852 | 5.73 | % | 3,995 | 5.42 | % | 3,914 | 9.59 | % |
23
Comparison
of Years ended December 31, 2008 and December 31, 2007.
Revenues. Revenues
increased approximately $46.24 million, or 63.04% to approximately
$119.58million for the year ended December 31, 2008 from approximately $73.35
million for the same period in 2007. This increase was mainly
attributable to the significant increased sales of UPS, Telecom and alternative
energy batteries in overseas markets during this period. We believe such sales
increased as a direct result of active marketing strategies we adopted during
this period. We have made significant efforts in exploring overseas sales
and have successfully developed more overseas customers because of our
quality and reputation in the industry. In addition, we expanded our
production capacity as of September 30, 2008, so we believe that we will be able
to fulfill more orders from both existing customers and newly developed
customers.
Cost of Sales. Our
cost of sales increased approximately $39.07 million, or 67.41% to approximately
$97.04million for the year ended December 31, 2008 from approximately $57.97
million for the same period in 2007. This increase was due to a
substantial increase of our sales volume. As a percentage of
revenues, the cost of sales increased to 81.15% during the year ended December
31, 2008 from 79.03% for the same period of 2007. Such increase of
percentage was mainly attributable to the adoption of new strategies of
promoting our sales by lowering the selling prices of our products during this
period. We were able to lower our sales prices by paying lower sales
commission to our sales agents,
Gross Profit. Our
gross profit increased approximately $7.16 million, or 46.58% to approximately
$22.55 million for the year ended December 31, 2008 from approximately $15.38
for the same period in 2007. Gross profit as a percentage of revenues
was 18.85% for the year ended December 31, 2008, a decrease of 2.12% from 20.97%
for the same period of 2007. Such percentage decrease was mainly due
to the increased cost of goods sold as percentage of revenues as discussed
above.
Salaries. Salaries
increased approximately $0.54 million, or 10.81% to approximately $5.57 million
for the year ended December 31, 2008 from $5.02 million for the same period in
2007. As a percentage of revenues, salaries decreased to 4.66% for
the year ended December 31, 2008 from 6.85% for the same period in
2007. The dollar increase of salaries was mainly attributable to a
significant increase of the staff of overseas markets sales team and the new
factory scale expansion. The percentage decrease was mainly attributable to the
result of economies of scale due to the substantial increase of
sales.
Stock-based
compensation. Stock-based
compensation which was included in salaries was approximately $3.85 million
for the year ended December 31, 2008. The dollar of stock-based compensation
remained same in the year 2008 compared to 2007. The stock-based
compensation was attributable to the recognition of the make good provision
expense for the year ended December 31, 2008 and 2007. In connection with the
private placement on February 16, 2007, our largest shareholder, Mr. Jiada
Hu entered into an escrow agreement with the private placement investors
pursuant to which he agreed to certain “make good”
provisions. In the escrow agreement, we established minimum after tax
net income thresholds of $5,678,000 for the fiscal year ended December 31,
2007 and $8,200,000 for the fiscal year ending December 31, 2008. Mr.
Hu deposited a total of 3,601,309 shares, to be equitably adjusted for
stock splits, stock dividends and similar adjustments, of the common stock of
China Ritar Power Corp. into escrow with Securities Transfer Corporation
under the escrow agreement. In the event that the minimum
after tax net income thresholds for the fiscal year 2007 or the fiscal year
2008 are not achieved, then the investors will be entitled to
receive additional shares of our common stock deposited in escrow based
upon on a pre-defined formula agreed to between the investors and Mr.
Hu. Pursuant to SFAS No. 123R, Accounting for Stock-Based
Compensation, if the net income threshold is met, the shares will
be released back to the make good pledger and treated as an expense equal
to the grant date fair value of the shares. We achieved our
net income threshold for 2007 and 2008 and as a result, approximately $3.85
million separately was recognized as an expense for 2007 and 2008 in
accordance with SFAS No. 123R.
Sales
Commission. Sales commission increased approximately $0.33
million, or 26.72% to approximately $1.57 million for the year ended December
31, 2008 from approximately $1.24 million for the same period of
2007. As a percentage of revenues, sales commission decreased to
1.31% for the year ended December 31, 2008 from 1.69 % for the same period of
2007. The dollar increase of sales commission was mainly attributable
to a substantial increase of our sales volume. The percentage
decrease was mainly attributable to new sales tactics to cut down sales
commission as discussed above. We have established excellent longstanding
customer relationships and have a good reputation in the battery industry.
Therefore, we were able to pay a comparatively low commission rate to our sales
agents for existing clients.
24
Shipping and handling
cost. Shipping and handling
cost increased approximately $0.29 million, or 20.71% to approximately $1.68
million for the year ended December 31, 2008 from approximately 1.39 million for
the same period of 2007. As a percentage of revenues, shipping and
handling cost decreased to 1.41% for the year ended December 31, 2008 from
1.90% for the same period of 2007. The dollar increase of shipping and
handling was mainly attributable to the significantly increase in sales for the
year ended December 31, 2008. The percentage decrease was mainly
attributable to in change in our shipping and handling policy during this period
which resulted in our customers being partially responsible for the shipping and
handling costs.
Other Selling, General and
Administrative Expenses. Other selling, general and
administrative expenses increased approximately $1.82 million, or 52.42% to
approximately $5.28 million for the year ended December 31, 2008 from
approximately 3.47 million for the same period of 2007. As a
percentage of revenues, other selling, general and administrative expenses
decreased to 4.42% for the year ended December 31, 2008 from 4.73% for the same
period of 2007. The dollar increase of other selling, general and administrative
expenses was mainly attributable to the significantly expanded scale of our
operations and continuing increase in sales for the year ended December 31,
2008. The percentage decrease was mainly attributable to the result of economies
of scale due to the substantial increase of sales.
Income Before Income Taxes and
Minority Interest. Income before income taxes and minority
interest increased approximately $4.13 million or 121.52% to approximately
$7.53 million for the year ended December 31, 2008 from approximately $3.40
million for the same period of 2007. Income before income taxes and
minority interest as a percentage of revenues increased to 6.30% for the year
ended December 31, 2008 from 4.64% for the same period of 2007. The
increase was mainly attributable to the result of economies of scale due to
expanded scale of our operations and continuing increase in sales for the year
ended December 31, 2008 as discussed above.
Income
Taxes. Income taxes increased approximately $1.62 million to
approximately $2.40 million for the year ended December 31, 2008 from
approximately $0.78 million for the same period of 2007. We paid more
taxes in 2008 mostly because of the increased income before income taxes and
minority interests during this period compared to the same period of 2007.
Furthermore, our income tax rate of Shenzhen Ritar increased to 18% since
January 1, 2008 while during the same period of 2007 it was 7.5%.
Net Income. Net
income increased approximately $2.52 million, or 95.44% to approximately $5.16
million for the year ended December 31, 2008 from approximately $2.64 million
for the same period of 2007. The increase of net income was mainly attributable
to the factors discussed above.
Comparison
of Years ended December 31, 2007 and December 31, 2006.
Revenues.
Revenues increased
approximately $32.41 million, or 79.2%, to approximately
$73.3 million for the year
ended December 31, 2007, from approximately $40.9 million for the same period in
2006. This increase was mainly attributable to significantly
increased sales of UPS and
telecommunications
batteries in overseas markets. As a result of active market strategies in 2007, we have successfully attracted more
potential overseas customers to our excellent goods quality and reputation in
the industry. In addition, because of our expanded production
capacity and increased cash flows, we were able to fulfill more orders from our existing
customers whose demands were not fully met in the previous years due to our
limited production capacity. Furthermore, we raised our sale prices
in order to offset increased raw material prices.
Cost of Sales. Our
cost of sales increased approximately $25.32 million, or 77.6%, to approximately
$57.97 million for the year ended December 31, 2007, from approximately $32.65
million for the same period in 2006. This increase was due to a
substantial increase of our sales volume. As a percentage of
revenues, the cost of sales decreased to 79% during the year ended December 31,
2007 from 80% for the same period of 2006. Such decrease was a result
of economies of scale - increased large-scale production that has brought down
the unit cost of manufacturing. In addition, we have adopted more
efficient technology to decrease raw material consumption and cost of
direct labor used per unit.
25
Gross Profit. Our gross profit increased
approximately $7.09 million, or 85.6%, to approximately $15.38 million for the
year ended December 31, 2007, from approximately $8.29 million in
2006. Gross profit as a percentage of revenues was 21% for the year
ended December 31, 2007, an increase of 1% of sales from 20% for the same
period of 2006. Such percentage increase was mainly due to the
slightly decreased cost of goods sold as a percentage of revenues as discussed
above.
Salaries. Salaries increased approximately
$4.4 million to approximately $5.02 million for the year ended December
31, 2007, from $0.62 million for the same period in
2006. The increase of salaries was mainly attributable to the
increased headcounts in accordance with expanded production and sales
volume. We also increased salaries and fringe benefits of the
Company’s salespersons, the staff at management
level and in our research and development department in order to retain and
motivate our core team.
Stock-based
compensation. Stock-based compensation was approximately $3.85
million for the year ended December 31, 2007. We had no stock-based
compensation in 2006. The increase of stock-based compensation was
attributable to the recognition of the make good provision expense for the year
ended December 31, 2007. In connection with the private placement on
February 16, 2007, our largest shareholder, Mr. Jiada Hu entered into an escrow
agreement with the private placement investors pursuant to which he agreed to
certain “make good” provisions. In the escrow agreement, we
established minimum after tax net income thresholds of $5,678,000 for the fiscal
year ended December 31, 2007 and $8,200,000 for the fiscal year ending December
31, 2008. Mr. Hu deposited a total of 3,601,309 shares, to be
equitably adjusted for stock splits, stock dividends and similar adjustments, of
the common stock of China Ritar Power Corp. into escrow with Securities Transfer
Corporation under the escrow agreement. In the event that the minimum
after tax net income thresholds for the fiscal year 2007 or the fiscal year 2008
are not achieved, then the investors will be entitled to receive additional
shares of our common stock deposited in escrow based upon on a pre-defined
formula agreed to between the investors and Mr. Hu. Pursuant to SFAS
No. 123R, Accounting for
Stock-Based Compensation, if the net income threshold is met, the shares
will be released back to the make good pledgor and treated as an expense equal
to the grant date fair value of the shares. We achieved our net
income threshold for 2007 and as a result, approximately $3.85 million was
recognized as an expense in accordance with SFAS No. 123R.
Sales
Commissions. Sales commissions increased approximately $0.73
million, or 143.8%, to approximately $1.24 million for the year ended December
31, 2007, from approximately $0.51 million in 2006. As a percentage
of revenues, sales commission increased to 2% for the year ended December 31,
2007 from 1% in 2006. During the year ended December 31, 2007, we
adopted active marketing strategies to promote our products and exerted great
efforts simultaneously to develop new customers and overseas customers in
particular. These efforts resulted in the significant increase in sales volume
of new customers and a resulting increase in sales commissions. We
paid sales commission to sales agents mainly for obtaining new business from new
customers. In 2007, we had approximately 120 new customers and 28 of
them became our major customers.
Shipping and handling
costs. Shipping and
handling costs increased approximately $0.65 million, or 88.4% to approximately
$1.39 million for the year ended December 31, 2007 from approximately $0.74
million in 2006. As a percentage of revenues, shipping and handling
cost remained as 2% for both 2007 and 2006. The dollar
increase of shipping and handling cost was mainly attributable to the
significantly expanded scale of our operations and substantial increase of
our sales volume for the year ended December 31, 2007.
Other Selling, General and
Administrative Expenses. Other selling, general
and administrative expenses increased approximately $1.73 million, or 99.8%, to
approximately $3.47 million for the year ended December 31, 2007, from
approximately 1.73 million in 2006. As a percentage of revenues,
other selling, general and administrative expenses increased to 5% for the year
ended December 31, 2007 from 4% in 2006. The increase of other
selling, general and administrative expenses was mainly attributable to the
significantly expanded scale of our operations and sales for the year ended
December 31, 2007.
26
Income Before Income Taxes and
Minority Interest. Income before income taxes and minority interest
decreased approximately $0.87 million, or 20.3%, to approximately $3.40 million
for the year ended December 31, 2007, from approximately $4.27 million in
2006. Income before income taxes and minority interest as a
percentage of revenues decreased to 5% for the year ended December 31, 2007 from
10% in 2006. The decrease was attributable to the significant amount
of stock-based compensation expense that we incurred in 2007.
Income Taxes. Income taxes
increased approximately $0.43 million to approximately $0.79 million for the
year ended December 31, 2007 from approximately $0.35 million in
2006. During fiscal year 2007, although we realized approximately
$3.85 million stock-based compensation expenses, such expenses were not a
deduction item applicable to the base for computing income tax. As a
result, our income before income taxes and minority interests, for the
calculation of taxable income purpose, was $7.25 million, which had a $2.98
million increase compared to 2006. Accordingly our income taxes in
2007 increased from 2006.
Net Income. Net
income decreased approximately $1.22 million, or 31.6%, to approximately $2.64
million for the year ended December 31, 2007, from approximately $3.86 million
for the same period of 2006, as a result of the factors described
above. During the fiscal year 2007, we have recognized a stock-based
compensation expense with an amount of $3,853,401 (see Note 20 of the audited
financial statements for 2007 below), this has significantly effected our net
income which would have been $6,495,608 if the stock-based compensation
expense had not been recognized.
Liquidity
and Capital Resources
As of
December 31, 2008, we had cash and cash equivalents of approximately $8.3
million. The following table provides detailed information about our net cash
flow for all financial statements periods presented in this report.
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(Dollars in thousands)
|
||||||||||||
Net
cash provided by operating activities
|
4,744 | 1,216 | 1,099 | |||||||||
Net
cash (used in) investing activities
|
(7,947 | ) | (4,963 | ) | (1,175 | ) | ||||||
Net
cash provided by (used in) financing activities
|
6,289 | 7,151 | 530 | |||||||||
Net
cash inflow(outflow)
|
3.525 | 3,821 | 458 |
Operating
Activities
Net cash
provided by operating activities was approximately $4.74 million for the year
ended December 31, 2008, which is an increase of approximately $3.52 million
from net cash provided by operating activities of approximately $1.22 million
for the same period of 2007. The increase of cash provided by
operating activities was mainly attributable to an increase of 2.52 million of
our net income in the year 2008 compared to 2007 and a decrease of $2.19 million
of advance payable ended December 31, 2008. The increase in cash flow was
partly offset by our accounts receivable and income and other tax
recoverable.
Net cash
provided by operating activities was approximately $1.22 million for the year
ended December 31, 2007, while in 2006 we had approximately $1.10 million net
cash provided by operating activities. The change of cash provided by
operating activities was mainly attributable to an increase of approximately
$2.6 million of our net income (not considering the approximate $3.85
stock-based compensation expense) in the year 2007 compared to 2006 and an
increase of $4.01 million of bills payable ended December 31,
2007. We issued bills payable to settle the purchase of raw materials
and resulted in the increase of cash flows during the year ended December 31,
2007. The increase in cash flows was partially offset by increases in
inventories, accounts receivable and advance to suppliers.
27
Investing
Activities
Our main
uses of cash for investing activities are payments for the acquisition of
property, plant and equipment and land use right.
Net cash
used in investing activities for the year ended December 31, 2008 was
approximately $7.95 million, which is an increase of approximately $3.0 million
from net cash used in investing activities of approximately $4.96 million for
the same period in 2007. The increase of cash used in investing
activities was mainly due to the increase of payments to acquire property, plant
and the equipment and land use right in our subsidiary Hengyang Ritar to build
new production lines.
Net cash
used in investing activities for the year ended December 31, 2007 was
approximately $4.96 million, which is an increase of approximately $3.78 million
from net cash used in investing activities of approximately $1.18 million for
the same period of 2006. The increase of cash used in investing
activities was mainly due to the increase of payments to acquire property, plant
and the equipment and land use right, which was partially offset by loans to
related parties.
Financing
Activities
Net cash
provided by financing activities was approximately $6.29 million for the year
ended December 31, 2008, while we had approximately $7.15 million net cash
provided by financing activities during the same period in 2007. The
cash provided by financing activities changed because we received approximately
$4.44 million in net borrowings proceeds from banks and approximately $1.85
million of released restrict cash during the year of 2008, while we received
approximately $10.74 million in proceeds from a private placement but deposit
restrict cash approximately $4.47 million during 2007.
Net cash
provided by financing activities for the year ended December 31, 2007 was
approximately $7.15 million, which is an increase of approximately $6.62 million
from approximately $0.53 million net cash provided by financing activities
during the same period of 2006. The increase of the cash provided by
financing activities was mainly attributable to approximately $10.74 million net
proceeds we received from the private placement transaction in February
2007.
Loan
Facilities
We
believe we currently maintain a good business relationship with many banks. As
of December 31, 2008, the maturities for our bank loans are as
follows.
(All
amounts in million of U.S. dollars)
Banks
|
Amounts
|
Beginning
|
Ending
|
Duration
|
|||||
Citibank
(China) Co.
|
$ | 0.15 |
24-Oct-08
|
16-Jan-09
|
3 months
|
||||
Citibank
(China) Co.
|
$ | 0.54 |
24-Oct-08
|
21-Jan-09
|
3
months
|
||||
Citibank
(China) Co.
|
$ | 0.13 |
24-Oct-08
|
16-Jan-09
|
3
months
|
||||
Citibank
(China) Co.
|
$ | 0.39 |
26-Oct-08
|
23-Jan-09
|
3
months
|
||||
Citibank
(China) Co.
|
$ | 1.07 |
26-Oct-08
|
23-Jan-09
|
3
months
|
||||
DBS
Bank (Hong Kong) Limited
Shenzhen
Branch.
|
$ | 0.09 |
21-Oct-08
|
6-Feb-09
|
4
months
|
||||
DBS
Bank (Hong Kong) Limited
Shenzhen
Branch
|
$ | 0.48 |
10-Dec-08
|
13-Feb-09
|
3
months
|
||||
Citibank
(China) Co.
|
$ | 0.59 |
15-Dec-07
|
13-Mar-09
|
4
months
|
||||
DBS
Bank (Hong Kong) Limited
Shenzhen
Branch
|
$ | 0.16 |
30-Dec-08
|
10-Apr-09
|
3
months
|
||||
DBS
Bank (Hong Kong) Limited
Shenzhen
Branch
|
$ | 4.39 |
30-Sep-08
|
30-Sep-13
|
5years
|
||||
Science
and Technology Bureau
of
Bao An District
|
$ | 0.15 |
20-Dec-07
|
20-Dec-09
|
2years
|
||||
Total
|
$ | 8.14 |
*
Calculated on the basis that $1 = RMB6.8346
28
On
February 16, 2007, through a private placement, we raised about $12.25 million
in gross proceeds, which resulted in approximately $10.71 million in net
proceeds after the deduction of offering expenses in the amount of approximately
$1.54 million. We used the net proceeds to build new production lines and
purchase new equipment for the expansion of our production capacity. This
financing resulted in an increase of our net cash flow and a decrease of our
asset/liability ratio and financial risks.
