10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

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 NO. 000-52103

HIGHPOWER INTERNATIONAL, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Delaware	20-4062622
(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer  Identification No.)
Building A1, Luoshan Industrial Zone, Shanxia, Pinghu, Longgang, Shenzhen, Guangdong People’s Republic of China	518111
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  (86) 755-89686292

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of	Name of each exchange
Each Class	on which registered
Common Stock, $0.0001 par value	Nasdaq Global Market

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

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 o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.               x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:.

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 ¨ No x

The aggregate market value of the registrant's issued and outstanding shares of common stock held by non-affiliates of the registrant as of June 30, 2010 (based on the price at which the registrant’s common stock was last sold on such date) was approximately $25.63 million.

There were 13,582,106 shares outstanding of the registrant’s common stock, par value $0.0001 per share, as of April 11, 2011. The registrant’s common stock is listed on the Nasdaq Global Market under the ticker symbol “HPJ.”

Documents Incorporated by Reference:  None.

 

TABLE OF CONTENTS

HIGHPOWER INTERNATIONAL, INC.

TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2010

ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	14
ITEM 1B.	UNRESOLVED STAFF COMMENTS	33
ITEM 2.	PROPERTIES	33
ITEM 3.	LEGAL PROCEEDINGS	35
ITEM 4.	RESERVED	35
PART II		36
ITEM 5.	MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	36
ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA	38
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS and results of operations	38
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	48
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	48
ITEM 9A.	CONTROLS AND PROCEDURES	48
ITEM 9B.	OTHER INFORMATION	50
PART III		53
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	53
ITEM 11.	EXECUTIVE COMPENSATION	56
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	58
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	59
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES.	59
PART IV		61
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	61
SIGNATURES		61
EXHIBT INDEX		62
INDEX TO FINANCIAL STATEMENTS		F-1

i

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Form 10-K, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our company’s and our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations, and the expected impact of the share exchange. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Form 10-K are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following:

· The current economic downturn adversely affecting demand for our products;

· Our reliance on our major customers for a large portion of our net sales;

· Our reliance on a limited number of suppliers for nickel, our principal raw material;

· Our ability to develop and market new products;

· Our ability to establish and maintain a strong brand;

· Protection of our intellectual property rights;

· The market acceptance of our products, including our new line of Lithium-ion batteries;

· The implementation of new projects;

· Our ability to successfully manufacture Lithium-ion batteries in the time frame and amounts expected;

· Exposure to product liability, safety, and defect claims;

· Exposure to currency translation risks during our product export;

· Rising labor costs, volatile metal prices, and inflation;

· Changes in the laws of the PRC that affect our operations;

· Our ability to obtain and maintain all necessary government certifications and/or licenses to conduct our business;

· Development of an active trading market for our securities;

· The cost of complying with current and future governmental regulations and the impact of any changes in the regulations on our operations; and

· The other factors referenced in this Form 10-K, including, without limitation, under the sections entitled “Risk Factors,” “Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”

 

These risks and uncertainties, along with others, are also described above under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the parties’ assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and we cannot predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

ii

 

PART I

ITEM 1. BUSINESS

With respect to this discussion, the terms, “we,” “us,” or “our” refer to Highpower International, Inc., and our 100%-owned subsidiary Hong Kong Highpower Technology Company Limited (“HKHT”) and its wholly-owned subsidiaries Shenzhen Highpower Technology Co., Ltd. (“Shenzhen Highpower”), Huizhou Highpower Technology Co., Ltd. (“Huizhou Highpower”), Springpower Technology (Shenzhen) Company Limited (“Shenzhen Springpower”) and Ganzhou Highpower Technology Co., Ltd. (“Ganzhou Highpower”).

Corporate Information

We were incorporated in the state of Delaware on January 3, 2006. We were originally organized as a “blank check” shell company to investigate and acquire a target company or business seeking the perceived advantages of being a publicly held corporation. On November 2, 2007, we closed a share exchange transaction, pursuant to which we (i) became the 100% parent of HKHT and its wholly-owned subsidiary, Shenzhen Highpower, (ii) assumed the operations of HKHT and its subsidiary and (iii) changed our name from SRKP 11, Inc. to Hong Kong Highpower Technology, Inc.  We changed our name to Highpower International, Inc. on October 20, 2010.

HKHT was incorporated in Hong Kong in 2003 under the Companies Ordinance of Hong Kong. Shenzhen Highpower was founded in 2001.  HKHT formed Huizhou Highpower and Shenzhen Springpower in 2008.  Huizhou Highpower has not yet commenced business operations.  Shenzhen Highpower formed Ganzhou Highpower in September 2010 to engage in the processing, trading and research of battery materials.  Ganzhou Highpower commenced its business operations of processing, marketing and research of battery materials in September 2010.

On May 25 2010, we invested $142,515 in Springpower International, Inc. (“Springpower International”) which became an associate of HKHT. Springpower International, which is incorporated in Canada, mainly researches and develops advanced, high performance battery materials and clean energy materials and technologies.

In addition, on November 2, 2007, concurrently with the closing of the share exchange transaction, we conducted a private placement transaction (the “Private Placement”). Pursuant to subscription agreements entered into with the investors, we sold an aggregate of 1,772,745 shares of Common Stock at $1.76 per share. As a result, we received gross proceeds in the amount of $3.12 million.

Through Shenzhen Highpower, we manufacture Nickel Metal Hydride (“Ni-MH”) batteries for both consumer and industrial applications. We have developed significant expertise in Ni-MH battery technology and large-scale manufacturing that enables us to improve the quality of our battery products, reduce costs, and keep pace with evolving industry standards. In 2008, we commenced manufacturing two lines of Lithium-Ion (“Li-ion”) and Lithium polymer rechargeable batteries through Shenzhen Springpower for higher-end, high-performance applications, such as laptops, digital cameras and wireless communication products. Our automated machinery allows us to process key aspects of the manufacturing process to ensure high uniformity and precision, while leaving the non-key aspects of the manufacturing process to manual labor.

We employ a broad network of salespersons in China and Hong Kong, which target key customers by arranging in-person sales presentations and providing post-sale services. The sales staff works with our customers to better address customers’ needs.

We recently began a new materials business in which we buy and resell certain raw materials related to our battery manufacturing operations. This new materials business generates revenue and income and helps us understand our raw material supply chain and processing, control our raw material costs and ensure that we have a steady supply of raw materials for our battery manufacturing operations to reduce our reliance on external suppliers.

1

Industry

General

Rapid advancements in electronic technology have expanded the number of battery-powered devices in recent years. As these devices have come to feature more sophisticated functions, more compact sizes and lighter weights, the sources of power that operate these products have been required to deliver increasingly higher levels of energy. This has stimulated consumer demand for higher-energy batteries capable of delivering longer service between recharges or battery replacement. In contrast to non-rechargeable batteries, after a rechargeable battery is discharged, it can be recharged and reused up to 1,000 times. Rechargeable batteries generally can be used in many non- rechargeable battery applications, as well as high energy drain applications such as electric toys, power tools, portable computers and other electronics, medical devices, and many other consumer products.

High energy density and long achievable cycle life are important characteristics of rechargeable battery technologies. Energy density refers to the total electrical energy per unit volume stored in a battery. High energy density batteries generally are longer lasting power sources providing longer operating time and necessitating fewer battery recharges. Greater energy density will permit the use of batteries of a given weight or volume for a longer time period. Long cycle life is a preferred feature of a rechargeable battery because it allows the user to charge and recharge many times before noticing a difference in performance. Long achievable cycle life, particularly in combination with high energy density, is desirable for applications requiring frequent battery recharges.

The initial technology for rechargeable batteries was nickel cadmium (“Ni-Cad”). Ni-Cad batteries are offered in a variety of sizes and shapes but suffer from low energy density and low cycle life. In addition, disposal of Ni-Cad batteries poses serious environmental and liability issues due to the high toxicity level of cadmium. To meet the demand for higher performing rechargeable batteries, nickel-metal hydride (“Ni-MH”) batteries were developed. Electrically, Ni-MH batteries are similar to the Ni-Cad counterparts but utilize a hydrogen-absorbing alloy instead of cadmium. High capacity Ni-MH batteries can replace Ni-Cad batteries in many devices because they operate on the same voltage and possess similar power and fast charge capabilities, while offering the advantage of greater energy density. In devices such as power tools, electric toys, personal portable electronic devices and hybrid electric vehicles, Ni-MH batteries optimize equipment performance. Ni-MH batteries have several advantages including:

— High capacity - Because of the use of hydrogen as a cathode material, Ni-MH batteries have up to a 40 percent longer service life than ordinary Ni-Cad batteries of equivalent size.

— Long cycle life - Up to 1,000 charge/discharge cycles.

— No memory effect - Ni-Cad batteries suffer from a memory effect - when charging, the user must ensure that they are totally flat first, otherwise they 'remember' how much charge they used to have and die much quicker. Ni-MH batteries have a negligible memory effect, making charging quicker and more convenient.

— Performs at extreme temperatures - Capable of operation on discharge from -20°C to 50°C (-4°F to 122°F) and charge from 0°C to 45°C (32°F to 113ºF).

— Environmentally friendly- Zero percent cadmium or other toxic chemicals such as mercury.

— Cost efficiency- Rechargeable Ni-MH batteries are substantially less expensive than rechargeable lithium-ion batteries.

The first rechargeable Li-ion batteries were commercialized in 1991. Rechargeable Li-ion batteries are produced as cylindrical lithium-ion or prismatic lithium-polymer batteries. The energy density of Li-ion is typically twice that of the standard nickel-cadmium. Li-ion batteries are low maintenance, with no memory effect and no scheduled cycling required to prolong battery life. In addition, the self-discharge is less than half compared to nickel-cadmium, making lithium-ion well suited for modern applications, such as power tools, electric bicycles, laptops, LED lights, portable medical devices, digital cameras, MP3 players, and electric vehicles.

Despite its overall advantages, Li-ion technology has limitations that include fragility, safety, aging, capacity deterioration and higher manufacturing cost. Manufacturers are constantly working to improve Li-ion technology with new and enhanced chemical combinations. Li-ion batteries have several advantages including:

2

— High capacity— Up to 100% higher energy density compared to standard nickel-cadmium batteries.

— Low self-discharge— Self-discharge can be less than half that of nickel-based batteries.

— Low maintenance — No periodic discharge is needed and there is no memory effect. Specialty cells can provide very high current to applications such as power tools.

— Flexible form factor— Prismatic lithium polymer batteries can be produced in a wide variety of form factors for different products and applications.

Li-ion batteries also have several limitations:

— Requires protection circuit to maintain voltage and current within safe limits.

— Poses safety issues due to the more-active characteristics of its basic materials

— Subject to aging when not in use - storage in a cool place at 40% charge reduces the aging effect.

— Transportation restrictions - shipment of larger quantities may be subject to regulatory control.

— Manufacturing cost is approximately 40% greater than nickel-cadmium.

China

China’s market share of battery production is expected to increase. China has a number of benefits in battery manufacturing, which are expected to drive this growth:

— Low Costs.  China continues to have a significant low cost of labor as well as easy access to raw materials and land.

— Proximity to electronics supply chain.  Electronics manufacturing in general continues to shift to China, giving China-based manufacturers a further cost and cycle time advantage.

— Proximity to end-markets.  China has focused in recent years on building its research, development and engineering skill base in all aspects of higher end manufacturing, including batteries.

Competitive Strengths

We believe the following competitive strengths contribute to our success and differentiate us from our competitors:

Experienced management team

Our senior management team has extensive business and industry experience. Our Chairman and Chief Executive Officer, Mr. Dang Yu Pan, has over 14 years of experience in China’s battery industry. Our Chief Technology Officer, Mr. Wenlian Li, has over 20 years of research experience in advanced battery technologies and products. Additionally, other members of our senior management team have significant experience with respect to other key aspects of our operations, including product design, manufacturing, and sales and marketing.

