Attached files
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EX-32.1 - China Ritar Power Corp. | v179573_ex32-1.htm |
EX-31.2 - China Ritar Power Corp. | v179573_ex31-2.htm |
EX-31.1 - China Ritar Power Corp. | v179573_ex31-1.htm |
EX-32.1 - China Ritar Power Corp. | v179573_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended: December 31, 2009
OR
¨
|
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 ¨ 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 ¨ 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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ Nox
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. ¨
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 ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
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, 2009, 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
$12,664,263 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 24, 2010 there were 21,858,925 shares of the Registrant’s common stock
outstanding.
CHINA
RITAR POWER CORP.
FORM
10-K
For the
Fiscal Year Ended December 31, 2008
Page
|
||||
PART
I
|
||||
Item
1.
|
Business
|
1 | ||
Item
1A.
|
Risk
Factors
|
8 | ||
Item
2.
|
Properties
|
15 | ||
Item
3.
|
Legal
Proceedings
|
15 | ||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
16 | ||
PART
II
|
||||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
16 | ||
Item
6.
|
Selected
Financial Data
|
16 | ||
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16 | ||
Item
8.
|
Financial
Statements and Supplementary Financial Data
|
26 | ||
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
26 | ||
Item
9A(T)
|
Controls
and Procedures
|
26 | ||
Item
9B.
|
Other
Information.
|
27 | ||
PART
III
|
||||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
28 | ||
Item
11.
|
Executive
Compensation
|
30 | ||
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
31 | ||
Item
13.
|
Certain
Relationships and Related Party Transactions, and director
independence
|
33 | ||
Item
14.
|
Principal
Accountant Fees and Services
|
34 | ||
PART
IV
|
||||
Item
15.
|
Exhibits,
Financial Statements Schedules
|
34 |
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 which
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.
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 66.19% of our total revenue in fiscal year 2009.
Our major export markets are India, Italy, Germany, the United States, Australia
and Brazil.
Through
our manufacturing facilities located in Shenzhen and Hengyang, we currently have
19 lead acid battery production lines that are operational. Eight of them
are located at Hengyang Ritar, eleven production lines are located at
Shenzhen 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. We sold all of our ownership
interest in Shanghai Ritar on October 15, 2009 and no longer maintain any
manufacturing facility in Shanghai.
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.
1
The
following chart reflects our organization structure as of the date of this
annual report.
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:
|
|
-
|
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.
|
2
|
-
|
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
|
Less
than or equal to
|
UPS
|
|||
4V
|
28AH
|
Emergency
lights
|
||||
6V
|
Automatic
control systems
|
|||||
8V
|
Medical
equipment
|
|||||
10V
|
Electric
toys and tools
|
|||||
12V
|
||||||
18V
|
||||||
24V
|
||||||
36V
|
||||||
RA
Series
|
6V
|
28AH
– 240AH
|
UPS
|
|||
12V
|
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
|
Electric
bicycles
|
|||
22AH
|
Electric
motorcycles
|
|||||
24AH
(20 hours)
|
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
|
|
·
|
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
|
3
|
·
|
EPS
and alarm systems
|
|
·
|
Others
(electric toys, solar power and wind
power)
|
Manufacturing
Our
manufacturing facilities are located in Shenzhen and Hengyang in the PRC. We
currently have 19 lead acid battery production lines that are operational.
Eleven production lines are located at Shenzhen Ritar, eight 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. We sold all of
our ownership interest in Shanghai Ritar on October 15, 2009 and no longer
maintain any manufacturing facility in Shanghai.
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.
|
|
·
|
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 $33.35 million, or 33.81%,
of our net sales in fiscal year 2009 attributable to China and $65.28 million,
or 66.19%, 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 66.19%, 78.53% and
64.6% of total sales for the years ended December 31, 2009, 2008 and 2007,
respectively.
4
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 2009.
TOP
TEN CLIENTS IN 2009
No.
|
Name
|
Description
of
Client
|
Sales
(in
thousands
of
US
dollars)
|
Percentage
of
Total
Sales
|
||||||||
1
|
Emerson
Network Power Co,.Ltd
|
a
global network power solutions supplier
|
4,358
|
4.4
|
%
|
|||||||
2
|
Ascent
Battery Supply, LLC
|
UPS
distributor in USA
|
3,816
|
3.9
|
%
|
|||||||
3
|
Lianzheng
Electronic (Shenzhen) Co.,Ltd
|
UPS
manufacturer in China
|
2,910
|
3.0
|
%
|
|||||||
4
|
Effekta
Regeltechnik Gmbh
|
UPS
manufacturer in Germany
|
2,432
|
2.5
|
%
|
|||||||
5
|
Alco
Battery Sales Aust
|
Solar
energy product distibutor in Australian
|
2,295
|
2.3
|
%
|
|||||||
6
|
Luminous
Power Technologies
|
UPS
manufacturer in India
|
2,061
|
2.1
|
%
|
|||||||
7
|
Jiaxing
Refined Mechanics Hi-Tech Co., Ltd.
|
Linear
motion actuators manufacturer in China
|
2,023
|
2.1
|
%
|
|||||||
8
|
Beghelli
Asia Pacific Ltd
|
UPS
distributor in Hongkong
|
1,996
|
2.0
|
%
|
|||||||
9
|
OKIN
America, LLC
|
Furniture manufacturer
in USA
|
1,750
|
1.8
|
%
|
|||||||
10
|
Power
Safe Importaco, Exportacao Ltd
|
UPS
distributor in Brazil
|
1,745
|
1.8
|
%
|
|||||||
Total
|
25,188
|
25.5
|
%
|
Sales
and Marketing
For
domestic sales, we have about 500 domestic original equipment manufacturers, or
OEM clients that we sell our products to directly. Our domestic sales accounted
for about 33.81%, 21.47% and 35.4% of total sales for the years ended December
31, 2009, 2008 and 2007, 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 66.19%, 78.53% and 64.6% of total sales for the years ended
December 31, 2009, 2008 and 2007, 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.
5
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.
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, 2009, 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.
6
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.
During
the fiscal years 2009, 2008 and 2007, our research and development expenses
amounted to approximately $0.56 million, $0.47 million and $0.27 million,
representing approximately 0.57%, 0.39% and 0.36% 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, 2009, 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
|
1,274
|
|||
Quality
Control
|
132
|
|||
Domestic
Sales
|
35
|
|||
After
Sales Service
|
15
|
|||
Human
Resources
|
45
|
|||
Planning
and Material Center
|
35
|
|||
Research
and Development
|
79
|
|||
International
Sales
|
70
|
|||
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 and Hengyang 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.
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.
7
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 62.8% 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.
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.
8
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.
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.
9
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, 2009, 2008 and
2007, over 25.5%, 32.2 % and 41% 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.
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 Aijun Liu, 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.
10
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,
2010 and a report of our management on our internal control over financial
reporting for the fiscal year ended December 31, 2009 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.
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.
|
11
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.
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.
12
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.
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.
13
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
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.
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.
14
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
had a secondary production facility in Shanghai, China which manufactured
LEV lead-acid batteries. The total site area of this facility is approximately
13,000 square meters. We leased 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 sold all of our ownership interest in
Shanghai Ritar on October 15, 2009 and no longer maintain any manufacturing
facility in Shanghai.
Our
other 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.
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.
15
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 2009.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Market
for Our Common Stock
Prior to
August 3, 2009, our common stock was quoted on the Over-the-counter Bulletin
Board (“OTCBB”) under the symbol “CRTP.” On August 3, 2009, we terminated our
listing on OTCBB and listed our common stock on NASDAQ Global Market also under
the symbol “CRTP.” The following table sets forth, for the indicated period, the
high and low sale prices for our common stock as reported on NASDAQ, and prior
to August 3, 2009, as reported on OTCBB. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions.
Common
Stock Market Price
|
||||||||
High
|
Low
|
|||||||
Year
Ended December 31, 2009
|
||||||||
1st
Quarter
|
$
|
1.79
|
$
|
1.65
|
||||
2nd
Quarter
|
$
|
3.00
|
$
|
2.78
|
||||
3rd
Quarter
|
$
|
6.10
|
$
|
5.71
|
||||
4th
Quarter
|
$
|
5.00
|
$
|
4.65
|
||||
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
|
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.
16
Our
revenue decreased by 12% from $112.3 million in fiscal year 2008 to $98.6
million in fiscal year 2009. The decreases is due to a 12% decline in our
average selling price of which was caused by the decrease in the prices of main
raw materials as a result of the global financial crisis and recession. We
continually seek to broaden our market reach by introducing new production lines
and improving our profit margin through vertical integration.
We
currently have 19 lead acid battery production lines, eleven of which are
located at Shenzhen Ritar and eight of which 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 in March 2008 and
lead acid battery production at this facility began in April 2008. In July of
2008, we began production of lead plates at the Hengyang facility as
well.
Revenue
All of
our revenue is generated from the 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, | ||||||||
2009
|
2008
|
|||||||
Components
of Revenues
|
||||||||
Total
revenue
|
$ | 98,630 | $ | 112,312 | ||||
Revenue
by Product
|
||||||||
UPS
|
$ | 34,521 | $ | 36,482 | ||||
Telecom
|
$ | 29,589 | $ | 48,112 | ||||
Renewable
Energy
|
$ | 24,658 | $ | 17,808 | ||||
LEV
|
$ | 9,862 | $ | 9,910 |
Cost
of Revenue
Cost of
revenue includes the cost of our raw materials, employee remuneration for staff
engaged in production activity, and other related expenses that are directly
attributable to the manufacturing of our products.
Gross
Profit and Gross Margin
Between
fiscal years 2008 and 2009, we were able to maintain our gross margins at
between approximately 19% and 21% consisting of approximately 19% for domestic
sales and 21% for international sales. Changes in our gross margins are
primarily driven by cost of goods sold as percentage of revenues which comprised
mainly of cost of raw materials and direct labor cost per unit
product.
To gain
market share in our industry, we price our products at levels that we believe
are competitive. Through our continuous efforts to improve manufacturing
efficiencies and to reduce our production costs, we believe that we are able to
offer products with 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
expenses 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.
Provision
for Income Taxes
United
States
The
Company was incorporated in the United States of America and is subject to U.S.
tax. No provisions for income taxes have been made as the Company has
no taxable income for the years presented.
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.
17
PRC
Our
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%. Shenzhen Ritar was charged on
preferential enterprise income tax rate at 18% and 20% in 2008 and 2009,
respectively, 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 had never commenced business since incorporation. In 2009, the Company
initiated the liquidation of Huizhou Ritar.
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:
2009
|
2008
|
||||||
Current
tax
|
|||||||
-
PRC
|
$
|
2,063,339
|
$
|
2,400,314
|
|||
-
Deferred tax provision
|
(115,017)
|
-
|
|||||
Total
|
$
|
1,948,322
|
$
|
2,400,314
|
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,
2009
|
Year Ended December 31,
2008
|
|||||||||||||||
In Thousands
|
As a
percentage of
revenues
|
In Thousands
|
As a
percentage of
revenues
|
|||||||||||||
Revenues
|
98,630
|
100.00
|
%
|
112,312
|
100.00
|
%
|
||||||||||
Cost
of Sales
|
(79,684
|
)
|
(80.79
|
)%
|
(90,013
|
)
|
(80.15
|
)%
|
||||||||
|
|
|
|
|
||||||||||||
Gross
Profit
|
18,946
|
19.21
|
%
|
22,299
|
19.85
|
%
|
||||||||||
|
||||||||||||||||
Operating
Expenses
|
||||||||||||||||
Salaries
|
(2,040
|
)
|
(2.07
|
)%
|
(5,225
|
)
|
(4.65
|
)%
|
||||||||
Sales
Commission
|
(1,597
|
)
|
(1.62
|
)%
|
(1,566
|
)
|
(1.39
|
)%
|
||||||||
Shipping
and handling cost
|
(1,051
|
)
|
(1.07
|
)%
|
(1,483
|
)
|
(1.32
|
)%
|
||||||||
Other
selling, general and administrative expenses
|
(3,672
|
)
|
(3.72
|
)%
|
(4,888
|
)
|
(4.35
|
)%
|
||||||||
(8,360
|
)
|
(8.48
|
)%
|
(13,162
|
)
|
(11.71
|
)%
|
|||||||||
Operating
Profit
|
10,586
|
10.73
|
%
|
9,137
|
8.14
|
%
|
||||||||||
Other
Income and (Expenses)
|
||||||||||||||||
Interest
Income
|
116
|
0.12
|
%
|
192
|
0.17
|
%
|
||||||||||
Government
grants
|
-
|
-
|
-
|
-
|
||||||||||||
Other
income
|
160
|
0.16
|
%
|
2
|
0.002
|
%
|
||||||||||
Interest
expenses
|
(716
|
)
|
(0.73
|
)%
|
(512
|
)
|
(0.46
|
)%
|
||||||||
Foreign
currency exchange loss
|
(51
|
)
|
(0.05
|
)%
|
(557
|
)
|
(0.50
|
)%
|
||||||||
Other
expenses
|
(7
|
)
|
(0.01
|
)%
|
(9
|
)
|
(0.01
|
)%
|
||||||||
Other
income (expenses)
|
(498
|
)
|
(0.50
|
)%
|
(884
|
)
|
(0.79
|
)%
|
||||||||
Income
from continuing operations before income taxes
|
10,088
|
10.23
|
%
|
8,253
|
7.35
|
%
|
||||||||||
Income
taxes
|
(1,948
|
)
|
(1.98
|
)%
|
(2,400
|
)
|
(2.14
|
)%
|
||||||||
Income
from continuing operations
|
8,140
|
8.25
|
%
|
5,853
|
5.21
|
%
|
||||||||||
Discontinued
operations
|
||||||||||||||||
Loss
from discontinued operations, net of taxes
|
(377
|
)
|
(0.38
|
)%
|
(719
|
)
|
(0.64
|
)%
|
||||||||
Loss
on disposal of discontinued operations, net of taxes
|
911
|
0.92
|
%
|
-
|
-
|
|||||||||||
Income
(loss) from discontinued operations, net of tax
|
534
|
0.54
|
%
|
(719
|
)
|
(0.64
|
)%
|
|||||||||
Net
income
|
8,674
|
8.79
|
%
|
5,134
|
4.57
|
%
|
||||||||||
Add:
Loss from discontinued operations attributable to noncontrolling
interest
|
19
|
0.02
|
%
|
30
|
0.03
|
%
|
||||||||||
Net
income attributable to China Ritar stockholders
|
8,693
|
8.81
|
%
|
5,164
|
4.60
|
%
|
18
Comparison
of Years Ended December 31, 2009 and December 31, 2008
Revenues. Revenues
decreased by approximately $13.68 million, or 12.18% to approximately
$98.63million for the year ended December 31, 2009 from approximately $112.31
million for the same period in 2008. This decrease was mainly attributable to a
12% decrease in our average selling price which was caused by the decrease in
the prices of main raw materials as a result of the global financial crisis and
recession. We expect that our revenue will be positively impacted as the
global economic recovery in 2010.