On April
15, 2007, our Chinese subsidiary Shenzhen Ritar entered into the Songmu
Investment Agreement with the Songmu Industrial Park. Under the Songmu
Investment Agreement, Shenzhen Ritar agreed to invest approximately $103.34
million in aggregate to produce lead-acid batteries in its new subsidiary
Hengyang Ritar, located in this industrial park. The project will be constructed
in three phases within the next four years. Songmu Industrial Park agreed to
grant to Shenzhen Ritar the land use rights over a land plot with an area about
266,667 square meters at approximately $9.35 per square meter, subject to the
approval of relevant governmental authority. On June 26, 2007, Shenzhen Ritar
and Songmu Industrial Park entered into a supplemental agreement, or
Supplemental Agreement, that revised the structure of Shenzhen Ritar’s
investment requirement contained in the Songmu Investment Agreement, which,
among other things, provided the following:
·
|
decreased
Shenzhen Ritar’s required investment amount during the first phase
construction from RMB 0.2 billion (approximately $26.2 million) to RMB
0.12 billion (approximately $15.7 million);
|
|
·
|
provided
Shenzhen Ritar with the option, exercisable in its sole discretion, to
proceed to the second and third phase investments depending on the
investment environment in the Songmu Industrial Park and the availability
of Shenzhen Ritar’s capital;
|
|
·
|
granted
Shenzhen Ritar the land use rights at RMB 48,000/mu (approximately $9.35
per square meter) for the first phase construction regardless whether
Shenzhen Ritar elects to conduct the investment in the second and third
phases; and
|
|
·
|
reserved
the land contemplated by the Songmu Investment Agreement for Shenzhen
Ritar’s second and third phase investments until December 2008 and October
2009, respectively.
|
The
Company invested approximately $15.5 million to complete the first phase, of
which $10.7 million came from funds raised through the Company's private
placement financing in February 2007 and the remaining $4.8 million came from
internally generated funds. The second phase is expected to require $18.5
million which the Company plans to finance using internally generated funds and
bank loans. We do not have plans to implement the second
and third phase investments in Hengyang project in 2009.
On August
1, 2007, Shenzhen Ritar entered into a short-term credit facility agreement with
Citibank (China) Co., Ltd., Shenzhen Branch, pursuant to which the bank has
agreed to make available to Shenzhen Ritar a $5 million or an equivalent amount
in RMB revolving credit facility. There are three months to twelve months
financing terms for different types of credit facility covered under this
agreement. If the credit facility is granted in RMB, Shenzhen Ritar agrees to
pay a penalty interest at a minimum rate permitted by the People’s Bank of China
for any overdue balance (including both the principal and accrued interests). If
the credit facility is granted in US dollar, the bank has the right to determine
the penalty interest rate. There are no financial covenants or ratios under this
credit facility agreement. As of December 31, 2008, Shenzhen Ritar had
outstanding loans with an aggregate principal amount of approximately $2.87
million borrowed from Citibank (China) Co., Ltd., Shenzhen Branch. These loans
had two types of annual interest rates: 7% and 9%. All of these loans were paid
off by March 20, 2009.
29
In
connection with the short-term credit facility agreement, Shenzhen Ritar entered
into a bill discount service agreement, dated August 1, 2007, with Citibank
(China) Co., Ltd., Shenzhen Branch. Pursuant to this agreement, Shenzhen Ritar
may from time to time request an advance or advances of any amount equal
to the difference between the face value of commercial bills and the
discount interest charged by the bank. Under the agreement, the current annual
discount rate is 5.7285%. Advances must be made by the bank within one business
day after Shenzhen Ritar’s submission of required documents. There are no
financial covenants or ratios under this bill discount service
agreement.
During
the third quarter of 2008, our subsidiary, Hengyang Ritar entered into a
long-term loan agreement with DBS Bank (Hong Kong) Limited Shenzhen Branch, or
DBS, pursuant to which Hengyang Ritar borrowed an aggregate of approximately
$4.39 million from DBS with an interest rate of 9.07% flat per
annum. Hengyang Ritar agreed to make a monthly principal payment of
$81,286 by 54 installment starting April 2009. The loan is secured by
the properties of Mr. Jiada Hu and Ms Henying Peng, land use right of Henyang
Ritar and was jointly guaranteed by Shenzhen Ritar, China Ritar, Mr Jiada Hu,
Ms. Henying Peng and Mr. Jianjun Zeng. Hengyang Ritar also entered
into a short-term loan agreement with DBS borrowing approximately $0.73 million
with an interest rate of 7.30% per year. The loan was secured by
personal properties of Mr. Jiada Hu and Ms Henying Peng, land use right of
Hengyang Ritar and jointly guaranteed by Shenzhen Ritar, China Ritar, Mr Jiada
Hu, Ms. Henying Peng and Mr. Jianjun Zeng.
We
believe that our currently available working capital, after receiving the
aggregate proceeds of our capital raising activities and the credit facilities
referred to above, should be adequate to sustain our operations at our current
levels through at least the next twelve months. However, depending on our future
needs and changes and trends in the capital markets affecting our shares and the
Company, we may determine to seek additional equity or debt financing in
the private or public markets.
Obligations Under
Material Contracts
Below is
a table setting forth our material contractual obligations as of December 31,
2008:
Payments
in thousands of U.S. dollars
Total
|
Less than
one year
|
1-3 years
|
3-5 years
|
More than 5
years
|
||||||||||||||||
Contractual
loans obligations
|
$ | 8,133 | $ | 4,475 | $ | 3,658 | - | - | ||||||||||||
Operating
lease obligations
|
454 | 340 | 114 | - | - | |||||||||||||||
Capital
Lease Obligations
|
1,771 | 1,771 | - | - | - | |||||||||||||||
Purchase
Obligations
|
375 | 375 | - | - | - | |||||||||||||||
[Other
Long-Term Liabilities Reflected on the Registrant's Balance Sheet under
GAAP]
|
- | - | - | - | - | |||||||||||||||
Total
|
$ | 10,733 | $ | 6,961 | $ | 3,772 | - | - |
Other
than the contractual obligations and commercial commitments set forth above, we
did not have any other long-term debt obligations, operating lease obligations,
capital commitments, purchase obligations or other long-term liabilities as of
December 31, 2008.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported in the
financial statements, including the notes thereto, and related disclosures of
commitments and contingencies, if any. We consider our critical accounting
policies to be those that require the more significant judgments and estimates
in the preparation of financial statements, including the
following:
30
Ÿ
|
Inventory- Inventory is
stated at the lower of cost or market, determined by the weighted average
method. Work-in-progress and finished goods inventories consist
of raw materials, direct labor and overhead associated with the
manufacturing process.
|
Ÿ
|
Trade accounts
receivable – Trade accounts receivable are stated at cost, net of
allowance for doubtful accounts. Based on the above assessment, during the
reporting years, the management establishes the general provisioning
policy to make allowance equivalent to 100% of gross amount of trade
receivables due over 1 year. Additional specific provision is made against
trade receivables aged less than 1 year to the extent they are considered
to be doubtful.
|
Ÿ
|
Property, plant and
equipment- Property, plant and equipment are stated at cost
including the cost of improvements. Maintenance and repairs are
charged to expense as incurred. Assets under construction are
not depreciated until construction is completed and the assets are ready
for their intended use. Depreciation and amortization are
provided on the straight-line method based on the estimated useful lives
of the assets as follows:
|
Buildings
|
30
years
|
Leasehold
improvement
|
5
years
|
Plant
and machinery
|
5
years – 10 years
|
Furniture,
fixtures and equipment
|
5
years
|
Motor
vehicles
|
5
years
|
Ÿ
|
Valuation of long-lived
assets- The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject
to amortization, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying
value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are reduced
for the cost to dispose.
|
Derivative Instruments - The
Company enters into foreign currency derivative contracts to manage a portion of
foreign currency risk related to U.S. Dollar denominated asset balances of its
PRC subsidiary. The foreign currency derivative contract is recorded at fair
value with unrealized gains and losses in the caption “Foreign Currency Exchange
Loss” in the Company’s consolidated statement of operations and comprehensive
income. During the year ended December 31, 2008 the Company entered into foreign
currency forward contracts totaling $14 million to sell U.S Dollars for Renminbi
(‘’RMB’’). As of December 31, 2008, $13 million of forward contracts remain
which are expected to be settled by January to June, 2009. These contracts are
expected to be settled monthly over the period until the maturity
date.
At
December 31, 2008 summary information about the forward contracts are as
follows:
|
Forward
Contracts
|
|
|||
Notional
Amount
|
$13
million
|
||||
Rates
|
RMB
6.459 to 7.090
|
||||
Effective
date
|
January
30, 2008 to June 26, 2008
|
||||
Maturity
Dates
|
January
23, 2009 to June 26, 2009
|
||||
Fair
Value
|
$236,898
|
The
derivative instruments are reported at their fair values under current
liabilities $236,898 on the balance sheet as of December 31, 2008.
Revenue recognition- Revenue
from sales of the Company’s products is recognized when the significant risks
and rewards of ownership have been transferred to the buyer at the time when the
products are delivered to and accepted by its customers, the price is fixed or
determinable as stated on the sales contract, and collectibility is reasonably
assured. Customers do not have a general right of return on products
shipped. Products returns to the Company were insignificant during past
years. There are no post-shipment obligations, price protection and
bill and hold arrangements.
31
Research and development expenses-
Research and development costs are charged to expense when incurred and
are included in operating expenses. During the years ended December 31, 2008,
2007 and 2006, research and development costs expensed to operating expenses
were approximately $469,530, $266,598 and $213,628, respectively.
Post-retirement and post- employment
benefits-The Company’s subsidiaries contribute to a state pension scheme
in respect of its PRC employees. Other than the above, neither the
Company nor its subsidiaries provide any other post-retirement or
post-employment benefits.
Basic Income/Loss Per Common
Share- The computation of income / loss per share is based on the
weighted average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards No. 128, “Earnings
Per Share.”
Use of estimates- The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The financial statements include some amounts that are based on
management’s best estimates and judgments. These accounts and estimates include,
but are not limited to, the valuation of accounts receivable, other receivables,
inventories, deferred income taxes, and the estimation on useful lives of
property, plant and equipment. These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.
Significant Estimates Relating to
Specific Financial Statement Accounts and Transactions Are Identified-
The financial statements include some amounts that are based on
management’s best estimates and judgments. The most significant estimates relate
to allowance for uncollectible accounts receivable, inventory work in process
valuation and obsolescence, depreciation, useful lives, taxes, and
contingencies. These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.
Recent
Changes in Accounting Standards
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), “Business Combinations” (“FAS 141R”).
FAS 141R replaces Statement of Financial Accounting Standards No. 141,
“Business Combinations” (“FAS 141”), although it retains the fundamental
requirement in FAS 141 that the acquisition method of accounting be used
for all business combinations. FAS 141R establishes principles and
requirements for how the acquirer in a business combination (a) recognizes
and measures the assets acquired, liabilities assumed and any noncontrolling
interest in the acquiree, (b) recognizes and measures the goodwill acquired
in a business combination or a gain from a bargain purchase and
(c) determines what information to disclose regarding the business
combination. FAS 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the Company’s 2009
fiscal year. The Company is currently assessing the potential effect of
FAS 141R on its financial statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“FAS 160”). FAS 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary, commonly referred to as
minority interest. Among other matters, FAS 160 requires (a) the
noncontrolling interest be reported within equity in the balance sheet and
(b) the amount of consolidated net income attributable to the parent and to
the noncontrolling interest to be clearly presented in the statement of income.
FAS 160 is effective for the Company’s 2009 fiscal year. FAS 160 is to
be applied prospectively, except for the presentation and disclosure
requirements, which shall be applied retrospectively for all periods presented.
The Company is currently assessing the potential effect of FAS 160 on its
financial statements.
32
In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities,” which requires enhanced disclosures about an entity’s
derivative and hedging activities. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Since FAS 161 only provides for additional disclosure requirements,
there will be no impact on our results of operations and financial
position.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“FAS 162"). This Standard
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. The Standard is effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to have an impact on the
financial statements.
In
May 2008, the FASB issued SFAS No. 163, Accounting for Financial
Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60
(SFAS 163). This statement clarifies accounting for financial guarantee
insurance contracts by insurance enterprises under FASB Statement No. 60,
Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective for
fiscal years, and interim periods within those years, beginning after
December 15, 2008. Because we do not issue financial guarantee insurance
contracts, we do not expect the adoption of this standard to have an effect on
our financial position or results of operations.
In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No.
142, Goodwill and Other Intangible Assets. This Staff
Position is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. Application of this FSP is not currently applicable to
the Company.
In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities. This FSP
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The Company does not currently have
any share-based awards that would qualify as participating securities.
Therefore, application of this FSP is not expected to have an effect on the
Company's financial reporting.
In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) ("FSP 14-1"). FSP 14-1 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The FSP
includes guidance that convertible debt instruments that may be settled in cash
upon conversion should be separated between the liability and equity components,
with each component being accounted for in a manner that will reflect the
entity's nonconvertible debt borrowing rate when interest costs are recognized
in subsequent periods. However, because the Company does not have convertible
debt, we do not expect the adoption of this standard to have an effect on our
financial position or results of operations.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2),
Effective Date of FASB Statement No. 157. FSP 157-2 deferred the effective date
of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis, until fiscal years beginning after November 15, 2008. As a
result of FSP 157-2, we will adopt SFAS 157 for our nonfinancial assets and
nonfinancial liabilities beginning with the first interim period of our fiscal
year 2009. We do not expect that the adoption of SFAS 157 for our nonfinancial
assets and nonfinancial liabilities will have a material impact on our financial
position, results of operations or cash flows.
33
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures About
Credit Derivatives and Certain Guarantees. FSP FAS 133-1 and FIN 45-4 is
intended to improve disclosures about credit derivatives by requiring more
information about the potential adverse effects of changes in credit risk on the
financial position, financial performance and cash flows of the sellers of
credit derivatives. FSP FAS 133-1 and FIN 45-4 is effective for fiscal years
beginning after November 15, 2008. We do not expect that the adoption of FSP FAS
133-1 and FIN 45-4 will have a material impact on our financial position,
results of operations or cash flows.
In
September 2008, the FASB ratified EITF No. 08-5, Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement. EITF
08-5 provides guidance for measuring liabilities issued with an attached
third-party credit enhancement (such as a guarantee). It clarifies that the
issuer of a liability with a third-party credit enhancement should not include
the effect of the credit enhancement in the fair value measurement of the
liability. EITF 08-5 is effective for reporting periods beginning
after December 15, 2008, with early adoption allowed. We adopted EITF 08-5 in
the fourth quarter of fiscal 2008. Our adoption of EITF 08-5 did not have an
impact on our financial position, results of operations or cash
flows.
In
October 2008, the FASB issued FSP FAS 157-3, Determining Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP FAS 157-3
provides guidance and illustrates key considerations for determining fair value
in markets that are not active. FSP FAS 157-3 is effective upon issuance and
must be applied to all periods for which financial statements have not been
issued. Our adoption of FSP FAS 157-3 did not have an impact on our financial
position, results of operations or cash flows.
In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities. FSP 140-4 and FIN 46 (R)-8 amends SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and FIN 46(R) Consolidation of Variable Interest Entities
(revised December 2003) — an interpretation of ARB No. 51 to require public
entities to provide additional disclosures about transfers of financial assets
and their involvement with variable interest entities. FSP 140-4 and FIN 46(R)-8
is effective for the first interim or annual reporting period ending after
December 15, 2008. Our adoption of FSP 140-4 and FIN 46(R) did not have a
material impact on our financial position, results of operations or cash
flows.
Seasonality
Our
operating results and operating cash flows historically have not been subject to
seasonal variations. This pattern may change, however, as a result of new market
opportunities or new product introductions.
Off-Balance
Sheet Arrangements
We do not
have any off-balance arrangements.
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY FINANCIAL
DATA
|
Consolidated
Financial Statements
The full
text of our audited consolidated financial statements as of December 31, 2008,
and 2007 begins on page F-1 of this Report.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
Prior to
our reverse acquisition of Ritar, our independent registered public accounting
firm was Pritchett, Siler & Hardy, P.C. while Ritar International Group
Limited’s independent registered public accounting firm was Child, Van Wagoner
& Bradshaw, PLLC. On February 16, 2007, concurrent with the change in
control transaction discussed above, our board of directors approved the
dismissal of Pritchett, Siler & Hardy, P.C. as our independent auditor,
effective upon the completion of the audit of financial statements of our
holding company, China Ritar Power Corp., as of and for the fiscal year ended
December 31, 2006 and the issuance of its report thereon. Concurrent with the
decision to dismiss Pritchett, Siler & Hardy, P.C. as our independent
auditor, our board of directors elected to continue the existing relationship of
Ritar International Group Limited with Child Van Wagoner & Bradshaw, PLLC
and appointed Child Van Wagoner & Bradshaw, PLLC as our independent
auditor.
34
The
dismissal of Pritchett, Siler & Hardy, P.C. became effective when Pritchett,
Siler & Hardy, P.C. completed its audit of such financial statements and
released its report with respect thereto on March 30, 2007.
Pritchett,
Siler & Hardy, P.C.’s reports on China Ritar Power Corp.’s financial
statements as of and for the fiscal years ended December 31, 2006 and 2005, did
not contain an adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles, except
that its report for the fiscal year ended December 31, 2006 contained a going
concern qualification as to the Holding Company’s ability to
continue.
In
connection with the audits of the fiscal years ended December 31, 2006 and 2005,
and during the subsequent interim period through March 30, 2007, there were (1)
no disagreements with Pritchett, Siler & Hardy, P.C. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the satisfaction of
Pritchett, Siler & Hardy, P.C., would have caused Pritchett, Siler &
Hardy, P.C. to make reference to the subject matter of the disagreements in
connection with its reports, and (2) no events of the type listed in paragraphs
(A) through (D) of Item 304(a)(1)(v) of Regulation S-K.