3

Market position

Since our inception, we have primarily focused on the research, development and manufacture of Ni-MH battery cells. We have developed significant expertise in Ni-MH battery technology and large-scale manufacturing that enables us to improve the quality of our products, reduce costs, and keep pace with evolving industry standards. Our Ni-MH rechargeable batteries have been developed to respond to a number of specific market requirements such as recyclability, high power, high energy density, long life, low cost and other important characteristics for consumer and OEM applications. They are suitable for almost all applications where high currents and deep discharges are required.  Our wholly-owned subsidiary, Springpower Technology (Shenzhen) Co, Ltd., is a company that specializes in the research, manufacturing and marketing of Lithium-ion rechargeable batteries.  We started our Li-ion manufacturing operations in 2008. Our Li-ion business has grown rapidly and we expect it will continue to grow as we gain more industry knowledge and acquire more customers. It has become a more and more important segment of our operations, with net sales of our Li-ion batteries accounting for 16% of our net sales in 2010, up from 11% of our net sales in 2009 and 2% in 2008.

Well-established distribution channels

We sell our products to original equipment manufacturers and a well-established network of distributors and resellers, allowing us to penetrate customer markets worldwide. Our relationship with many of our distributors extends from our inception in 2001. We also continue to screen and identify our strongest customers in each distribution channel and to focus our sales efforts towards the largest distributors and resellers in the fastest growing industries, such as mobile internet device, electric bicycle and electric scooter industries.

Proven product manufacturing capabilities

We selectively use automation in our manufacturing process to ensure a high uniformity and precision in our products while maintaining our cost-competitiveness. We use automated machinery in key stages of the manufacturing process while using manual labor for other stages to take advantage of the availability of low-cost, skilled labor in China. We have received several accreditations, including The International Organization for Standardization (ISO) 9001: 2000, ISO 14001, Conformity Europende (CE) and Underwriters Laboratories Inc. (UL), attesting to our quality management requirements, manufacturing safety, controls, procedures and environmental performance.

Customer service expertise

We work closely with our major customers in order to ensure high levels of customer satisfaction. To provide superior service and foster customer trust and loyalty, we offer flexible delivery methods and product feedback opportunities to our customers. Our sales representatives and marketing personnel undergo extensive training, providing them with the skills necessary to answer product and service-related questions, proactively educate potential customers about our products, and promptly resolve customer inquiries.

Our Strategy

Our goal is to become a global leader in the development and manufacture of rechargeable battery products. We intend to achieve this goal by implementing the following strategies:

Continue to pursue cost-effective opportunities

Our operating model, coupled with our modern manufacturing processes, has resulted in economies of scale, a low cost structure, and an ability to respond rapidly to customer demands. We intend to achieve greater cost-effectiveness by expanding our production capacity, increasing our productivity and efficiency in the manufacturing process and seeking to reducing the per unit cost of production through the use of advanced technologies.

Aggressively pursue distribution channels

We intend to broaden the scope of our distribution arrangements to increase sales penetration in targeted markets. We intend to select additional distributors based on their access to markets and retail outlets that are candidates for our products. In addition, we intend to expand our international sales presence and diversify our revenue sources by taking efforts to increase the percentage of our net revenues attributable to sales to emerging new markets.

4

Expand existing and new product offerings

Since the commencement of our battery operations in 2001, we have expanded our product offerings to multiple product lines, which include in each product line batteries of varying sizes, capacities and voltages. We intend to expand our existing lines of both Ni-MH and Li-ion batteries for use in other applications, such as energy storage systems, hybrid-electric cars, pure electric vehicles, and devote resources to the development of higher-end and higher-performance applications requiring higher ampere hour batteries.

Enhance marketing efforts to increase brand awareness

We continue to devote our efforts towards brand development and utilize marketing concepts in an attempt to enhance the marketability of our products.

Products

Our Ni-MH rechargeable batteries are versatile solutions for many diverse applications due to their long life, environmentally friendly materials, high power and energy, low cost and safe applications. Developed to meet the requirement for increasingly higher levels of energy demanded by today’s electronic products, our Ni-MH rechargeable batteries can offer up to increased capacity and higher energy density over similarly sized standard Ni-Cad rechargeable batteries. As a result, users can expect a longer time between charges and longer running time. Our Ni-MH rechargeable batteries are available in both cylindrical and prismatic shapes.

In 2009, we completed the construction and build-out of several production lines for the development and manufacturing of a range of Li-ion rechargeable batteries and products. We produce Li-ion batteries and Li-polymer batteries with hundreds of different models and specifications.  Currently, we produce an average of 1,200,000 Li-ion battery units per month.

We produce an extensive line of batteries, falling into two main categories:

— Consumer Batteries – Relative to ordinary Ni-Cad rechargeable batteries, as well as their non-rechargeable counterparts, our Ni-MH and Li-ion batteries offer higher power capacity allowing for longer working time and shortened charging time during equivalent working periods. We produce A, AA and AAA sized batteries in blister packing as well as chargers and battery packs.

— Industrial Batteries – These batteries are designed for electric bikes, power tools and electric toys. They are specifically designed for high-drain discharge applications, possessing low internal resistance, more power, and longer discharging time.

We also recycle scrap battery materials through outsourcing and resell the recycled materials to some of our customers. We are currently testing this market and anticipate expanding our battery recycling operations in the future.

Net sales for each of our product categories as a percentage of net sales is set forth below:

	Year Ended December 31,
	2010			2009			2008
Ni-MH Batteries		72	%		88	%		98	%
Li-ion Batteries		16	%		11	%		2	%
Materials		12	%		1	%		-
		100	%		100	%		100	%

Supply of Raw Materials

The cost of the raw materials used in our rechargeable batteries is a key factor in the pricing of our products. We purchase materials in volume which allows us the ability to negotiate better pricing with our suppliers. Our purchasing department locates eligible suppliers of raw materials striving to use only those suppliers who have previously demonstrated quality control and reliability.

5

Currently, we purchase our raw materials, consisting primarily of metal materials including nickel oxide, nickel foam, metal hydride alloy and other battery components, such as membranes, from suppliers located in China and Japan.  For our Li-ion batteries, we purchase raw materials consisting primarily of LiCoO2, graphite, electrolyte and tab.  We believe that the raw materials and components used in manufacturing our rechargeable batteries are available from enough sources to be able to satisfy our manufacturing needs; however, some of our materials, such as nickel, are available from a limited number of suppliers. Our top three suppliers of nickel account for 50% of our nickel supply.  Our top three suppliers of lithium account for approximately 30% of our lithium supply.  Presently, our relationships with our current suppliers are generally good and we expect that our suppliers will be able to meet the anticipated demand for our products in the future. Our top suppliers include Jinchuan Group, Baotou Santoku Battery Materials Co. Ltd., and Tianjin B&M Science & Technology, Ltd.

At times, the pricing and availability of raw materials can be volatile, attributable to numerous factors beyond the Company’s control, including general economic conditions, currency exchange rates, industry cycles, production levels or a supplier’s tight supply. To the extent that we experience cost increases we may seek to pass such cost increases on to our customers, but cannot provide any assurance that we will be able to do so successfully or that our business, results of operations and financial condition would not be adversely affected by increased volatility of the cost and availability of raw materials.

Quality Control

We consider quality control an important element of our business practices. We have stringent quality control systems that are implemented by more than 100 company-trained staff members to ensure quality control over each phase of the production process, from the purchase of raw materials through each step in the manufacturing process. Supported by advanced equipment, we utilize a scientific management system and precision inspection measurement, capable of supplying stable, high-quality rechargeable batteries. Our quality control department executes the following functions:

· setting internal controls and regulations for semi-finished and finished products;

· testing samples of raw materials from suppliers;

· implementing sampling systems and sample files;

· maintaining quality of equipment and instruments; and

· articulating the responsibilities of quality control staff.

We monitor quality and reliability in accordance with the requirements of QSR, or Quality System Review, and ISO 9001 systems. We have received European Union’s CE attestation, UL authentication, ISO 9001:2008 and ISO 14001 certification. We have passed stringent quality reviews and thus obtained OEM qualifications from various domestic cellular phone brand names. With our strong technological capabilities and use of automated equipment for core aspects of the manufacturing process, we believe our product quality meets or even exceeds in certain key aspects international industry standards.

Manufacturing

The manufacture of rechargeable batteries requires coordinated use of machinery and raw materials at various stages of manufacturing. We have a large-scale production base of 487,000 square feet, a dedicated design, sales and marketing team, and approximately 2,600 company-trained employees. We use automated machinery to process key aspects of the manufacturing process to ensure high uniformity and precision, while leaving the non-key aspects of the manufacturing process to manual labor. We intend to further improve our automated production lines and strive to continue investing in our manufacturing infrastructure to further increase our manufacturing capacity, helping us to control the per unit cost of our products.

6

The primary raw materials used in production of rechargeable batteries include electrode materials, electrolytes, foils, cases and caps and separators. The electrodes are manufactured using active materials, conductive agents and binder which are mixed with liquid. These mixtures are then uniformly coated onto the thin metal foil, then after drying, the electrodes are cut down to the designated sizes. The positive electrode and negative electrode are then wound together with a separator and inserted into a can, and electrolyte is filled. The sealing completes the battery cell assembly. Some of these cells are then integrated into packages which are customized into a wide variety of configurations to interface with different electronic devices.

In October 2008, we commenced construction of our new manufacturing facility in Huizhou, Guangdong Province.  The new facility will eventually house all Ni-MH production for the Company and be equipped with more automated production lines.  The new facility’s production capacity will be approximately two to three times that of our current production facility in Shenzhen. The estimated completion date based on the current run rate is around the thirdquarter 2011. This location will also house part of our  li-ion production capacity as needed.

Our Ni-MH facility currently produces approximately 12 million to 14 million battery units per month and our Li-ion facility produces approximately 1.2 million to 1.5 million units per month.   We are also planning for moderate manufacturing capacity growth of approximately 30-40% for the Li-ion segment in the next 12 months.

Major Customers

During the years ended December 31, 2010 and 2009, approximately 45% and 47% of our net sales were generated from our five largest customers, respectively. The percentages of net sales disclosed for each of our major customers includes sales to groups of customers under common control or that could be deemed affiliates of such major customers. During the years ended December 31, 2010 and 2009, one major customer Energizer Battery Manufacturing, Inc. accounted for 24% and 20%, respectively, of our net revenues.  No other customer accounted for more than 10% of net revenues during 2010 and 2009.  As of December 31, 2010 we had two customers who represented 34% and 17%, respectively of our accountants receivable as of that date.  As of December 31, 2009 we had two customers who represented 27% and 15%, respectively of our accountants receivable as of that date.

Sales and Marketing

We have a broad sales network of approximately 110 salespersons in China and have one branch office in Hong Kong. Our sales staff in each of our offices targets key customers by arranging in-person sales presentations and providing after-sales services. Our sales staff works closely with our customers so that we can better address their needs and improve the quality and features of our products. We offer different price incentives to encourage large-volume and long-term customers.

Sales to our customers are based primarily on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to predict revenue accurately over the longer term. Even in those cases where customers are contractually obligated to purchase products from us, we may elect not to enforce our contractual rights immediately because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

We target sales of our rechargeable batteries and charging systems through original equipment manufacturers (“OEMs”), as well as distributors and resellers focused on our target markets. We have contractual arrangements with distributors who market our products on a commission basis in particular areas. Although OEM agreements typically contain volume-based pricing based on expected volumes, typically prices are rarely adjusted retroactively if contract volumes are not achieved. We attempt to adjust future prices accordingly, but our ability to adjust prices is generally based on market conditions which we cannot control.

7

Net sales based on the location of our customers as a percentage of net sales is set forth below:

	Year Ended December 31,
	2010			2009			2008
China and Hong Kong		55.6	%		47.0	%		41.2	%
Europe		26.6			32.8			37.3
North America		11.4			14.1			14.5
Asia		5.7			5.6			6.4
South America, Africa and Others		0.7			0.5			0.6
Total		100.0	%		100.0	%		100.0	%

* Less than 1%.

While the largest portion of our sales are made to customers in China and Hong Kong, our battery products are integrated in various devices and end-user products and distributed worldwide, with approximately 55.6% of our products distributed to Hong Kong and China, 26.6% to Europe, 11.4% to the United States, and 6.4% to other markets.

We engage in marketing activities such as attending industry-specific conferences and exhibitions to promote our products and brand name. We also advertise in industry journals and magazines and through the Internet to market our products. We believe these activities help in promote our products and brand name among key industry participants.