Lead is
the most important raw material used in the production of our products. 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). The cost of lead accounts for approximately 62.8% of the total cost
of raw materials. We have provided a sales policy with our clients that the
price of our products will fluctuate 0.6% every time the price of lead fluctuate
by 1%.
Cost of
Sales. Our cost of sales decreased by approximately $10.33
million, or 11.47% to approximately $79.68million for the year ended December
31, 2009 from approximately $90.01 million for the same period in
2008. This decrease was due to the decrease in prices of main raw
materials as discussed above. As a percentage of revenues, the cost
of sales increased to 80.79% during the year ended December 31, 2009 from 80.15%
for the same period in 2008.
Gross
Profit. Our gross profit decreased by approximately $3.35
million, or 15.04% to approximately $18.95 million for the year ended December
31, 2009 from approximately $22.30 million for the same period in
2008. Gross profit as a percentage of revenues was 19.21% for the
year ended December 31, 2009, a slight decrease of 0.64% from 19.85% for the
same period of 2008. Such decrease was mainly due to the decrease in our average
selling price, and the increase of unit manufacturing cost as a result of low
capacity utilization for the new factory in Hengyang.
Salaries. Salaries
decreased by approximately $3.19 million, or 60.97% to approximately $2.04
million for the year ended December 31, 2009 from $5.22 million for the same
period in 2008. As a percentage of revenues, salaries decreased to
2.07% for the year ended December 31, 2009 from 4.65% for the same period in
2008. The decrease of salaries was mainly attributable to the provision for the
stock-based compensation of $3.85 million for the year ended December 31,
2008 required by the release of shares of our common stock to our CEO from
escrow. We made no such provision for the
stock-based compensation for the year ended December 31, 2009. Except for
the provision of such expenses, salaries as a percentage of revenues increased
0.85% to 2.07% for the year ended December 31, 2009 from 1.22% for the same
period of 2008. The increase was mainly attributable to a significant increase
of the staff of sales team and the new factory scale
expansion.
Stock-based
compensation. We made no provision for stock-based compensation for
the year ended December 31, 2009, however, stock-based compensation was
approximately $3.85 million for the year ended December 31, 2008. The
stock-based compensation was attributable to the provision of a “make good
provision” expense for the year ended December 31, 2008. In
connection with the private placement on February 16, 2007, our largest
stockholder, 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
the Company 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. Approximately $3.85 million was recognized as an expense in
accordance with SFAS No. 123R for the year ended December 31,
2008.
19
Sales
Commission. Sales commission increased by approximately $0.03
million, or 1.98% to approximately $1.60 million for the year ended December 31,
2009 from approximately $1.57 million for the same period in 2008. As
a percentage of revenues, sales commission increased to 1.62% for the year ended
December 31, 2009 from 1.39 % for the same period of 2008. Such increase was
because we exerted greater efforts in developing new customers, which resulted
in the tremendous increase in orders from new customers and sales
commission increased correspondingly.
Shipping and
handling cost. Shipping and handling cost decreased by
approximately $0.43 million, or 29.16% to approximately $1.05 million for the
year ended December 31, 2009 from approximately 1.48 million for the same period
in 2008. As a percentage of revenues, shipping and handling cost
decreased to 1.07% for the year ended December 31, 2009 from 1.32% for the same
period of 2008. The percentage decrease was mainly attributable to the 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 decreased approximately $1.22 million, or 24.86% to
approximately $3.67 million for the year ended December 31, 2009 from
approximately $4.89 million for the same period of 2008. As a
percentage of revenues, other selling, general and administrative expenses
decreased to 3.72% for the year ended December 31, 2009 from 4.35% for the same
period of 2008. The dollar decrease was mainly attributable to our great
efforts to cut and control expenses.
Income
from
Continuing Operations before Income
Taxes. Income from continuing operations before income taxes
increased by approximately $1.83 million or 22.23% to approximately $10.08
million for the year ended December 31, 2009 from approximately $8.25 million
for the same period in 2008. Income from continuing operations before
income taxes as a percentage of revenues increased to 10.23% for the year ended
December 31, 2009 from 7.35% for the same period of 2008. The increase was
mainly attributable to stock-based compensation of $3.85 million related to the
make good provisions for the year ended December 31, 2009 as discussed
above.
Income
Taxes. Income taxes decreased by approximately
$0.45 million to approximately $1.95 million for the year ended December
31, 2009 from approximately $2.40 million for the same period of
2008. We paid fewer taxes in 2009 mostly because of the decreased
income before income taxes during this period compared to the same period of
2008 (except for non-cash stock-based compensation of $3.85
million).
Net
Income. Net income increased approximately $3.54 million,
or 68.95% to approximately $8.67 million for the year ended December 31,
2009 from approximately $5.13 million for the same period of 2008. The increase
of net income was mainly attributable to the factors discussed
above.
20
Liquidity
and Capital Resources
As of
December 31, 2009, we had cash and cash equivalents of approximately $20.5
million. The following table provides detailed information about our net cash
flow for all financial statements periods presented in this report.
Year
Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
cash provided by operating activities
|
$ | 8,264,882 | $ | 4,082,227 | ||||
Net
cash (used in) investing activities
|
$ | (3,653,218 | ) | $ | (7,916,106 | ) | ||
Net
cash provided by financing activities
|
$ | 8,281,930 | $ | 6,289,029 | ||||
Net
cash inflow
|
$ | 12,917,664 | $ | 2,884,834 |
Operating
Activities
Net cash
provided by operating activities was approximately $8.26 million for the
year ended December 31, 2009, which is an increase of approximately
$4.18 million from net cash provided by operating activities of
approximately $4.08 million for the same period in 2008. The increase
of cash provided by operating activities was mainly attributable to increased
accounts payable, increased income and other tax payable and increased
bills payable, partially offset by an increase in accounts receivable and
advance to suppliers.
Investing
Activities
Our main
uses of cash for investing activities are payments for the acquisition of
property, plant and equipment and land use right associated with the
expansion of our capacity.
Net cash
used in investing activities for the year ended December 31, 2009 was
approximately $3.65 million, a decrease of approximately $4.27 million as
compared to net cash used in investing activities of approximately $7.92 million
for the same period in 2008. The decrease of cash used in investing
activities was mainly due to the decrease of payments to acquire property, plant
and the equipment and land use right in our subsidiary Hengyang Ritar to build
new production lines.
Financing
Activities
Net cash
provided by financing activities was approximately $8.28 million for the year
ended December 31, 2009, an increase of approximately $1.99 million
from net cash provided by financing activities of $6.29 million in the same
period in 2008. The increase of cash provided by financing activities
was mainly attributable to the increase of $12.06 million net proceeds
from issuance of common stock, partially offset by net outflow of bank
borrowings in 2009.
21
Loan
Facilities
We
believe we currently maintain a good business relationship with many banks. As
of December 31, 2009 and 2008, the maturities for our bank loans are as
follows.
Short-term
loans consist of the following:
Interest
|
As
of December 31,
|
|||||||||||||
Bank
|
Loan period
|
rate
|
Securities
|
2009
|
2008
|
|||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
$ | − | $ | 146,314 | |||||||
Citibank
|
2008-10-24
to 2009-1-21
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 540,470 | |||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 132,576 | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 389,059 | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 1,074,085 | |||||||||
DBS
Bank
|
2008-10-21
to 2009-2-6
|
8%
p.a.
|
Bank
deposits
|
− | 85,239 | |||||||||
DBS
Bank
|
2008-12-10
to 2009-2-13
|
7%
p.a.
|
Bank
deposits
|
− | 481,630 | |||||||||
Citibank
|
2008-12-15
to 2009-3-13
|
7%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 585,257 | |||||||||
DBS
Bank
|
2008-12-30
to 2009-4-10
|
7%
p.a.
|
Bank
deposits
|
162,325 | ||||||||||
DBS
Bank
|
2009-10-22
to 2010-2-8
|
6%
p.a.
|
Property,
plant and equipment, land use right and personal guarantee
|
864,064 | − | |||||||||
DBS
Bank
|
2009-11-12
to 2010-3-3
|
6%
p.a.
|
Property,
plant and equipment land use right and directors’ personal
guarantee
|
251,897 | − | |||||||||
DBS
Bank
|
2009-12-31
to 2010-4-21
|
6%
p.a.
|
Property,
plant and equipment land use right and directors’ personal
guarantee
|
348,554 | − | |||||||||
$ | 1,464,515 | $ | 3,596,955 |
22
Long-term
loans consist of the following:
As
of December 31,
|
||||||||
2009
|
2008
|
|||||||
Loan
from DBS Bank, bearing interest at 6.91% (2008: 9.072%) p.a., repayable by
monthly installments from 2009-04-18 to 2013-09-18, secured by certain
property, plant and equipment and land use right of the Company as
disclosed in Note 9 and Note 11 to our financial
statement.
|
$ | 3,661,288 | $ | 4,389,431 | ||||
Loan
from DBS Bank, bearing interest at 5% p.a., repayable by monthly
installments from 2009-07-12 to June 2011-06-12, secured by machinery and
equipment of Hengyang Ritar as disclosed in Note 9 and joint guarantees
given by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Hengying Peng and
Mr. Jianjun Zeng
|
562,373 | - | ||||||
Other
borrowing from Department of Science and Technology of Bao An, interest
free, term from 2007-12-20 to 2009-12-20, and secured by the Shenzhen
Small and Medium Enterprises Credit Guarantee Center
|
- | 146,314 | ||||||
Total
loans
|
4,223,661 | 4,535,745 | ||||||
Less:
Current maturities
|
1,342,473 | 877,886 | ||||||
Long-term
loans, less current maturities
|
$ | 2,881,188 | $ | 3,657,859 | ||||
Future
maturities of long-term loans are as follows:
|
||||||||
Payable
within the years ending December 31,
|
||||||||
2009
|
$ | - | $ | 877,886 | ||||
2010
|
1,342,473 | 975,429 | ||||||
2011
|
1,172,588 | 975,429 | ||||||
2012
|
976,343 | 975,429 | ||||||
2013
|
732,257 | 731,572 | ||||||
Total
|
$ | 4,223,661 | $ | 4,535,745 |
In
October 2009, the Company completed the sale of 2,150,000 shares of common stock
to selected institutional investors for $6.00 per share and raised proceeds of
$12,059,499, net of placement agent fees and other direct expenses.
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.
23
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, 2009, Shenzhen Ritar had
Nil outstanding loans borrowed from Citibank (China) Co., Ltd., Shenzhen
Branch.
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% per annum (6.91% per
annum in 2009). 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 $1.46
million with an interest rate of 6% 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.
During
the second quarter of 2009, 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
$0.73 million from DBS with an interest rate of 5% per annum. Hengyang
Ritar agreed to make a monthly principal payment of $30,494 by 24 installment
starting July 2009. The loan is secured by the machinery and equipment of
Henyang Ritar and was 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,
2009:
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
|
$
|
5,688
|
$
|
2,807
|
$
|
2,881
|
-
|
-
|
||||||||||||
Operating
lease obligations
|
828
|
468
|
360
|
-
|
-
|
|||||||||||||||
Capital
Lease Obligations
|
581
|
581
|
-
|
-
|
-
|
|||||||||||||||
Purchase
Obligations
|
-
|
-
|
-
|
|||||||||||||||||
Total
|
$
|
7,097
|
$
|
3,856
|
$
|
3,241
|
-
|
-
|
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, 2009.