Effective
December 24, 2008, the Audit Committee of our Board of Directors approved the
dismissal of Child, Van Wagoner & Bradshaw, LLC (“CVWB”) as the Company's
independent registered public accounting firm.
CVWB’s
reports on the Company’s financial statements as of and for the fiscal years
ended December 31, 2007 and 2006 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles.
During
the Company’s fiscal years ended December 31, 2007 and 2006 and during the
subsequent interim period through December 24, 2008, there were (1) no
disagreements with CVWB on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of CVWB, would have caused
CVWB to make reference to the subject matter of the disagreements in connection
with its reports, and (2) no events of the type listed in paragraphs (A) through
(D) of Item 304(a)(1)(v) of Regulation S-K.
Concurrent
with the decision to dismiss CVWB as the Company's independent auditor, the
Audit Committee approved the engagement of Yu and Associates CPA Corporation
(“Yu and Associates”) as the Company’s new independent registered public
accounting firm. In March 2009, Yu and Associates changed its name to AGCA,
Inc.
During
the Company's two fiscal years ended December 31, 2007 and 2006 and through the
subsequent interim period to December 24, 2008, the Company did not consult Yu
and Associates with respect to (a) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, and neither a written report was provided to the Company or oral
advice was provided that Yu and Associates concluded was an important factor
considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue; or (b) (ii) any matter that was the subject
of either a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K
or a reportable event as described in Item 304(a)(1)(v) of Regulation
S-K.
35
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES.
|
(a)
Evaluation of Disclosure Controls and Procedures
Our
management, with the participation of our chief executive officer and chief
financial officer, Messrs. Jiada Hu and Zhenghua Cai, respectively, evaluated
the effectiveness of our disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports, such as this report, that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, Messrs. Hu and Cai concluded that as of December 31,
2008, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were effective to satisfy the objectives for which they are
intended.
(b)
Management’s annual report on internal control over financial
reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting
refers to the process designed by, or under the supervision of, our chief
executive officer and chief financial officer, and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP, and
includes those policies and procedures that:
(1)
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
(2)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that
our receipts and expenditures are being made only in accordance with the
authorization of our management and directors;
and
|
(3)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, management used the framework
set forth in the report entitled Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on that evaluation, our management concluded that our internal control over
financial reporting is effective, as of December 31, 2008.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit the Company
to provide only management’s report in this annual report.
(c)
Changes in internal control over financial reporting
During
the fiscal year ended December 31, 2008, there were no changes in our internal
control over financial reporting identified in connection with the evaluation
performed during the fiscal year covered by this report that has materially
affected, or is reasonably likely to materially affect our internal control over
financial reporting.
ITEM
9B.
|
OTHER
INFORMATION.
|
During
2008, Shenzhen Ritar entered into eight bank acceptance agreements with China
CITIC Bank, Shenzhen Branch, or the CITIC Bank, pursuant to which the CITIC Bank
agreed to accept and pay when due certain of Shenzhen Ritar’s bills payable to
suppliers with an aggregate amount of face value of approximately $4.32 million.
Shenzhen Ritar was required to place a bank deposits with 25-30%, subject to ban
decision, to the bills amount undertaken by the bank. The CITIC Bank guarantees
payment of the bills at their respective maturity dates. These bills are
interest-free with maturity dates of either three months or six months from
their respective dates of issuance, among them, bills with aggregate face amount
of approximately $1.32 million matured on March 12, 2009. Under the
agreements, Shenzhen Ritar was also obligated to pay the CITIC Bank before the
maturity dates 0.05% of the bills amount as handling charges.
36
The
foregoing description does not purport to be a complete statement of the
parties’ rights and obligations under the bank acceptance agreements. The
foregoing description is qualified in its entirety by reference to the Form of
Bank Acceptance Agreement filed as Exhibit 10.24 to our Registration Statement
on Form S-1, filed on January 16, 2008.
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
|
Directors
and Executive Officers
The
following sets forth the name and position of each of our current executive
officers and directors.
Name
|
Age
|
Position
|
||
Jiada
Hu
|
45
|
Chief
Executive Officer, President, Secretary, Treasurer and
Director
|
||
Jianjun
Zeng
|
42
|
Chief
Operating Officer and Director
|
||
Degang
He
|
69
|
Chief
Technology Officer
|
||
Zhenghua
Cai
|
39
|
Chief
Financial Officer
|
||
Charles
C. Mo
|
57
|
Director
|
||
Yaofu
Tang
|
62
|
Director
|
||
Xiongjie
Wang
|
59
|
Director
|
JIADA HU. Mr. Hu has been our
Chief Executive Officer, President, Secretary and Treasurer since February 16,
2007 and our director since March 11, 2007. Mr. Hu has been the Chairman and
Chief Executive Officer of our subsidiary, Shenzhen Ritar, since June 2002.
Before founding Shenzhen Ritar in June 2002, Mr. Hu was the Vice President of
Sales at Shenzhen Senry Power Co., Ltd, a major lead-acid battery manufacturer
in China from December 1998 to June 2002. Mr. Hu holds a B.S. degree from Jilin
University and Master’s degree in Business Administration from TsingHua
University.
JIANJUN ZENG. Mr. Zeng became
our Chief Operating Officer on February 16, 2007 and has been the Chief
Operating Officer of our subsidiary, Shenzhen Ritar, since June 2002. Prior to
joining Shenzhen Ritar, Mr. Zeng was the Vice President of one of the major
lead-acid battery manufacturers, ZhongShan Enduring Battery Co., Ltd from April
2000 to April 2002. From October 1999 to March 2000, Mr. Zeng was the Vice
President of Sales of Shenzhen Jinxingguang Power Co., Ltd., a VRLA manufacturer
and prior to that, Mr. Zeng had been chief of the production department of
HengYang City TianYuan Inc. a metallurgy company. Mr. Zeng holds a bachelor’s
degree from Hunan University and Master’s degree in Business Administration from
Zhongshan University.
DEGANG HE. Mr. He became our
Chief Technology Officer on February 16, 2007 and has been the Chief
Technology Officer of our subsidiary, Shenzhen Ritar, since July 2003. Prior to
joining Shenzhen Ritar, Mr. He was the Chief Technology Officer of Guangdong
Panyu Storage Battery Co., Ltd., a manufacturer of VRLA and starting, lighting,
and ignition motive and stationary lead-acid batteries from February 1993 to May
2003 and a large state-owned lead-acid battery enterprise in Hunan Province from
July 1963 to February 1993. He holds a B.S. in Chemistry from Guangxi University
that he received in 1963.
ZHENGHUA CAI. Mr. Cai
became our Chief Financial Officer on February 16, 2007 and has been the manager
of the Finance Department of our subsidiary, Shenzhen Ritar since November 2002.
Prior to joining Shenzhen Ritar, Mr. Cai was chief of the Finance Department of
DaDa Electronics (Shenzhen) Co., Ltd., a manufacturer of electronic products
from September 1999 to October 2002. Mr. Cai holds a bachelor’s degree from
SouthWestern University of Finance and Economics in Chongqing,
China.
37
CHARLES C. MO Mr. Mo is a
Certified Public Accountant with twenty seven years of experience in public and
corporate accounting and finance. Mr. Mo has held his CPA license since 1980.
Mr. Mo has served in his current position as the General Manager of Charles Mo
& Co. since June of 2005, focusing on general management duties. From
October of 1999 to May of 2005, Mr. Mo served as Chief Operating Officer and
Chief Financial Officer of Coca-Cola Shanghai. His duties included finance,
logistics, production, and general management. From December of 1998 to
September of 1999, Mr. Mo served as Finance Director of Fisher Rosemount
Shanghai. From August 1996 to November 1998, he also served as Chief Financial
Officer of Nike China, and his responsibilities included overseeing finance,
human resources, and logistics. From January of 1995 to August 1996, Mr. Mo
served as Controller for Polaroid China. From August of 1982 to December of
1994, Mr. Mo served as Finance and Audit Manager for Wang Laboratories. From
1978 to 1982, Mr. Mo served as an Accountant and Auditor for Ernst & Young
and Thomas Allen, CPA. Mr. Mo received a Bachelor of Arts degree with a Business
Administration major in 1974 from HK Baptist College. Mr. Mo received an MBA in
accounting in 1976 from California State University-Fullerton. Mr. Mo has been
the Vice Chairman of AMCHAM Shanghai since 2006, and was re-elected in November
2007. Mr. Mo has served on the Board of Governors of AMCHAM Shanghai since 2005
and will continue to do so during 2009. Mr. Mo was the Treasurer for AMCHAM
Shanghai in 2005. He is a director of OmniaLuo, Inc. (OTC BB:
OLOU).
YAOFU
TANG Mr. Tang has more than 35 years of experience in computer industry.
He was one of major developers of the first Chinese PC, Chinese MS-DOS and ROM
dot-matrix Chinese Character font base. From 1996 to 2005, Mr. Tang was a
director, group vice president of Beijing Funder Group, one of China’s most
innovative and influential high-tech companies. Mr. Tang is currently the vice
chairman of China Computer Industry Association and the chairman of Shenzhen
Computer Industry Association. He has also served as President and CEO of Tangy
Mobile Device, President of Joychips Technology Corporation and President of
Wonderview Technology Co. Mr. Tang holds a Bachelor’s degree in Electronics from
Peking University.
XIONGJIE
WANG Mr.
Wang has over 20 years of working experience in the Chinese patent industry.
From December 2002 to June 2005, Mr. Wang was the executive director and general
manager of Shenzhen Zhongzhi Patent Agent Co., Ltd. Since June 2005, Mr. Wang
has been the executive director, general manager of Shenzhen Xiongjie Patent
& Trademark Agent Co., Ltd. Mr. Wang is currently a standing board member of
All-China Patent Agents Association. Mr. Wang holds a Bachelor’s degree in
Electric Automatic Control from Guizhou University of Technology in
China.
Board
Composition and Committees
The board
of directors is currently composed of five member, Messrs. Jiada Hu, Jianjun
Zeng, Charles C. Mo, Yaofu Tang, and Xiongjie Wang. All Board action requires
the approval of a majority of the directors in attendance at a meeting at which
a quorum is present. The Board has determined that each of Messrs. Mo, Wang and
Tang is an “independent director” (the “Independent Director”) as defined by
Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc. (the
“Nasdaq Marketplace Rules”).
There are
no arrangements or understandings between any of the directors and any other
persons pursuant to which they were selected as directors. There are no
transactions between the Company and any director that would require disclosure
under Item 404(a) of Regulation S-K.
The
Company has entered into separate Independent Director’s Contracts and
Indemnification Agreements with each of the Independent Directors. Under the
terms of the Independent Director’s Contracts, the Company agreed to pay Mr. Mo
an annual fee of $12,000, Mr. Tang an annual fee of $10,000 and Mr. Wang an
annual fee of $10,000, as compensation for the
services to be provided by them as Independent Directors. Under the terms of the
Indemnification Agreements, the Company agreed to indemnify the Independent
Directors against expenses, judgments, fines, penalties or other amounts
actually and reasonably incurred by the Independent Directors in connection with
any proceeding if the Independent Director acted in good faith and in the best
interests of the Company.
Except as
noted above, there are no other agreements or understandings for any of our
executive officers or directors to resign at the request of another person and
no officer or director is acting on behalf of nor will any of them act at the
direction of any other person. Our current director holds no directorships in
any other reporting companies.
38
On August
4, 2008, the Board
of the Company, including the Independent Directors, established an Audit
Committee, a Compensation Committee, and a Governance and Nominating Committee
and appointed each of the Independent Directors to each committee. Mr. Mo was
appointed as the Chair of the Audit Committee, Mr. Tang was appointed as the
Chair of the Compensation Committee and Mr. Wang was appointed as the Chair of
the Governance and Nominating Committee. The Board also determined that Mr. Mo
possesses accounting or related financial management experience that qualifies
him as financially sophisticated within the meaning of Rule 4350(d)(2)(A) of the
Nasdaq Marketplace Rules and that he is an “audit committee financial expert” as
defined by the rules and regulations of the Securities and Exchange Commission.
Copies of the Audit Committee Charter, the Compensation Committee Charter, and
the Governance and Nominating Committee Charter are attached as Exhibits 99.1,
99.2 and 99.3 to our current report on Form 8-K filed on August 5, 2008,
respectively, and are incorporated herein by reference. Each committee charter
will also be posted on the corporate governance page of the Company's website at
www.ritarpower.com as
soon as practicable.
Family
Relationships
Except
with respect to Mr. Zeng and Mr. Hu, there are no family relationships among our
director or officers. Jianjun Zeng, our Chief Operating Officer is the
brother-in-law of our Chief Executive Officer and director, Jiada
Hu.
Section
16(A) Beneficial Ownership Reporting Compliance
Under
U.S. securities laws, directors, certain executive officers and persons holding
more than 10% of our common stock must report their initial ownership of the
common stock, and any changes in that ownership, to the SEC. The SEC has
designated specific due dates for these reports. Based solely on our review of
copies of such reports filed with the SEC by and written representations of our
directors and executive offers, we believe that our directors and executive
offers filed the required reports on time in 2008 fiscal year.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws (except where not subsequently
dismissed without sanction or settlement), or from engaging in any type of
business practice, or a finding of any violation of federal or state securities
laws. To the best of our knowledge, no petition under the federal bankruptcy
laws or any state insolvency law was filed by or against, or a receiver, fiscal
agent or similar officer was appointed by a court for the business or property
of any of our directors or officers, or any partnership in which any of our
directors or officers was a general partner at or within two years before the
time of such filing, or any corporation or business association of which any of
our directors or officers was an executive officer at or within two years before
the time of such filing. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions, and Director Independence,” none of our
directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.
Code
of Ethics
On
February 16, 2007, our board of directors adopted a code of ethics that applies
to all of our directors, officers and employees, including our principal
executive officer, principal financial officer, and principal accounting
officer. The code of ethics addresses, among other things, honesty and ethical
conduct, conflicts of interest, compliance with laws, regulations and policies,
including disclosure requirements under the federal securities laws,
confidentiality, trading on inside information, and reporting of violations of
the code. A copy of the code of ethics has been filed as Exhibit 14 to our
current report on Form 8-K filed on February 22, 2007. We are in the process of
making our code of ethics available on our website, which is located at
www.ritarpower.com. Once the code of ethics is available on our website, any
amendments or waivers to the code of ethics will be posted on our website within
four business days of such amendment or waiver. Until such time, any amendments
or waivers to our code of ethics will be filed with the SEC in a Current Report
on Form 8-K.
39
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
Summary
Compensation Table
The
following table sets forth information concerning all compensation awarded to,
earned by or paid to the following persons for services rendered in all
capacities during 2008 and 2007. No executive officers received total
compensation in excess of $100,000.
Name and
Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Total
($)
|
|||||||||
Jiada
Hu Director,
|
2008
|
51,980
|
5,288
|
3,853,401
|
3,910,669
|
|||||||||
CEO,
President, Secretary,
|
2007
|
45,000
|
-
|
3,853,401
|
3,898,401
|
|||||||||
Treasurer
(1)
|
||||||||||||||
Zhenghua
Cai, Chief Financial
|
2008
|
25,990
|
-
|
-
|
25,990
|
|||||||||
Officer
|
2007
|
23,630
|
-
|
-
|
23,630
|
(1)
|
On
February 16, 2007, we acquired Ritar in a reverse acquisition transaction
that was structured as a share exchange and in connection with that
transaction, Mr. Hu became our Chief
Executive Officer, President, Secretary and Treasurer. On March 11, 2007,
Mr. Hu became our sole director. Prior to the effective date of the
reverse acquisition, Mr. Hu served Shenzhen Ritar as Chief Executive
Officer and Chairman. The compensation shown in this table includes the
amount Mr. Hu received from Shenzhen Ritar prior to the consummation of
our reverse acquisition of Ritar on February 16, 2007 in addition to the
compensation Mr. Hu received for his services for the remainder of 2007.
In addition, in 2007, we recognized stock-based compensation of
approximately $3.85 million. The 2007 stock-based compensation was
attributable to the recognition of the make good provision expense for the
year ended December 31, 2007. In connection with the private placement on
February 16, 2007, our largest shareholder, Mr. Jiada Hu entered into an
escrow agreement with the private placement investors pursuant to which he
agreed to certain “make good” provisions. In the escrow agreement, we
established minimum after tax net income thresholds of $5,678,000 for the
fiscal year ended December 31, 2007 and $8,200,000 for the fiscal year
ending December 31, 2008. Mr. Hu deposited a total of 3,601,309 shares, to
be equitably adjusted for stock splits, stock dividends and similar
adjustments, of the common stock of China Ritar Power Corp. into escrow
with Securities Transfer Corporation under the escrow agreement. In the
event that the minimum after tax net income thresholds for the fiscal year
2007 or the fiscal year 2008 are not achieved, then the investors will be
entitled to receive additional shares of our common stock deposited in
escrow based upon on a pre-defined formula agreed to between the investors
and Mr. Hu. Pursuant to SFAS No. 123R, Accounting for Stock-Based
Compensation, if the net income threshold is met, the shares will
be released back to the make good pledgor and treated as an expense equal
to the grant date fair value of the shares. We achieved our
net income threshold for 2007 and 2008 and as a result, approximately
$3.85 million separately was recognized as an expense for 2007 and
2008 in accordance with SFAS
No. 123R.
|
(2)
|
Mr.
Cai was appointed as our Chief Financial Officer on February 16,
2007.
|
Employment
Agreements
On August
1, 2006, our subsidiary, Shenzhen Ritar, entered into employment agreements with
Jiada Hu, our Chief Executive Officer, President, Secretary and Treasurer, and
Zhenghua Cai, our Chief Financial Officer. The term of each employment agreement
is three years. The employment agreements provide the amount of each executive
officer’s salary and establish their eligibility to receive a bonus. Mr. Hu’s
employment agreement provides for an annual salary of approximately ¥360,000, and Mr.
Cai’s employment agreement provides for an annual salary of approximately ¥180,000. The
employment agreements do not entitle the executives to severance payments or
payments following a change in control.
40
Outstanding
Equity Awards at Fiscal Year End
There was
no unexercised option, stock that has not vested or equity incentive plan award
for any named executive officer as of December 31, 2008.