Research and Development

To enhance our product quality, reduce cost, and keep pace with technological advances and evolving market trends, we have established an advanced research and development center. Our research and development center is not only focused on enhancing our Ni-MH-based technology by developing new products and improving the performance of our current products, but also seeks to develop alternative technologies such as the line of rechargeable Li-ion batteries we are currently developing for higher-end, high performance applications. Our research and development center is currently staffed with over 120 research and development technicians who overlook our techniques department, product development department, material analysis lab, and performance testing lab. These departments work together to research new material and techniques, test battery performance, inspect products and to test performance of machines used in the manufacturing process.

For years ended December 31, 2010 and 2009 we expended $1,884,032 and $1,059,341, respectively, in research and development.

Strategic Partnership with Freudenberg Nonwovens

In 2009, we entered into a strategic research and development partnership with Freudenberg Nonwovens.  Freudenberg will utilize our research and development center research facilities in China to test their various separators.  Freudenberg Nonwovens was the first to introduce nonwovens to the market over 70 years ago and is now the largest and most diverse manufacturer of nonwovens in the world today.  Freudenberg´s battery separator, which is one of their nonwovens, has been ranked as number one in the battery separator industry. Separators are considered an integral material for Ni-MH rechargeable batteries.  We strongly believe the relationship with Freudenberg Nonwovens will continue to improve our Ni-MH product quality, strengthen our research and development in nonwoven knowledge which can create mutual benefits in the Ni-MH battery development.

Competition

We face competition from many other battery manufacturers, some of which have significantly greater name recognition and financial, technical, manufacturing, personnel and other resources than we have. We compete against other Ni-MH and Li-ion battery producers, as well as manufacturers of other rechargeable and non-rechargeable batteries. The main types of rechargeable batteries currently on the market include: lead-acid; nickel-cadmium; nickel metal hydride; liquid lithium-ion and lithium-ion polymer. Competition is typically based on design, quality, reliability, and performance. The technology behind Ni-MH rechargeable batteries has consistently improved over time and we continue to enhance our products to meet the competitive threats from its competitors. Our primary competitors in the Ni-MH battery market or other similar competing rechargeable battery products include SANYO Electric Co., Ltd. Global, Matsushita Industrial Co., Ltd. (Panasonic), BYD Company Ltd., GPI International, Ltd., and GS Yuasa Corporation. Our primary competitors in the Li-ion battery market or other similar competing rechargeable battery products include Desay Corp., Coslight Group, Tianjin Lishen Battery Co. Ltd., and ATL.

8

Intellectual Property

We rely on a combination of patent and trade secret protection and other unpatented proprietary information to protect our intellectual property rights and to maintain and enhance our competitiveness in the battery industry. We currently hold 21 patents in China and have 30 patent applications pending in China. We also have two registered trademarks in China, which include “HFR” and its Chinese equivalent.

Shenzhen Highpower is party to a license agreement with Ovonic Battery Company, Inc. (“Ovonic”) under which Ovonic granted Shenzhen Highpower (1) a royalty-bearing, non-exclusive license to use certain patents owned by Ovonic to manufacture Ni-MH batteries for portable consumer applications (“Consumer Batteries”) in the PRC and (2) a royalty-bearing, non-exclusive worldwide license to use certain patents owned by Ovonic to use, sell and distribute Consumer Batteries. The renewal agreement will remain in effect until the licensed patents under the agreement expire. Pursuant to the renewed agreement, Shenzhen Highpower will pay a license fee of up to $1.0 million based on gross sales of Consumer Batteries.

We also rely on unpatented technologies to protect the proprietary nature of our product and manufacturing processes. We require that our management team and key employees enter into confidentiality agreements that require the employees to assign the rights to any inventions developed by them during the course of their employment with us. The confidentiality agreements include noncompetition and nonsolicitation provisions that remain effective during the course of employment and for periods following termination of employment, which vary depending on position and location of the employee.

PRC Government Regulations

Business License

Any company that conducts business in the PRC must have a business license that covers the scope of the business in which such company is engaged.  We conduct our business through our operating subsidiaries, Shenzhen Highpower and Shenzhen Springpower, and each of our operating subsidiaries holds a business license that covers its present business.  Prior to expanding our business beyond the scope covered by our business licenses, we are required to apply and receive approvals from the relevant PRC authorities (if applicable, based on the new business in which we intend to engage) and conduct modification registration formalities with the competent administration of industry and commerce. Companies that operate outside the scope of their licenses can be subjected to a fine of not more than RMB20,000 if such operations do not violate the PRC Criminal Law, or a fine of not less than RMB20,000 but no more than RMB200,000 if such operations violate the PRC Criminal Law, or a fine of not less than RMB50,000 but not more than RMB500,000 if the such operations harm human health, have serious hidden hazards to safety, threaten public safety or destroy environmental resources.  Other penalties can include disgorgement of income and being ordered to cease operations.

Environmental Regulations

The major 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. We aim to comply with environmental laws and regulations and have acquired an ISO14004:2004 Environment Systems Certification and QC080000 Hazardous Substance Process Management System.

We constructed our manufacturing facilities with the PRC’s environmental laws and requirements in mind. We currently outsource the disposal of solid waste to a third party-contractor. In 2010, we renewed our environmental permit, which expired in December 2010, from the Shenzhen Environment Protection Bureau Longgang Bureau covering our manufacturing operations and providing for an annual output limit of Ni-MH rechargeable batteries. Our new permit, which expires on December 31, 2011, does not include one of our current premises at our manufacturing facility. Although we substantially exceeded the approved annual output limit of Ni-MH rechargeable batteries set forth in one of our older permits, we do not expect to exceed the approved annual output limit set forth in our new permit. If we fail to comply with the provisions of the renewed permit, we could be subject to fines, criminal charges or other sanctions by regulators, including the suspension or termination of our manufacturing operations. In late 2007 and early 2008, we operated briefly under an expired environmental approval.

9

Our operating subsidiaries have received certifications from the relevant PRC government agencies in charge of environmental protection indicating that their business operations are in material compliance with the relevant PRC environmental laws and regulations. We have committed significant attention and efforts to quality and environmental protection during our production process. In November 2010, we received a Clean Production Award from the Guangdong Economic and Information Commission and Environmental Bureau of Hong Kong.  We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws. To date, our cost of compliance with PRC environmental laws and regulations has been insignificant. We do not believe the existence of these environmental laws, as currently written and interpreted, will materially hinder or adversely affect our business operations; however, there can be no assurances of future events or changes in laws, or the interpretation of laws, governing our industry. Failure to comply with PRC environmental protection laws and regulations may subject us to fines up to RMB1,000,000, the exact amount of which is determined on a case by case basis, or disrupt our operations and the construction of our new facility, result in the shutdown of our operations temporarily or permanently, which may materially and adversely affect our business, results of operations and financial condition.

Patent Protection in China

The PRC’s intellectual property protection regime is consistent with those of other modern industrialized countries. The PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory to most of the world’s major intellectual property conventions, including:

— Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);

— Paris Convention for the Protection of Industrial Property (March 19, 1985);

— Patent Cooperation Treaty (January 1, 1994); and

— The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

Patents in the PRC are governed by the China Patent Law and its Implementing Regulations, each of which went into effect in 1985. Amended versions of the China Patent Law and its Implementing Regulations came into effect in 2001 and 2003, respectively.

The PRC is signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).

The Patent Law covers three kinds of patents, i.e., patents for inventions, utility models and designs respectively. The Chinese patent system adopts the principle of first to file. This means that, where more than one person files a patent application for the same invention, a patent can only be granted to the person who first filed the application. Consistent with international practice, the PRC only allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability. For a design to be patentable, it should not be identical with or similar to any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country, and should not be in conflict with any prior right of another.

PRC law provides that anyone wishing to exploit the patent of another must conclude a written licensing contract with the patent holder and pay the patent holder a fee. One rather broad exception to this, however, is that, where a party possesses the means to exploit a patent but cannot obtain a license from the patent holder on reasonable terms and in reasonable period of time, the PRC State Intellectual Property Office, or SIPO, is authorized to grant a compulsory license. A compulsory license can also be granted where a national emergency or any extraordinary state of affairs occurs or where the public interest so requires. SIPO, however, has not granted any compulsory license up to now. The patent holder may appeal such decision within three months from receiving notification by filing a suit in a people’s court.

10

PRC law defines patent infringement as the exploitation of a patent without the authorization of the patent holder. A patent holder who believes his patent is being infringed may file a civil suit or file a complaint with a PRC local Intellectual Property Administrative Authority, which may order the infringer to stop the infringing acts. Preliminary injunction may be issued by the People’s Court upon the patentee’s or the interested parties’ request before instituting any legal proceedings or during the proceedings. Evidence preservation and property preservation measures are also available both before and during the litigation. Damages in the case of patent infringement is calculated as either the loss suffered by the patent holder arising from the infringement or the benefit gained by the infringer from the infringement. If it is difficult to ascertain damages in this manner, damages may be reasonably determined in an amount ranging from one to more times of the license fee under a contractual license. The infringing party may be also fined by Administration of Patent Management in an amount of up to three times the unlawful income earned by such infringing party. If there is no unlawful income so earned, the infringing party may be fined in an amount of up to RMB500,000, or approximately $62,500.

Product Liability and Consumers Protection

Product liability claims may arise if the products sold have any harmful effect on the consumers. The injured party may make a claim for damages or compensation. The General Principles of the Civil Law of the PRC, which became effective in January 1987, state that manufacturers and sellers of defective products causing property damage or injury shall incur civil liabilities for such damage or injuries.

The Product Quality Law of the PRC was enacted in 1993 and amended in 2000 to strengthen the quality control of products and protect consumers’ rights and interests. Under this law, manufacturers and distributors who produce or sell defective products may be subject to confiscation of earnings from such sales, revocation of business licenses and imposition of fines, and in severe circumstances, may be subject to criminal liability.

The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 31, 1993 and became effective on January 1, 1994 to protect consumers’ rights when they purchase or use goods or services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers.

The Tort Law of the PRC effective on July 1, 2010 requires that when the product defect endangers people’s life or property, the injured party may hold the producer or the seller liable in tort and require that it remove obstacles, eliminate danger, or take other action. The Tort Law also requires that when a product is found to be defective after it is put into circulation, the producer and the seller shall give timely warnings, recall the defective product, or take other remedial measures.

Employment Laws

We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, and social insurance, housing funds and other welfare.  These include local labor laws and regulations, which may require substantial resources for compliance.

China’s National Labor Law, which became effective on January 1, 1995, and China’s National Labor Contract Law, which became effective on January 1, 2008, permit workers in both state and private enterprises in China to bargain collectively.  The National Labor Law and the National Labor Contract Law provide for collective contracts to be developed through collaboration between the labor union (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work.  The laws also permit workers and employers in all types of enterprises to sign individual contracts, which are to be drawn up in accordance with the collective contract.  The National Labor Contract Law has enhanced rights for the nation’s workers, including permitting open-ended labor contracts and severance payments.  The legislation requires employers to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off employees.  It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract is renewed once or the employee has worked for the employer for a consecutive ten-year period.

11

Tax

Pursuant to the Provisional Regulation of China on Value Added Tax and their implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay VAT at a rate of 17.0% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to a portion of or all the refund of VAT that it has already paid or borne. Our imported raw materials that are used for manufacturing export products and are deposited in bonded warehouses are exempt from import VAT.

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations promulgated by the State Council, as amended on August 5, 2008, or the Foreign Exchange Regulations.  Under the Foreign Exchange Regulations, the Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, however, is still subject to the approval of the PRC State Administration of Foreign Exchange, or SAFE. Foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Reform and Development Commission.

Dividend Distributions

Under applicable PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

Foreign Ownership of PRC Operating Subsidiaries

The establishment, approval and registered capital requirement matters of wholly foreign-owned enterprises, such as our PRC subsidiaries, Shenzhen Highpower, Shenzhen Springpower and Huizhou Highpower, are regulated by the Wholly Foreign-owned Enterprise Law of the PRC promulgated and effective on April 12, 1986, as amended on October 31, 2000, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC effective on December 12, 1990, as amended in 2001.  The procedures of establishing Shenzhen Highpower, Shenzhen Springpower and Huizhou Highpower as wholly foreign-owned enterprises complied with such law and regulation.