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:
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.
|
24
Ÿ
|
Trade accounts
receivable – Trade accounts receivable is stated at billed amounts,
net of allowance for doubtful accounts. Management provides an allowance
for doubtful debts arising from amounts that are due for one year or more
from the expiry of credit periods allowed by the Company. The
Company grants credit terms to customers varying from “cash on delivery”
to 210 days from delivery. 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 reviews the carrying value of long-lived
assets, including property, plant, and equipment and intangible assets
subject to amortization, 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.
|
Derivative instruments - The
Company entered into forward foreign currency contracts with banks to manage a
portion of foreign currency risk related to U.S. Dollar denominated asset
balances against the functional currency, Renminbi (the lawful currency of
China), of its PRC subsidiary. The forward foreign currency contracts did not
qualify for hedge accounting and were carried at fair value as assets or
liabilities, with unrealized gains and losses recognized based on changes in
fair value in the caption “Foreign Currency Exchange Gain (Loss)” in the
Company’s consolidated statement of income and comprehensive income. In the
third quarter of fiscal 2009, all of the Company’s forward foreign currency
contracts had expired. The fair value of these forward foreign exchange
contracts had been determined using standard calculations/models that use as
their basis readily observable market parameters including spot and forward
rates and a net present value stream of cash flows model.
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, 2009 and
2008, research and development costs expensed to operating expenses were
approximately $561,357 and $469,530, 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 year presented in accordance
with FASB ASC 260-10, “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.
25
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
Please
refer to “Note 3—Recent Changes in Accounting Standard” to our Financial
Statements.
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, 2009,
and 2008 begins on page F-1 of this Report.
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
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 Aijun Liu, 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 Liu concluded that as of December 31, 2009, 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.
26
(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, 2009. 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, 2009.
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 year ended December 31, 2009, 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.
|
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, Shenzhen Ritar and Hengyang Ritar have obtained
relevant credit facilities from China CITIC Bank, Shenzhen Branch, Citibank,
Shenzhen Branch, DBS bank, Shenzhen Branch and Bank of China, Hengyang Branch,
and Bank of China (the “Banks”). Pursuant to the Banks’ facilities
letters and loan agreements, as of December 31, 2009, the Company had available
facilities for such bank acceptances up to approximately $30,852,451, of which
$13,498,001 was utilized and recorded as bills payable as of December 31, 2009.
Plus, $556,516 was utilized by Shengzhen Ritar for payable to Hengyang
Ritar.
The
Company is required to place bank deposits, classified as restricted cash as
disclosed in Note 5, equal to 30-100%, subject to bank’s decision, of the bills
amount as collaterals against the Banks’ guarantees for such bills. Such bank
acceptance facilities up to approximately $9,519,346 granted by Citibank,
Shenzhen Branch, are additionally secured by guarantees provided by Shanghai
Ritar, Hengyang Ritar, Mr. Jiada Hu (CEO and principal stockholder of
the Company) and Ms. Henying Peng (director of certain subsidiaries of the
Company and the spouse of Mr. Jiada Hu). Under this kind of arrangement,
Shenzhen Ritar is obligated to pay 0.05% of the bills amount as handling
charges.
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.
27
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
|
46
|
Chief
Executive Officer, President, Secretary, Treasurer and
Director
|
||
Jianjun
Zeng
|
43
|
Chief
Operating Officer and Director
|
||
Degang
He
|
70
|
Chief
Technology Officer
|
||
Zhenghua
Cai(1)
|
40
|
Chief
Financial Officer
|
||
Aijun
Liu(1)
|
34
|
Chief
Financial Officer
|
||
Charles
C. Mo
|
58
|
Director
|
||
Yaofu
Tang
|
63
|
Director
|
||
Xiongjie
Wang
|
60
|
Director
|
(1) Mr.
Cai resigned as our CFO on January 18, 2010 and Mr. Liu was appointed as our CFO
on the same date.
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.
AIJUN
LIU. From April 2007 to December 2009, Mr. Liu was the Chief Accounting Officer
of the Company’s subsidiary, Shenzhen Ritar Power Co., Ltd. and was in charge of
accounting and finance. Prior to this, Mr. Liu served as a Director of
Investment Bank Department with China US Venture Capital Group Limited and
provided investment banking service for listing on America for Chinese
enterprises from September 2005 to March 2007. From August 2002 to August 2005,
Mr. Liu served as an Audit Manager with the Shenzhen Zhongheng Certified Public
Accountants Co., Ltd. From June 1997 to July 2002, Mr. Liu was the
Financial Manager of Shenzhen Wanji Pharmacy Co.,Ltd., a big company engaged in
the business of research, manufacturing and selling medicines. Mr.Liu is a CPA
and holds a lawyer’s certificate of qualification in China. Mr. Liu received a
Bachelor’s Degree in Accounting from Jinan University and obtained a Master’s
degree in Law from Wuhan University.
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).
28
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.
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. The Audit Committee consists of Messrs. Mo, Wang and Tang
with Mr. Mo serving as the Chair of the Audit Committee. The Compensation
Committee consists of Messrs. Mo, Wang and Tang with Mr. Tang serving as the
Chair of the Compensation Committee. The Governance and Nominating Committee
consists of Messrs. Mo, Wang and Tang with Mr. Wang serving 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.
29
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 2009 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.
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 2009 and 2008. No executive officers received total
compensation in excess of $100,000.
Name and
Principal Position
|
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Total
($)
|
|
|||||||
Jiada
Hu Director,
|
2009
|
52,700
|
40,405
|
-
|
93,105
|
|||||||||
CEO,
President, Secretary, Treasurer (1)
|
2008
|
51,980
|
5,288
|
3,853,401
|
3,910,669
|
|||||||||
Zhenghua
Cai, Chief Financial Officer
|
2009
|
26,350
|
-
|
-
|
26,350
|
|||||||||
2008
|
25,990
|
-
|
-
|
25,990
|
30
(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 $3.85 million separately was recognized as an
expense for 2007 and 2008 in accordance with SFAS No.
123R.
|
Employment
Agreements
On August
1, 2006, our subsidiary, Shenzhen Ritar, entered into employment agreements with
Jiada Hu, our Chief Executive Officer, President, Secretary and Treasurer, and
Zhenghua Cai, our Chief Financial Officer. The term of each employment agreement
is three years. The employment agreements provide the amount of each executive
officer’s salary and establish their eligibility to receive a bonus. Mr. Hu’s
employment agreement provides for an annual salary of approximately ¥360,000, and Mr.
Cai’s employment agreement provides for an annual salary of approximately ¥180,000. The
employment agreements do not entitle the executives to severance payments or
payments following a change in control.
Outstanding
Equity Awards at Fiscal Year End
There was
no unexercised option, stock that has not vested or equity incentive plan award
for any named executive officer as of December 31, 2008 and 2009.
Director
Compensation
The table
below sets forth the compensation of our directors for the fiscal year ended
December 31, 2009:
Name
|
Fees
Earned or
Paid in
Cash ($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
All Other
Compensation
($)
|
Total ($)
|
||||||||||||||||||
Jiada
Hu(1)
|
93,105
|
-
|
-
|
-
|
-
|
93,105
|
||||||||||||||||||
Jianjun
Zeng(2)
|
28,741
|
-
|
-
|
-
|
-
|
28,741
|
||||||||||||||||||
Charles
C. Mo
|
12,000
|
-
|
-
|
-
|
-
|
12,000
|
||||||||||||||||||
Yaofu
Tang
|
10,000
|
-
|
-
|
-
|
-
|
10,000
|
||||||||||||||||||
Xiongjie
Wang
|
10,000
|
-
|
-
|
-
|
-
|
10,000
|
(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.
(2) Mr.
Zeng does not receive additional compensation for his service as our director.
The compensation disclosed herein is his compensation for serving as our Chief
Operating Officer 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 24, 2010 (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.
31
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
|
7,713,594
|
35.28
|
%
|
|||||||
Jianjun
Zeng
|
Chief
Operating Officer
|
Common
Stock $0.001 par value
|
0
|
0
|
||||||||
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
|
7,713,594
|
35.28
|
%
|
||||||||
5%
Securities Holder
|
||||||||||||
Pope
Asset Management, LLC
5100
Poplar Ave., Suite 805
Memphis,
TN 38137(6)
|
Common
stock $0.001 par value
|
4,166,627
|
19.06
|
%
|
||||||||
Pope
Investments LLC(7)
c/o
Pope Asset Management
5100
Poplar Ave., Suite 805
Memphis,
TN 38137
|
Common
Stock $0.001 par value
|
2,111,075
|
9.65
|
%
|
||||||||
Pope
Investments II LLC
c/o
Pope Asset Management
5100
Poplar Ave., Suite 805
Memphis,
TN 38137
|
Common
Stock $0.001 par value
|
511,200
|
2.33
|
%
|
||||||||
William
P. Wells(8)
c/o
Pope Asset Management
5100
Poplar Ave., Suite 805
Memphis,
TN 38137
|
Common
Stock $0.001 par value
|
4,166,627
|
19.06
|
%
|
||||||||
Henying
Peng(5)(9)
|
Common
Stock $0.001 par value
|
7,713,594
|
35.28% |
* Less
than 1%
(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 21,858,925 shares of our common stock as of March 24, 2010 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
401,680 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
1,544,352 shares of common stock held by Pope Asset Management, LLC on behalf of
its clients, 2,111,075 shares of common stock held by Pope Investments LLC and
511,200 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
13D filed with the SEC on February 17, 2010, excluding the 411,215 shares of
underlying the warrant to purchase shares of common stock that expired on
February 15, 2010.
32
(7)Includes
2,111,075 shares of common stock. The foregoing information is derived from a
Schedule 13D filed with the SEC on February 17, 2010, excluding the 411,215
shares of underlying the warrant to purchase shares of common stock that expired
on February 15, 2010.
(8) )Includes
1,544,352 shares of common stock held by Pope Asset Management, LLC on behalf of
its clients, 2,111,075 shares of common stock held by Pope Investments LLC and
511,200 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. 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 13D filed with the SEC on February 17, 2010, excluding the
411,215 shares of underlying the warrant to purchase shares of common stock that
expired on February 15, 2010.
(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 2008 and
2009. 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.
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.
33
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.
Certain
of the Company’s short-term and long-term loans (see Notes 16 and 17
to our financial statement) and bills payable (see Note 15 to our financial
statement) are secured by personal guarantees provided by Mr. Jiada Hu (CEO and
principal stockholder of the Company) and Ms. Henying Peng (director of certain
subsidiaries of the Company and the spouse of Mr. Jiada Hu).
On
October 15, 2009, Shenzhen Ritar entered into an agreement with a family member
of Ms. Henying Peng (director of certain subsidiaries of the Company and the
spouse of Mr. Jiada Hu, CEO and principal stockholder of the Company) to sell
95%, representing all of Shenzhen Ritar’s ownership interest in Shanghai Ritar,
for RMB2,850,000 (or $417,216), payable in cash within 6 months from the date of
the agreement.
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.
|
AGCA,
Inc. (f/n/a Yu and Associates CPA Corporation) served as our independent
accountants for the fiscal years ended December 31, 2009 and December 31,
2008
During
the fiscal years ended December 31, 2009 and December 31, 2008, fees for
services provided by AGCA, Inc. were as follows:
|
2009
|
2008
|
||||||
Audit
fees(1)
|
$
|
200,000
|
$
|
120,000
|
||||
Audit-related
fees
|
||||||||
Tax
fees(2)
|
5,000
|
1,000
|
||||||
All
other fees
|
||||||||
Total
|
205,000
|
121,000
|
(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
AGCA, Inc. for our consolidated financial statements as of and for the year
ended December 31, 2009.
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).
|
34
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).
|
|
10.1
|
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).
|
|
10.2
|
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).**
|
|
10.3
|
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).**
|
|
10.4
|
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).**
|
|
10.5
|
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).**
|
|
10.6
|
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).
|
|
10.7
|
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).
|
|
10.8
|
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).
|
|
10.9
|
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).
|
|
10.10
|
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).
|
|
10.11
|
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).
|
|
10.12
|
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).
|
35
10.13
|
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).
|
|
10.14
|
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).
|
|
10.15
|
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).
|
|
10.16
|
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).
|
|
10.17
|
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).
|
|
10.18
|
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).
|
|
10.19
|
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).
|
|
10.20
|
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).
|
|
10.21
|
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).
|
|
10.22
|
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).
|
|
10.23
|
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).
|
|
10.24
|
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).
|
|
10.25
|
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).
|
|
10.26
|
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).
|
|
10.27
|
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).
|
|
10.28
|
Placement
Agent Agreement, dated October 2, 2009 between China Ritar Power Corp. and
Roth Capital Partners, LLC
(Incorporated
by reference to Exhibit 10.1 to the registrant’s current report on Form
8-K filed on October 5,
2009.)
|
36
10.29
|
Form
of Subscription Agreement (Incorporated by reference to Exhibit 10.2 to
the registrant’s current report on Form 8-K filed on October 5,
2009.)
|
|
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. (Incorporated by reference to Exhibit 21 to the
registrant’s annual report on Form 10-K filed on March 31,
2009).
|
|
23.1
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC date March 26,
2009.*
|
|
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. *
|
|
99.5
|
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.
37
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, 2010
|
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, 2010
|
||
Jiada
Hu
|
(Principal
Executive Officer) and Director
|
|||
/s/
Aijun Liu
|
Chief
Financial Officer (Principal Financial
|
March
31, 2010
|
||
Aijun
Liu
|
Officer
and Principal Accounting Officer)
|
|||
/s/
Jianjun Zeng
|
Chief
Operation Officer and Director
|
March
31, 2010
|
||
Jianjun
Zeng
|
||||
/s/
Charles C. Mo
|
Director
|
March
30, 2010
|
||
Charles
C. Mo
|
||||
/s/
Yaofu Tang
|
Director
|
March
31, 2010
|
||
Yaofu
Tang
|
||||
/s/
Xiongjie Wang
|
Director
|
March
31, 2010
|
||
Xiongjie
Wang
|
38
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Income and Comprehensive Income
|
F-3
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
F-4
|
Consolidated
Statements of Cash Flows
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
China
Ritar Power Corp. :
We have
audited the accompanying balance sheets of China Ritar Power Corp. and
subsidiaries as of December 31, 2008 and 2009, 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.