Director
Compensation
The table
below sets forth the compensation of our directors for the fiscal year ended
December 31, 2008:
Name
|
Fees Earned or
Paid in Cash ($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
All Other
Compensation
($)
|
Total ($)
|
||||||||||||||||||
Jaida
Hu(1)
|
57,268 | 3,853,401 | - | - | - | 3,910,669 | ||||||||||||||||||
Jianjun
Zeng
|
34,656 | - | - | - | - | 34,656 | ||||||||||||||||||
Charles
C. Mo
|
6,000 | - | - | - | - | 6,000 | ||||||||||||||||||
Yaofu
Tang
|
5,000 | - | - | - | - | 5,000 | ||||||||||||||||||
Xiongjie
Wang
|
5,000 | - | - | - | - | 5,000 |
(1) Mr. Hu
does not receive additional compensation for his service as our director. The
compensation disclosed herein is his compensation for serving as our CEO and
President as disclosed in the Summary Compensation Table above.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding beneficial ownership of our
common stock as of March 11, 2009 (i) by each person who is known by us to
beneficially own more than 5% of our common stock; (ii) by each of our officers
and directors; and (iii) by all of our officers and directors as a
group.
Unless
otherwise specified, the address of each of the persons set forth below is in
care of China Ritar Power Corp., Room 405, Tower C, Huahan Building, 16 Langshan
Road, North High-Tech Industrial Park, Nanshan District, Shenzhen, 518057,
China.
Name & Address of
Beneficial Owner
|
Office, If Any
|
Title of Class
|
Amount &
Nature of
Beneficial
Ownership(1)
|
Percent of
Class(2)
|
||||||||
Officers
and Directors
|
||||||||||||
Jiada
Hu(3)(4)(5)
|
CEO,
President, Secretary, Treasurer and Director
|
Common
Stock $0.001 par value
|
8,315,825 | 43.45 | % | |||||||
Jianjun
Zeng
|
Chief
Operating Officer
|
Common
Stock $0.001 par value
|
701,680 | 3.66 | % | |||||||
Degang
He
|
Chief
Technology Officer
|
Common
Stock $0.001 par value
|
0 | 0 | ||||||||
Zhenghua
Cai
|
Chief
Financial Officer
|
Common
Stock $0.001 par value
|
0 | 0 | ||||||||
All
officers and directors as a group (4 persons named above)
|
Common
Stock $0.001 par value
|
9,017,505 | 47.11 | % | ||||||||
5%
Securities Holder
|
||||||||||||
Pope
Asset Management, LLC
5100
Poplar Ave., Suite 805
Memphis,
TN 38137(6)
|
Common
stock $0.001 par value
|
3,810,291 | 19.91 | % | ||||||||
Pope
Investments LLC(7)
c/o
Pope Asset Management
5100
Poplar Ave., Suite 805
Memphis,
TN 38137
|
Common
Stock $0.001 par value
|
2,223,575 | 11.62 | % | ||||||||
William
P. Wells(8)
c/o
Pope Asset Management
5100
Poplar Ave., Suite 805
Memphis,
TN 38137
|
Common
Stock $0.001 par value
|
2,523,364 | 13.18 | % | ||||||||
Henying
Peng(5)(9)
|
Common
Stock $0.001 par value
|
8,315,825 | 43.45 | % |
* Less
than 1%
41
(1)Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities.
(2)A total
of 19,134,992 shares of our common stock as of March 11, 2009 are considered to
be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner
above, any options or warrants exercisable within 60 days have been included in
the denominator.
(3)In
order to induce certain individuals to loan money to us in the aggregate amount
of approximately $762,500, Mr. Jiada Hu, in July 2006 granted these lenders a
right to purchase from Mr. Hu 161,408 shares of our common stock in aggregate.
The right to purchase Mr. Hu’s shares of our common stock can be exercised
within three years at the exercise price of $2.14 per share.
(4)Includes
701,680 shares of our common stock owned by Henying Peng, Mr. Jiada Hu’s
wife.
(5)Includes
3,601,309 shares that have been placed in escrow, pursuant to a make good escrow
agreement, dated as of February 16, 2007.
(6)Includes
1,086,716 shares of common stock held by Pope Asset Management, LLC on behalf of
its clients, 2,223,575 shares of common stock and 411,215 shares underlying the
common stock purchase warrants owned and held by Pope Investments LLC and
500,000 shares of common stock held and owned by Pope Investments II LLC. Pope
Asset Management, LLC is the investment advisor for Pope Investments LLC and
Pope Investments II LLC. The foregoing information is derived from a Schedule
13G filed with the SEC on February 6, 2009.
(7)Includes
2,223,575 shares of common stock and 411,215 shares underlying the warrant to
purchase shares of our common stock. The foregoing information is derived from a
Schedule 13G filed with the SEC on February 6, 2009.
(8)
Includes 1,086,716 shares of common stock held by Pope Asset Management, LLC on
behalf of its clients, 2,223,575 shares of common stock and 411,215 shares
underlying the common stock purchase warrants owned and held by Pope Investments
LLC and 500,000 shares of common stock held and owned by Pope Investments II
LLC. Mr. Wells is the Chief Manager of Pope Asset Management, LLC and Pope Asset
Management, LLC is investment advisor to Pope Investments LLC and Pope
Investments II LLC, therefore Mr. Wells could be deemed to be beneficial owner
of these securities. The foregoing information is derived from a Schedule 13G
filed with the SEC on February 6, 2009.
(9)Includes
7,614,145 shares of our common stock owned by Mr. Hu, Henying Peng’s
husband.
Changes in
Control
There are
no arrangements known to us, including any pledge by any person of our
securities, the operation of which may at a subsequent date result in a change
in control of the Company.
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS.
|
Transactions
with Related Persons
The
following includes a summary of transactions since the beginning of the last
fiscal year, or any currently proposed transaction, in which we were or are to
be a participant and the amount involved exceeded or exceeds $120,000, or one
percent of the average of the Company's total assets at year end of 2007
and 2008. We believe the terms obtained or consideration that we paid or
received, as applicable, in connection with the transactions described below
were comparable to terms available or the amounts that would be paid or
received, as applicable, in arm's-length transactions.
·
|
On
February 16, 2007, we consummated the transactions contemplated by a share
exchange agreement between Concept Ventures Corporation and the owners of
the issued and outstanding capital stock of Ritar International Group
Limited, including Jiada Hu, our Chief Executive Officer, President, and
largest stockholder and certain of our other officers and stockholders.
Pursuant to the share exchange agreement, we acquired 100 percent of the
outstanding capital stock of Ritar International Group Limited in exchange
for 11,694,663 shares of our common stock. As a result of this
transaction, Mr. Hu became the beneficial owner of approximately 43.87% of
our outstanding capital stock as of February 16,
2007.
|
42
·
|
On
May 1, 2005, Shenzhen Ritar entered into a lease with Mr. Jiada Hu,
pursuant to which Shenzhen Ritar leased Room 2201 Tower A, Cyber Times
Building, Tian’an Cyber Park, Futian District, Shenzhen from Mr. Hu for
office use at a monthly rental of approximately $2,330. The site area is
approximately 233 square meters. On June 29, 2006, Shenzhen Ritar reached
a supplemental agreement with Mr. Hu, by which the monthly rental of the
same office was increased to approximately $3,495. This lease was
terminated by the parties on May 5,
2007.
|
·
|
On
September 30, 2006, we loaned RMB 6,358,259.95 (approximately $800,000) to
Mr. Jiada Hu. The annual interest rate for the loan was 6%. The loan is
due on September 30, 2007 and secured with a lien on Mr. Hu’s personally
owned real estate. On February 16, 2007, at the same time that we closed
our private placement, Mr. Hu sold 864,486 of the shares that he received
upon the consummation of the share exchange transaction to the investors
in the private placement. The approximate $1,850,000 in proceeds received
from the sale of these shares were used to repay in full this outstanding
indebtedness.
|
·
|
On
September 5, 2006, our subsidiary Shenzhen Ritar entered into a financial
advisory agreement with HFG International, Limited, a Hong Kong
corporation. Under the financial advisory agreement, HFG International,
Limited agreed to provide Shenzhen Ritar with financial advisory and
consulting services in implementing a restructuring plan, advising
Shenzhen Ritar on matters related to a capital raising transaction and
facilitating Shenzhen Ritar’s going public transaction. In consideration
for these services, HFG International, Limited was paid a fee of $480,000
upon the closing of the going public transaction. Our former director and
officer Timothy P. Halter is the principal stockholder and the Chief
Executive Officer of HFG International,
Limited.
|
·
|
In
order to induce certain individuals to loan money to us in the aggregate
amount of approximately $762,500, Mr. Jiada Hu, in July 2006 granted these
lenders a right to purchase from Mr. Hu 161,408 shares of our common stock
in aggregate. The right to purchase Mr. Hu’s shares of our common stock
can be exercised within three years at the exercise price of $2.14 per
share.
|
·
|
In
2007, the Company loaned money to our executive officers, Jiada Hu and
Jianjun Zeng. The loans are unsecured, non-interest bearing and repayable
on demand. The balances due from the officers were $206,175 as of December
31, 2007. Mr. Hu and Mr. Zeng paid off the loans in July
2008.
|
Except
as set
forth in our discussion above, none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the
SEC.
Promoters
and Certain Control Persons
We did
not have any promoters at any time during the past five fiscal
years.
Director
Independence
We
currently have three independent directors, as the term “independent” is defined
by the rules of the Nasdaq Stock Market. Our independent directors are Messrs.
Mo, Wang and Tang.
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Child Van
Wagoner & Bradshaw, PLLC served as our independent accountants for the
fiscal year ended December 31, 2007 and Yu and Associates CPA Corporation served
as our independent accountants for the fiscal year ended December 31,
2008.
43
During
the fiscal years ended December 31, 2008 and December 31, 2007, fees for
services provided by Child Van Wagoner & Bradshaw, PLL and Yu and Associates
CPA Corporation, respectively were as follows:
2008
|
2007
|
|||||||
Audit
fees(1)
|
$ | 120,000 | $ | 111,000 | ||||
Audit-related
fees
|
0 | |||||||
Tax
fees(2)
|
1,000 | 1,000 | ||||||
All
other fees
|
||||||||
Total
|
121,000 | 112,000 |
(1)
|
Consists
of fees billed for the audit of our annual financial statements, review of
financial statements included in our Quarterly Reports on Form 10-Q and
services that are normally provided by the accountant in connection with
statutory and regulatory filings or
engagements.
|
(2)
|
“Tax
Fees” consisted of fees billed for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax
planning.
|
Pre-Approval
Policies and Procedures
Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
auditors must be approved in advance by our Board to assure that such services
do not impair the auditors’ independence from us. In accordance with its
policies and procedures, our Board pre-approved the audit service performed by
Yu and Associates CPA Corporation for our consolidated financial statements as
of and for the year ended December 31, 2008.
PART
IV
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENTS SCHEDULES.
|
Exhibits
(including those incorporated by reference).
Exhibit No.
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated September 6, 2006, among the registrant, Ritar
International Group Limited and its stockholders [Incorporated by
reference to Exhibit 10.1 to the registrant’s current report on Form 8-K
filed on September 11, 2006, in commission file number
0-25901].
|
|
2.2
|
Amendment
No. 1 to the Share Exchange Agreement, dated February 16, 2007, among the
registrant, Ritar International Group Limited and its stockholders
[Incorporated by reference to Exhibit 2.2 to the registrant’s current
report on Form 8-K filed on February 22, 2007].
|
|
3.1
|
Article
of Incorporation of the registrant as filed with the Secretary of State of
Nevada on June 15, 2006 [Incorporated by reference to Appendix A to the
registrant’s definitive proxy statement on Schedule 14A filed on June 15,
2006, in commission file number 0-25901].
|
|
3.2
|
Certificate
of Amendment to Articles of Incorporation of the registrant as filed with
the Secretary of State of Nevada on March 26, 2007 [Incorporated by
reference to Exhibit 3.1 to the registrant’s current report on Form 8-K
filed on March 30, 2007].
|
|
3.3
|
Amended
and Restated Bylaws of the registrant adopted on August 4, 2008
[Incorporated by reference to Exhibit 3.1 to the registrant’s current
report on Form 8-K filed on August 5, 2008].
|
|
4.1
|
Form
of Registration Rights Agreement, dated February 16, 2007 [Incorporated by
reference to Exhibit 4.1 to the registrant’s current report on Form 8-K
filed on February 22,
2007].
|
44
4.2
|
Form
of Lock-up Agreement, dated February 16, 2007 [Incorporated by reference
to Exhibit 4.2 to the registrant’s current report on Form 8-K filed on
February 22, 2007].
|
|
4.3
|
Form
of Common Stock Purchase Warrant [Incorporated by reference to Exhibit 4.3
to the registrant’s current report on Form 8-K filed on February 22,
2007].
|
|
4.4
|
Common
Stock Purchase Warrant, dated February 16, 2007 [Incorporated by reference
to Exhibit 4.4 to the registrant’s current report on Form 8-K filed on
February 22, 2007].
|
|
4.5
|
Registration
Rights Agreement, dated February 16, 2007, by and among the registrant,
Cheng Qingbo, Zhang Zhihao, Yang Yi, Li Tie and Gong Maoquan [Incorporated
by reference to Exhibit 4.5 to the registrant’s current report on Form 8-K
filed on February 22, 2007].
|
|
10.1
|
Form
of Securities Purchase Agreement, dated February 16, 2007 [Incorporated by
reference to Exhibit 10.1 to the registrant’s current report on Form 8-K
filed on February 22, 2007].
|
|
10.2
|
Make
Good Escrow Agreement, dated February 16, 2007, by and among the
registrant, Roth Capital Partners, LLC, Mr. Jiada Hu and Securities
Transfer Corporation [Incorporated by reference to Exhibit 10.2 to the
registrant’s current report on Form 8-K filed on February 22,
2007].
|
|
10.3
|
Escrow
Agreement, dated February 16, 2007, by and among the registrant, Roth
Capital Partners, LLC and Thelen Reid Brown Raysman & Steiner LLP
[Incorporated by reference to Exhibit 10.3 to the registrant’s current
report on Form 8-K filed on February 22, 2007].
|
|
10.4
|
Form
of Sales Contract with Buyer [Incorporated by reference to Exhibit 10.4 to
the registrant’s current report on Form 8-K filed on February 22,
2007].
|
|
10.5
|
Employment
Agreement, dated August 1, 2006, by and between Shenzhen Ritar Power Co.,
Ltd. and Jiada Hu [Incorporated by reference to Exhibit 10.5 to the
registrant’s current report on Form 8-K filed on February 22,
2007].**
|
|
10.6
|
Employment
Agreement, dated August 1, 2006, by and between Shenzhen Ritar Power Co.,
Ltd. and Jianjun Zeng [Incorporated by reference to Exhibit 10.6 to the
registrant’s current report on Form 8-K filed on February 22,
2007].**
|
|
10.7
|
Employment
Agreement, dated August 1, 2006, by and between Shenzhen Ritar Power Co.,
Ltd. and Degang He [Incorporated by reference to Exhibit 10.7 to the
registrant’s current report on Form 8-K filed on February 22,
2007].**
|
|
10.8
|
Employment
Agreement, dated August 1, 2006, by and between Shenzhen Ritar Power Co.,
Ltd. and Zhenghua Cai [Incorporated by reference to Exhibit 10.8 to the
registrant’s current report on Form 8-K filed on February 22,
2007].**
|
|
10.9
|
Credit
Facility Letter Agreement, dated March 6, 2006, by and between Shenzhen
Ritar Power Co., Ltd. and DBS Bank (Hong Kong) Limited Shenzhen Branch
[Incorporated by reference to Exhibit 10.9 to the registrant’s current
report on Form 8-K filed on February 22, 2007].
|
|
10.10
|
Supplemental
Credit Facility Agreement, dated November 22, 2006, by and between
Shenzhen Ritar Power Co., Ltd. and DBS Bank (Hong Kong) Limited Shenzhen
Branch [Incorporated by reference to Exhibit 10.10 to the registrant’s
current report on Form 8-K filed on February 22, 2007].
|
|
10.11
|
Financial
Advisory Agreement, dated September 5, 2006, by and between HFG
International, Limited and Shenzhen Ritar Power Co., Ltd. [Incorporated by
reference to Exhibit 10.11 to the registrant’s current report on Form 8-K
filed on February 22, 2007].
|
45
10.12
|
Consulting
Agreement, dated October 19, 2006, by and between Heritage Management
Consultants, Inc. and Ritar International Group Limited [Incorporated by
reference to Exhibit 10.12 to the registrant’s current report on Form 8-K
filed on February 22, 2007].
|
|
10.13
|
Consulting
Agreement, dated January 19, 2007, by and between the registrant and
Heritage Management Consultants, Inc. [Incorporated by reference to
Exhibit 10.1 to the registrant’s current report on Form 8-K filed on
January 22, 2007].
|
|
10.14
|
Consulting
Agreement, dated January 19, 2007, by and between the registrant and Zhang
Qiang [Incorporated by reference to Exhibit 10.2 to the registrant’s
current report on Form 8-K filed on January 22, 2007].
|
|
10.15
|
Lease
Agreement, dated March 9, 2007, by and between Shenzhen Ritar Power Co.,
Ltd. and Shenzhen Huahan Pipelines Science & Technology Co.,
Ltd. [Incorporated by reference to Exhibit 10.15 to the registrant's
registration statement on Form S-1 filed on May 14,
2007].
|
|
10.16
|
Lease
Agreement, dated March 15, 2007, by and between Shenzhen Ritar Power Co.,
Ltd. and Fuyong Yingfeng Machinery & Equipment Factory. [Incorporated
by reference to Exhibit 10.16 to the registrant's
registration statement on Form S-1 filed on May 14,
2007].
|
|
10.17
|
Lease
Agreement, dated April 1, 2007, by and between Ritar Power (Huizhou) Co.,
Ltd. and Huiyang Sanlian Iron Products Factory. [Incorporated by reference
to Exhibit 10.17 to the registrant's registration statement on Form
S-1 filed on May 14, 2007].
|
|
10.18
|
Real
Property Lease Agreement, dated April 24, 2007, by and between Shenzhen
Ritar Power Co., Ltd. and Shenzhen Qiaotou Equity Cooperation Co.
[Incorporated by reference to Exhibit 10.18 to the registrant's
registration statement on Form S-1 filed on May 14,
2007].
|
|
10.19
|
Factory
Buildings Lease Agreement, dated March 28, 2006, by and between Shenzhen
Qiaotou Equity Cooperation Co. and Shenzhen Ritar Power Co., Ltd.