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission.  The Catalogue divides industries into three categories: encouraged, restricted and prohibited.  An industry not listed in the Catalogue is generally open to foreign investment unless it is specifically restricted by other PRC regulations.  In addition, the establishment of wholly foreign-owned enterprises is generally permitted in most industries except for the restricted industries which are listed in the Catalogue or restricted by other government regulations (which are subject to governmental approvals) and industries prohibited from foreign investments.  Pursuant to the currently effective Catalogue (2007 version) and other PRC regulations, the business scope of Shenzhen Highpower, Shenzhen Springpower and Huizhou Highpower as indicated on their business licenses does not fall within the restricted or prohibited industries and is not restricted by other PRC regulations and , therefore, HKHT is permitted to invest in Shenzhen Highpower, Shenzhen Springpower and Huizhou Highpower in the form of a wholly foreign-owned enterprise.

12

Employees

At December 31, 2010, we had approximately 2,600 employees, all of which are employed full-time. There are no collective bargaining contracts covering any of our employees. We have not experienced any work stoppages and we consider our relations with our employees to be good.

13

ITEM 1A: RISK FACTORS

Any investment in our common stock involves a high degree of risk. Potential investors should carefully consider the material risks described below and all of the information contained in this Form 10-K before deciding whether to purchase any of our securities. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. The trading price of our shares of common stock listed on the NASDAQ Global Market could decline due to any of these risks, and an investor may lose all or part of his investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting us. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced described below and elsewhere in this Form 10-K.

RISKS RELATED TO OUR OPERATIONS

Our business depends in large part on the growth in demand for portable electronic devices.

Many of our battery products are used to power various portable electronic devices. Therefore, the demand for our batteries is substantially tied to the market demand for portable electronic devices. A growth in the demand for portable electronic devices will be essential to the expansion of our business. Our results of operations may be adversely affected by decreases in the general level of economic activity. Decreases in consumer spending that may result from the current global economic downturn may weaken demand for items that use our battery products. A decrease in the demand for portable electronic devices would likely have a material adverse effect on our results of operations.  We are unable to predict the duration and severity of the current disruption in financial markets and the global adverse economic conditions and the effect such events might have on our business.

Our success depends on the success of manufacturers of the end applications that use our battery products.

Because our products are designed to be used in other products, our success depends on whether end application manufacturers will incorporate our batteries in their products. Although we strive to produce high quality battery products, there is no guarantee that end application manufacturers will accept our products. Our failure to gain acceptance of our products from these manufacturers could result in a material adverse effect on our results of operations.

Additionally, even if a manufacturer decides to use our batteries, the manufacturer may not be able to market and sell its products successfully. The manufacturer’s inability to market and sell its products successfully could materially and adversely affect our business and prospects because this manufacturer may not order new products from us. Therefore, our business, financial condition, results of operations and future success would be materially and adversely affected.

We are and will continue to be subject to declining average selling prices of consumer electronic devices, which may harm our results of operations.

Portable consumer electronic devices, such as cellular phones, DVD players, and laptop computers are subject to rapid declines in average selling prices due to rapidly evolving technologies, industry standards and consumer preferences. Therefore, electronic device manufacturers expect suppliers, such as our company, to cut their costs and lower the price of their products to lessen the negative impact on the electronic device manufacturer’s own profit margins. As a result, we have previously reduced the price of some of our battery products and expect to continue to face market-driven downward pricing pressures in the future. Our results of operations will suffer if we are unable to offset any declines in the average selling prices of our products by developing new or enhanced products with higher selling prices or gross profit margins, increasing our sales volumes or reducing our production costs.

14

Our success is highly dependent on continually developing new and advanced products, technologies, and processes and failure to do so may cause us to lose our competitiveness in the battery industry and may cause our profits to decline.

To remain competitive in the battery industry, it is important to continually develop new and advanced products, technologies, and processes. There is no assurance that competitors’ new products, technologies, and processes will not render our existing products obsolete or non-competitive. Alternately, changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our competitiveness in the battery market therefore relies upon our ability to enhance our current products, introduce new products, and develop and implement new technologies and processes.  We predominately manufacture and market Ni-MH batteries, and to a lesser extent, Li-ion and Li-polymer batteries.  If our competitors develop alternative products with more enhanced features than our products, our financial condition and results of operations would be materially and adversely affected.

The research and development of new products and technologies is costly and time consuming, and there are no assurances that our research and development of new products will either be successful or completed within anticipated timeframes, if at all. Our failure to technologically evolve and/or develop new or enhanced products may cause us to lose competitiveness in the battery market and may cause our profits to decline. In addition, in order to compete effectively in the battery industry, we must be able to launch new products to meet our customers’ demands in a timely manner. However, we cannot provide assurance that we will be able to install and certify any equipment needed to produce new products in a timely manner, or that the transitioning of our manufacturing facility and resources to full production under any new product programs will not impact production rates or other operational efficiency measures at our manufacturing facility. In addition, new product introductions and applications are risky, and may suffer from a lack of market acceptance, delays in related product development and failure of new products to operate properly. Any failure by us successfully to launch new products, or a failure by our customers to accept such products, could adversely affect our results.

We have historically depended on a limited number of customers for a significant portion of our revenues and this dependence is likely to continue.

We have historically depended on a limited number of customers for a significant portion of our net sales. Our top five customers accounted for approximately 45%, 47% and 57% of our net sales for the years ended December 31, 2010, 2009 and 2008, respectively. One customer, Energizer Battery Manufacturing, Inc., accounted for 24% and 20% of our net revenues for the years ended December 31, 2010 and 2009, respectively. We anticipate that a limited number of customers will continue to contribute to a significant portion of our net sales in the future. Maintaining the relationships with these significant customers is vital to the expansion and success of our business, as the loss of a major customer could expose us to risk of substantial losses. Our sales and revenue could decline and our results of operations could be materially adversely affected if one or more of these significant customers stops or reduces its purchasing of our products, or if we fail to expand our customer base for our products.

Significant order cancellations, reductions or delays by our customers could materially adversely affect our business.

Our sales are typically made pursuant to individual purchase orders, and we generally do not have long-term supply arrangements with our customers, but instead work with our customers to develop nonbinding forecasts of future requirements. Based on these forecasts, we make commitments regarding the level of business that we will seek and accept, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to each customer and generally affecting each customer’s industry, may cause customers to cancel, reduce or delay orders that were either previously made or anticipated. Generally, customers may cancel, reduce or delay purchase orders and commitments without penalty, except for payment for services rendered or products competed and, in certain circumstances, payment for materials purchased and charges associated with such cancellation, reduction or delay. Significant or numerous order cancellations, reductions or delays by our customers could have a material adverse effect on our business, financial condition or results of operations.

Substantial defaults by our customers on accounts receivable or the loss of significant customers could have a material adverse effect on our business.

A substantial portion of our working capital consists of accounts receivable from customers. Two customers represented an aggregate of 51% of our accounts receivable as of December 31, 2010.  If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for products and services, or to make payments in a timely manner, our business, results of operations or financial condition could be materially adversely affected. An economic or industry downturn could materially adversely affect the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management’s expectations. A significant deterioration in our ability to collect on accounts receivable could also impact the cost or availability of financing available to us.

15

Certain disruptions in supply of and changes in the competitive environment for raw materials integral to our products may adversely affect our profitability.

We use a broad range of materials and supplies, including metals, chemicals and other electronic components in our products. A significant disruption in the supply of these materials could decrease production and shipping levels, materially increase our operating costs and materially adversely affect our profit margins. Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages, war, acts of terrorism or other interruptions to or difficulties in the employment of labor or transportation in the markets in which we purchase materials, components and supplies for the production of our products, in each case may adversely affect our ability to maintain production of our products and sustain profitability. If we were to experience a significant or prolonged shortage of critical components from any of our suppliers and could not procure the components from other sources, we would be unable to meet our production schedules for some of our key products and to ship such products to our customers in timely fashion, which would adversely affect our sales, margins and customer relations.

Our industry is subject to supply shortages and any delay or inability to obtain product components may have a material adverse effect on our business.

Our industry is subject to supply shortages, which could limit the amount of supply available of certain required battery components. Any delay or inability to obtain supplies may have a material adverse effect on our business. During prior periods, there have been shortages of components in the battery industry and the availability of raw materials has been limited by some of our suppliers. We cannot assure investors that any future shortages or allocations would not have such an effect on our business. A future shortage can be caused by and result from many situations and circumstances that are out of our control, and such shortage could limit the amount of supply available of certain required materials and increase prices affecting our profitability.

Our future operating results may be affected by fluctuations in costs of raw materials, such as nickel.

Our principal raw material is nickel, which is available from a limited number of suppliers in China. The price of nickel was volatile during 2009 and 2010 and could be volatile again. The price of nickel rose 59% from January 2009 to December 2009 and 31% from January 2010 to December 2010. The prices of nickel and other raw materials used to make our batteries increase and decrease due to factors beyond our control, including general economic conditions, domestic and worldwide demand, labor costs or problems, competition, import duties, tariffs, energy costs, currency exchange rates and those other factors described under “Certain disruptions in supply of and changes in the competitive environment for raw materials integral to our products may adversely affect our profitability.” In an environment of increasing prices for nickel and other raw materials, competitive conditions may impact how much of the price increases we can pass on to our customers and to the extent we are unable to pass on future price increases in our raw materials to our customers, our financial results could be adversely affected.

Our operations would be materially adversely affected if third-party carriers were unable to transport our products on a timely basis.

All of our products are shipped through third party carriers. If a strike or other event prevented or disrupted these carriers from transporting our products, other carriers may be unavailable or may not have the capacity to deliver our products to our customers. If adequate third party sources to ship our products were unavailable at any time, our business would be materially adversely affected.

We may not be able to increase our manufacturing output in order to maintain our competitiveness in the battery industry.

We believe that our ability to provide cost-effective products represents a significant competitive advantage over our competitors. In order to continue providing such cost-effective products, we must maximize the efficiency of our production processes and increase our manufacturing output to a level that will enable us to reduce the per-unit production cost of our products. Our ability to increase our manufacturing output is subject to certain significant limitations, including:

16

· our ability raise capital to acquire additional raw materials and expand our manufacturing facilities;

· delays and cost overruns, due to increases in raw material prices and problems with equipment vendors;

· delays or denial of required approvals and certifications by relevant government authorities;

· diversion of significant management attention and other resources; and

· failure to execute our expansion plan effectively.

If we are not able to increase our manufacturing output and reduce our per-unit production costs, we may be unable to maintain our competitive position in the battery industry. Moreover, even if we expand our manufacturing output, we may not be able to generate sufficient customer demand for our products to support our increased production output.

The market for our products and services is very competitive and, if we cannot effectively compete, our business will be harmed.

The market for our products and services is very competitive and subject to rapid technological change. Many of our competitors are larger and have significantly greater assets, name recognition and financial, personnel and other resources than we have. As a result, our competitors may be in a stronger position to respond quickly to potential acquisitions and other market opportunities, new or emerging technologies and changes in customer requirements. We cannot assure you that we will be able to maintain or increase our market share against the emergence of these or other sources of competition. Failure to maintain and enhance our competitive position could materially adversely affect our business and prospects.

Our business may be adversely affected by the global economic downturn, in addition to the continuing uncertainties in the financial markets.

The global economy is currently in a pronounced economic downturn. Global financial markets are continuing to experience disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Given these uncertainties, there is no assurance that there will not be further deterioration in the global economy, the global financial markets and consumer confidence. If economic conditions deteriorate further, our business and results of operations could be materially and adversely affected.

Additionally, sales of consumer items such as portable electronic devices, has slowed and there has been adverse changes in employment levels, job growth, consumer confidence and interest rates.  Our future results of operations may experience substantial fluctuations from period to period as a consequence of these factors, and such conditions and other factors affecting consumer spending may affect the timing of orders. Thus, any economic downturns generally would have a material adverse effect on our business, cash flows, financial condition and results of operations.

Additionally, the inability of our customers and suppliers to access capital efficiently, or at all, may have other adverse effects on our financial condition. For example, financial difficulties experienced by our customers or suppliers could result in product delays; increase accounts receivable defaults; and increase our inventory exposure. The inability of our customers to borrow money to fund purchases of our products reduces the demand for our products and services and may adversely affect our results from operations and cash flow. These risks may increase if our customers and suppliers do not adequately manage their business or do not properly disclose their financial condition to us.