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 positions of China Ritar Power Corp. and
subsidiaries as of December 31, 2008 and 2009, and the results of its operations
and its cash flows for the years ended December 31, 2008 and 2009 in
conformity with accounting principles generally accepted in the United States of
America.
AGCA,
Inc.
Arcadia,
California
March 31,
2010
F-1
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
As of December 31
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 20,459,361 | $ | 7,541,697 | ||||
Restricted
cash
|
5,900,649 | 4,387,679 | ||||||
Accounts
receivable, net of allowances of $1,115,321 and $1,114,276
|
24,920,825 | 17,314,082 | ||||||
Receivable
from sale of a subsidiary (see Notes 12 and 29)
|
417,387 | − | ||||||
Due
from a former subsidiary (see Note 12)
|
3,925,348 | − | ||||||
Inventory
|
19,484,224 | 12,774,780 | ||||||
Advance
to suppliers
|
2,477,449 | 1,328,694 | ||||||
Other
current assets
|
3,915,605 | 4,138,236 | ||||||
Current
assets of discontinued operations
|
− | 5,333,174 | ||||||
Total
current assets
|
81,500,848 | 52,818,342 | ||||||
Non-current
assets:
|
||||||||
Property,
plant and equipment, net
|
16,248,551 | 10,440,084 | ||||||
Construction
in progress
|
136,443 | 3,089,854 | ||||||
Intangible
assets, net
|
9,407 | 17,088 | ||||||
Land
use right
|
468,265 | 476,687 | ||||||
Rental
and utility deposits
|
82,439 | 82,801 | ||||||
Deferred
income tax assets
|
115,064 | − | ||||||
Non-current
assets of discontinued operations
|
− | 465,286 | ||||||
Total
assets
|
$ | 98,561,017 | $ | 67,390,142 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 16,658,868 | $ | 11,968,901 | ||||
Income
and other taxes payable
|
3,986,935 | 2,898,082 | ||||||
Accrued
salaries
|
502,978 | 437,954 | ||||||
Bills
payable
|
13,498,001 | 4,321,915 | ||||||
Derivative
instruments
|
− | 236,898 | ||||||
Other
current liabilities
|
2,800,879 | 2,497,498 | ||||||
Current
portion of long term loans
|
1,342,473 | 877,886 | ||||||
Short-term
loans
|
1,464,515 | 3,596,955 | ||||||
Current
liabilities of discontinued operations
|
− | 2,508,628 | ||||||
Total
current liabilities
|
40,254,649 | 29,344,717 | ||||||
Long-term
loans
|
2,881,188 | 3,657,859 | ||||||
Total
liabilities
|
43,135,837 | 33,002,576 | ||||||
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,
21,450,238 and 19,134,992 shares issued and outstanding
|
21,450 | 19,135 | ||||||
Additional
paid-in capital
|
31,461,723 | 19,222,727 | ||||||
Retained
earnings
|
20,745,985 | 12,053,205 | ||||||
Accumulated
other comprehensive income
|
3,196,022 | 3,092,499 | ||||||
Total
China Ritar stockholders’ equity
|
55,425,180 | 34,387,566 | ||||||
Noncontrolling
interest
|
− | − | ||||||
Total
equity
|
55,425,180 | 34,387,566 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 98,561,017 | $ | 67,390,142 |
See
accompanying notes to consolidated financial statements
F-2
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
CONTINUING
OPERATIONS
|
||||||||
Net
revenue
|
$ | 98,630,176 | $ | 112,312,056 | ||||
Cost
of sales
|
79,684,443 | 90,013,419 | ||||||
Gross
profit
|
18,945,733 | 22,298,637 | ||||||
Operating
expenses:
|
||||||||
Salaries
|
2,039,294 | 5,224,973 | ||||||
Sales
commission
|
1,597,189 | 1,566,177 | ||||||
Shipping
and handling cost
|
1,050,505 | 1,482,825 | ||||||
Other
selling, general and administrative expenses
|
3,672,157 | 4,887,408 | ||||||
8,359,145 | 13,161,383 | |||||||
Operating
profit
|
10,586,588 | 9,137,254 | ||||||
Other
income and (expenses):
|
||||||||
Interest
income
|
115,716 | 192,326 | ||||||
Other
income
|
160,396 | 2,222 | ||||||
Interest
expenses
|
(716,526 | ) | (511,752 | ) | ||||
Foreign
currency exchange loss
|
(50,780 | ) | (557,388 | ) | ||||
Other
expenses
|
(7,037 | ) | (8,981 | ) | ||||
Total
other expenses, net
|
(498,231 | ) | (883,573 | ) | ||||
Income
from continuing operations before income taxes
|
10,088,357 | 8,253,681 | ||||||
Income
taxes
|
(1,948,322 | ) | (2,400,314 | ) | ||||
Income
from continuing operations
|
8,140,035 | 5,853,367 | ||||||
DISCONTINUED
OPERATIONS (Note 29)
|
||||||||
Loss
from discontinued operations, net of taxes
|
(376,916 | ) | (718,940 | ) | ||||
Gain
on disposal of discontinued operations, net of taxes
|
910,817 | − | ||||||
Income
(loss) from discontinued operations, net of taxes
|
533,901 | (718,940 | ) | |||||
Net
income
|
8,673,936 | 5,134,427 | ||||||
Add:
Loss from discontinued operations attributable to noncontrolling
interest
|
18,844 | 29,633 | ||||||
Net
income attributable to China Ritar stockholders
|
$ | 8,692,780 | $ | 5,164,060 | ||||
Other
comprehensive income:
|
||||||||
Foreign
currency translation adjustment
|
103,523 | 1,689,747 | ||||||
Comprehensive
income
|
8,777,459 | 6,824,174 | ||||||
Less:
Comprehensive income attributable to noncontrolling
interest
|
18,844 | 28,058 | ||||||
Comprehensive
income attributable to China Ritar stockholders
|
$ | 8,796,303 | $ | 6,852,232 | ||||
Earnings
(loss) per share attributable to China Ritar stockholders:
|
||||||||
Basic:
|
||||||||
-
Income from continuing operations
|
$ | 0.41 | $ | 0.31 | ||||
-
Income (loss) from discontinued operations
|
0.03 | (0.04 | ) | |||||
-
Net income
|
$ | 0.44 | $ | 0.27 | ||||
Diluted:
|
||||||||
-
Income from continuing operations
|
$ | 0.40 | $ | 0.31 | ||||
-
Income (loss) from discontinued operations
|
0.03 | (0.04 | ) | |||||
-
Net income
|
$ | 0.43 | $ | 0.27 | ||||
Weighted
average number of shares outstanding:
|
||||||||
-
Basic
|
19,693,630 | 19,127,598 | ||||||
-
Diluted
|
20,124,293 | 19,127,598 |
See
accompanying notes to consolidated financial statements.
F-3
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
China Ritar stockholders
|
||||||||||||||||||||||||||||
Common stock
|
Additional
paid-in
|
Retained
|
Accumulated
other
comprehensive
|
Non-
controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Income
|
Interest
|
Total Equity
|
||||||||||||||||||||||
Balances
at December 31, 2007
|
19,000,996 | $ | 19,001 | $ | 15,343,481 | $ | 6,889,145 | $ | 1,404,327 | $ | 28,058 | $ | 23,684,012 | |||||||||||||||
Cashless
exercise of warrants
|
124,651 | 125 | (125 | ) | - | - | - | - | ||||||||||||||||||||
Exercise
of warrants
|
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 | - | (29,633 | ) | 5,134,427 | ||||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | 1,688,172 | 1,575 | 1,689,747 | |||||||||||||||||||||
Balances
at December 31, 2008
|
19,134,992 | 19,135 | 19,222,727 | 12,053,205 | 3,092,499 | - | 34,387,566 | |||||||||||||||||||||
Cashless
exercise of warrants
|
99,828 | 100 | (100 | ) | - | - | - | - | ||||||||||||||||||||
Exercise
of warrants
|
65,418 | 65 | 181,797 | - | - | - | 181,862 | |||||||||||||||||||||
Issuance
of common stock for cash
|
2,150,000 | 2,150 | 12,057,299 | - | - | - | 12,059,449 | |||||||||||||||||||||
Net
income for the year
|
- | - | - | 8,692,780 | - | (18,844 | ) | 8,673,936 | ||||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | 103,523 | - | 103,523 | |||||||||||||||||||||
Disposal
of Shanghai Ritar (Note 29)
|
18,844 | 18,844 | ||||||||||||||||||||||||||
Balances
at December 31, 2009
|
21,450,238 | $ | 21,450 | $ | 31,461,723 | $ | 20,745,985 | $ | 3,196,022 | $ | - | $ | 55,425,180 |
See
accompanying notes to consolidated financial statements.
F-4
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Continuing Operating Activities:
|
||||||||
Net
income
|
$ | 8,673,936 | $ | 5,134,427 | ||||
(Income)
loss from discontinued operations, net of taxes
|
(533,901 | ) | 718,940 | |||||
Income
from continuing operations
|
8,140,035 | 5,853,367 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
of property, plant and equipment
|
1,177,408 | 774,856 | ||||||
Amortization
of intangible assets and land use right
|
16,560 | 12,352 | ||||||
Bad
debts expenses
|
− | 471,488 | ||||||
(Gain)
loss on disposal of property, plant and equipment
|
(365 | ) | 2,494 | |||||
Stock-based
compensation – make good provision
|
− | 3,853,401 | ||||||
Inventory
write-down
|
− | 282,589 | ||||||
Unrealized
(loss) gain on derivative instruments
|
(237,022 | ) | 233,795 | |||||
Changes
in operating working capital items:
|
||||||||
Accounts
receivable
|
(7,587,403 | ) | (5,494,944 | ) | ||||
Inventory
|
(6,694,725 | ) | (2,929,690 | ) | ||||
Advance
to suppliers
|
(1,147,038 | ) | 2,115,687 | |||||
Other
current assets
|
(4,661,501 | ) | (4,803,688 | ) | ||||
Rental
and utility deposit
|
439 | (81,717 | ) | |||||
Deferred
income tax assets
|
(115,017 | ) | – | |||||
Accounts
payable
|
4,676,850 | 1,866,118 | ||||||
Income
and other tax payable
|
4,735,050 | 1,507,786 | ||||||
Accrued
salaries
|
64,587 | 157,775 | ||||||
Bills
payable
|
9,168,276 | 27,228 | ||||||
Other
current liabilities
|
710,748 | 233,330 | ||||||
Net
cash provided by operating activities
|
8,264,882 | 4,082,227 | ||||||
Cash
Flows from Continuing Investing Activities:
|
||||||||
Repayment
of loan from related parties
|
− | 217,750 | ||||||
Repayment
from a former subsidiary – Shanghai Ritar (see Note 12)
|
705,070 | − | ||||||
Purchase
of property, plant and equipment
|
(4,362,680 | ) | (8,177,816 | ) | ||||
Purchase
of intangible assets
|
− | (3,760 | ) | |||||
Sales
proceeds of disposal of property, plant and equipment
|
4,392 | 47,720 | ||||||
Net
cash used in investing activities
|
(3,653,218 | ) | (7,916,106 | ) | ||||
Cash
Flows from Continuing Financing Activities:
|
||||||||
Net
proceeds from issuance of common stock
|
12,059,449 | − | ||||||
Proceeds
from stock issued for warrant exercised
|
181,862 | 134 | ||||||
Proceeds
from bank borrowings
|
8,684,270 | 33,213,856 | ||||||
Repayment
of bank borrowings
|
(11,135,412 | ) | (28,775,962 | ) | ||||
Restricted
cash
|
(1,508,239 | ) | 1,851,001 | |||||
Net
cash provided by financing activities
|
8,281,930 | 6,289,029 | ||||||
Cash
Flows from Discontinued Operations Activities:
|
||||||||
Net
cash provided by (used in) discontinued operating activities
|
(94,628 | ) | 661,509 | |||||
Net
cash used in discontinued investing activities
|
(14,139 | ) | (30,772 | ) | ||||
Net
cash used in discontinued financing activities
|
− | − | ||||||
Effect
of exchange rate changes on cash
|
− | 9,338 | ||||||
Change
in cash from discontinued operations
|
108,767 | (640,075 | ) | |||||
Net
cash used in discontinued operations
|
− | − | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
24,070 | 429,684 | ||||||
Net
increase in cash and cash equivalents
|
12,917,664 | 2,884,834 | ||||||
Cash
and cash equivalents, beginning of year
|
7,541,697 | 4,656,863 | ||||||
Cash
and cash equivalents, end of year
|
$ | 20,459,361 | $ | 7,541,697 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Cash
paid for interest
|
$ | 716,526 | $ | 511,752 | ||||
Cash
paid for income taxes
|
$ | 996,471 | $ | 623,299 | ||||
Non-cash
investing and financing activities
|
||||||||
Issuance
of common stock for cashless exercise of warrants
|
$ | 100 | $ | 125 | ||||
Receivable
from sale of Shanghai Ritar (Note 29)
|
$ | 417,387 | $ | − |
See
accompanying notes to consolidated financial statement.
F-5
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1.
|
General
Description of Business and
Organization
|
China
Ritar Power Corp. (the “Company” or “we”) is 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. We market, sell and service our “Ritar” branded, cadmium-free,
valve-regulated lead-acid, or VRLA, batteries in China and
internationally.