[Incorporated by reference to Exhibit 10.17 to the registrant’s current
report on Form 8-K filed on February 22, 2007].
|
|
10.20
|
Real
Property Lease Agreement, dated July 1, 2003, by and between Shanghai
Fengxian Livestock and Fishery Co., Ltd. and Shanghai Ritar Power Co.,
Ltd. [Incorporated by reference to Exhibit 10.18 to the registrant’s
current report on Form 8-K filed on February 22, 2007].
|
|
10.21
|
Guarantee
Agreement, dated March 7, 2006, by and among Jiada Hu, Shenzhen Ritar
Power Co., Ltd. and DBS Bank (Hong Kong) Ltd. Shenzhen Branch.
[Incorporated by reference to Exhibit 10.22 to the registrant’s current
report on Form 8-K filed on February 22, 2007].
|
|
10.22
|
Non-Commitment
Short-Term Revolving Credit Facility Agreement, dated August 1, 2007,
between Citibank (China) Co., Ltd., Shenzhen Branch and Shenzhen Ritar
Power Co., Ltd. [Incorporated by reference to Exhibit 10.1 to the
registrant’s quarterly report on Form 10-Q filed on August 17,
2007].
|
|
10.23
|
Bill
Discount Service Agreement, dated August 1, 2007, between Citibank (China)
Co., Ltd., Shenzhen Branch and Shenzhen Ritar Power Co., Ltd.
[Incorporated by reference to Exhibit 10.2 to the registrant’s quarterly
report on Form 10-Q filed on August 17, 2007].
|
|
10.24
|
Form
of Bank Acceptance Agreement, between Shenzhen Ritar Power Co., Ltd. and
China Citic Bank, Shenzhen Branch. [Incorporated by reference to Exhibit
10.24 to the registrant’s registration statement on Form S-1 filed on
January 16, 2008].
|
46
10.25
|
Independent
Director’s Contract dated August 4, 2008 by and between the registrant and
Charles Mo. [Incorporated by reference to Exhibit 10.1 to the registrant’s
current report on Form 8-K filed on August 5, 2008].
|
|
10.26
|
Independent
Director’s Contract dated August 4, 2008 by and between the registrant
Yaofu Tang. [Incorporated by reference to Exhibit 10.2 to the registrant’s
current report on Form 8-K filed on August 5, 2008].
|
|
10.27
|
Independent
Director’s Contract dated August 4, 2008 by and between the registrant and
Xiongjie Wang. [Incorporated by reference to Exhibit 10.3 to the
registrant’s current report on Form 8-K filed on August 5,
2008].
|
|
10.28
|
Indemnification
Agreement dated August 4, 2008 by and between the registrant and Charles
Mo. [Incorporated by reference to Exhibit 10.4 to the registrant’s current
report on Form 8-K filed on August 5, 2008].
|
|
10.29
|
Indemnification
Agreement dated August 4, 2008 by and between the registrant and Yaofu
Tang. [Incorporated by reference to Exhibit 10.5 to the registrant’s
current report on Form 8-K filed on August 5, 2008].
|
|
10.30
|
Indemnification
Agreement dated August 4, 2008 by and between the registrant and Xiongjie
Wang. [Incorporated by reference to Exhibit 10.6 to the registrant’s
current report on Form 8-K filed on August 5, 2008].
|
|
14
|
Business
Ethics Policy and Code of Conduct, dated February 16, 2007 [Incorporated
by reference to Exhibit 14 to the registrant’s current report on Form 8-K
filed on February 22, 2007].
|
|
21
|
Subsidiaries
of the registrant.*
|
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
32.1
|
Certifications
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
32.2
|
Certifications
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
|
99.1
|
Press
release announcing its financial results for the fiscal quarter ended
December 31, 2007 dated March 28, 2008. [Incorporated by reference to
Exhibit 99.1 to the registrant’s current report on Form 8-K filed on March
28, 2008].
|
|
99.2
|
Press
release announcing its financial results for the fiscal quarter ended
March 31, 2008 dated May 15, 2008. [Incorporated by reference to Exhibit
99.1 to the registrant’s current report on Form 8-K filed on May 16,
2008].
|
|
99.3
|
Press
release announcing that sales of the Company’s lead-acid batteries to be
used in solar and wind energy systems experienced significant growth in
the second quarter of 2008 dated July 15, 2008. [Incorporated by reference
to Exhibit 99.1 to the registrant’s current report on Form 8-K filed on
July 15, 2008].
|
47
99.4
|
Press
release announcing its financial results for the fiscal quarter ended June
30, 2008 dated August 13, 2008. [Incorporated by reference to Exhibit 99.1
to the registrant’s current report on Form 8-K filed on August 13,
2008].
|
|
99.4
|
Press
release announcing its financial results for the fiscal quarter ended
September 30, 2008 dated November 10, 2008. [Incorporated by reference to
Exhibit 99.1 to the registrant’s current report on Form 8-K filed on
November 10, 2008].
|
|
99.5
|
Audit
Committee Charter adopted August 4, 2008 [Incorporated by reference to
Exhibit 99.1 to the registrant’s current report on Form 8-K filed on
August 5, 2008].
|
|
99.6
|
Compensation
Committee Charter adopted August 4, 2008 [Incorporated by reference to
Exhibit 99.2 to the registrant’s current report on Form 8-K filed on
August 5, 2008].
|
|
99.7
|
Governance
and Nominating Committee Charter adopted August 4, 2008 [Incorporated by
reference to Exhibit 99.3 to the registrant’s current report on Form 8-K
filed on August 5, 2008].
|
* Filed
herewith.
**
Represents management contract or compensatory plan or
arrangement.
48
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CHINA
RITAR POWER CORP.
|
|
By:
|
/s/Jiada
Hu
|
Jiada
Hu
|
|
Chief
Executive Officer
|
|
Date:
March 31, 2009
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.
Each
person whose signature appears below hereby authorizes Jiada Hu as
attorneys-in-fact to sign on his behalf, individually, and in each capacity
stated below, and to file all amendments and/or supplements to this annual
report on Form 10-K.
Signature
|
Capacity
|
Date
|
||
/s/
Jiada Hu
|
President
and Chief Executive Officer
|
March
31, 2009
|
||
Jiada
Hu
|
(Principal
Executive Officer) and Director
|
|||
/s/
Zhenghua Cai
|
Chief
Financial Officer (Principal Financial
|
March
31, 2009
|
||
Zhenghua
Cai
|
Officer
and Principal Accounting Officer)
|
|||
/s/
Jianjun Zeng
|
Chief
Operation Officer and Director
|
March
31, 2009
|
||
Jianjun
Zeng
|
||||
/s/
Charles C. Mo
|
Director
|
March
30, 2009
|
||
Charles
C. Mo
|
||||
/s/
Yaofu Tang
|
Director
|
March
31, 2009
|
||
Yaofu
Tang
|
||||
/s/
Xiongjie Wang
|
Director
|
March
27, 2009
|
||
Xiongjie
Wang
|
49
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-1
|
Consolidated
Balance Sheets
|
F-3
|
Consolidated
Statements of Income and Comprehensive Income
|
F-4
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
F-5
|
Consolidated
Statements of Cash Flows
|
F-6
|
Notes
to Consolidated Financial Statements
|
F7-F27
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Audit Committee
China
Ritar Power Corp.
Shenzhen,
The People’s Republic of China
We
have audited the consolidated balance sheet of China Ritar Power Corp.
(the Company) as of December 31, 2007, and the related consolidated
statements of income and comprehensive income, changes in stockholders’
equity and cash flows for the years ended December 31, 2007 and
2006. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of China Ritar Power Corp. as of December 31, 2007, and the
consolidated results of its operations and its cash flows for the years
ended December 31, 2007 and 2006, in conformity with accounting principles
generally accepted in the United States of America.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
March
27, 2008
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
China
Ritar Power Corp.
Shenzhen,
China
We have
audited the accompanying balance sheet of China Ritar Power Corp. and
subsidiaries as of December 31, 2008, and the related statements of income,
stockholders’ equity and comprehensive income, and cash flows for the year then
ended. China Ritar Power Corp.’s management is responsible for these
financial statements. Our responsibility is to express an opinion on
these financial statements based on our audits. The Consolidated
financial statements of China Ritar Power Corp. and subsidiaries for the year
ended December 31, 2007 were audited by other auditors whose report dated March
27, 2008 expressed an unqualified opinion on those statements.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Ritar Power
Corp. and subsidiaries as of December 31, 2008, and the results of
its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
(Signed)
AGCA, Inc.
Arcadia,
California
March 7,
2009
Member:
|
Registered:
|
|
American
Institute of Certified Public Accountants
|
Public
Company Accounting Oversight Board
|
|
California
Society of Certified Public Accountants
|
F-2
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of December 31
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 8,300,472 | $ | 4,775,562 | ||||
Accounts
receivable, net of allowances of $1,311,759 and $670,327
|
20,015,989 | 12,042,973 | ||||||
Inventory
|
14,578,230 | 11,850,682 | ||||||
Advance
to suppliers
|
1,340,107 | 3,328,039 | ||||||
Other
current assets
|
3,564,793 | 577,493 | ||||||
Restricted
cash
|
4,387,679 | 5,857,637 | ||||||
Total
current assets
|
52,187,270 | 38,432,386 | ||||||
Non-current
assets:
|
||||||||
Property,
plant and equipment, net
|
10,905,369 | 2,848,630 | ||||||
Construction
in progress
|
3,089,854 | 3,425,473 | ||||||
Intangible
assets, net
|
17,088 | 18,083 | ||||||
Land
use right
|
476,687 | 451,456 | ||||||
Rental
and utility deposits
|
82,801 | - | ||||||
Due
from related parties
|
- | 206,175 | ||||||
Total
assets
|
$ | 66,759,069 | $ | 45,382,203 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 13,483,218 | $ | 10,878,649 | ||||
Income
and other taxes payable
|
2,941,267 | 1,168,938 | ||||||
Accrued
salaries
|
447,022 | 300,552 | ||||||
Bills
payable
|
4,321,915 | 4,012,797 | ||||||
Derivative
instruments
|
236,898 | - | ||||||
Other
current liabilities
|
2,808,483 | 1,939,708 | ||||||
Current
portion of long term loans
|
877,886 | 170,903 | ||||||
Short-term
loans
|
3,596,955 | 3,089,922 | ||||||
Total
current liabilities
|
28,713,644 | 21,561,469 | ||||||
Long-term
liabilities:
|
||||||||
Long-term
loans
|
3,657,859 | 136,722 | ||||||
Total
liabilities
|
32,371,503 | 21,698,191 | ||||||
Minority
interest
|
- | 28,058 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $.001 par value, 10,000,000 shares authorized, no shares issued and
outstanding
|
- | - | ||||||
Common
stock at $.001 par value; authorized 100,000,000 shares authorized,
19,134,992 and 19,000,996 shares issued and outstanding
|
19,135 | 19,001 | ||||||
Additional
paid-in capital
|
19,222,727 | 15,343,481 | ||||||
Retained
earnings
|
12,053,205 | 6,889,145 | ||||||
Accumulated
other comprehensive income
|
3,092,499 | 1,404,327 | ||||||
Total
stockholders’ equity
|
34,387,566 | 23,655,954 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 66,759,069 | $ | 45,382,203 |
See
accompanying notes to consolidated financial statements
F-3
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Revenue
|
$ | 119,584,496 | $ | 73,347,126 | $ | 40,933,239 | ||||||
Cost
of sales
|
97,038,927 | 57,966,383 | 32,645,723 | |||||||||
Gross
profit
|
22,545,569 | 15,380,743 | 8,287,516 | |||||||||
Operating
expenses
|
||||||||||||
Salaries
|
5,566,788 | 5,023,918 | 621,580 | |||||||||
Sales
commission
|
1,566,177 | 1,235,936 | 507,111 | |||||||||
Shipping
and handling cost
|
1,680,355 | 1,392,002 | 738,805 | |||||||||
Other
selling, general and administrative expenses
|
5,283,065 | 3,466,151 | 1,734,526 | |||||||||
14,096,385 | 11,118,007 | 3,602,022 | ||||||||||
Operating
profit
|
8,449,184 | 4,262,736 | 4,685,494 | |||||||||
Other
income and (expenses)
|
||||||||||||
Interest
income
|
200,346 | 51,143 | 6,546 | |||||||||
Government
grants
|
- | 39,385 | - | |||||||||
Gain
on disposal of a subsidiary
|
- | - | 37,491 | |||||||||
Other
income
|
2,222 | 2,816 | 2,506 | |||||||||
Interest
expenses
|
(511,755 | ) | (278,239 | ) | (184,540 | ) | ||||||
Foreign
currency exchange loss
|
(594,800 | ) | (666,687 | ) | (274,803 | ) | ||||||
Other
expenses
|
(10,456 | ) | (9,790 | ) | (5,760 | ) | ||||||
Other
(expenses)
|
(914,443 | ) | (861,372 | ) | (418,560 | ) | ||||||
Income
before income taxes and minority interests
|
7,534,741 | 3,401,364 | 4,266,934 | |||||||||
Income
taxes
|
(2,400,314 | ) | (784,724 | ) | (353,436 | ) | ||||||
Income
before minority interests
|
5,134,427 | 2,616,640 | 3,913,498 | |||||||||
Minority
interests share profit (loss )
|
29,633 | 25,567 | (51,145 | ) | ||||||||
Net
income
|
5,164,060 | 2,642,207 | 3,862,353 | |||||||||
Other
comprehensive income
|
||||||||||||
Foreign
currency translation adjustment
|
1,688,172 | 1,352,967 | 51,961 | |||||||||
Comprehensive
income
|
$ | 6,852,232 | $ | 3,995,174 | $ | 3,914,314 | ||||||
Earnings
per share:
|
||||||||||||
-
Basic
|
$ | 0.27 | $ | 0.15 | $ | 0.33 | ||||||
-
Diluted
|
$ | 0.27 | $ | 0.14 | $ | 0.33 | ||||||
Weighted
average number of shares outstanding:
|
||||||||||||
-
Basic
|
19,127,598 | 18,066,371 | 11,694,663 | |||||||||
-
Diluted
|
19,127,598 | 18,865,804 | 11,694,663 |
See
accompanying notes to consolidated financial statements
F-4
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common stock
|
Additional
paid-in
|
Retained
|
Accumulated
other
comprehensive
|
Total
Shareholder
|
||||||||||||||||||||
Shares
|
Amount
|
capital
|
Earnings
|
income
|
Equity
|
|||||||||||||||||||
Balances
at December 31, 2005
|
11,694,663 | $ | 11,695 | $ | 953,731 | $ | 384,585 | $ | (601 | ) | $ | 1,349,410 | ||||||||||||
Additional
paid in capital
|
- | - | 1,000 | - | - | 1,000 | ||||||||||||||||||
Net
income for the year
|
- | - | - | 3,862,353 | - | 3,862,353 | ||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | 51,961 | 51,961 | ||||||||||||||||||
Balances
at December 31, 2006
|
11,694,663 | 11,695 | 954,731 | 4,246,938 | 51,360 | 5,264,724 | ||||||||||||||||||
Recapitalization
– reverse merger
|
1,400,017 | 1,400 | (1,400 | ) | - | - | - | |||||||||||||||||
Issuance
of common shares for fund raising
|
5,724,292 | 5,724 | 12,244,276 | - | 12,250,000 | |||||||||||||||||||
Cost
of raising capital
|
- | - | (1,835,952 | ) | - | (1,835,952 | ) | |||||||||||||||||
Share
issued to placement agent at $2.14 per share
|
135,295 | 135 | 289,396 | 289,531 | ||||||||||||||||||||
Cost of raising
capital by placement agent
|
- | - | (289,531 | ) | - | - | (289,531 | ) | ||||||||||||||||
Stock-based
compensation – make good provision
|
3,853,401 | 3,853,401 | ||||||||||||||||||||||
Net
income for the year
|
- | - | - | 2,642,207 | 2,642,207 | |||||||||||||||||||
Foreign
currency translation difference
|
-
|
-
|
-
|
-
|
1,352,967 | 1,352,967 | ||||||||||||||||||
Share
issued for warrants exercised
|
46,729 | 47 | 128,560 | - | - | 128,607 | ||||||||||||||||||
Balances
at December 31, 2007
|
19,000,996 | $ | 19,001 | $ | 15,343,481 | $ | 6,889,145 | $ | 1,404,327 | $ | 23,655,954 | |||||||||||||
Issuance
of common stock with cashless exercise of warrants
|
124,651 | 125 | (125 | ) | - | - | - | |||||||||||||||||
Issuance
of common stock by exercise of warrants at $2.78
|
9,345 | 9 | 25,970 | - | - | 25,979 | ||||||||||||||||||
Stock-based
compensation make good provision
|
- | - | 3,853,401 | - | - | 3,853,401 | ||||||||||||||||||
Net
income for the year
|
- | - | - | 5,164,060 | - | 5,164,060 | ||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | 1,688,172 | 1,688,172 | ||||||||||||||||||
Balances
at December 31, 2008
|
19,134,992 | $ | 19,135 | $ | 19,222,727 | $ | 12,053,205 | $ | 3,092,499 | $ | 34,387,566 |
See accompanying notes to consolidated
financial statements
F-5
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Operating
activities
|
||||||||||||
Net
income
|
$ | 5,164,060 | $ | 2,642,207 | $ | 3,862,353 | ||||||
Adjustments
to reconcile net income from operations to net cash used in operating
activities:
|
||||||||||||
Depreciation
of property, plant and equipment
|
972,214 | 545,259 | 349,533 | |||||||||
Amortization
of intangible assets and land use right
|
12,352 | - | - | |||||||||
Allowance
of bad debts
|
586,618 | 277,868 | 43,572 | |||||||||
Gain
on disposal of a subsidiary
|
- | 26,977 | (37,491 | ) | ||||||||
Gain
on disposal of property, plant and equipment
|
3,088 | - | - | |||||||||
Stock-based
compensation – make good provision
|
3,853,401 | 3,853,401 | - | |||||||||
Allowance
for inventory valuation and slow moving items
|
488,685 | 263,365 | - | |||||||||
Unrealized
loss on derivative instruments
|
233,795 | - | - | |||||||||
Minority
interests
|
(29,633 | ) | (25,567 | ) | 51,145 | |||||||
Changes
in operating working capital items:
|
||||||||||||
Accounts
receivable
|
(7,621,370 | ) | (4,322,035 | ) | (4,233,957 | ) | ||||||
Inventory
|
(2,359,983 | ) | (5,517,416 | ) | (2,296,266 | ) | ||||||
Advance
to suppliers
|
2,192,326 | (3,122,870 | ) | (69,417 | ) | |||||||
Other
current assets
|
(2,816,955 | ) | (224,964 | ) | (294,077 | ) | ||||||
Rental
and utility deposit
|
(81,717 | ) | - | - | ||||||||
Accounts
payable
|
1,818,618 | 2,102,486 | 2,529,262 | |||||||||
Income
and other tax payable
|
1,668,182 | (543,353 | ) | 665,020 | ||||||||
Accrued
salaries
|
123,742 | 72,656 | 79,669 | |||||||||
Bills
payable
|
27,228 | 3,853,122 | - | |||||||||
Other
current liabilities
|
509,088 | 1,334,564 | 449,643 | |||||||||
Net
cash provided by operating activities
|
4,743,739 | 1,215,700 | 1,098,989 | |||||||||
Investing
activities
|
||||||||||||
Repayment
of loan from related parties
|
217,750 | 496,618 | - | |||||||||
Loan
to related parties
|
- | - | (368,221 | ) | ||||||||
Purchase
of property, plant and equipment
|
(8,216,819 | ) | (5,026,809 | ) | (718,378 | ) | ||||||
Purchase
of intangible assets
|
(3,760 | ) | - | (27,369 | ) | |||||||
Acquisition
of land use right
|
- | (433,117 | ) | - | ||||||||
Acquisition
of further 20% in Shanghai Ritar
|
- | - | (74,958 | ) | ||||||||
Sales
proceeds of disposal of property, plant and equipment
|
55,951 | - | - | |||||||||
Sales
proceeds of disposal of subsidiary of Ribitar net of cash
|
- | - | 14,123 | |||||||||
Net
cash used in investing activities
|
(7,946,878 | ) | (4,963,308 | ) | (1,174,803 | ) | ||||||
Financing
activities
|
||||||||||||
Proceeds
from issuance of stock
|
- | 10,737,791 | 1,000 | |||||||||
Proceeds
from stock issued for warrant exercised
|
134 | 128,607 | - | |||||||||
Proceeds
from other loan borrowings
|
- | 137,940 | 989,739 | |||||||||
Proceeds
from bank borrowings
|
33,213,856 | 6,977,630 | 6,214,468 | |||||||||
Repayment
of other loan borrowings
|
- | (568,431 | ) | (613,889 | ) | |||||||
Repayment
of bank borrowings
|
(28,775,962 | ) | (5,792,623 | ) | (4,655,727 | ) | ||||||
Deferred
offering costs
|
- | - | (308,951 | ) | ||||||||
Restricted
cash
|
1,851,001 | (4,470,300 | ) | (1,096,932 | ) | |||||||
Net
cash provided by financing activities
|
6,289,029 | 7,150,614 | 529,708 | |||||||||
Effect
of exchange rate changes in cash
|
439,020 | 417,713 | 4,235 | |||||||||
Net
increase in cash and cash equivalents
|
3,524,910 | 3,820,719 | 458,129 | |||||||||
Cash
and cash equivalents, beginning of year
|
4,775,562 | 954,843 | 496,714 | |||||||||
Cash
and cash equivalents, end of year
|
$ | 8,300,472 | $ | 4,775,562 | $ | 954,843 | ||||||
Supplemental
disclosure of cash flow information
|
||||||||||||
Cash
paid during the year
|
||||||||||||
Interest
paid
|
$ | 511,755 | $ | 199,149 | $ | 459,339 | ||||||
Income
taxes paid
|
$ | 623,299 | $ | 274,427 | $ | 76,016 | ||||||
Non-cash
financing activities
|
||||||||||||
Issuance
of common stock for cashless exercise of warrants
|
$ | 125 | $ | - | $ | - |
See
accompanying notes to consolidated financial statements
F-6
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
and Basis of Preparation of Financial Statements
China
Ritar Power Corp.