Although we believe we have adequate liquidity and capital resources to fund our operations internally, in light of current market conditions, our inability to access the capital markets on favorable terms, or at all, may adversely affect our financial performance. The inability to obtain adequate financing from debt or capital sources could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.

17

Warranty claims, product liability claims and product recalls could harm our business, results of operations and financial condition.

Our business inherently exposes us to potential warranty and product liability claims, in the event that our products fail to perform as expected or such failure of our products results, or is alleged to result, in bodily injury or property damage (or both). Such claims may arise despite our quality controls, proper testing and instruction for use of our products, either due to a defect during manufacturing or due to the individual’s improper use of the product. In addition, if any of our designed products are or are alleged to be defective, then we may be required to participate in a recall of them.

Existing PRC laws and regulations do not require us to maintain third party liability insurance to cover product liability claims. Although we have obtained products liability insurance, if a warranty or product liability claim is brought against us, regardless of merit or eventual outcome, or a recall of one of our products is required, such claim or recall may result in damage to our reputation, breach of contracts with our customers, decreased demand for our products, costly litigation, additional product recalls, loss of revenue, and the inability to commercialize some products.  Additionally, our insurance policy imposes a ceiling for maximum coverage and high deductibles and we may be unable to obtain sufficient amounts from our policy to cover a product liability claim.  We may not be able to obtain any insurance coverage for certain types of product liability claims, as our policy excludes coverage of certain types of claims.  In such cases, we may still incur substantial costs related to a product liability claim, which could adversely affect our results of operations.

Manufacturing or use of our battery products may cause accidents, which could result in significant production interruption, delay or claims for substantial damages.

Our batteries, especially Li-ion batteries, can pose certain safety risks, including the risk of fire. While we implement stringent safety procedures at all stages of battery production that minimize such risks, accidents may still occur. Any accident, regardless of where it occurs, may result in significant production interruption, delays or claims for substantial damages caused by personal injuries or property damages.

Our labor costs are likely to increase as a result of changes in Chinese labor laws.

We expect to experience an increase in our cost of labor due to recent changes in Chinese labor laws which are likely to increase costs further and impose restrictions on our relationship with our employees. In June 2007, the National People’s Congress of the PRC enacted new labor law legislation called the Labor Contract Law and more strictly enforced existing labor laws. The new law, which became effective on January 1, 2008, amended and formalized workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions. As a result of the new law, we have had to increase the salaries of our employees, provide additional benefits to our employees, and revise certain other of our labor practices. The increase in labor costs has increased our operating costs, which increase we have not always been able to pass through to our customers. In addition, under the new law, employees who either have worked for us for 10 years or more or who have had two consecutive fixed-term contracts must be given an “open-ended employment contract” that, in effect, constitutes a lifetime, permanent contract, which is terminable only in the event the employee materially breaches our rules and regulations or is in serious dereliction of his or her duties. Such non-cancelable employment contracts will substantially increase our employment related risks and limit our ability to downsize our workforce in the event of an economic downturn. No assurance can be given that we will not in the future be subject to labor strikes or that we will not have to make other payments to resolve future labor issues caused by the new laws. Furthermore, there can be no assurance that the labor laws will not change further or that their interpretation and implementation will vary, which may have a negative effect upon our business and results of operations.

We cannot guarantee the protection of our intellectual property rights and if infringement of our intellectual property rights occurs, including counterfeiting of our products, our reputation and business may be adversely affected.

To protect the reputation of our products, we have sought to file or register our intellectual property, as appropriate, in the PRC where we have our primary business presence. As of December 31, 2010, we have registered two trademarks as used on our battery products, one in English and in the other in its Chinese equivalent. Our products are currently sold under these trademarks in the PRC, and we plan to expand our products to other international markets. There is no assurance that there will not be any infringement of our brand name or other registered trademarks or counterfeiting of our products in the future, in China or elsewhere. Should any such infringement and/or counterfeiting occur, our reputation and business may be adversely affected. We may also incur significant expenses and substantial amounts of time and effort to enforce our trademark rights in the future. Such diversion of our resources may adversely affect our existing business and future expansion plans.

18

As of December 31, 2010, we held 21 Chinese patents and had 30 Chinese patent applications pending. Additionally, we have licensed patented technology from Ovonic Battery Company, Inc. related to the manufacture of Ni-MH batteries. We believe that obtaining patents and enforcing other proprietary protections for our technologies and products have been and will continue to be very important in enabling us to compete effectively. However, there can be no assurance that our pending patent applications will issue, or that we will be able to obtain any new patents, in China or elsewhere, or that our or our licensors’ patents and proprietary rights will not be challenged or circumvented, or that these patents will provide us with any meaningful competitive advantages. Furthermore, there can be no assurance that others will not independently develop similar products or will not design around any patents that have been or may be issued to us or our licensors. Failure to obtain patents in certain foreign countries may materially adversely affect our ability to compete effectively in those international markets. If a sufficiently broad patent were to be issued from a competing application in China or elsewhere, it could have a material adverse effect upon our intellectual property position in that particular market.

In addition, our rights to use the licensed proprietary technologies of our licensors depends on the timely and complete payment for such rights pursuant to license agreements between the parties; failure to adhere to the terms of these agreements could result in the loss of such rights and could materially and adversely affect our business.

If our products are alleged to or found to conflict with patents that have been or may be granted to competitors or others, our reputation and business may be adversely affected.

Rapid technological developments in the battery industry and the competitive nature of the battery products market make the patent position of battery manufacturers subject to numerous uncertainties related to complex legal and factual issues. Consequently, although we either own or hold licenses to certain patents in the PRC, and are currently processing several additional patent applications in the PRC, it is possible that no patents will issue from any pending applications or that claims allowed in any existing or future patents issued or licensed to us will be challenged, invalidated, or circumvented, or that any rights granted there under will not provide us adequate protection. As a result, we may be required to participate in interference or infringement proceedings to determine the priority of certain inventions or may be required to commence litigation to protect our rights, which could result in substantial costs. Further, other parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of our products for allegedly conflicting with patents held by them. Any such litigation could result in substantial cost to us and diversion of effort by our management and technical personnel. If any such actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. There can be no assurance that we would prevail in any such action or that any license required under any such patent would be made available on acceptable terms, if at all. Failure to obtain needed patents, licenses or proprietary information held by others may have a material adverse effect on our business. In addition, if we were to become involved in such litigation, it could consume a substantial portion of our time and resources. Also, with respect to licensed technology, there can be no assurance that the licensor of the technology will have the resources, financial or otherwise, or desire to defend against any challenges to the rights of such licensor to its patents.

We rely on trade secret protections through confidentiality agreements with our employees, customers and other parties; the breach of such agreements could adversely affect our business ands results of operations.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, customers and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach or that our trade secrets will not otherwise become known to or independently developed by competitors. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed projects, disputes may arise as to the proprietary rights to such information that may not be resolved in our favor. We may be involved from time to time in litigation to determine the enforceability, scope and validity of our proprietary rights. Any such litigation could result in substantial cost and diversion of effort by our management and technical personnel.

19

The failure to manage growth effectively could have an adverse effect on our employee efficiency, product quality, working capital levels, and results of operations.

Any significant growth in the market for our products or our entry into new markets may require and expansion of our employee base for managerial, operational, financial, and other purposes. As of December 31, 2010, we had approximately 2,600 full time employees. During any growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the purchase of raw materials and supplies, development of new products, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and control. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Each of the named executive officers performs key functions in the operation of our business. The loss of a significant number of these employees could have a material adverse effect upon our business, financial condition, and results of operations.

We are dependent on a technically trained workforce and an inability to retain or effectively recruit such employees could have a material adverse effect on our business, financial condition and results of operations.

We must attract, recruit and retain a sizeable workforce of technically competent employees to develop and manufacture our products and provide service support. Our ability to implement effectively our business strategy will depend upon, among other factors, the successful recruitment and retention of additional highly skilled and experienced engineering and other technical and marketing personnel. There is significant competition for technologically qualified personnel in our business and we may not be successful in recruiting or retaining sufficient qualified personnel consistent with our operational needs.

Our planned expansion into new and existing international markets poses additional risks and could fail, which could cost us valuable resources and affect our results of operations.

We plan to expand sales of our products into new and existing international markets including developing and developed countries, such as Japan, Russia, India, and Brazil.  These markets are untested for our products and we face risks in expanding the business overseas, which include differences in regulatory product testing requirements, intellectual property protection (including patents and trademarks), taxation policy, legal systems and rules, marketing costs, fluctuations in currency exchange rates and changes in political and economic conditions.

Our expansion into the Li-ion battery business is subject to substantial risks, which could result in a material adverse effect on our results of operations.

In September 2008, we completed the construction and build-out of two production lines for the development and manufacturing of a range of Li-ion rechargeable batteries and products. We have limited experience in the development and production of Li-ion batteries, and due to this inexperience, we may be unable to manufacture our Li-ion battery products in the time frame and amounts expected or be unable to successfully commercialize our Li-ion products. The lithium ion battery market is competitive and risky and we are unsure whether our Li-ion products will gain market acceptance. We are competing against numerous competitors with greater financial resources than us, and due to the difficulties of entry into these markets, we may be unsuccessful and not be able to complete in the Li-ion battery industry.

20

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost of capital.

The capital and credit markets have been experiencing extreme volatility and disruption, including, among other things, extreme volatility in securities prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. Governments have taken unprecedented actions intended to address extreme market conditions that have included severely restricted credit and declines in real estate values. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. While currently these conditions have not impaired our ability to utilize our current credit facilities and finance our operations, there can be no assurance that there will not be a further deterioration in financial markets and confidence in major economies such that our ability to access credit markets and finance our operations, including the financing of the construction of our new manufacturing facility, might be impaired. Without sufficient liquidity, we may be forced to curtail our operations and our planned expansion of our new Li-ion battery line and construction of our new manufacturing facility. Adverse market conditions may limit our ability to replace, in a timely manner, maturing liabilities and access the capital necessary to operate and grow our business. As such, we may be forced to delay raising capital or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. The current tightening of credit in financial markets could adversely affect the ability of our customers to obtain financing for purchases of our products and could result in a decrease in or cancellation of orders for our products. Our results of operations, financial condition, cash flows and capital position could be materially adversely affected by disruptions in the financial markets.

Our quarterly results may fluctuate because of many factors and, as a result, investors should not rely on quarterly operating results as indicative of future results.

Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the value of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in quarterly operating results could cause the value of our securities to decline. Investors should not rely on quarter-to-quarter comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of public market analysts and investors. This could cause the market price of our securities to decline. Factors that may affect our quarterly results include:

· vulnerability of our business to a general economic downturn in China;

· fluctuation and unpredictability of costs related to the raw material used to manufacture our products;

· seasonality of our business;

· changes in the laws of the PRC that affect our operations;

· competition from our competitors; and

· our ability to obtain necessary government certifications and/or licenses to conduct our business.

RISKS RELATED TO DOING BUSINESS IN CHINA

Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in China, and changes in the political and economic policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.

Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.

21

Our operations are subject to PRC laws and regulations that are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material and adverse effect on our business.

The PRC’s legal system is a civil law system based on written statutes. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in China. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to, governmental approvals required for conducting business and investments, laws and regulations governing the battery industry, national security-related laws and regulations and export/import laws and regulations, as well as commercial, antitrust, patent, product liability, environmental laws and regulations, consumer protection, and financial and business taxation laws and regulations.

The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.

Our principal operating subsidiaries, Shenzhen Highpower Technology Co., Ltd, (“Shenzhen Highpower”) and Springpower Technology (Shenzhen) Co., Ltd (“Shenzhen Springpower”) are considered foreign invested enterprises under PRC laws, and as a result are required to comply with PRC laws and regulations, including laws and regulations specifically governing the activities and conduct of foreign invested enterprises. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:

· levying fines;

· revoking our business license, other licenses or authorities;

· requiring that we restructure our ownership or operations; and

· requiring that we discontinue any portion or all of our business.

The scope of our business license in China is limited, and we may not expand or continue our business without government approval and renewal, respectively.