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 (“Ritar BVI”), 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 was 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
Company’s common stock is quoted on the NASDAQ Global Market under the symbol
“CRTP”.
Effective ownership at
December 31,
|
||||||||
Subsidiaries’ names
|
Place of
incorporation
|
2009
|
2008
|
Principal activities
|
||||
Ritar
International Group Limited (“Ritar
BVI”)
|
British
Virgin Islands
|
100%
|
100%
|
Intermediate
holding company
|
||||
Shenzhen
Ritar Power Co., Ltd. (“Shenzhen
Ritar”)
|
People’s
Republic of China (“PRC”)
|
100%
(through
Ritar
BVI)
|
100%
(through
Ritar
BVI)
|
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 China and other countries
|
||||
Hengyang
Ritar Power Co., Ltd. (“Hengyang
Ritar”)
|
PRC
|
100%
(through
Shenzhen
Ritar)
|
100%
(through
Shenzhen
Ritar)
|
Manufacture
and distribution of plate and lead-acid batteries
|
||||
Shanghai
Ritar Power Co., Ltd. (“Shanghai
Ritar”)
|
PRC
|
0%
(a)
|
95%
(through
Shenzhen
Ritar)
|
Manufacture
and distribution of lead-acid batteries
|
||||
Ritar
Power (Huizhou) Co., Ltd. (“Huizhou Ritar”)
|
PRC
|
(b)
|
100%
(through
Ritar
BVI)
|
Inactive
|
(a)
|
As
further discussed in Note 29, on October 15, 2009, Shenzhen Ritar sold all
of its ownership interest in Shanghai
Ritar.
|
(b)
|
In
2009, the Company initiated the liquidation of Huizhou Ritar, which had
never commenced any substantive
operations.
|
F-6
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
Summary
of Significant Accounting
Policies
|
The
principal activities of the Company and its subsidiaries (collectively “the
Company”) consist of research and development, manufacturing and selling of
rechargeable batteries. All activities of the Company are principally
conducted through its subsidiaries operating in the PRC.
Basis of Preparation and Principles
of consolidation- The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America and include the assets, liabilities, revenues, expenses and cash flows
of the Company and all its subsidiaries. The results of subsidiaries
are consolidated from the date of acquisition, being the date on which the
Company obtains control, and continue to be consolidated until the date that
such control ceases. All significant intercompany accounts, transactions and
cash flows are eliminated on consolidation.
As
discussed in Notes 1 and 29, the Company sold all of its ownership interest in
Shanghai Ritar in October 2009 and initiated the liquidation of Huizhou Ritar in
2009. As a result, Shanghai Ritar and Huizhou Ritar have been
reported as discontinued operations and consolidated financial statement
information for all periods presented has been reclassified to reflect this
presentation.
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 15) 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 is stated at billed amounts, net of allowance for
doubtful accounts. Management provides an allowance for doubtful debts arising
from amounts that are due for one year or more from the expiry of credit periods
allowed by the Company. The Company grants credit terms to customers
varying from “cash on delivery” to 210 days from delivery. 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
improvements
|
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: Computer
software − 5
years.
The
Company accounts for its intangible assets pursuant to FASB Accounting Standards
Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other.” Under ASC
350, 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 reviews the carrying value of long-lived assets,
including property, plant, and equipment and intangible assets subject to
amortization, 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.
F-7
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
Summary
of Significant Accounting Policies
(continued)
|
Derivative instruments - The
Company entered into forward foreign currency contracts with banks to manage a
portion of foreign currency risk related to U.S. Dollar denominated asset
balances against the functional currency, Renminbi (the lawful currency of
China), of its PRC subsidiary. The forward foreign currency contracts did not
qualify for hedge accounting and were carried at fair value as assets or
liabilities, with unrealized gains and losses recognized based on changes in
fair value in the caption “Foreign Currency Exchange Gain (Loss)” in the
Company’s consolidated statement of income and comprehensive income. In the
third quarter of fiscal 2009, all of the Company’s forward foreign currency
contracts had expired. The fair value of these forward foreign exchange
contracts had been determined using standard calculations/models that use as
their basis readily observable market parameters including spot and forward
rates and a net present value stream of cash flows model.
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, 2009 and
2008, research and development costs expensed to operating expenses were
approximately $561,357 and $469,530, respectively.
Advertising Costs- The Company expenses
advertising costs as incurred. Advertising expenses charged to
operations were $100,196 and $79,691 for the years ended December 31, 2009 and
2008 respectively.
Warranty Costs- The Company
accounts for its liability for product warranties in accordance with FASB ASC
Topic 460 “Guarantees.” Under ASC 460, 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 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 at least annually and adjusts the amounts as necessary. The
Company recognized warranty expenses amounting to approximately $Nil and
$395,799 for the years ended December 31, 2009 and 2008, respectively, which are
included in its selling expenses. (see Note 25).
Comprehensive income-
Accumulated other comprehensive income represents foreign currency translation
adjustments.
Income taxes-Income taxes are
provided on an asset and liability approach for financial accounting and
reporting of income taxes. Any tax paid by subsidiaries during the
year is recorded. Current tax is based on the profit or loss from
ordinary activities adjusted for items that are non-assessable or disallowable
for income tax purpose and is calculated using tax rates that have been enacted
or substantively enacted at the balance sheet date. Deferred income
tax liabilities or assets are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year end.
A
valuation allowance is recognized if it is more likely than not that some
portion, or all, of a deferred tax asset will not be realized.
F-8
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
Summary
of Significant Accounting Policies
(continued)
|
Foreign currency translation-
The Company uses the United States dollars (“U.S. Dollar” or “US$” or “$”) for
financial reporting purposes. The PRC subsidiaries within the Company
maintain their books and records in their functional currency, Chinese Renminbi
(“RMB”), being the lawful currency in the PRC. Assets and liabilities
of the PRC subsidiaries are translated from RMB into US Dollars using the
applicable exchange rates prevailing at the balance sheet date, except for
equity items which are translated at historical rates. Items on the
statement of operations are translated at average exchange rates during the
reporting period. Equity accounts are translated at historical
rates. Adjustments resulting from the translation of the Company’s
financial statements are recorded as accumulated other comprehensive
income.
The exchange rates used to translate
amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated
financial statements are based on the rates as published on the website of
People’s Bank of China and are as follows:-
RMB is
not a fully convertible currency. All foreign exchange transactions
involving RMB must take place either through the People’s Bank of China (the
“PBOC”) or other institutions authorized to buy and sell foreign exchange.
The exchange rates adopted for the foreign exchange transactions are the rates
of exchange quoted by the PBOC, which are determined largely by supply and
demand. Translation of amounts from RMB into United States dollars (“US$”)
has been made at the following exchange rates for the respective
years:
December
31, 2009
|
||
Balance
sheet, except for equity items
|
RMB6.8282 to
US$1.00
|
|
Statement
of income and comprehensive income
|
RMB6.8310 to
US$1.00
|
|
December
31, 2008
|
||
Balance
sheet, except for equity items
|
RMB6.8346 to
US$1.00
|
|
Statement
of income and comprehensive income
|
RMB6.9253 to
US$1.00
|
No
representation is made that the RMB amounts could have been, or could be,
converted into U.S. dollars at the above rates.
The value
of RMB against U.S. dollars and other currencies may fluctuate and is affected
by, among other things, changes in China’s political and economic conditions.
Any significant revaluation of RMB may materially affect the Company’s financial
condition in terms of U.S. dollar reporting.
Fair Value of Financial Instruments
– The Company adopted FASB ASC 820-10 “Fair Value Measurements and
Disclosures.” ASC 820-10 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 of the forward foreign exchange contracts was measured using level 2
inputs and reported as derivative instruments under current liabilities on the
balance sheet as of December 31, 2008. Additional disclosures of the forward
foreign exchange contracts that are measured at fair value on a recurring basis
are included above in this footnote.
There
were no assets or liabilities measured at fair value on a non-recurring basis
for the year ended December 31, 2009.
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.
F-9
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2.
|
Summary
of Significant Accounting Policies
(continued)
|
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 year presented in accordance
with FASB ASC 260-10, “Earnings Per Share.”
The
following is a reconciliation of the calculation of basic and diluted earnings
per share
2009
|
2008
|
|||||||
Net
income attributable to China Ritar stockholders
|
$ | 8,692,780 | $ | 5,164,060 | ||||
Weighted
average shares outstanding-basis
|
19,693,630 | 19,127,598 | ||||||
Add:
Effect of dilutive warrants
|
430,663 | − | ||||||
Weighted
average shares outstanding-diluted
|
20,124,293 | 19,127,598 |
Warrants
to purchase up to 1,384,337 shares of common stock were excluded from the
calculation of diluted earnings per share for the year ended December 31, 2008,
because their effects were anti-dilutive.
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, 2009 and 2008
shipping and handling costs expensed to other selling, general and
administrative expenses were $1,050,505 and $1,482,825,
respectively.
Government grants- Government
grants are recognized initially as deferred income in the balance sheet at fair
value when there is reasonable assurance that they will be received and the
Company will comply with the conditions associated with the grant. Grants that
compensate the Company for expenses incurred are recognized in consolidated
statements of operations as other income on a systematic basis in the same
periods in which the expenses are recognized. Grants that compensate the Company
for the cost of an asset are recognized in consolidated statements of operations
on a systematic basis over the useful life of the asset.
F-10
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
3.
|
Recent
Changes in Accounting
Standards
|
Recent
Accounting Pronouncements
In June
2009, the FASB established the FASB Accounting Standards CodificationTM (ASC)
as the single source of authoritative U.S generally accepted accounting
principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The ASC superseded all previously
existing non-SEC accounting and reporting standards, and any prior sources of
U.S. GAAP not included in the ASC or grandfathered are not authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by the
FASB through Accounting Standards Updates (ASUs). The ASC did not change current
U.S. GAAP but changes the approach by referencing authoritative literature by
topic (each a “Topic”) rather than by type of standard. The ASC has been
effective for the Company effective July 1, 2009. Adoption of the ASC did not
have a material impact on the Company’s Consolidated Financial Statements, but
references in the Company’s Notes to Consolidated Financial Statements to former
FASB positions, statements, interpretations, opinions, bulletins or other
pronouncements are now presented as references to the corresponding Topic in the
ASC.
Effective
January 1, 2009, the first day of fiscal 2009, the Company adopted FASB ASC
350-30 and ASC 275-10-50 (formerly 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 SFAS No. 142, Goodwill and Other Intangible
Assets. The Company will apply ASC 350-30 and ASC 275-10-50 prospectively
to intangible assets acquired subsequent to the adoption date. The
adoption of these revised provisions had no impact on the Company’s Consolidated
Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 815-10-65 (formerly SFAS 161,
Disclosures about Derivative
Instruments and Hedging Activities), which amends and expands previously
existing guidance on derivative instruments to require tabular disclosure of the
fair value of derivative instruments and their gains and losses., This ASC also
requires disclosure regarding the credit-risk related contingent features in
derivative agreements, counterparty credit risk, and strategies and objectives
for using derivative instruments. The adoption of this ASC did not have a
material impact on the Company’s Consolidated Financial
Statements.
During
2008, the Company adopted FASB ASC 820-10 (formerly FSP FAS 157-2, Effective Date of FASB Statement
157), which deferred the provisions of previously issued fair value
guidance for nonfinancial assets and liabilities to the first fiscal period
beginning after November 15, 2008. Deferred nonfinancial assets and liabilities
include items such as goodwill and other nonamortizable intangibles. Effective
January 1, 2009, the Company adopted the fair value guidance for nonfinancial
assets and liabilities. The adoption of FASB ASC 820-10 did not have a material
impact on the Company’s Consolidated Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160,
Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51),
which amends previously issued guidance to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity.
Among other requirements, this Statement requires that the consolidated net
income attributable to the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income statement. The
adoption of the provisions in this ASC did not have a material impact on the
Company’s Consolidated Financial Statements.
Effective
January 1, 2009, the Company adopted FASB ASC 805-10, (formerly SFAS 141R, Business Combinations), which
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in an acquiree and the goodwill
acquired. In addition, the provisions in this ASC require that any
additional reversal of deferred tax asset valuation allowance established in
connection with fresh start reporting on January 7, 1998 be recorded as a
component of income tax expense rather than as a reduction to the goodwill
established in connection with the fresh start reporting. The Company will
apply ASC 805-10 to any business combinations subsequent to
adoption.
F-11
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
3.
|
Recent
Changes in Accounting Standards
(continued)
|
Recent
Accounting Pronouncements
Effective
January 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS 141R-1,
Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise
from Contingencies), which amends ASC 805-10 to require that an acquirer
recognize at fair value, at the acquisition date, an asset acquired or a
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value of such an
asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of ASC Topic 450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC
805-20 did not have a material impact on the Company’s Consolidated
Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FASB Staff
Position (“FSP”) No. FAS 107-1 and Accounting Principles Board 28-1, Interim Disclosures about Fair
Value of Financial Instruments), which amends previous guidance to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. The adoption of FASB ASC 825-10-65 did not have a material impact on
the Company’s Consolidated Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and
FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments). Under ASC 320-10-65,
an other-than-temporary impairment must be recognized if the Company has the
intent to sell the debt security or the Company is more likely than not will be
required to sell the debt security before its anticipated recovery. In addition,
ASC 320-10-65 requires impairments related to credit loss, which is the
difference between the present value of the cash flows expected to be collected
and the amortized cost basis for each security, to be recognized in earnings
while impairments related to all other factors to be recognized in other
comprehensive income. The adoption of ASC 320-10-65 did not have a material
impact on the Company’s Consolidated Financial Statements.