China
Ritar Power Corp. (formerly known as Concept Ventures Corporation) (“China
Ritar” or “the Company”) was originally organized under the laws of the State of
Utah on May 21, 1985 under the name Concept Capital Corporation. On
July 7, 2006, in order to change the domicile of Concept Capital Corporation
from Utah to Nevada, Concept Capital Corporation was merged with and into
Concept Ventures Corporation, a Nevada corporation. From its
inception in 1985 until February 16, 2007 when the Company completed a reverse
acquisition transaction with Ritar International Group Limited (“Ritar
International”), a British Virgin Islands corporation, whose subsidiary
companies originally commenced business in May 2002, the Company was a blank
check company and did not engage in active business operations other than its
search for, and evaluation of, potential business opportunities for acquisition
or participation. The Company amended its articles of incorporation
on March 26, 2007 and changed its name to China Ritar Power Corp.
On
February 16, 2007, the Company completed a reverse acquisition transaction with
Ritar International, whereby the Company issued to the shareholders of Ritar
International 11,694,663 shares of the Company’s stock in exchange for 1,000
shares of common stock of Ritar International, which is all of the issued and
outstanding capital stock of Ritar International. Accordingly, all references to
shares of Ritar International’s common stock have been restated to reflect the
equivalent numbers of China Ritar shares. Ritar International thereby
became the Company’s wholly owned subsidiary and the former shareholders of
Ritar International became the Company’s controlling stockholders.
This
share exchange transaction resulted in those shareholders obtaining a majority
voting interest in the Company. Generally accepted accounting principles require
that the company whose shareholders retain the majority interest in a combined
business be treated as the acquirer for accounting purposes, resulting in a
reverse acquisition with Ritar International as the accounting acquiror and
China Ritar as the acquired party. Accordingly, the share exchange
transaction has been accounted for as a recapitalization of the
Company. The equity section of the accompanying financial statements
has been restated to reflect the recapitalization of the Company due to the
reverse acquisition as of the first day of the first period
presented. The assets and liabilities acquired that, for accounting
purposes, were deemed to have been acquired by Ritar International were not
significant.
Ritar
International Group Limited
On July
22, 2006, Ritar International was incorporated with limited liability in the
British Virgin Islands and was inactive until November 21, 2006 when it acquired
all the issued and outstanding stock of Shenzhen Ritar Power Co., Limited
(“Shenzhen Ritar”). Shenzhen Ritar is an operating company
incorporated in Shenzhen, the People’s Republic of China (the “PRC”) in May
2002.
On July
22, 2006, Ritar International, entered into an agreement with all shareholders
of Shenzhen Ritar to acquire all of the issued and outstanding stock of Shenzhen
Ritar and its wholly-owned subsidiary, Shanghai Ritar Power Co.,
Limited “Shanghai Ritar”). On November 21, 2006, Ritar
International paid $5,052,546 (RMB40,000,000) to the shareholders of Shenzhen
Ritar to acquire all shares of Shenzhen Ritar common stock held by all
stockholders. The source of the funds paid by Ritar International to all
shareholders of Shenzhen Ritar came from the capital contribution made by Ritar
International's shareholders. Since the ownership of Ritar International and
Shenzhen Ritar are the same, the merger was accounted for as a reorganization of
entities under common control, whereby Ritar International was the receiving
entity and recognized the assets and liabilities of Shenzhen Ritar transferred
at their carrying amounts. The reorganization was treated similar to
the pooling of interest method with carry over basis.
Ritar
International currently has two operating subsidiaries: Shenzhen
Ritar and Shanghai Ritar. Shenzhen Ritar, wholly owned by Ritar
International, was incorporated in China in May 2002. Shanghai Ritar was
incorporated in China in August 2003. Shanghai Ritar is now 95% owned
by Shenzhen Ritar and 5% owned by Mr. Jiada Hu.
In
November 2006, China Ritar formed a subsidiary in Guangdong Province in China
called Ritar Power (Huizhou) Co., Ltd. (“Huizhou Ritar”). Huizhou
Ritar is not yet operating.
F-7
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Shenzhen
Ritar Power Co., Limited
Shenzhen
Ritar was incorporated in the PRC in May 2002 in accordance with the Laws of the
PRC. Shenzhen Ritar became a wholly owned foreign enterprise in July
2006. Shenzhen Ritar currently engages in the manufacture, commercialization and
distribution of a wide variety of environmentally friendly lead-acid batteries
for use in light electric vehicles or LEV and UPS segments throughout the PRC
and other countries in Asia and Europe.
In May
2002, Mr. Jianjun Zeng and Mr. Ju Liu invested $181,017 (equivalent to
RMB1,500,000) to form Shenzhen Ritar. On July 10, 2002, Shenzhen
Ritar increased its capital to $362,035 (equivalent to RMB3,000,000). On August
25, 2004, Mr. Jianjun Zeng and Mr. Ju Liu sold their shares to Mr. Jiada Hu and
other individuals.
According
to share transfer agreements signed on April 11, 2005 and April 29, 2005
respectively, Mr. Zhenjie Gong and Mr. Wanxiu He sold the shares to Mr. Jiada
Hu. After the transfer, Mr. Jiada Hu became the major shareholder,
owning 81% of the shareholdings.
On May
25, 2006, Mr. Jiada Hu personally sold his shares to other individuals and Mr.
Jiada Hu still remains as the major shareholder and owns 78% of the
shareholdings.
On July
22, 2006, all shareholders of Shenzhen Ritar sold all of the issued and
outstanding stock to Ritar International in a reorganization of entities’ under
common control as described earlier.
As a
result, Shenzhen Ritar and its subsidiary Shanghai Ritar together became the
subsidiaries of Ritar International.
Shanghai
Ritar Power Co., Limited
Shanghai
Ritar was formed on August 8, 2003. Shenzhen Ritar initially invested
$271,526 (equivalent to RMB2,250,000) in Shanghai Ritar and owned 75% interest
in Shanghai Ritar.
On July
5, 2006, Shenzhen Ritar acquired further 20% interest in Shanghai Ritar for a
consideration of $74,958 (equivalent to RMB600,000). On the same
date, Shenzhen Ritar was registered as a shareholder with 95% interest in
Shanghai Ritar.
Ritar
Power (Huizhou) Co., Limited
Ritar
International formed a new company Huizhou Ritar in Huizhou City in November
2006. The planned investment amount is $30 million, and registered
capital is $12 million. As of December 31, 2008, Huizhou Ritar did
not commence its operations yet.
Hengyang
Ritar Power Co., Limited
On April
20, 2007, Shenzhen Ritar formed a new wholly-owned Chinese subsidiary, Hengyang
Ritar Power Co. (“Hengyang Ritar”), in Hengyang City, Hunan Province of the
PRC. Hengyang Ritar’s principal activity is to manufacture and sell
plate and lead-acid battery and it commenced its business on April 27,
2008.
F-8
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary
of Significant Accounting Policies
The
principal activities of the Company and its subsidiaries (“the Company”) consist
of research and development, manufacturing and selling of rechargeable
batteries. All activities of the Company are principally conducted by
subsidiaries operating in the PRC.
Principles of consolidation-
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles in the United States of America, include the
assets, liabilities, revenues, expenses and cash flows of the Company and all
its subsidiaries. All significant intercompany accounts, transactions
and cash flows are eliminated on consolidation.
Cash and cash equivalents-
Cash and cash equivalents include cash on hand, cash accounts, interest bearing
savings accounts and time certificates of deposit with a maturity of three
months or less when purchased.
Restricted Cash- Deposits in
banks pledged as securities for bank loan and bills payable (Note 8) that are
restricted in use are classified as restricted cash under current
assets.
Inventory- Inventory is
stated at the lower of cost or market, determined by the weighted average
method. Work-in-progress and finished goods inventories consist of
raw materials, direct labor and overhead associated with the manufacturing
process.
Trade accounts receivable –
Trade accounts receivable are stated at cost, net of allowance for doubtful
accounts. Based on the above assessment, during the reporting years, the
management establishes the general provision policy to make allowance equivalent
to 100% of gross amount of trade receivables due over 1 year. Additional
specific provision is made against trade receivables aged less than 1 year to
the extent they are considered to be doubtful.
Property, plant and
equipment- Property, plant and equipment are stated at cost including the
cost of improvements. Maintenance and repairs are charged to expense
as incurred. Assets under construction are not depreciated until
construction is completed and the assets are ready for their intended
use. Depreciation and amortization are provided on the straight-line
method based on the estimated useful lives of the assets as
follows:
Building
|
30
years
|
Leasehold
improvement
|
5
years
|
Plant
and machinery
|
5-10
years
|
Furniture,
fixtures and equipment
|
5
years
|
Motor
vehicles
|
5
years
|
Intangible
asset – Intangible assets are stated at cost. Amortization are provided on the
straight-line method based on the estimated useful lives of the assets as
follow:
5
years
|
The
Company accounts for its intangible assets pursuant to SFAS No. 142, "Goodwill
and Other Intangible Assets". Under SFAS 142, intangibles with definite lives
continue to be amortized on a straight-line basis over the lesser of their
estimated useful lives or contractual terms. Intangibles with
indefinite lives are evaluated at least annually for impairment by comparing the
asset's estimated fair value with its carrying value, based on cash flow
methodology.
Valuation of long-lived
assets- The Company periodically evaluates the carrying value of
long-lived assets to be held and used, including intangible assets subject to
amortization, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Losses on long-lived assets
to be disposed of are determined in a similar manner, except that fair market
values are reduced for the cost to dispose.
F-9
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Instruments - The
Company enters into foreign currency derivative contracts to manage a portion of
foreign currency risk related to U.S. Dollar denominated asset balances of its
PRC subsidiary. The foreign currency derivative contract is recorded at fair
value with unrealized gains and losses in the caption “Foreign Currency Exchange
Loss” in the Company’s consolidated statement of operations and comprehensive
income. During the year ended December 31, 2008 the Company entered into foreign
currency forward contracts totaling $14 million to sell U.S Dollars for Renminbi
(‘’RMB’’). As of December 31, 2008, $13 million of forward contracts remain
which are expected to be settled by January to June, 2009. These contracts are
expected to be settled monthly over the period until the maturity
date.
At
December 31, 2008 summary information about the forward contracts are as
follows:
|
Forward
Contracts
|
|
|||
Notional
Amount
|
$13
million
|
||||
Rates
|
RMB
6.459 to 7.090
|
||||
Effective
date
|
January
30, 2008 to June 26, 2008
|
||||
Maturity
Dates
|
January
23, 2009 to June 26, 2009
|
||||
Fair
Value
|
$236,898
|
The
derivative instruments are reported at their fair values under current
liabilities $236,898 on the balance sheet as of December 31, 2008.
Revenue recognition- Revenue
from sales of the Company’s products is recognized when the significant risks
and rewards of ownership have been transferred to the buyer at the time when the
products are delivered to and accepted by its customers, the price is fixed or
determinable as stated on the sales contract, and collectibility is reasonably
assured. Customers do not have a general right of return on products
shipped. Products returns to the Company were insignificant during past
years. There are no post-shipment obligations, price protection and
bill and hold arrangements.
Research and development expenses-
Research and development costs are charged to expense when incurred and
are included in operating expenses. During the years ended December 31, 2008,
2007 and 2006, research and development costs expensed to operating expenses
were approximately $469,530, $266,598 and $213,628, respectively.
Advertising Costs- The Company expenses
advertising costs as incurred. Advertising expenses charged to
operations were $80,443, $7,332 and $12,279 for the years ended December 31,
2008, 2007 and 2006 respectively.
Warranty Costs- The Company
accounts for its liability for product warranties in accordance with FASB
Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.” Under FIN 45, the aggregate changes in the liability for accruals
related to product warranties issued during the reporting period must be charged
to expense as incurred.
The
Company maintains a policy of providing after sales support for certain products
by way of a warranty program. The Company based on the past experience and
estimated cost of warranty by providing 0.3% on the net sales as warranty
expenses. During the years ended December 31, 2008, 2007 and 2006,
the Company has provided warranty expenses amounting to approximately $395,799,
$222,620 and $128,796, respectively, which are included in its selling expenses
(see Note 25).
Comprehensive income-
Accumulated other comprehensive income represents foreign currency translation
adjustments.
Income taxes-Income taxes are
provided on an asset and liability approach for financial accounting and
reporting of income taxes. Any tax paid by subsidiaries during the
year is recorded. Current tax is based on the profit or loss from
ordinary activities adjusted for items that are non-assessable or disallowable
for income tax purpose and is calculated using tax rates that have been enacted
or substantively enacted at the balance sheet date. Deferred income
tax liabilities or assets are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year end.
A
valuation allowance is recognized if it is more likely than not that some
portion, or all, of a deferred tax asset will not be realized.
F-10
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency translation-
The consolidated financial statements of the Company are presented in United
States Dollars (“US$”). Transactions in foreign currencies during the
year are translated into US$ at the exchange rates prevailing at the transaction
dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into US$ at the exchange
rates prevailing at that date. All transaction differences are
recorded in the income statement.
The Company’s subsidiaries in the PRC
have their local currency, Renminbi (“RMB”), as their functional
currency. On consolidation, the financial statements of the Company’s
subsidiaries in PRC are translated from RMB into US$ in accordance with SFAS No.
52, "Foreign Currency Translation". Accordingly, all assets and
liabilities are translated at the exchange rates prevailing at the balance sheet
dates and all income and expenditure items are translated at the average rates
for each of the years.
RMB is not a fully convertible
currency. All foreign exchange transactions involving RMB must take place
either through the People’s Bank of China (the “PBOC”) or other institutions
authorized to buy and sell foreign exchange. The exchange rates adopted
for the foreign exchange transactions are the rates of exchange quoted by the
PBOC, which are determined largely by supply and demand. Translation of
amounts from RMB into United States dollars (“US$”) has been made at the
following exchange rates for the respective years:
December
31, 2008
|
||||
Balance
sheet
|
RMB6.8346 to
US$1.00
|
|||
Statement
of income and comprehensive income
|
RMB6.9253 to
US$1.00
|
|||
December
31, 2007
|
||||
Balance
sheet
|
RMB7.3141 to
US$1.00
|
|||
Statement
of income and comprehensive income
|
RMB7.6172
to US$1.00
|
|||
December
31, 2006
|
||||
Balance
sheet
|
RMB7.8175 to
US$1.00
|
|||
Statement
of income and comprehensive income
|
RMB7.9819 to
US$1.00
|
Fair Value of Financial Instruments
– The Company adopted SFAS 157, Fair Value Measurements (SFAS
157). SFAS 157 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to
classify the inputs used in measuring fair value as follows:
Level 1:
Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level 2:
Inputs are unadjusted quoted price for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, imputs other than quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level 3:
Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The fair
value measurements of these derivative instruments and investments were
determined using the following inputs as of December 31, 2008:
Liabilities:
|
Total
|
Significant
Other
Observable
Inputs (Level 2)
|
||||||
Derivative
Instruments (note a)
|
$ | 236,898 | $ | 236,898 |
Note a:
Reported under current liabilities $236,898 on the balance sheet as of December
31, 2008. (Please refer to the note above on derivative
instruments). The fair value is the face value of the
instruments.