Our principal operating subsidiaries, Shenzhen Highpower and Shenzhen Springpower, are wholly foreign-owned enterprises, commonly known as WFOEs. A WFOE can only conduct business within its approved business scope, which ultimately appears on its business license. Our license permits us to design, manufacture, sell and market battery products throughout the PRC. Any amendment to the scope of our business requires further application and government approval. Prior to expanding our business and engaging in activities that are not covered by our current business licenses, we are required to apply and receive approval from the relevant PRC government authorities.  In order for us to expand our business beyond the scope of our license, it will be required to enter into a negotiation with the authorities for the approval to expand the scope of our business. PRC authorities, which have discretion over business licenses, may reject our request to expand the scope of our business licenses to include our planned areas of expansion.  We will be prohibited from engaging in any activities that the PRC authorities do not approve in our expanded business licenses.  Companies that operate outside the scope of their licenses can be subjected to fines, disgorgement of income and ordered to cease operations.  Our business and results of operations may be materially and adversely affected if we are unable to obtain the necessary government approval for expanded business licenses that cover any areas in which we wish to expand.

We are subject to a variety of environmental laws and regulations related to our manufacturing operations. Our failure to comply with environmental laws and regulations may have a material adverse effect on our business and results of operations.

We are subject to various environmental laws and regulations in China.  We are subject to various environmental laws and regulations that require us to obtain environmental permits for our battery manufacturing operations. We have an environmental permit from the Shenzhen Environment Protection Bureau Longgang Bureau (the “Bureau”) covering our manufacturing operations that expires on December 31, 2011. Historically, under a previous permit which expired in September 2007, we substantially exceeded the approved annual output limit of Ni-MH rechargeable batteries set forth in the permit. Although we do not currently expect to exceed the approved annual output limits under the new permit, we cannot guarantee that this will be the case. Additionally, our current permit does not cover one of our existing premises at our manufacturing facility. If we fail to comply with the provisions of our permit, we could be subject to fines, criminal charges or other sanctions by regulators, including the suspension or termination of our manufacturing operations.

22

To the extent we ship our products outside of the PRC, or to the extent our products are used in products sold outside of the PRC, they may be affected by the following: The transportation of non-rechargeable and rechargeable lithium batteries is regulated by the International Civil Aviation Organization (ICAO), and corresponding International Air Transport Association (IATA), Pipeline & Hazardous Materials Safety Administration (PHMSA), Dangerous Goods Regulations and the International Maritime Dangerous Goods Code (IMDG), and in the PRC by General Administration of Civil Aviation of China and Maritime Safety Administration of People’s Republic of China. These regulations are based on the United Nations (UN) Recommendations on the Transport of Dangerous Goods Model Regulations and the UN Manual of Tests and Criteria. We currently ship our products pursuant to ICAO, IATA and PHMSA hazardous goods regulations. New regulations that pertain to all lithium battery manufacturers went into effect in 2003 and 2004, and additional regulations went into effect on October 1, 2009. The regulations require companies to meet certain testing, packaging, labeling and shipping specifications for safety reasons. We comply with all current PRC and international regulations for the shipment of our products, and will comply with any new regulations that are imposed. We have established our own testing facilities to ensure that we comply with these regulations. If we were unable to comply with the new regulations, however, or if regulations are introduced that limit our ability to transport our products to customers in a cost-effective manner, this could have a material adverse effect on our business, financial condition and results of operations.

We cannot assure you that at all times we will be in compliance with environmental laws and regulations or our environmental permits or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits.  Additionally, these regulations may change in a manner that could have a material adverse effect on our business, results of operations and financial condition. We have made and will continue to make capital and other expenditures to comply with environmental requirements.

Furthermore, our failure to comply with applicable environmental laws and regulations worldwide could harm our business and results of operations. The manufacturing, assembling and testing of our products require the use of hazardous materials that are subject to a broad array of environmental, health and safety laws and regulations. Our failure to comply with any of these applicable laws or regulations could result in:

· regulatory penalties, fines and legal liabilities;

· suspension of production;

· alteration of our fabrication, assembly and test processes; and

· curtailment of our operations or sales.

In addition, our failure to manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or future liabilities. Existing and future environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify our product designs or incur other expenses associated with such laws and regulations. Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of one or more of such materials in our manufacturing, assembly and test processes or products. Any of these restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our manufacturing processes.

23

Recent PRC regulations relating to acquisitions of PRC companies by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate, including our ability to pay dividends. Our failure to obtain the prior approval of the China Securities Regulatory Commission, or the CSRC, for any offering of our common stock could have a material adverse effect on our business, operating results, reputation and trading price of our common stock.

The PRC State Administration of Foreign Exchange, or “SAFE,” issued a public notice in November 2005, known as Circular 75, concerning the use of offshore holding companies in mergers and acquisitions in China. The public notice provides that if an offshore company controlled by PRC residents intends to acquire a PRC company, such acquisition will be subject to registration with the relevant foreign exchange authorities. The public notice also suggests that registration with the relevant foreign exchange authorities is required for any sale or transfer by the PRC residents of shares in an offshore holding company that owns an onshore company. The PRC residents must each submit a registration form to the local SAFE branch with respect to their ownership interests in the offshore company, and must also file an amendment to such registration if the offshore company experiences material events, such as changes in the share capital, share transfer, mergers and acquisitions, spin-off transactions or use of assets in China to guarantee offshore obligations. If any PRC resident stockholder of an offshore holding company fails to make the required SAFE registration and amended registration, the onshore PRC subsidiaries of that offshore company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the offshore entity. Failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. Most of our PRC resident stockholders, as defined in the SAFE notice, have not registered with the relevant branch of SAFE, as currently required, in connection with their equity interests in HKHT. Because of uncertainty in how the SAFE notice will be interpreted and enforced, we cannot be sure how it will affect our business operations or future plans. For example, Shenzhen Highpower’s ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with the SAFE notice by our PRC resident beneficial holders. Failure by our PRC resident beneficial holders could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit Shenzhen Highpower’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

On August 8, 2006, the PRC Ministry of Commerce (“MOFCOM”), joined by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission and SAFE, released a substantially amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises (the “Revised M&A Regulations”), which took effect September 8, 2006. These new rules significantly revised China’s regulatory framework governing onshore-to-offshore restructurings and foreign acquisitions of domestic enterprises. These new rules signify greater PRC government attention to cross-border merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further, the new rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries.

Among other things, the revised M&A Regulations include new provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. Highpower’s PRC counsel, Zhong Lun Law Firm has advised us that because we completed our onshore-to-offshore restructuring before September 8, 2006, the effective date of the new regulation, it is not necessary for us to submit the application to the CSRC for its approval, and the listing and trading of our common stock does not require CSRC approval.

If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from an offering of securities into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common stock. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt any offering before settlement and delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur.

24

Also, if later the CSRC requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our common stock. Furthermore, published news reports in China recently indicated that the CSRC may have curtailed or suspended overseas listings for Chinese private companies. These news reports have created further uncertainty regarding the approach that the CSRC and other PRC regulators may take with respect to us.

It is uncertain how our business operations or future strategy will be affected by the interpretations and implementation of Circular 75 and the Revised M&A Regulations. It is anticipated that application of the new rules will be subject to significant administrative interpretation, and we will need to closely monitor how MOFCOM and other ministries apply the rules to ensure that our domestic and offshore activities continue to comply with PRC law. Given the uncertainties regarding interpretation and application of the new rules, we may need to expend significant time and resources to maintain compliance.

If our land use rights or the land use rights of our landlord are revoked, we would be forced to relocate operations.

Under Chinese law land is owned by the state or rural collective economic organizations. The state issues to the land users the land use right certificate. Land use rights can be revoked and the land users forced to vacate at any time when redevelopment of the land is in the public interest. The public interest rationale is interpreted quite broadly and the process of land appropriation may be less than transparent. We acquired approximately 1.36 million square feet of land equity in Huizhou, Guangdong China from the Huizhou State-Owned Land Resource in 2007, upon which we began constructing our new manufacturing facility. Besides our land use rights in Huizhou, we rely on our own land use rights and the land use rights of our landlords of our other facilities, and the loss of own land uses rights or our landlords’ land use rights would require us to identify and relocate our operations, which could have a material adverse effect on our financial conditions and results of operations Any loss of this land use right would require us to identify and relocate our manufacturing and other facilities which could have a material adverse effect on our financial conditions and results of operations.

We will not be able to complete an acquisition of prospective acquisition targets in the PRC unless their financial statements can be reconciled to U.S. generally accepted accounting principles in a timely manner.

Companies based in the PRC may not have properly kept financial books and records that may be reconciled with U.S. generally accepted accounting principles. If we attempt to acquire a significant PRC target company and/or its assets, we would be required to obtain or prepare financial statements of the target that are prepared in accordance with and reconciled to U.S. generally accepted accounting principles. Federal securities laws require that a business combination meeting certain financial significance tests require the public acquirer to prepare and file historical and/or pro forma financial statement disclosure with the SEC. These financial statements must be prepared in accordance with, or be reconciled to U.S. generally accepted accounting principles and the historical financial statements must be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. If a proposed acquisition target does not have financial statements that have been prepared in accordance with, or that can be reconciled to, U.S. generally accepted accounting principles and audited in accordance with the standards of the PCAOB, we will not be able to acquire that proposed acquisition target. These financial statement requirements may limit the pool of potential acquisition targets with which we may acquire and hinder our ability to expand our retail operations. Furthermore, if we consummate an acquisition and are unable to timely file audited financial statements and/or pro forma financial information required by the Exchange Act, such as Item 9.01 of Form 8-K, we will be ineligible to use the SEC’s short-form registration statement on Form S-3 to raise capital, if we are otherwise eligible to use a Form S-3. If we are ineligible to use a Form S-3, the process of raising capital may be more expensive and time consuming and the terms of any offering transaction may not be as favorable as they would have been if we were eligible to use Form S-3.

25

We face risks related to natural disasters, terrorist attacks or other events in China that may affect usage of public transportation, which could have a material adverse effect on our business and results of operations.

Our business could be materially and adversely affected by natural disasters, terrorist attacks or other events in China.  For example, in early 2008, parts of China suffered a wave of strong snow storms that severely impacted public transportation systems. In May 2008, Sichuan Province in China suffered a strong earthquake measuring approximately 8.0 on the Richter scale that caused widespread damage and casualties.  The May 2008 Sichuan earthquake has had a material adverse effect on the general economic conditions in the areas affected by the earthquake.  Any future natural disasters, terrorist attacks or other events in China could cause a reduction in usage of or other severe disruptions to, public transportation systems and could have a material adverse effect on our business and results of operations.

We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer (“Circular 698”) that was released in December 2009 with retroactive effect from January 1, 2008.

The Chinese State Administration of Taxation (SAT) released a circular (Guoshuihan No. 698 – Circular 698) on December 15, 2009 that addresses the transfer of shares by nonresident companies.  Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China.  Circular 698, which provides parties with a short period of time to comply its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company.  Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes.

There is uncertainty as to the application of Circular 698.  For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise.  In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our company complies with the Circular 698.  As a result, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.

The foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.

To the extent that we need to convert U.S. Dollars into Renminbi for our operational needs, our financial position and the price of our common stock may be adversely affected should the Renminbi appreciate against the U.S. Dollar at that time. Conversely, if we decide to convert our Renminbi into U.S. Dollars for the operational needs or paying dividends on our common stock, the dollar equivalent of our earnings from our subsidiaries in China would be reduced should the dollar appreciate against the Renminbi.

Until 1994, the Renminbi experienced a gradual but significant devaluation against most major currencies, including dollars, and there was a significant devaluation of the Renminbi on January 1, 1994 in connection with the replacement of the dual exchange rate system with a unified managed floating rate foreign exchange system. Since 1994, the value of the Renminbi relative to the U.S. Dollar has remained stable and has appreciated slightly against the U.S. Dollar. Countries, including the United States, have argued that the Renminbi is artificially undervalued due to China’s current monetary policies and have pressured China to allow the Renminbi to float freely in world markets. In July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the dollar. Under the new policy the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of designated foreign currencies. While the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further and more significant appreciation of the Renminbi against the dollar.

26

Because most of our sales are made in U.S. Dollars and most of our expenses are paid in RMB, devaluation of the U.S. Dollar could negatively impact our results of operations.