Effective
July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4,
Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly), which provides guidance on how to determine the fair value of
assets and liabilities when the volume and level of activity for the asset or
liability has significantly decreased when compared with normal market activity
for the asset or liability as well as guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not
have a material impact on the Company’s Consolidated Financial
Statements.
In the
fourth quarter of fiscal 2009, the Company adopted ASC 715, Compensation – Retirement Benefits
(formerly FASB FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement
Benefit Plan Assets), which expands the disclosure requirements about
plan assets for defined benefit pension plans and postretirement plans. The
adoption of these disclosure requirements has had no material effect on the
Company’s Consolidated Financial Statements.
In the
quarter ended December 31, 2009, the Company adopted ASC Update No. 2009-05,
which provides guidance on measuring the fair value of liabilities under FASB
ASC 820 (formerly SFAS 157, Fair Value
Measurements). . The adoption of this Update has had no
material effect on the Company’s Consolidated Financial
Statements.
F-12
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
3.
|
Recent
Changes in Accounting Standards
(continued)
|
New
Accounting Pronouncement to be Adopted
In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets – an amendment of FASB Statement
No. 140, (codified by ASU No. 2009-16 issued in December 2009). SFAS
No. 166 limits the circumstances in which a financial asset should be
derecognized when the transferor has not transferred the
entire financial asset by taking into consideration the transferor’s continuing
involvement. The standard requires that a transferor recognize and initially
measure at fair value all assets obtained (including a transferor’s beneficial
interest) and liabilities incurred as a result of a transfer of financial assets
accounted for as a sale. The concept of a qualifying special-purpose entity is
removed from SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” along with the exception
from applying FIN 46(R), Consolidation of Variable Interest
Entities. The standard is effective for the first annual reporting period
that begins after November 15, 2009 (i.e. the Company’s fiscal 2010).
Earlier application is prohibited. It is expected the adoption of this Statement
will have no material effect on the Company’s Consolidated Financial
Statements.
In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), (codified by ASU No. 2009-17 issued in December 2009).
The standard amends FIN No. 46(R) to require a company to analyze whether
its interest in a variable interest entity (“VIE”) gives it a controlling
financial interest. A company must assess whether it has an implicit financial
responsibility to ensure that the VIE operates as designed when determining
whether it has the power to direct the activities of the VIE that
significantly impact its economic performance. Ongoing reassessments of whether
a company is the primary beneficiary are also required by the standard. SFAS
No. 167 amends the criteria to qualify as a primary beneficiary as well as
how to determine the existence of a VIE. The standard also eliminates certain
exceptions that were available under FIN No. 46(R). This Statement will be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009 (i.e. the Company’s fiscal
2010). Earlier application is prohibited. Comparative disclosures will be
required for periods after the effective date. It is expected the adoption of
this Statement will have no material effect on the Company’s Consolidated
Financial Statements.
In
October 2009, the FASB concurrently issued the following ASC Updates
(ASU):
· ASU
No. 2009-13—Revenue
Recognition (ASC Topic 605): Multiple-Deliverable Revenue Arrangements
(formerly EITF Issue No. 08-1). ASU No. 2009-13 modifies the
revenue recognition guidance for arrangements that involve the delivery of
multiple elements, such as product, software, services or support, to a customer
at different times as part of a single revenue generating
transaction. This standard provides principles and application
guidance to determine whether multiple deliverables exist, how the individual
deliverables should be separated and how to allocate the revenue in the
arrangement among those separate deliverables. The standard also expands the
disclosure requirements for multiple deliverable revenue
arrangements.
· ASU
No. 2009-14—Software (ASC
Topic 985): Certain Revenue Arrangements That Include Software Elements
(formerly EITF Issue No. 09-3). ASU No. 2009-14 removes
tangible products from the scope of software revenue recognition guidance and
also provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product, such as embedded software, are
within the scope of the software revenue guidance.
ASU No.
2009-13 and ASU No. 2009-14 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with earlier application permitted. Alternatively, an
entity can elect to adopt these standards on a retrospective basis, but both
these standards must be adopted in the same period using the same transition
method. The Company expects to apply these ASU Updates on a prospective basis
for revenue arrangements entered into or materially modified beginning
April 1, 2011. The Company is currently evaluating the potential
impact these ASC Updates may have on its financial position and results of
operations.
F-13
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
3.
|
Recent
Changes in Accounting Standards
(continued)
|
New
Accounting Pronouncement to be Adopted
In
October 2009, the FASB also issued ASU No. 2009-15—Accounting for Own-Share Lending
Arrangements in
Contemplation of Convertible Debt Issuance or Other Financing. ASU
2009-15 amends ASC 470-20, Debt with Conversion and Other
Options, to provide accounting and reporting guidance for own-share
lending arrangements issued in contemplation of convertible debt issuance. ASU
2009-15 is effective for fiscal years beginning on or after December 15, 2009
(i.e. the Company’s fiscal 2010) with retrospective application
required.
In
January 2010, the FASB issued the following ASC Updates:
· ASU
No. 2010-01—Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash. This Update clarifies that the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected in EPS
prospectively and is not a stock dividend for purposes of applying Topics 505
and 260 (Equity and Earnings Per Share). The amendments in this Update are
effective for interim and annual periods ending on or after December 15, 2009
with retrospective application.
· ASU
No. 2010-02—Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This Update
amends Subtopic 810-10 and related guidance to clarify that the scope of the
decrease in ownership provisions of the Subtopic and related guidance applies to
(i) a subsidiary or group of assets that is a business or nonprofit activity;
(ii) a subsidiary that is a business or nonprofit activity that is transferred
to an equity method investee or joint venture; and (iii) an exchange of a group
of assets that constitutes a business or nonprofit activity for a noncontrolling
interest in an entity, but does not apply to: (i) sales of in substance
real estate; and (ii) conveyances of oil and gas mineral rights. The amendments
in this Update are effective beginning in the period that an entity adopts FAS
160 (now included in Subtopic 810-10).
· ASU
No. 2010-05—Compensation—Stock Compensation (Topic 718):
Escrowed Share Arrangements and the Presumption of Compensation. This
Update simply codifies EITF Topic D-110, “Escrowed Share Arrangements and the
Presumption of Compensation and does not change any existing accounting
standards.
· ASU
No. 2010-06—Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This Update amends Subtopic 820-10 that require
new disclosures about transfers in and out of Levels 1 and 2 and activity in
Level 3 fair value measurements. This Update also amends Subtopic 820-10 to
clarify certain existing disclosures. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements, which are effective for fiscal years beginning after
December 15, 2010.
The
Company expects that the adoption of the above Updates issued in January 2010
will not have any significant impact on its financial position and results of
operations.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.
F-14
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
4.
|
Cash
and Cash Equivalents
|
Cash and cash equivalents are
summarized as follows:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
at banks
|
$ | 20,422,998 | $ | 7,518,725 | ||||
Cash
on hand
|
36,363 | 22,972 | ||||||
Total
|
$ | 20,459,361 | $ | 7,541,697 |
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk include cash and cash equivalents. As of December 31,
2009 and 2008, substantially all of the Company’s cash and cash equivalents were
placed with major banks located in the PRC, which management believes are of
high credit quality.
5.
|
Restricted
Cash
|
Restricted
cash consists of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Bank
deposits held as collaterals for:
|
||||||||
-
Bank loans (Notes 16 and 17) and bills payable (Note 15)
|
$ | 5,724,907 | $ | 4,387,679 | ||||
-
Bank guarantee for tender purposes
|
175,742 | − | ||||||
Total
|
$ | 5,900,649 | $ | 4,387,679 |
At
December 31, 2009 and 2008, restricted cash of $5,724,907 and $4,387,679
respectively represented the bank deposits pledged for banking facilities.
Generally, the deposit will be released when the relevant bank loans are repaid
upon maturity (see Note 16 and 17).
At
December 31, 2009, bank deposits of $175,742 were held as collaterals for bank
guarantees against the Company’s tenders for the supply of lead-acid batteries
to China Mobile Limited.
F-15
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
6.
|
Accounts
Receivable, net
|
Accounts
receivable by major categories are summarized as follows:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Trade
accounts receivable
|
$ | 26,036,146 | $ | 18,428,358 | ||||
Less:
allowances for doubtful accounts
|
(1,115,321 | ) | (1,114,276 | ) | ||||
Net
|
$ | 24,920,825 | $ | 17,314,082 |
Concentrations in accounts
receivable - Financial instruments that potentially subject the Company
to significant concentrations of credit risk consist primarily of accounts
receivable. At December 31, 2009, two customers on an individual
basis accounted for more than 5% but less than 10% of the Company’s accounts
receivable, with total amounts of $2,799,836 representing 11% of total accounts
receivable in aggregate. 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 26% of total
accounts receivable in aggregate.
The
Company, in certain circumstances, has arranged to sell certain of its accounts
receivable to banks. For receivables sold to banks that the Company has
surrendered control, the Company derecognized the discounted receivables
pursuant to the provisions of ASC 860, “Transfers and Servicing”. As of December
31, 2009 and 2008, the Company has derecognized discounted receivable amounting
to $458,217 and $nil, respectively in accordance with ASC 860.
7.
|
Inventory
|
Inventory
by major categories are summarized as follows:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Raw
materials
|
$ | 2,846,892 | $ | 1,651,284 | ||||
Work
in progress
|
13,919,696 | 9,237,669 | ||||||
Finished
goods
|
2,717,636 | 1,885,827 | ||||||
Total
|
$ | 19,484,224 | $ | 12,774,780 |
8.
|
Other
Current Assets
|
Other
current assets consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Notes
receivable
|
$ | 118,140 | $ | 141,082 | ||||
Advance
to staff and deposit, net of allowances of $97,707 and
$97,615
|
647,351 | 331,727 | ||||||
Other
receivables, net of allowance of $nil
|
732,257 | − | ||||||
Value
added tax recoverable
|
2,417,857 | 3,665,427 | ||||||
Total
|
$ | 3,915,605 | $ | 4,138,236 |
F-16
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
9.
|
Property,
Plant and Equipment
|
Property,
plant and equipment consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
At
cost:
|
||||||||
Building
|
$ | 8,456,956 | $ | 5,311,491 | ||||
Leasehold
improvement
|
390,329 | 314,250 | ||||||
Plant
and machinery
|
8,830,851 | 5,396,799 | ||||||
Furniture,
fixtures and equipment
|
517,532 | 395,840 | ||||||
Motor
vehicles
|
1,034,070 | 868,640 | ||||||
Total
|
19,229,738 | 12,287,020 | ||||||
Less:
accumulated depreciation and amortization
|
(2,981,187 | ) | (1,846,936 | ) | ||||
Net
book value
|
$ | 16,248,551 | $ | 10,440,084 |
As of
December 31, 2009 and 2008, certain property, plant and machinery with an
aggregate net book value of $8,933,605 and $3,866,654, respectively, were
pledged as securities against the bank loan facilities, as described in more
details in Notes 16 and 17.
During
the year ended December 31, 2009, depreciation expenses amounted to $1,177,408,
among which $878,399, $135,532 and $163,477 were recorded as cost of sales,
selling expense and administrative expense respectively.
During
the year ended December 31, 2008, depreciation expenses amounted to $774,856,
among which $556,223, $129,313 and $89,320 were recorded as cost of sales,
selling expense and administrative expense respectively.
10.
|
Intangible
assets
|
Intangible
assets consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
At
cost:
|
||||||||
Computer
software
|
$ | 27,887 | $ | 27,861 | ||||
Less:
Accumulated amortization
|
(18,480 | ) | (10,773 | ) | ||||
Net
book value
|
$ | 9,407 | $ | 17,088 |
During
the year ended December 31, 2009 and 2008, amortization expenses amounted to
$7,694 and $5,995, which were included in administrative expense,
respectively.
F-17
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
11.
|
Land
Use Right
|
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Right
to use land
|
$ | 483,582 | $ | 483,129 | ||||
Accumulated
amortization
|
(15,317 | ) | (6,442 | ) | ||||
$ | 468,265 | $ | 476,687 |
Land use
right represented the cost incurred by the Company’s subsidiary , Hengyang
Ritar, to obtain the right from the relevant PRC land authority to use the lands
where its production facilities and warehouses of the subsidiaries are situated
for a period of 50 years.
As of
December 31, 2009 and 2008, all of land use right with the net book value of
$468,265 and $476,687, respectively, were pledged as securities against the bank
loan facilities, as described in more details in Notes 16 and 17.
During
the year ended December 31, 2009, amortization expenses amounted to $8,866,
which was included in administrative expense.
During
the year ended December 31, 2008, amortization expenses amounted to $6,357,
which was included in administrative expense.
The
estimated amortization expense for land use right for each of the next five
years is approximately $9,672.
F-18
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
12.
|
Related
Party Transactions
|
Guarantees
provided by related parties
Certain
of the Company’s short-term and long-term loans (see Notes 16 and 17)
and bills payable (see Note 15) are secured by personal guarantees provided by
Mr. Jiada Hu (CEO and principal stockholder of the Company) and Ms. Henying Peng
(director of certain subsidiaries of the Company and the spouse of Mr. Jiada
Hu).