F-11
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Post-retirement and post- employment
benefits-The Company’s subsidiaries contribute to a state pension scheme
in respect of its PRC employees. Other than the above, neither the
Company nor its subsidiaries provide any other post-retirement or
post-employment benefits.
Basic Income/Loss Per Common
Share- The computation of income / loss per share is based on the
weighted average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards No. 128, “Earnings
Per Share.”
Use of estimates- The
preparation of the Company’s financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The financial statements include some amounts that are based on
management’s best estimates and judgments. These accounts and estimates include,
but are not limited to, the valuation of accounts receivable, other receivables,
inventories, deferred income taxes, and the estimation on useful lives of
property, plant and equipment. These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.
Significant Estimates Relating to
Specific Financial Statement Accounts and Transactions Are Identified-
The financial statements include some amounts that are based on
management’s best estimates and judgments. The most significant estimates relate
to allowance for uncollectible accounts receivable, inventory work in process
valuation and obsolescence, depreciation, useful lives, taxes, and
contingencies. These estimates may be adjusted as more current
information becomes available, and any adjustment could be
significant.
Cost of goods sold - Cost of
goods sold consists primarily of the costs of the raw materials, direct labor,
depreciation of plant and machinery, and overhead associated with the
manufacturing process of the environmentally friendly lead-acid
batteries.
Shipping and handling cost-
Shipping and handling costs related to delivery of finished goods are
included in selling expenses. During the years ended December 31, 2008, 2007 and
2006 shipping and handling costs expensed to other selling, general and
administrative expenses were $1,680,355, $1,392,002 and $738,805,
respectively.
Reclassification of accounts-
Certain reclassifications have been made to prior-year comparative
financial statements to conform to the current year presentation. These
reclassifications had no effect on previously reported results of operations or
financial position.
3. Recent
Changes in Accounting Standards
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), “Business Combinations” (“FAS 141R”).
FAS 141R replaces Statement of Financial Accounting Standards No. 141,
“Business Combinations” (“FAS 141”), although it retains the fundamental
requirement in FAS 141 that the acquisition method of accounting be used
for all business combinations. FAS 141R establishes principles and
requirements for how the acquirer in a business combination (a) recognizes
and measures the assets acquired, liabilities assumed and any noncontrolling
interest in the acquiree, (b) recognizes and measures the goodwill acquired
in a business combination or a gain from a bargain purchase and
(c) determines what information to disclose regarding the business
combination. FAS 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the Company’s 2009
fiscal year. The Company is currently assessing the potential effect of
FAS 141R on its financial statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“FAS 160”). FAS 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary, commonly referred to as
minority interest. Among other matters, FAS 160 requires (a) the
noncontrolling interest be reported within equity in the balance sheet and
(b) the amount of consolidated net income attributable to the parent and to
the noncontrolling interest to be clearly presented in the statement of income.
FAS 160 is effective for the Company’s 2009 fiscal year. FAS 160 is to
be applied prospectively, except for the presentation and disclosure
requirements, which shall be applied retrospectively for all periods presented.
The Company is currently assessing the potential effect of FAS 160 on its
financial statements.
F-12
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities,” which requires enhanced disclosures about an entity’s
derivative and hedging activities. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Since FAS 161 only provides for additional disclosure requirements,
there will be no impact on the Company’s results of operations and financial
position.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The
Hierarchy of Generally Accepted Accounting Principles (“FAS 162"). This Standard
identifies the sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles. FAS 162 directs the hierarchy to the entity,
rather than the independent auditors, as the entity is responsible for selecting
accounting principles for financial statements that are presented in conformity
with generally accepted accounting principles. The Standard is effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to have an impact on the
financial statements.
In
May 2008, the FASB issued SFAS No. 163, Accounting for Financial
Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60
(SFAS 163). This statement clarifies accounting for financial guarantee
insurance contracts by insurance enterprises under FASB Statement No. 60,
Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective for
fiscal years, and interim periods within those years, beginning after
December 15, 2008. Because the Company does not issue financial guarantee
insurance contracts, the Company does not expect the adoption of this standard
to have an effect on the Company’s financial position or results of
operations.
In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the
Useful Life of Intangible Assets, which amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No.
142, Goodwill and Other Intangible Assets. This Staff
Position is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. Application of this FSP is not currently applicable to
the Company.
In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities. This FSP
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. The Company does not currently have
any share-based awards that would qualify as participating securities.
Therefore, application of this FSP is not expected to have an effect on the
Company's financial reporting.
In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) ("FSP 14-1"). FSP 14-1 will be effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The FSP includes guidance that convertible debt instruments that may be settled
in cash upon conversion should be separated between the liability and equity
components, with each component being accounted for in a manner that will
reflect the entity's nonconvertible debt borrowing rate when interest costs are
recognized in subsequent periods. However, because the Company does not have
convertible debt, the Company does not expect the adoption of this standard to
have an effect on the Company’s financial position or results of
operations.
In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2 (FSP 157-2),
Effective Date of FASB Statement No. 157. FSP 157-2 deferred the effective date
of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis, until fiscal years beginning after November 15, 2008. As a
result of FSP 157-2, the Company will adopt SFAS 157 for the Company’s
nonfinancial assets and nonfinancial liabilities beginning with the first
interim period of the Company’s fiscal year 2009. The Company does
not expect that the adoption of SFAS 157 for the Company’s nonfinancial assets
and nonfinancial liabilities will have a material impact on the Company’s
financial position, results of operations or cash flows.
F-13
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures About
Credit Derivatives and Certain Guarantees. FSP FAS 133-1 and FIN 45-4 is
intended to improve disclosures about credit derivatives by requiring more
information about the potential adverse effects of changes in credit risk on the
financial position, financial performance and cash flows of the sellers of
credit derivatives. FSP FAS 133-1 and FIN 45-4 is effective for fiscal years
beginning after November 15, 2008. The Company do not expect that the
adoption of FSP FAS 133-1 and FIN 45-4 will have a material impact on the
Company’s financial position, results of operations or cash flows.
In
September 2008, the FASB ratified EITF No. 08-5, Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement. EITF
08-5 provides guidance for measuring liabilities issued with an attached
third-party credit enhancement (such as a guarantee). It clarifies that the
issuer of a liability with a third-party credit enhancement should not include
the effect of the credit enhancement in the fair value measurement of the
liability. EITF 08-5 is effective for reporting periods beginning
after December 15, 2008, with early adoption allowed. The Company adopted EITF
08-5 in the fourth quarter of fiscal 2008. Adoption of EITF 08-5 did
not have an impact on our financial position, results of operations or cash
flows.
In
October 2008, the FASB issued FSP FAS 157-3, Determining Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. FSP FAS 157-3
provides guidance and illustrates key considerations for determining fair value
in markets that are not active. FSP FAS 157-3 is effective upon issuance and
must be applied to all periods for which financial statements have not been
issued. Adoption of FSP FAS 157-3 did not have an impact on the Company’s
financial position, results of operations or cash flows.
In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8, Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities. FSP 140-4 and FIN 46 (R)-8 amends SFAS 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities and FIN 46(R) Consolidation of Variable Interest Entities
(revised December 2003) — an interpretation of ARB No. 51 to require public
entities to provide additional disclosures about transfers of financial assets
and their involvement with variable interest entities. FSP 140-4 and FIN 46(R)-8
is effective for the first interim or annual reporting period ending after
December 15, 2008. Adoption of FSP 140-4 and FIN 46(R) did not have a material
impact on the Company’s financial position, results of operations or cash
flows.
4. Cash
and Cash Equivalents
Cash and cash equivalents are
summarized as follows:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Cash
at bank
|
$ | 8,263,889 | $ | 4,733,428 | ||||
Cash
on hand
|
36,583 | 42,134 | ||||||
Total
|
$ | 8,300,472 | $ | 4,775,562 |
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and pledged
deposits. As of December 31, 2008 and 2007, substantially all of the
Company’s cash and cash equivalents were held by major banks located in the PRC,
which management believes are of high credit quality.
F-14
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
5. Accounts
Receivable
Accounts
receivable by major categories are summarized as follows:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Accounts
receivable – pledged to banks
|
$ | - | $ | 233 | ||||
Accounts
receivable – others
|
21,327,748 | 12,713,067 | ||||||
21,327,748 | 12,713,300 | |||||||
Less:
allowances for doubtful accounts
|
(1,311,759 | ) | (670,327 | ) | ||||
Total
|
$ | 20,015,989 | $ | 12,042,973 |
Concentrations
in accounts receivable - At December 31, 2008, three customers on an individual
basis accounted for more than 5% but less than 10% of the Company’s accounts
receivable, with total amounts of $4,863,740 representing 24% of total accounts
receivable in aggregate. At December 31, 2007 four customers on an
individual basis accounted for more than 5% but less than 10% of the Company’s
accounts receivable, with total amounts of $3,640,979 representing 30% of total
accounts receivable in aggregate
Accounts
receivable pledged to banks - Pursuant to a financing agreement, the Company’s
principal bank acts as its asset based lender for the majority of its
receivables, which are assigned on a pre-approved basis. At December
31, 2008 and 2007, the financing charge amounted to 1.5 times of the PRC prime
rate on the receivables assigned.
The
Company pledged account receivables for short term financing. The
bank will usually provide 80% of the amount of the account receivables in
advance. The amount of account receivables pledged to banks at December 31, 2008
and 2007 were $Nil and $233, respectively.
6. Inventory
Inventory
by major categories are summarized as follows:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Raw
materials
|
$ | 2,111,996 | $ | 1,609,307 | ||||
Work
in progress
|
9,468,922 | 5,138,735 | ||||||
Finished
goods
|
3,774,325 | 5,366,005 | ||||||
15,355,243 | 12,114,047 | |||||||
Less:
allowance for valuation and slowing moving item
|
(777,013 | ) | (263,365 | ) | ||||
Total
|
$ | 14,578,230 | $ | 11,850,682 |
F-15
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
7.
Other Current Assets
Other
current assets consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Notes
receivable
|
$ | 155,714 | $ | 53,322 | ||||
Advance
to staff and deposit, net of allowances for bad debts of $145,501
and
$99,346
|
374,725 | 524,171 | ||||||
Value
added tax recoverable
|
3,034,354 | - | ||||||
Total
|
$ | 3,564,793 | $ | 577,493 |
8.
Restricted Cash and Bills Payable
Restricted
cash consists of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Bank
deposit held as collateral for bank loan and bills payable
|
$ | 4,387,679 | $ | 5,857,637 | ||||
$ | 4,387,679 | $ | 5,857,637 |
At
December 31, 2008 and 2007, restricted cash of $4,387,679 and $5,857,637
respectively represented the deposits pledged for banking facilities. Generally,
the deposit will be released when the relevant bank loans are repaid upon
maturity (see Note 15).
In the
normal course of business, the Company is requested by certain of its suppliers
to settle trade liabilities incurred in the ordinary course of business by
issuance of bills that is guaranteed by a bank acceptable to the
supplier. The bills are interest-free with maturity dates of either
three months or six months from date of issuance. In order to provide such
guarantees for the bills, the Company’s primary subsidiary, Shenzhen Ritar Power
Co., Ltd.(“Shenzhen Ritar”), has entered into bank acceptance agreements with
China CITIC Bank, Shenzhen Branch, Citibank, Shenzhen Branch, DBS bank, Shenzhen
Branch and Bank of China, Hengyang Branch (the “Bank”). Pursuant to
the Bank’s acceptance agreements, the Bank provided its undertakings to
guarantee payment of certain of the Company’s bills with an aggregate amount of
approximately $4 million. The Company is required to place a bank
deposit with 25-30%, subject to bank decision, to the bills amount undertaken by
the bank. Under this kind of agreement, Shenzhen Ritar is obligated to pay 0.05%
of the bills amount as handling charges.
F-16
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
9. Property,
Plant and Equipment
Property,
plant and equipment consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
At
cost:
|
||||||||
Building
|
$ | 5,311,491 | $ | - | ||||
Leasehold
improvement
|
367,032 | 60,306 | ||||||
Plant
and machinery
|
6,184,050 | 3,083,225 | ||||||
Furniture,
fixtures and equipment
|
438,818 | 315,758 | ||||||
Motor
vehicles
|
1,034,238 | 926,765 | ||||||
Total
|
13,335,629 | 4,386,054 | ||||||
Less:
accumulated depreciation and amortization
|
(2,430,260 | ) | (1,537,424 | ) | ||||
Net
book value
|
$ | 10,905,369 | $ | 2,848,630 |
The Company reviews the carrying
value of property, plant, and equipment for impairment whenever events and
circumstances indicate that the carrying value of an asset may not be
recoverable from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected future cash flows
are less than the carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of assets. The factors
considered by management in performing this assessment include current operating
results, trends, and prospects, as well as the effects of obsolescence, demand,
competition, and other economic factors.
As of
December 31, 2008 and 2007, certain property, plant and machinery with the net
book value of $3,866,654 and $Nil, respectively, were pledged as securities in
connection with the outstanding loan facilities, as described in more details in
Note 16.
During
the year ended December 31, 2008, depreciation expenses amounted to $972,214,
among which $753,581, $129,313 and $89,320 were recorded as cost of sales,
selling expense and administrative expense respectively.
During
the year ended December 31, 2007, depreciation expenses amounted to $545,259,
among which $449,544, $66,920 and $28,795 were recorded as cost of sales,
selling expense and administrative expense respectively.
During
the year ended December 31, 2006, depreciation expenses amounted to $349,533,
among which $311,348, $24,660 and $13,525 were recorded as cost of sales,
selling expense and administrative expense respectively.
10. Intangile
assets
Intangile
assets consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
At
cost:
|
||||||||
Computer
software
|
$ | 27,861 | $ | 22,474 | ||||
Accumulated
amortization
|
(10,773 | ) | (4,391 | ) | ||||
Net
book value
|
$ | 17,088 | $ | 18,083 |
During
the year ended December 31, 2008, 2007 and 2006, amortization expenses amounted
to $5,995, $4,391 and $nil were recorded as administrative expense
respectively.
F-17
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
11. Land
Use Right
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Right
to use land
|
$ | 483,129 | $ | 451,456 | ||||
Accumulated
amortization
|
(6,442 | ) | - | |||||
476,687 | 451,456 | |||||||
Less:
current portion
|
(9,663 | ) | - | |||||
Non-current
portion
|
$ | 467,024 | $ | 451,456 |
The
subsidiary, Hengyang Ritar, obtained the right from the relevant PRC land
authority for periods of 50 years to use the lands on which the production
facilities and warehouses of the subsidiaries are situated.
As the
subsidiary was newly established during the year ended December 31, 2007, there
was no amortization expense of the land use right incurred for the
year.
As of
December 31, 2008 and 2007, all of land use right with the net book value of
$476,687 and $Nil, respectively, were pledged as securities in connection with
the outstanding loan facilities, as described in more details in Note
16.
During
the year ended December 31, 2008, amortization expenses amounted to $6,357 was
recorded as administrative expense.
The
estimated amortization expense for land use right for each of the next five
years is about $9,663.
12. Amounts
Due From Related Parties
Amount
due from related parties consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Amount
due from related parties
|
||||||||
Mr.
Jiada Hu
|
$ | - | $ | 164,499 | ||||
Mr.
Jianjun Zeng
|
- | 41,676 | ||||||
Total
|
$ | - | $ | 206,175 |
The
amounts due from related parties as of December 31, 2007 represented unsecured
advances which were interest-free and repayable on demand.
F-18
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
13. Related
Party Transactions
(a)
Names
and relationship of related parties
|
Existing
relationships with the Company
|
|
Ritar
International Group Limited
|
Subsidiary
|
|
Shanghai
Ritar Power Co., Limited
|
Subsidiary
|
|
Ritar
Power (Huizhou) Co., Limited
|
Subsidiary
|
|
Hengyang
Ritar Power Co., Limited
|
Subsidiary
|
|
Grand
Power Group (Hong Kong) Limited (Formerly known as Hong Kong Ritar Power
(Group) Co., Limited)
|
A
company controlled by close family members of a
director
|
|
Mr.
Jiada Hu
|
A
director, shareholder and officer of the Subsidiary
|
|
Mr.
Bin Liu
|
A
director and officer of the Subsidiary
|
|
Ms.
Henying Peng
|
A
director and officer of the Subsidiary
|
|
Mr.
Jianhan Xu
|
A
director and officer of the Subsidiary
|
|
Mr.
Jianjun Zeng
|
A
director and officer of the Subsidiary
|
|
Mr.
Hongwei Zhu
|
An
officer of the
Subsidiary
|
(b) Summary
of related party transactions
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Salary
paid to Directors:
|
||||||||||||
Mr.
Jiada Hu
|
$ | 57,268 | $ | 45,000 | $ | 39,389 | ||||||
Mr
Bin Liu
|
9,816 | 8,665 | 6,765 | |||||||||
Ms
Henying Peng
|
20,360 | 15,281 | 10,073 | |||||||||
Mr
Jianhan Xu
|
- | 8,665 | 7,517 | |||||||||
Mr
Jianjun Zeng
|
33,126 | 23,631 | 18,041 | |||||||||
Mr
Hongwei Zhu
|
9,975 | 8,665 | 8,569 | |||||||||
Total
|
$ | 130,545 | $ | 109,907 | $ | 90,354 | ||||||
Rent
paid to a director:
|
||||||||||||
Mr.