The value of RMB is subject to changes in China’s governmental policies and to international economic and political developments. In January, 1994, the PRC government implemented a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, began publishing a daily base exchange rate with reference primarily to the supply and demand of RMB against the U.S. Dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for RMB within a specified band around the central bank’s daily exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange rate of the U.S. Dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange rates are determined. This modification resulted in an approximate 7.3% appreciation of the RMB against the U.S. Dollar from July 21, 2005 to May 2, 2007. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further fluctuations of the exchange rate of the U.S. Dollar against the RMB, including future devaluations. Because most of our net sales are made in U.S. Dollars and most of our expenses are paid in RMB, any future devaluation of the U.S. Dollar against the RMB could negatively impact our results of operations.

Inflation in the PRC could negatively affect our profitability and growth.

While the PRC economy has experienced rapid growth, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation.  During the past decade, the rate of inflation in China has been as high as approximately 20% and China has experienced deflation as low as approximately minus 2%. According to the National Bureau of Statistics of China, the change in China’s Consumer Price Index increased to 8.5% in April 2008. According to the National Bureau of Statistics of China, China’s Consumer Price Index increased to 4.9% in February 2011. If prices for our products and services rise at a rate that is insufficient to compensate for the rise in the costs of supplies such as raw materials, it may have an adverse effect on our profitability.

Furthermore, In order to control inflation in the past, the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. In January 2010, the Chinese government took steps to tighten the availability of credit including ordering banks to increase the amount of reserves they hold and to reduce or limit their lending. The implementation of such policies may impede economic growth. In October 2004, the People’s Bank of China, the PRC’s central bank, raised interest rates for the first time in nearly a decade and indicated in a statement that the measure was prompted by inflationary concerns in the Chinese economy. In April 2006, the People’s Bank of China raised the interest rate again. Repeated rises in interest rates by the central bank would likely slow economic activity in China which could, in turn, materially increase our costs and also reduce demand for our products and services.

Because our funds are held in banks which do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

27

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

As our ultimate holding company is a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

If we make equity compensation grants to persons who are PRC citizens, they may be required to register with the State Administration of Foreign Exchange of the PRC, or SAFE. We may also face regulatory uncertainties that could restrict our ability to adopt an equity compensation plan for our directors and employees and other parties under PRC law.

On April 6, 2007, SAFE issued the “Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed Company, also known as “Circular 78.” It is not clear whether Circular 78 covers all forms of equity compensation plans or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings if they participated in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. In 2008, we adopted the Highpower International, Inc. 2008 Omnibus Incentive Plan (the “Plan”) under which we make option grants and other equity awards to our officers, directors and other eligible participants under the plan.  Circular 78 may require our officers and directors who receive option grants and are PRC citizens to register with SAFE. We believe that the registration and approval requirements contemplated in Circular 78 will be burdensome and time consuming. If it is determined that the Plan is subject to Circular 78, failure to comply with such provisions may subject us and participants of the Plan who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our PRC employees. In that case, our ability to compensate our employees and directors through equity compensation would be hindered and our business operations may be adversely affected.  In January 2011, we granted options to various of our executive officers and managers.  We are in the process of complying with the relevant regulations and assuring that our grantees comply with their individual registration requirements..

We have enjoyed certain preferential tax concessions and the loss of these preferential tax concessions may cause its tax liabilities to increase and its profitability to decline.

Our operating subsidiary, Shenzhen Highpower, enjoyed preferential tax concessions in the PRC, which were only granted to high-technology enterprises operating in the Shenzhen Special Economic Zone. From 2005 to 2007, Shenzhen Highpower enjoyed a preferential income tax rate of 7.5% due to its status as a new business and high-tech enterprise status from the Shenzhen level. That status expired on December 31, 2007. In 2008, Shenzhen Highpower received the National High-technology Enterprise status, and then enjoyed a preferential tax rate of 15%.  This status will expire on December 31, 2011, and we plan to renew this status for Shenzhen Highpower for the next three-year cycle. Our subsidiary, Shenzhen Springpower, is currently in the 25% tax bracket. We are in the process of applying for the hi-tech enterprise status for Shenzhen Springpower in order to receive a preferential tax rate of 15% when this subsidiary reaches profitability, which is expected to occur in 2011. The expiration of the preferential tax treatment will increase our tax liabilities and reduce our profitability. Additionally, the PRC Enterprise Income Tax Law (the “EIT Law”) was enacted on March 16, 2007. Under the EIT Law, which became effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises) and canceled several tax incentives enjoyed by foreign-invested enterprises. However, for foreign-invested enterprises established before the promulgation of the EIT Law, a five-year transition period is provided during which the tax rate gradually increased starting in 2008 and will be equal to the new 25% tax rate at the end of the transition period. We believe that our profitability will be negatively affected in the near future as a result of the new EIT Law. Any future increase in the enterprise income tax rate applicable to us or other adverse tax treatments, could increase our tax liabilities and reduce our net income.

28

Under the New EIT Law, we and HKHT may be classified as “resident enterprises” of China for tax purpose, which may subject us and KHT to PRC income tax on taxable global income.

Under the new PRC Enterprise Income Tax Law (the “New EIT Law”) and its implementing rules, both of which became effective on January 1, 2008. Under the New EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. An enterprise established outside of China with its “de facto management bodies” located within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management body as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. Due to the short history of the New EIT law and lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company such as us and HKHT. Both our and HKHT’s members of management are located in China. If the PRC tax authorities determine that we or HKHT is a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income, including interest income on the proceeds from this offering, as well as PRC enterprise income tax reporting obligations. Second, the New EIT Law provides that dividend paid between “qualified resident enterprises” is exempted from enterprise income tax. A recent circular issued by the State Administration of Taxation regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese group enterprises and established outside of China as “resident enterprises” clarified that dividends and other income paid by such “resident enterprises” will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC shareholders. It is unclear whether the dividends that we or HKHT receive from Shenzhen Highpower and Shenzhen Springpower will constitute dividends between “qualified resident enterprises” and would therefore qualify for tax exemption, because the definition of qualified resident enterprises is unclear and the relevant PRC government authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. We are actively monitoring the possibility of “resident enterprise” treatment for the applicable tax years and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible. As a result of the New EIT Law, our historical operating results will not be indicative of our operating results for future periods and the value of our common stock may be adversely affected.

Dividends payable by us to our foreign investors and any gain on the sale of our shares may be subject to taxes under PRC tax laws.

If dividends payable to our shareholders are treated as income derived from sources within China, then the dividends that shareholders receive from us, and any gain on the sale or transfer of our shares, may be subject to taxes under PRC tax laws.

Under the New EIT Law and its implementing rules, PRC enterprise income tax at the rate of 10% is applicable to dividends payable by us to our investors that are non-resident enterprises so long as such non-resident enterprise investors do not have an establishment or place of business in China or, despite the existence of such establishment of place of business in China, the relevant income is not effectively connected with such establishment or place of business in China, to the extent that such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of our shares by such investors is also subject to a 10% PRC income tax if such gain is regarded as income derived from sources within China and we are considered as a resident enterprise which is domiciled in China for tax purpose. Additionally, there is a possibility that the relevant PRC tax authorities may take the view that the purpose of us and HKHT is holding Shenzhen Highpower and Shenzhen Springpower, and the capital gain derived by our overseas shareholders or investors from the share transfer is deemed China-sourced income, in which case such capital gain may be subject to a PRC withholding tax at the rate of up to 10%. If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders or investors who are non-resident enterprises, or if you are required to pay PRC income tax on the transfer or our shares under the circumstances mentioned above, the value of your investment in our shares may be materially and adversely affected.

In January, 2009, the State Administration of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises (“Measures”), pursuant to which, the entities which have the direct obligation to make the following payment to a non-resident enterprise shall be the relevant tax withholders for such non-resident enterprise, and such payment includes: incomes from equity investment (including dividends and other return on investment), interests, rents, royalties, and incomes from assignment of property as well as other incomes subject to enterprise income tax received by non-resident enterprises in China. Further, the Measures provides that in case of equity transfer between two non-resident enterprises which occurs outside China, the non-resident enterprise which receives the equity transfer payment shall, by itself or engage an agent to, file tax declaration with the PRC tax authority located at place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist the tax authorities to collect taxes from the relevant non-resident enterprise. However, it is unclear whether the Measures refer to the equity transfer by a non-resident enterprise which is a direct or an indirect shareholder of the said PRC company. Given these Measures, there is a possibility that we may have an obligation to withhold income tax in respect of the dividends paid to non-resident enterprise investors.

29

Any recurrence of Severe Acute Respiratory Syndrome (SARS), Avian Flu, or another widespread public health problem, such as the spread of H1N1 (“Swine”) Flu, in the PRC could adversely affect our operations.

A renewed outbreak of SARS, Avian Flu or another widespread public health problem, , such as the spread of H1N1 (“Swine”) Flu, in China, where all of our operations are located and where the substantial portion of our sales occur, could have a negative effect on our operations. Our business is dependent upon our ability to continue to manufacture our battery products. Such an outbreak could have an impact on our operations as a result of:

· quarantines or closures of some of our manufacturing facilities, which would severely disrupt our operations,

· the sickness or death of our key officers and employees, and

· a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

A downturn in the economy of the PRC may slow our growth and profitability.

The growth of the Chinese economy has been uneven across geographic regions and economic sectors. There can be no assurance that growth of the Chinese economy will be steady or that any downturn will not have a negative effect on our business, especially if it results in either a decreased use of our products or in pressure on us to lower our prices.

Because our business is located in the PRC, we may have difficulty establishing adequate management, legal and financial controls, which it is required to do in order to comply with U.S. securities laws.

PRC companies have historically not adopted a Western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal controls and, computer, financial and other control systems. Most of our middle and top management staff are not educated and trained in the Western system, and we may difficulty hiring new employees in the PRC with such training. In addition, we may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of its financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our business.

Investors may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based upon U.S. laws, including the federal securities laws or other foreign laws against us or our management.

Most of our current operations, including the manufacturing and distribution of our products, are conducted in China. Moreover, all of our directors and officers are nationals and residents of China or Hong Kong. All or substantially all of the assets of these persons are located outside the United States and in the PRC. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon these persons. In addition, uncertainty exists as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities laws of the United States or any state thereof.

30

Contract drafting, interpretation and enforcement in China involves significant uncertainty.

We have entered into numerous contracts governed by PRC law, many of which are material to our business. As compared with contracts in the United States, contracts governed by PRC law tend to contain less detail and are not as comprehensive in defining contracting parties’ rights and obligations. As a result, contracts in China are more vulnerable to disputes and legal challenges. In addition, contract interpretation and enforcement in China is not as developed as in the United States, and the result of any contract dispute is subject to significant uncertainties. Therefore, we cannot assure you that we will not be subject to disputes under our material contracts, and if such disputes arise, we cannot assure you that we will prevail.

We could be liable for damages for defects in our products pursuant to the Tort Liability Law of the PRC.

The Tort Liability Law of the People’s Republic of China, which was passed during the 12th Session of the Standing Committee of the 11th National People’s Congress on December 26, 2009, states that manufacturers are liable for damages caused by defects in their products and sellers are liable for damages attributable to their fault. If the defects are caused by the fault of third parties such as the transporter or storekeeper, manufacturers and sellers are entitled to claim for compensation from these third parties after paying the compensation amount.

RISKS RELATED TO OUR CAPITAL STRUCTURE

The price of our common stock is volatile and you might not be able to resell your securities at or above the price you have paid.

Since our initial public offering and listing of our common stock in October 2007, the price at which our common stock had traded has been highly volatile, with a high and low sales price of $1.23 and $9.82, respectively, as through April 11, 2011. You might not be able to sell the shares of our common stock at or above the price you have paid. The stock market has experienced extreme volatility that often has been unrelated to the performance of its listed companies. Moreover, only a limited number of our shares are traded each day, which could increase the volatility of the price of our stock. These market fluctuations might cause our stock price to fall regardless of our performance. The market price of our common stock might fluctuate significantly in response to many factors, some of which are beyond our control, including the following:

· actual or anticipated fluctuations in our annual and quarterly results of operations;

· changes in securities analysts’ expectations;

· variations in our operating results, which could cause us to fail to meet analysts’ or investors’ expectations;

· announcements by our competitors or us of significant new products, contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

· conditions and trends in our industry;

· general market, economic, industry and political conditions;

· changes in market values of comparable companies;

· additions or departures of key personnel;

· stock market price and volume fluctuations attributable to inconsistent trading volume levels; and

· future sales of equity or debt securities, including sales which dilute existing investors.