Sale
of Shanghai Ritar
As
further discussed in Note 29, on October 15, 2009, Shenzhen Ritar entered into
an agreement with a family member of Ms. Henying Peng (director of certain
subsidiaries of the Company and the spouse of Mr. Jiada Hu, CEO and principal
stockholder of the Company) to sell 95%, representing all of Shenzhen
Ritar’s ownership interest in Shanghai Ritar, for RMB2,850,000 (or $417,216),
payable in cash within 6 months from the date of the agreement.
The
following table sets out the receivable from sale of Shanghai
Ritar:
Selling
price
|
$ | 417,216 | ||
Effect
of exchange rate changes
|
171 | |||
Receivable
from sale of Shanghai Ritar as of December 31, 2009
|
$ | 417,387 |
Receivables
from a former subsidiary
Receivables
from a former subsidiary as of December 31, 2009 represented the amount due from
Shanghai Ritar, the former 95% subsidiary sold by the Company in October 2009,
further details of which are set out in Note 29.
The
following table sets out the movement of the amount due from Shanghai Ritar from
October 15, 2009 (date of sale of Shanghai Ritar) to December 31,
2009:
Amount
due from Shanghai Ritar at date of sale (Note 29)
|
$ | 4,628,809 | ||
Repayment
from Shanghai Ritar
|
(705,070 | ) | ||
Effect
of exchange rate changes
|
1,609 | |||
Amount
due from Shanghai Ritar, at December 31, 2009
|
$ | 3,925,348 |
The
amount due from Shanghai Ritar is non-interest bearing and without fixed
repayment term, but is secured by the personal guarantee of Mr. Jiada Hu (CEO
and principal stockholder of the Company) as well as Shanghai Ritar’s plant and
machinery, trade and other receivables and inventories.
F-19
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
13.
|
Income
and Other Taxes Payables
|
Income
and other taxes payables consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Income
tax payable
|
$ | 3,927,626 | $ | 2,857,643 | ||||
Individual
income withholding tax payable
|
13,131 | 12,587 | ||||||
Other
taxes payable
|
46,178 | 27,852 | ||||||
Total
|
$ | 3,986,935 | $ | 2,898,082 |
14.
|
Other
Current Liabilities
|
Other
current liabilities consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Other
payable and accrued expenses
|
$ | 909,176 | $ | 1,110,561 | ||||
Advance
from customers
|
1,891,703 | 1,386,937 | ||||||
Total
|
$ | 2,800,879 | $ | 2,497,498 |
15.
|
Bills
Payable and Credit Facilities
|
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, Shenzhen Ritar and Hengyang Ritar have obtained
relevant credit facilities from China CITIC Bank, Shenzhen Branch, Citibank,
Shenzhen Branch, DBS bank, Shenzhen Branch and Bank of China, Hengyang Branch,
and Bank of China (the “Banks”). Pursuant to the Banks’ facilities
letters and loan agreements, as of December 31, 2009, the Company had available
facilities for such bank acceptances up to approximately $30,852,451, of which
$13,498,001 was utilized and recorded as bills payable as of December 31, 2009.
Plus, $556,516 was utilized by Shengzhen Ritar for payable to Hengyang
Ritar.
The
Company is required to place bank deposits, classified as restricted cash as
disclosed in Note 5, equal to 30-100%, subject to bank’s decision, of the bills
amount as collaterals against the Banks’ guarantees for such bills. Such bank
acceptance facilities up to approximately $9,519,346 granted by Citibank,
Shenzhen Branch, are additionally secured by guarantees provided by Shanghai
Ritar, Hengyang Ritar, Mr. Jaida Hu (CEO and principal stockholder of
the Company) and Ms. Henying Peng (director of certain subsidiaries of the
Company and the spouse of Mr. Jiada Hu). Under this kind of arrangement,
Shenzhen Ritar is obligated to pay 0.05% of the bills amount as handling
charges.
F-20
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
16.
|
Short-Term
Loans
|
Short-term
loans consist of the following:
Interest
|
As of December 31,
|
|||||||||||||
Bank
|
Loan period
|
rate
|
Securities
|
2009
|
2008
|
|||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
$ | − | $ | 146,314 | |||||||
Citibank
|
2008-10-24
to 2009-1-21
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 540,470 | |||||||||
Citibank
|
2008-10-24
to 2009-1-16
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 132,576 | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 389,059 | |||||||||
Citibank
|
2008-10-26
to 2009-1-23
|
9%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 1,074,085 | |||||||||
DBS
Bank
|
2008-10-21
to 2009-2-6
|
8%
p.a.
|
Bank
deposits
|
− | 85,239 | |||||||||
DBS
Bank
|
2008-12-10
to 2009-2-13
|
7%
p.a.
|
Bank
deposits
|
− | 481,630 | |||||||||
Citibank
|
2008-12-15
to 2009-3-13
|
7%
p.a.
|
Bank
deposits and directors’ personal guarantees
|
− | 585,257 | |||||||||
DBS
Bank
|
2008-12-30
to 2009-4-10
|
7%
p.a.
|
Bank
deposits
|
162,325 | ||||||||||
DBS
Bank
|
2009-10-22
to 2010-2-8
|
6%
p.a.
|
Property,
plant and equipment, land use right and directors’ personal
guarantee
|
864,064 | − | |||||||||
DBS
Bank
|
2009-11-12
to 2010-3-3
|
6%
p.a.
|
Property,
plant and equipment land use right and directors’ personal
guarantee
|
251,897 | − | |||||||||
DBS
Bank
|
2009-12-31
to 2010-4-21
|
6%
p.a.
|
Property,
plant and equipment land use right and directors’ personal
guarantee
|
348,554 | − | |||||||||
$ | 1,464,515 | $ | 3,596,955 |
F-21
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
17.
|
Long-Term
Loans
|
Long-term
loans consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Loan
from DBS Bank, bearing interest at 6.91% (2008: 9.072%) p.a., repayable by
monthly installments from 2009-04-18 to 2013-09-18, secured by certain
property, plant and equipment and land use right of the Company as
disclosed in Note 9 and Note 11, respectively.
|
$ | 3,661,288 | $ | 4,389,431 | ||||
Loan
from DBS Bank, bearing interest at 5% p.a., repayable by monthly
installments from 2009-07-12 to June 2011-06-12, secured by machinery and
equipment of Hengyang Ritar as disclosed in Note 9 and joint guarantees
given by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Hengying Peng and
Mr. Jianjun Zeng
|
562,373 | - | ||||||
|
||||||||
Other
borrowing from Department of Science and Technology of Bao An, interest
free, term from 2007-12-20 to 2009-12-20, and secured by the Shenzhen
Small and Medium Enterprises Credit Guarantee Center
|
- | 146,314 | ||||||
Total
loans
|
4,223,661 | 4,535,745 | ||||||
Less:
Current maturities
|
1,342,473 | 877,886 | ||||||
Long-term
loans, less current maturities
|
$ | 2,881,188 | $ | 3,657,859 | ||||
Future
maturities of long-term loans are as follows:
|
||||||||
Payable
within the years ending December 31,
|
||||||||
2009
|
$ | - | $ | 877,886 | ||||
2010
|
1,342,473 | 975,429 | ||||||
2011
|
1,172,588 | 975,429 | ||||||
2012
|
976,343 | 975,429 | ||||||
2013
|
732,257 | 731,572 | ||||||
Total
|
$ | 4,223,661 | $ | 4,535,745 |
18.
|
Noncontrolling
Interest
|
Noncontrolling
interest at December 31, 2008 represented the minority stockholders’
proportionate share of 5% of the equity of Shanghai Ritar.
As
discussed in Note 29, on October 15, 2009, the Company disposed of its 95%
ownership interest in Shanghai Ritar.
F-22
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
19.
|
Income
Taxes
|
United
States
The
Company was incorporated in the United States of America and is subject to U.S.
tax. No provision for income taxes has been made as the Company has
no taxable income for the years presented.
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
Shenzhen Ritar is subject to PRC
enterprises income tax (“EIT”) 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 was allowed preferential
tax treatment – full exemption from PRC enterprises income tax for two fiscal
years 2003 and 2004, which were its first profit-making years, and 50% reduction
in its EIT rates for the ensuing three years, 2005 through 2008.
On March
16, 2007, the PRC government promulgated a new tax law, China’s Unified
Enterprise Income Tax Law (“New EIT Law”), which took effect from January 1,
2008. Under the New EIT Law, foreign-owned enterprises as well as domestic
companies are subject to a uniform tax rate of 25%. The New EIT Law provides for
a grandfathering and five-year transition period from its effective date for
those enterprises which were established before the promulgation date of the New
EIT Law and which were entitled to a preferential EIT
treatment. Accordingly, Shenzhen Ritar was subject to an EIT rate of
20% and 18% for the years ended December 31, 2009 and 2008, respectively, under
the New EIT Law.
Shanghai
Ritar, Hengyang Ritar and Huizhou Ritar are generally subject to PRC EIT at 25%
for the years ended December 31, 2009 and 2008.
The
provision for income taxes consists of the following:
For the years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax provision – PRC income tax
|
$ | 2,063,339 | $ | 2,400,314 | ||||
Deferred
tax
|
(115,017 | ) | − | |||||
Total
|
$ | 1,948,322 | $ | 2,400,314 |
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred income tax assets at December
31, 2009 result principally from the shorter useful lives of property, plant and
equipment for accounting purposes than allowed for PRC income tax reporting
purposes. Significant components of deferred income tax assets are as
follows:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred income tax assets –
non-current:
|
||||||||
Depreciation
|
$
|
115,064
|
$
|
−
|
||||
Less:
Valuation allowance
|
−
|
−
|
||||||
$
|
115,064
|
$
|
−
|
F-23
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
19.
|
Income
Taxes (continued)
|
A
reconciliation of the provision for income taxes determined at the local income
tax to the Company’s effective income tax rate is as follows:
For the Years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Pre-tax
income from continuing operations
|
$
|
10,088,357
|
$
|
8,253,681
|
||||
United
States federal corporate income tax rate
|
35
|
%
|
35
|
%
|
||||
Income
tax expense computed at U.S. federal corporate income tax
rate
|
3,530,925
|
2,888,788
|
||||||
Reconciling
items:
|
||||||||
Impact
of tax holiday of Shenzhen Ritar
|
(454,653
|
)
|
(897,569
|
)
|
||||
Non-deductible
expenses
|
−
|
1,446,152
|
||||||
Rate
differential for PRC earnings
|
(1,014,439
|
)
|
(1,210,879
|
)
|
||||
Other
|
(113,511)
|
173,822
|
||||||
Effective
tax expense
|
$
|
1,948,322
|
$
|
2,400,314
|
The
effect of the tax holiday of Shenzhen Ritar amounted to $454,653 and
$897,569 for the years ended December 31, 2009 and 2008, equivalent to
basic earnings per share of $0.02 and $0.02, respectively, and diluted earnings
per share amount of $0.05 and $0.05, respectively.
The
Company has analyzed the tax positions taken or expected to be taken in its tax
filings and has concluded it has no material liability related to uncertain tax
positions or unrecognized tax benefits as of December 31, 2009 and
2008.
The New
EIT Law imposes a withholding tax of 10% unless reduced by a tax treaty, for
dividends distributed by a PRC-resident enterprise to its immediate holding
company outside the PRC for earnings accumulated beginning on January 1, 2008
and undistributed earnings generated prior to January 1, 2008 are exempt from
such withholding tax. The Company has not provided for income taxes on
accumulated earnings of its PRC subsidiaries as of December 31, 2009 and 2008,
since these earnings are intended to be reinvested indefinitely in the overseas
jurisdictions. It is not practicable to estimate the amount of additional taxes
that might be payable on such undistributed earnings.
According
to the PRC Tax Administration and Collection Law, the statute of limitations is
three years if the underpayment of taxes is due to computational or other errors
made by the taxpayer or the withholding agent. The statute of
limitations extends to five years under special circumstances. In the case of
transfer pricing issues, the statute of limitation is ten years. There is no
statute of limitation in the case of tax evasion. Accordingly, the income tax
returns of the Company’s PRC subsidiaries for the years ended December 31, 2007
through 2009 are open to examination by the PRC state and local tax
authorities.
F-24
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
20.
|
Common
Stock and Warrant
Transactions
|
Common
stock
During
2008, the Company issued 124,651 shares of common stock for the cashless
exercise of 163,550 warrants and 9,345 shares of common stock for the exercise
of warrants at $2.78 per share for cash, respectively.
During
2009, the Company issued 99,828 shares of common stock for the cashless exercise
of 309,579 warrants and 65,418 shares of common stock for the exercise of
warrants at $2.78 per share for cash, respectively.
In
October 2009, the Company completed the sale of 2,150,000 shares of common stock
to selected institutional investors for $6.00 per share and raised proceeds
of $12,059,449, net of placement agent fees and other direct
expenses.
Common
Stock Purchase Warrants
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 issued to the placement agent, Roth
Capital Partners, LLC warrants to purchase up to 286,215 shares of the Company’s
common stock with the exercise price of $2.14 per share.
A summary
of the warrants activity as of December 31, 2009, and changes during the year
then ended is presented below:
Warrant
|
Number of
underlying
shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding
at December 31, 2007
|
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 | ||||||||||
Granted
|
− | |||||||||||||||
Exercised
|
(374,997 | ) | $ | 2.78 | ||||||||||||
Outstanding
at December 31, 2009
|
1,009,340 | $ | 2.78 | 0.17 | $ | 2,038,867 | ||||||||||
Exercisable
at December 31, 2009
|
1,009,340 | $ | 2.78 | 0.17 | $ | 2,038,867 |
21.
|
Other
income
|
Other
income consists of the following:
For the years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Gain
on disposal of property, plant and equipment
|
$ | 2,030 | $ | 451 | ||||
Government
grants
|
154,618 | − | ||||||
Other
|
3,748 | 1,771 | ||||||
Total
|
$ | 160,396 | $ | 2,222 |
During
the year ended December 31, 2009, the Company received government grants of
$154,618, which were granted unconditionally for the purposes of subsidizing the
Company’s research and development activities.