Jiada Hu
|
$ | - | $ | 21,672 | $ | 36,197 | ||||||
Guarantee
given by an affiliate company:
|
||||||||||||
Bank
borrowing from Ka Wah Bank Limited of $282,051 guaranteed by Hong Kong
Ritar Power (Group) Co., Limited, an affiliate company in which Jiada Hu
is the director.
|
$ | - | $ | - | $ | 24,858 | ||||||
Other
borrowing from Pacific Insurance of $192,308 guaranteed by Hong Kong Ritar
Power (Group) Co., Limited, an affiliate company in which Jiada Hu is the
director.
|
$ | - | $ | - | $ | 16,949 |
F-19
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income
and Other Tax Payables
Income
and other tax payables consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Value
added tax payable
|
$ | - | $ | 130,862 | ||||
Income
tax payable (see Note 18)
|
2,875,840 | 1,008,050 | ||||||
Individual
income withholding tax payable
|
13,235 | 7,692 | ||||||
Other
taxes payable
|
52,192 | 22,334 | ||||||
Total
|
$ | 2,941,267 | $ | 1,168,938 |
15. Other
Current Liabilities
Other
current liabilities consist of the following:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Other
payable and accrued expenses
|
$ | 1,175,355 | $ | 761,175 | ||||
Advance
from customers
|
1,633,128 | 1,178,533 | ||||||
Total
|
$ | 2,808,483 | $ | 1,939,708 |
16. Short-term
Loans
Short-term
loans as of December 31, 2008 and 2007 consist of the following:
As
of December 31,
|
|||||||||||||||
Bank
|
Loan
period
|
Interest
rate
|
Secured
by
|
2008
|
2007
|
||||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9 | % |
Deposit
|
$ | 146,314 | $ | - | |||||||
Citibank
|
2008-10-24
to 2009-1-21
|
9 | % |
Deposit
|
540,470 | - | |||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9 | % |
Deposit
|
132,576 | - | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9 | % |
Deposit
|
389,059 | - | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9 | % |
Deposit
|
1,074,085 | - | |||||||||
DBS
bank
|
2008-10-21
to 2009-2-6
|
8 | % |
Deposit
|
85,239 | - | |||||||||
DBS
bank
|
2008-12-10
to 2009-2-13
|
7 | % |
Deposit
|
481,630 | - | |||||||||
Citibank
|
2008-12-15
to 2009-3-13
|
7 | % |
Deposit
|
585,257 | - | |||||||||
DBS
bank
|
2008-12-30
to 2009-4-10
|
7 | % |
Deposit
|
162,325 | - | |||||||||
Citibank
|
2007-10-25
to 2008-01-23
|
6 | % |
Deposit
|
- | 150,395 | |||||||||
Citibank
|
2007-10-26
to 2008-01-23
|
6 | % |
Deposit
|
- | 341,806 | |||||||||
Citibank
|
2007-10-29
to 2008-01-23
|
6 | % |
Deposit
|
- | 273,444 | |||||||||
Citibank
|
2007-11-16
to 2008-02-05
|
7 | % |
Deposit
|
- | 683,611 | |||||||||
Citibank
|
2007-11-16
to 2008-02-05
|
7 | % |
Deposit
|
- | 410,167 | |||||||||
Citibank
|
2007-11-16
to 2008-03-10
|
7 | % |
Deposit
|
- | 273,444 | |||||||||
Citibank
|
2007-12-13
to 2008-03-10
|
10 | % |
Deposit
|
- | 273,444 | |||||||||
Citibank
|
2007-12-13
to 2008-03-10
|
10 | % |
Deposit
|
- | 273,444 | |||||||||
Citibank
|
2007-12-24
to 2008-03-20
|
10 | % |
Deposit
|
- | 410,167 | |||||||||
$ | 3,596,955 | $ | 3,089,922 |
F-20
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
17.
Long-Term Loans
As of
December 31, 2008 and 2007, the Company has the following long-term
loans:
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
Bank
borrowing from DBS bank is financed for $4,389,431 with interest at 9.072%
flat p.a. with monthly principal payment of $81,286 from 2009-04-18 to
2013-09-18, secured by certain property, plant and equipment and land use
right as disclosed in note 9 and note 10, respectively.
|
$ | 4,389,431 | $ | - | ||||
Bank
borrowing from DBS is financed for $319,795, with interest at 9.45% flat
p.a. with monthly principal payment $13,325 from 2006-12-04 to 2008-12-04,
secured by Mr. Jiada Hu and Ms. Henying Peng.
|
- | 170,903 | ||||||
Other
borrowing from Department of Science and Technology of Bao An is financed
for $146,314 with interest free from 2007-12-20 to 2009-12-20 and secured
by Shenzhen Small and Medium Enterprises Credit Guarantee
Center.
|
146,314 | 136,722 | ||||||
Total
loans
|
4,535,745 | 307,625 | ||||||
Less:
current portion
|
(877,886 | ) | (170,903 | ) | ||||
Long-term
loans, less current portion
|
$ | 3,657,859 | $ | 136,722 | ||||
Future
maturities of long-term loans are as follows as of December
31,
|
||||||||
2009
|
877,886 | |||||||
2010
|
975,429 | |||||||
2011
|
975,429 | |||||||
2012
|
975,429 | |||||||
2013
|
731,572 | |||||||
Total
|
$ | 4,535,745 |
18. Minority
Interest
Minority
interest represents the minority stockholders’ proportionate share of 5% of the
equity of Shanghai Ritar. As of December 31, 2008, 2007 and 2006, the
Company owned 95% of Shanghai Ritar’s capital stock, representing 95% of voting
control.
The
Company’s 95% controlling interest requires that Shanghai Ritar’s operations be
included in the Company’s Consolidated Financial Statements.
The 5%
equity interest of Shanghai Ritar in 2008, 2007 and 2006 that are not owned by
the Company is shown as “Minority interests” in the 2008, 2007 and 2006
Consolidated Statements of Income and Comprehensive Income and Consolidated
Balance Sheets.
F-21
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
19. Income
Taxes
United
States
The
Company was incorporated in the United States of America and is subject to
United States of America tax law. No provisions for income taxes have
been made as the Company has no taxable income for the years
presented. The applicable income tax rates for the Company for the
years ended December 31, 2008, 2007 and 2006 are 34%.
British Virgin Islands
Ritar International was incorporated
in the British Virgin Islands and is not subject to income taxes under the
current laws of the British Virgin Islands.
PRC
The subsidiary, Shenzhen Ritar is
subject to PRC enterprises income tax at the applicable tax rates on the taxable
income as reported in its Chinese statutory accounts in accordance with the
relevant enterprises income tax laws applicable to foreign
enterprises. Pursuant to the same enterprises income tax laws, being
classified as a high technology company, Shenzhen Ritar is fully exempted from
PRC enterprises income tax for two years starting from the first profit-making
year, followed by a 50% tax exemption for the next three years (“Tax Holiday”).
Consequently, Shenzhen Ritar was exempted from enterprise income tax for the
fiscal years 2003 and 2004. For the following three fiscal years from
2005 to 2007, Shenzhen Ritar was subject to enterprise income tax at rate of
15%. From 2008, Shenzhen Ritar was charged on preferential enterprise income tax
rate at 18% which is determined by the tax authority.
Shanghai
Ritar was charged at 2.31% of its total revenue in 2007 while the tax rate was
charged on the taxable income with tax rate 25% from 2008.
Hengyang
Ritar commenced its business on April 27, 2008 and was subject to an income tax
rate of 25%.
Huizhou
Ritar did not commence business in 2008.
The Company uses the asset and
liability method, where deferred tax assets and liabilities are
determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes. There are no material
timing differences and therefore no deferred tax asset or liability at December
31, 2008 and 2007. There are no net operating loss carry forwards at
December 31, 2008 and 2007.
The
provision for income taxes consists of the following:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Current
tax
|
||||||||||||
-
PRC
|
$ | 2,400,314 | $ | 784,724 | $ | 353,436 | ||||||
-
Deferred tax provision
|
- | - | - | |||||||||
Total
|
$ | 2,400,314 | $ | 784,724 | $ | 353,436 |
20.
Common Stock and Warrant Transactions
l
|
Common
stock
|
During
2008, the Company issued 124,651 shares of common stock for the cashless
exercise of 163,550 warrants.
During
2008, the Company issued 9,345 shares of common stock by exercise of warrants at
$2.78.
F-22
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
l
|
Warrant
|
In 2007,
the Company completed a private placement pursuant to which the Company issued
and sold 5,724,292 shares of its common stock to certain investors. In addition,
the Company granted to the same investors three-year warrants to purchase
1,317,746 shares of the Company’s common stock at $2.78 per share. In connection
with this private placement, the Company paid the placement agent, Roth Capital
Partners, LLC, a placement agency fee of $600,249 and the Company issued to the
placement agent a warrant for the purchase of 286,215 shares of the Company’s
common stock with the exercise price of $2.14 per share. In 2007 two investors
exercised their warrant right and acquired 46,729 shares for $2.78 per
share.
On
January 4, 2008, two investors exercised 135,513 cashless warrants for the
issuance of 103,668 common shares.
On
February 12, 2008, an investor exercised 28,037 cashless warrants for the
issuance of 20,983 common shares.
On June
11, 2008, an investor exercised 9,345 warrants at $2.78 and $25,979 proceeds
from issuance of common shares recorded under statement of
cashflows.
The total
number of warrants outstanding as of December 31, 2008 was
1,384,337.
Warrant
|
No.
of
warrants
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding
at January 1, 2008
|
1,557,232 | 2.66 | 2.17 | 6,493,657 | ||||||||||||
Granted
|
- | - | - | - | ||||||||||||
Exercised
|
(172,895 | ) | 2.78 | - | - | |||||||||||
Outstanding
at December 31, 2008
|
1,384,337 | 2.65 | 1.17 | 2,630,240 | ||||||||||||
Exercisable
at December 31, 2008
|
1,384,337 | 2.65 | 1.17 | 2,630,240 |
21.
Stock-Based Compensation – Make Good Escrow Agreement
In
connection with the private placement on February 16, 2007, the largest
stockholder of the Company, Mr. Jiada Hu entered into a Make Good Escrow
Agreement (“Make Good Agreement”) with the private placement investors. Pursuant
to the escrow agreement, Mr. Hu agreed to certain “make good” provisions. In the
escrow agreement, Mr. Hu established minimum net income after tax thresholds of
$5,678,000 for the fiscal year ended December 31, 2007 and $8,200,000 for the
fiscal year ended December 31, 2008. Mr Hu. deposited a total of 3,601,309
shares into Escrow Agent under the escrow agreement. If the 2007 net income
thresholds is not archived, then the Escrow Agent must deliver the first tranche
of 1,800,655 of shares to the investors on a pro rata basis and if the 2008 net
income threshold is not achieved, the Escrow Agent must deliver the second
tranche of 1,800,654 shares to the investors on a pro rata basis.
According
to SAB 79, Accounting for
Expense or Liabilities by Principal Stockholders, if the performance
criteria is not met these shares will be released to the investors and treated
as an expense for the amount of the grant-date value of the shares as of the
date that the Make Good Agreement was signed. Per SFAS No. 123R, Accounting for Stock-Based
Compensation, if the net income threshold is met, the shares will be
released back to Mr Hu and treated as an expense equal to the amount of the
market value of the shares for the amount of the grant-date value of the shares
as of the date that the Make Good Agreement was signed. Based upon the
grant-date fair value of the Escrow Shares of $2.14, the total expense
recognized for the fiscal years of 2008 and 2007 is $ 3,853,401.
China
Ritar achieved its net income thresholds for 2008, an expense of $3,853,401 was
recorded under compensation expense for the year ended December 31,
2008.
F-23
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
22.
Foreign currency exchange gain / (loss)
Foreign
currency transaction loss comprises of two components – (i) FAS 52 translation
gains or losses of the accounts receivable in foreign currency and (ii) the
realized gain and unrealized loss of the derivative instruments as
follows:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Foreign
currency reinstatement / realization loss
|
$ | (827,108 | ) | $ | (666,687 | ) | $ | (274,803 | ) | |||
Derivative
realized gain
|
466,103 | - | - | |||||||||
Derivative
unrealized loss
|
(233,795 | ) | - | - | ||||||||
Total
|
$ | (594,800 | ) | $ | (666,687 | ) | $ | (274,803 | ) |
23. Commitments
and Contingencies
(i)
Operating Leases commitments - In the normal course of business, the Company
leases office space under operating lease agreements. The Company rents office
space, primarily for regional sales administration offices, in commercial office
complexes that are conducive to administrative operations. The operating lease
agreements generally contain renewal options that may be exercised at the
Company's discretion after the completion of the base rental terms. In addition,
many of the rental agreements provide for regular increases to the base rental
rate at specified intervals, which usually occur on an annual basis. The Company
was obligated under operating leases requiring minimum rentals as
follows:
December
31,
|
2008
|
|||
2009
|
$ | 340,159 | ||
2010
|
113,978 | |||
2011
|
- | |||
Total
minimum lease payments
|
$ | 454,137 |
During
the year ended December 31, 2008, rent expenses amounted to $871,228, among
which $685,936, $39,406 and $145,886 were recorded as cost of sales,
administrative expense and selling expense, respectively.
During
the year ended December 31, 2007, rent expenses amounted to $727,981, among
which $546,812, $23,378 and $157,791 were recorded as cost of
sales, administrative expense and selling expense, respectively.
During
the year ended December 31, 2006, rent expenses amounted to $382,854, among
which $309,691, $17,002 and $56,161 were recorded as cost of sales,
administrative expense and selling expense, respectively.
(ii)
Capital commitments – As of December 31, 2008, the Company has entered into
certain contracts but not provided for the following assets:
Land
use right
|
Property,
plant
and
equipment
|
Construction
in
progress
|
Total
|
|||||||||||||
2009
|
$ | 1,771,472 | $ | 118,876 | $ | 255,684 | $ | 2,146,032 | ||||||||
2010
|
- | - | - | - | ||||||||||||
Total
capital commitment
|
$ | 1,771,472 | $ | 118,876 | $ | 255,684 | $ | 2,146,032 |
F-24
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
24. Employee
Benefits
The Company contributes to a state
pension scheme organized by municipal and provincial governments in respect of
its employees in PRC. The compensation expense related to this plan,
which is calculated at a rate of 8% of the average monthly salary, was $287,738,
$295,131 and $282,826 for the years ended December 31, 2008, 2007 and 2006
respectively.
25. Warranty
The
Company accrues an estimate of its exposure to warranty claims based on both
current and historical product sales data and warranty costs
incurred. The Company assesses the adequacy of its recorded warranty
liability annually and adjusts the amount as necessary. The warranty
liability is included in other current liabilities in the accompanying balance
sheet.
The
Provision for warranty is as below:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Opening
balance
|
$ | 136,803 | $ | 125,414 | $ | 85,168 | ||||||
Warranty
provision accrued
|
395,799 | 222,620 | 128,796 | |||||||||
Paid
during warranty period
|
353,989 | 211,231 | 88,550 | |||||||||
Closing
balance
|
$ | 178,613 | $ | 136,803 | $ | 125,414 |
26.
Concentrations, Risks, and Uncertainties
The Company has the following
concentrations of business with each customer constituting greater than 10% of
the Company’s gross sales:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Reliance
Telecom Infrastructure Limited
|
- | 15 | % | - | ||||||||
Electritherm
(India) Limited
|
- | - | 12 | % |
The Company has not experienced any
significant difficulty in collecting its accounts receivable in the past and is
not aware of any financial difficulties being experienced by its major
customers.
The
Company has the following concentrations of business with suppliers constituting
greater than 10% of the Company’s purchasing volume:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Anxi
Min Hua Dianchi Company Limited
|
30 | % | 11 | % | - | |||||||
Quanzhou
City Kaiying Power Company Limited
|
14 | % | 19 | % | 10 | % | ||||||
Zhongshan
Shi Bao Li Xu Battery Company Limited
|
14 | % | 12 | % | - | |||||||
Fu
Jian Da Hua Company Limited
|
- | 10 | % | 16 | % | |||||||
Fu
Jian Quan Zhou Shi Huarui Power Company Limited
|
- | 10 | % | 19 | % |
F-25
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
27. Operating
Risk
Interest rate risk
The interest rates and terms of
repayment of bank and other borrowings are disclosed in Note 15 and Note
16. Other financial assets and liabilities do not have material
interest rate risk.
Credit risk
The Company is exposed to credit risk
from its cash in bank and fixed deposits and bills and accounts
receivable. The credit risk on cash in bank and fixed deposits is
limited because the counterparties are recognized financial
institutions. Bills and accounts receivable are subjected to credit
evaluations. An allowance has been made for estimated irrecoverable
amounts, which has been determined by reference to past default experience and
the current economic environment.
Foreign currency risk
Most of the transactions of the
Company were settled in RMB and U.S. dollars. In the opinion of the
directors, the Company would not have significant foreign currency risk
exposure.
Transaction
gains and losses arising from transactions denominated in a currency other than
the functional currency of the entity involved are included in Other income
(expense), net on the consolidated statements of operations.
Company’s operations are
substantially in foreign countries
Substantially all of the Company’s
products are manufactured in China. The Company’s operations are subject to
various political, economic, and other risks and uncertainties inherent in
China. Among other risks, the Company’s operations are subject to the risks of
restrictions on transfer of funds; export duties, quotas, and embargoes;
domestic and international customs and tariffs; changing taxation policies;
foreign exchange restrictions; and political conditions and governmental
regulations.
F-26
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
28.
Geographical Information
The
Company has only one business segment, which is manufacturing and trading of
rechargeable batteries for use in light electric vehicles or LEV and UPS
segments. The Company's sales by geographic destination are analyzed as
follows:
For
the years ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
PRC
|
$ | 28,418,850 | $ | 25,942,893 | $ | 21,711,605 | ||||||
Outside
PRC
|
||||||||||||
-
Hong Kong
|
9,758,662 | 2,216,584 | 3,780,156 | |||||||||
-
Germany
|
8,321,577 | 8,255,829 | 2,267,679 | |||||||||
-
India
|
14,957,025 | 12,451,677 | 4,656,352 | |||||||||
-South
Africa
|
1,187,451 | 107,967 | 498,206 | |||||||||
-Italy
|
3,285,956 | 2,475,259 | 501,908 | |||||||||
-Singapore
|
1,304,372 | 369,579 | 523,406 | |||||||||
-Brazil
|
7,776,459 | 1,013,414 | 694,287 | |||||||||
-America
|
7,339,735 | 2,587,627 | 323,985 | |||||||||
-Australia
|
4,304,277 | 1,943,345 | 365,317 | |||||||||
-
other countries, less than 5% of total sales individually
|
32,930,132 | 15,982,952 | 5,610,338 | |||||||||
91,165,646 | 47,404,233 | 19,221,634 | ||||||||||
Total
net sales
|
$ | 119,584,496 | $ | 73,347,126 | $ | 40,933,239 |
F-27