F-25
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
22.
|
Foreign
currency exchange (loss) /
gain
|
Foreign
currency exchange gain / (loss) consist of the following:
For the years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Foreign
currency reinstatement / realization gain / (loss)
|
$ | 186,242 | $ | (789,696 | ) | |||
(Loss)
/ gain from derivative forward foreign exchange contracts
|
(237,022 | ) | 232,308 | |||||
Total
|
$ | (50,780 | ) | $ | (557,388 | ) |
23.
|
Commitments
and Contingencies
|
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 of December 31, 2009 as
follows:
Years
ending December 31,
|
||||
2010
|
$ | 468,023 | ||
2011
|
332,820 | |||
2012
|
27,369 | |||
Thereafter
|
− | |||
Total
minimum lease payments
|
$ | 828,212 |
During
the year ended December 31, 2009, rent expenses amounted to $747,557, among
which $539,353, $33,385 and $174,819 were recorded as cost of sales,
administrative expense and selling expense, respectively.
During
the year ended December 31, 2008, rent expenses amounted to $708,639, among
which $523,348, $39,405 and $145,886 were recorded as cost of
sales, administrative expense and selling expense, respectively.
Capital
Commitments
As of
December 31, 2009, the Company had a total capital commitment of $581,005 for
the acquisitions of property, plant and equipment, which was not provided for in
the financial statements and is expected to be disbursed within the next fiscal
year.
PRC
employee costs
According
to the prevailing laws and regulations of the PRC, the Company’s subsidiaries in
the PRC are required to cover its employees with medical, retirement and
unemployment insurance programs. Management believes that due to the transient
nature of the employees of Hengyang Ritar, Hengyang Ritar does not need to
provide all its employees with such social insurances, and has not paid the
social insurances for all employees.
In the
event that any current or former employee of Hengyang Ritar files a complaint
with the PRC government, Hengyang Ritar may be subject to making up the social
insurances as well as administrative fines. As the Company believes that these
fines would not be material, no provision has been made in this
regard.
F-26
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
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 $186,071
and $245,806 for the years ended December 31, 2009 and 2008
respectively.
25.
|
Product
Warranty
|
The
Company accrues an estimate of its exposure to product 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.
Changes
in the provision for the product warranty are as below:
For the years ended
December 31,
|
||||||||
2009
|
2008
|
|||||||
Opening
balance
|
$ | 178,613 | $ | 136,803 | ||||
Warranty
provision accrued
|
- | 395,799 | ||||||
Paid
during warranty period
|
- | (353,989 | ) | |||||
Closing
balance
|
$ | 178,613 | $ | 178,613 |
26.
|
Risk
of Concentrations
|
The Company has no significant
concentrations risk with respect to sales, as there was no single customer
accounting for 10% or more of the Company’s gross sales for the years ended
December 31, 2009 and 2008.
The
Company has the following concentrations of business with suppliers constituting
more than 10% of the Company’s purchasing volume:
|
For the years ended
December 31,
|
|||||||
|
2009
|
2008
|
||||||
Anxi
Min Hua Dianchi Company Limited
|
30 | % | 30 | % | ||||
Henan
Yuguang Gold & Lead Company Limited
|
16 | % | - | |||||
Quanzhou
City Kaiying Power Company Limited
|
11 | % | 14 | % | ||||
Zhongshan
Shi Bao Li Xu Battery Company Limited
|
- | 14 | % |
F-27
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
27.
|
Operating
Risks
|
Interest rate risk
The interest rates and terms of
repayment of bank and other borrowings are disclosed in Note 16 and Note
17. 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
manufacturing operations are carried out 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.
28.
|
Segment
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,
|
||||||||
2009
|
2008
|
|||||||
PRC
|
$ | 33,349,627 | $ | 24,113,350 | ||||
Outside
PRC
|
||||||||
-
Hong Kong
|
2,537,091 | 9,653,661 | ||||||
-
Germany
|
4,900,537 | 8,321,577 | ||||||
-
India
|
4,769,663 | 14,957,025 | ||||||
-South
Africa
|
226,828 | 1,093,871 | ||||||
-Italy
|
3,942,897 | 3,101,094 | ||||||
-Singapore
|
956,180 | 1,304,372 | ||||||
-Brazil
|
3,580,609 | 5,409,227 | ||||||
-America
|
11,148,275 | 7,302,403 | ||||||
-Australia
|
4,403,423 | 4,178,394 | ||||||
-
other countries, less than 5% of total sales individually
|
28,815,046 | 32,877,082 | ||||||
65,280,549 | 88,198,706 | |||||||
Total
net sales
|
$ | 98,630,176 | $ | 112,312,056 |
F-28
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
29.
|
Discontinued
Operations
|
On
October 15, 2009, Shenzhen Ritar entered into an agreement with a family member
of Ms. Henying Peng (director of certain subsidiaries of the Company and the
spouse of Mr. Jiada Hu, CEO and principal stockholder of the Company) to sell
95%, representing all of Shenzhen Ritar’s ownership interest in Shanghai Ritar,
for RMB2,850,000 (or $417,216), payable in cash within 6 months from the date of
the agreement.
In 2009,
the Company initiated the liquidation of Huizhou Ritar, which had never
commenced any substantive operations.
As a
result, Shanghai Ritar and Huizhou Ritar have been reported as discontinued operations and consolidated financial
statement information for all periods presented has been reclassified to reflect
this presentation.
The
following table summarizes the assets and liabilities of the
discontinued operations, excluding intercompany balances eliminated in
consolidation, at December 31, 2009 and 2008, respectively:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Assets
held for sales:
|
||||||||
Current
assets:
|
||||||||
$ | − | $ | 758,775 | |||||
Accounts
receivable, net of allowances
|
− | 2,701,906 | ||||||
Inventory
|
− | 1,803,450 | ||||||
Advance
to suppliers
|
− | 11,413 | ||||||
− | 57,630 | |||||||
Total
current assets held for sales
|
− | 5,333,174 | ||||||
Non-current
assets:
|
||||||||
Property,
plant and equipment, net
|
− | 465,286 | ||||||
− | ||||||||
Total
assets held for sales
|
$ | − | $ | 5,798,460 | ||||
Liabilities
of business held for sale:
|
||||||||
Accounts
payable
|
$ | − | $ | 1,514,317 | ||||
Income
and other tax payable
|
− | 674,259 | ||||||
Accrued
salaries
|
− | 9,067 | ||||||
Other
current liabilities
|
− | 310,985 | ||||||
Total
liabilities of business held for sale
|
$ | − | $ | 2,508,628 |
F-29
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
29.
|
Discontinued
Operations (continued)
|
The
following results of operations of Shanghai Ritar and Huizhuo Ritar are
presented as loss from discontinued operations in the consolidated statements of
income:
For the years ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
revenue
|
$ | 1,866,389 | $ | 7,272,440 | ||||
Cost
of sales
|
1,737,854 | 7,025,508 | ||||||
Gross
profit
|
128,535 | 246,932 | ||||||
Operating
expenses:
|
||||||||
Salaries
|
200,406 | 341,815 | ||||||
Shipping
and handling cost
|
69,740 | 197,530 | ||||||
Other
selling, general and administrative expenses
|
237,119 | 395,657 | ||||||
507,265 | 935,002 | |||||||
Operating
loss
|
(378,730 | ) | (688,070 | ) | ||||
Other
income (expenses), net
|
1,814 | (30,870 | ) | |||||
Loss
before income taxes
|
(376,916 | ) | (718,940 | ) | ||||
Provision
for income taxes
|
− | − | ||||||
Net
loss
|
(376,916 | ) | (718,940 | ) | ||||
Loss
attributable to noncontrolling interest
|
18,844 | 29,633 | ||||||
Net
loss attributable to China Ritar stockholders
|
$ | (358,072 | ) | $ | (689,307 | ) |
The
following is the calculation of the gain on the sale of Shanghai
Ritar:
Selling
price
|
$ | 417,216 | ||
Effect
of exchange rate changes
|
171 | |||
Receivable
from sale of Shanghai Ritar as of December 31, 2009
|
$ | 417,387 | ||
Net
(assets) / liabilities disposed of:
|
||||
Cash
and cash equivalents
|
$ | (633,177 | ) | |
Accounts
receivable
|
(2,174,517 | ) | ||
Inventory
|
(1,534,076 | ) | ||
Advance
to suppliers
|
(11,419 | ) | ||
Other
current assets
|
(46,182 | ) | ||
Property,
plant and equipment
|
(323,130 | ) | ||
Accounts
payable
|
234,382 | |||
Income
and other taxes payable
|
358,040 | |||
Accrued
salaries
|
13,715 | |||
Due
to Shenzhen Ritar and Hengyang Ritar
|
4,628,809 | |||
Noncontrolling
interest
|
(18,844 | ) | ||
Net
liabilities
|
493,601 | |||
Selling
price
|
417,216 | |||
Gain
on sale of discontinued operations
|
$ | 910,817 |
F-30
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
30.
|
Subsequent
Events
|
During
January and February 2010, the Company issued 315,230 shares of common stock for
the cashless exercise of 742,989 warrants, and 93,457 shares of common stock for
the exercise of warrants at $2.78 per share for cash,
respectively.
31.
|
Restricted
Net Assets and Parent Company Financial
Information
|
The
Company’s operations are substantially conducted through its subsidiaries
registered in the PRC. These PRC subsidiaries’ businesses and assets are
primarily denominated in RMB, which is not freely convertible into foreign
currencies. All foreign exchange transactions take place either through the
People’s Bank of China or other banks authorized to buy and sell foreign
currencies at the exchange rates quoted by the People’s Bank of China. Approval
of foreign currency payments by the People’s Bank of China or other regulatory
institutions requires submitting a payment application form together with
suppliers’ invoices, shipping documents and signed contracts. These currency
exchange control procedures imposed by the PRC government authorities may
restrict the ability of the Company’s PRC subsidiaries to transfer their net
assets to the Company through loans, advances or cash dividends, which consisted
of paid-up capital, retained earnings and statutory reserves and which aggregate
amount of approximately RMB246 million (or $35 million) exceeded 25% of the
Company’s consolidated net assets. Accordingly, condensed parent company
financial statements have been prepared in accordance with Rule 5.04 and Rule
12-04 of SEC Regulation S-X, as set out in the Schedule I below.
SCHEDULE
I – Condensed Parent Company Financial Information of China Ritar
Condensed
Balance Sheets
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
5,246
|
$
|
5,246
|
||||
Total
current assets
|
5,246
|
5,246
|
||||||
Investments
in subsidiaries
|
55,444,951
|
34,407,337
|
||||||
Total
assets
|
$
|
55,450,197
|
$
|
34,412,583
|
||||
LIABILITIES
|
||||||||
Current
liabilities:
|
||||||||
Other
payables
|
$
|
25,017
|
$
|
25,017
|
||||
Total
liabilities
|
25,017
|
25,017
|
||||||
Shareholders’
equity
|
||||||||
Common
stock, $0.001 par value: 10,000,000 shares authorized, 21,450,238 and
19,134,992 shares issued and outstanding
|
21,450
|
19,135
|
||||||
Additional
paid-in capital
|
31,461,723
|
19,222,727
|
||||||
Retained
earnings
|
20,745,985
|
12,053,205
|
||||||
Accumulated
other comprehensive income
|
3,196,022
|
3,092,499
|
||||||
Total
shareholders' equity
|
55,425,180
|
34,387,566
|
||||||
Total
liabilities and shareholders' equity
|
$
|
55,450,197
|
$
|
34,412,583
|
Condensed
Statements of Income
Years ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Administrative
expenses
|
$
|
(120,073
|
) |
$
|
(4,020,973
|
) | ||
Income
tax
|
-
|
-
|
||||||
Equity
in income of subsidiaries
|
8,812,853
|
9,185,033
|
||||||
Net
income
|
$
|
8,692,780
|
$
|
5,164,060
|
F-31
CHINA
RITAR POWER CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
SCHEDULE
I – Condensed Parent Company Financial Information of China Ritar
(continued)
Condensed
Statements of Cash Flows
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
cash used in operating activities
|
$
|
−
|
$
|
−
|
||||
Net
cash used in investing activities
|
−
|
−
|
||||||
Net
cash provided by financing activities
|
−
|
−
|
||||||
Cash,
beginning of year
|
5,246
|
5,246
|
||||||
Cash,
end of year
|
$
|
5,246
|
$
|
5,246
|
Note
to the Condensed Parent Company Financial Statements:
The
Company records its investment in subsidiaries under the equity method of
accounting as prescribed in APB Opinion No. 18, “The Equity Method of Accounting
for Investments in Ordinary shares.” Such investment and loans to subsidiaries
are presented on the balance sheet as “Investments in subsidiaries” and the
income of the subsidiaries is presented as “Equity in income of subsidiaries” on
the statement of income.
These
supplemental condensed parent company financial statements should be read in
conjunction with the notes to the Company’s Consolidated Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or
omitted.
As of
December 31, 2008 and 2009, there were no material contingencies, significant
provisions for long-term obligations, or guarantees of the Company, except as
separately disclosed in the Consolidated Financial Statements, if
any.
F-32