31

A few principal stockholders have significant influence over us.

Two of our stockholders beneficially own or control approximately 47% of our outstanding shares. If these stockholders were to act as a group, they would have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. Such stockholders may also have the power to prevent or cause a change in control. In addition, without the consent of these three stockholders, we could be prevented from entering into transactions that could be beneficial to us. The interests of these three stockholders may differ from the interests of our other stockholders.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting.  For example, on January 30, 2009, the SEC adopted rules requiring companies to provide their financial statements in interactive data format using the eXtensible Business Reporting Language, or XBRL.  We will have to comply with these rules by June 15, 2011.  Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure of these controls could also prevent us from maintaining accurate accounting records and discovering accounting errors and financial frauds. Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. In addition, the attestation process by our independent registered public accountants is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accountants. If we cannot assess our internal control over financial reporting as effective, or our independent registered public accountants are unable to provide an unqualified attestation report on such assessment, investor confidence and share value may be negatively impacted.

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting, or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

We may not be able to achieve the benefits we expect to result from the Share Exchange.

On October 20, 2007, we entered into the Exchange Agreement with all of the shareholders of HKHT, pursuant to which we agreed to acquire 100% of the issued and outstanding securities of HKHT in exchange for shares of our common stock. On November 2, 2007, the Share Exchange closed, HKHT became our 100%-owned subsidiary and our sole business operations became that of HKHT.

We may not realize the benefits that we hoped to receive as a result of the Share Exchange, which include:

· access to the capital markets of the United States;

32

· the increased market liquidity expected to result from exchanging stock in a private company for securities of a public company that may eventually be traded;

· the ability to use registered securities to make acquisition of assets or businesses;

· increased visibility in the financial community;

· enhanced access to the capital markets;

· improved transparency of operations; and

· perceived credibility and enhanced corporate image of being a publicly traded company.

There can be no assurance that any of the anticipated benefits of the Share Exchange will be realized in respect to our new business operations. In addition, the attention and effort devoted to achieving the benefits of the Share Exchange and attending to the obligations of being a public company, such as reporting requirements and securities regulations, could significantly divert management’s attention from other important issues, which could materially and adversely affect our operating results or stock price in the future.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.

We do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, you should not rely on an investment in our securities if you require the investment to produce dividend income. Capital appreciation, if any, of our shares may be your sole source of gain for the foreseeable future. Moreover, you may not be able to resell your shares in our company at or above the price you paid for them.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable to smaller reporting companies.

ITEM 2.  PROPERTIES

Our registered office in Hong Kong is located at Flat 4, 13/F, Block 4, Taiping Industrial Centre, 51A Ting Kok Road, Tai Po, N.T. Hong Kong.

We currently have two active manufacturing operations located in mainland China at Luoshan Industrial Zone, Pinghu, Longgang, Shenzhen, Guangdong, China, 518111, and Chong Tou Hu Village, Renming Road, Guang Lan Street, Bao An District, Shenzhen, Guangdong, China, 518110. Our facilities cover approximately 487,756 square feet of total space, consisting of manufacturing plants, dormitories and research and development facilities. We lease our manufacturing facilities from various landlords under a total of six leases with varying terms ranging, which are renewed upon expiration. All leases have been fully prepaid until the expiration date. The table below lists the locations, approximate square footage, principal use and lease expiration dates of the facilities used in our manufacturing operations as of December 31, 2010.

33

Location	Area (square feet)	Principal Use	Lease  expiration date
Workshop A1 & dormitory, Luo Shan Industrial Park, Shan Xia Community, Ping Hu Street, Long Gang District, Shenzhen	58,986	Industry & Residence	December 31, 2011
Workshop A2 & dormitory, Luo Shan Industrial Park, Shan Xia Community, Ping Hu Street, Long Gang District, Shenzhen	81,117	Industry & Residence	December 31, 2011
4th Floor, Building A, (4th Floor, Building 1 & 2nd Floor, Building B2 ) Workshop, B2 Area, Luo Shan Industrial Park, Shan Xia Community, Ping Hu Street, Long Gang District, Shenzhen	94,722	Industry & Residence	December 30, 2012
Storage, Building 2, (6th Floor, Building 1) Area B2, Luo Shan Industrial Park, Shan Xia Community, Ping Hu Street, Long Gang District, Shenzhen	50,698	Industry & Residence	December 30, 2012
1st-4th Floor, Building 12, (1st-7th Floor, Building 9), Da Wang Industrial Park, Xin Xia Road, Ping Hu Street, Long Gang District, Shenzhen	55,897	Industry & Residence	September 30, 2012
Workshop & dormitory, Chong Tou Hu Village, Renming Road, Guang Lan Street, Bao An District, Shenzhen	146,336	Industry & Residence	September 15, 2013

In China, only the PRC government and peasant collectives may own land. In February 2007, we acquired approximately 1.36 million square feet of land equity in Industry Development Zone, New Lake, MaAn Town, HuiCheng District, HuiZhou, GuangDong, China for a total of RMB26 million under land use right grant from the HuiZhou State-Owned Land Resource Bureau that gives us the right to use the land for 50 years and an agreement with the government of MaAn Town. In the event we wish to continue to use the land after the 50-year period, we must apply for an extension at least one year prior to the land grant’s expiration. We began construction of our new manufacturing facility on this site in October 2008 and anticipate that the new facility will be completed in the fourth quarter of 2011, at which time we will move our Ni-MH manufacturing operations to the new location in phases. In accordance with the terms of the land use right, we began development of the land within one year of receiving the certificate, which we received in June 2007.

Our rights with respect to the land use right grant permit us to develop the land and construct buildings for industrial applications. We have the right to transfer or rent the land and use it as collateral for our loans.

Our Ni-MH manufacturing capacity is approximately 14 million units per month. Our run rate is approximately 13 million units per month. As described above, we are currently building another NI-MH manufacturing site in Huizhou to expand our manufacturing capacity.  The source of funding for such  expansion will be our operational cash and bank credit facilities, as we still have unused credit totaling approximately $39 million. Our Li-ion production is almost at full capacity now, and we are evaluating new locations near our current Li-ion production site to expand our production of Li-ion battery units.

34

ITEM 3.  LEGAL PROCEEDINGS

On August 20, 2007, a lawsuit was filed against Shenzhen China and various other defendants by Energizer, S.A. in the United States District Court for the Southern District of New York. The lawsuit arises out of a fire that occurred on a cargo vessel carrying batteries sold to Energizer by Shenzhen China that resulted in damages to various third parties. Energizer alleges that it is entitled to indemnification from Shenzhen Highpower for any damages or losses that it becomes liable to pay to third parties as a result of the fire. Energizer seeks indemnity and/or contribution from Shenzhen Highpower for such sums, together with expenses, including attorneys’ fees and costs. Our insurance company has provided us with counsel in this case. We believe that we have meritorious defenses against the claims asserted by Energizer, and intend to vigorously defend the lawsuit. Energizer continues to be one of our largest customers.

ITEM 4.  REMOVED AND RESERVED

35

 

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

From June 19, 2008 to December 18, 2009, our shares of common stock were listed for trading on the NYSE Amex under the ticket symbol “HPJ.”  On December 21, 2009, our common stock commenced trading on the NASDAQ Global Market under the symbol "HPJ."

On April 11, 2011 the closing sales price for our common stock on the NASDAQ Global Market was $2.91 per share.

The following table summarizes the high and low sales prices of our common stock as reported by the NYSE Amex (on and prior to December 18, 2009) and NASDAQ (on and after December 21, 2009).

	High		Low
Year ended December 31, 2010
Fourth Quarter	$	4.80	$	2.99
Third Quarter	$	4.32	$	3.20
Second Quarter	$	5.81	$	3.12
First Quarter	$	9.82	$	4.77
Year ended December 31, 2009
Fourth Quarter	$	9.07	$	2.59
Third Quarter	$	3.89	$	1.23
Second Quarter	$	3.05	$	1.43
First Quarter	$	3.19	$	2.00

The stock market in general has experienced extreme stock price fluctuations in the past few years. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside its control, could cause the price of our common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:

· Our financial position and results of operations;

· Our ability to obtain additional financing and, if available, the terms and conditions of the financing;

· Concern as to, or other evidence of, the reliability and efficiency of our proposed products or our competitors’ products;

· Announcements of innovations or new products by us or our competitors;

· Federal and state governmental regulatory actions and the impact of such requirements on our business;

· The development of litigation against us;

· Period-to-period fluctuations in our operating results;

· Changes in estimates of our performance by any securities analysts;

· The issuance of new equity securities pursuant to a future offering or acquisition;

36

· Changes in interest rates;

· Competitive developments, including announcements by competitors of new products or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

· Investor perceptions of our company; and

· General economic and other national conditions.

Stockholders

As of April 11, 2011 we had 22 stockholders of record. This number does not include an indeterminate number of stockholders whose shares are held by brokers in street name.

Dividends

We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in its discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.

We did not pay cash dividends in the years ended December 31, 2010 or 2009.

Transfer Agent

The transfer agent and registrar for our common stock is Corporate Stock Transfer, Inc.

Equity Compensation Plan Information

Our equity compensation plan information is provided as set forth in Part III, Item 11 herein.

Additional Information

Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the Internet at www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

37

 

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Not applicable for a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This report contains forward-looking statements. The words “anticipated,” “believe,” “expect, “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, general economic and business conditions, changes in foreign, political, social, and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to achieve further market penetration and additional customers, and various other matters, many of which are beyond our control. Our actual results could differ materially from those anticipated in these forward-looking statements, which are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this report. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance of the actual results or developments.

Overview

We were incorporated in the state of Delaware on January 3, 2006. We were originally organized as a “blank check” shell company to investigate and acquire a target company or business seeking the perceived advantages of being a publicly held corporation. On November 2, 2007, we closed a share exchange transaction, pursuant to which we (i) became the 100% parent of HKHT and its wholly-owned subsidiary, Shenzhen Highpower, (ii) assumed the operations of HKHT and its subsidiary and (iii) changed our name from SRKP 11, Inc. to Hong Kong Highpower Technology, Inc. We changed our name to Highpower International, Inc. in October 2010.

HKHT was incorporated in Hong Kong in 2003 under the Companies Ordinance of Hong Kong. Shenzhen Highpower was founded in 2001.  HKHT formed Huizhou Highpower and Shenzhen Springpower in 2008.  Huizhou Highpower has not yet commenced business operations.  Shenzhen Highpower formed Ganzhou Highpower in September 2010 to engage in the processing, marketing and research of battery materials.  Ganzhou Highpower commenced business operations in September 2010.

On May 25 2010, we invested $142,515 in Springpower International, Inc. (“Springpower International”) which became an associate of HKHT. Springpower International, which is incorporated in Canada, mainly researches and develops advanced, high performance battery materials and clean energy materials.

In addition, on November 2, 2007, concurrently with the close of the Share Exchange, we conducted a private placement transaction (the “Private Placement”). Pursuant to Subscription Agreements entered into with the investors, we sold an aggregate of 1,772,745 shares of Common stock at $1.76 per share. As a result, we received gross proceeds in the amount of $3.12 million.

Through Shenzhen Highpower, we manufacture Nickel Metal Hydride (“Ni-MH”) for both consumer and industrial applications. We have developed significant expertise in Ni-MH battery technology and large-scale manufacturing that enables us to improve the quality of our battery products, reduce costs, and keep pace with evolving industry standards. In 2008, we commenced manufacturing two lines of Lithium-Ion (“Li-ion”) and Lithium polymer rechargeable batteries through Springpower for higher-end, high-performance applications, such as laptops, digital cameras and wireless communication products.  Our automated machinery allows us to process key aspects of the manufacturing process to ensure high uniformity and precision, while leaving the non-key aspects of the manufacturing process to manual labor.

38

We employ a broad network of salespersons in China and Hong Kong, which target key customers by arranging in-person sales presentations and providing post-sale services. The sales staff works with our customers to better address customers’ needs.

Background

Public Offering

In June 2008, we completed a public offering consisting of 603,750 shares of our common stock. Our sale of common stock, which was sold indirectly by us to the public at a price of $3.25 per share, resulted in net proceeds of approximately $984,000. These proceeds were net of underwriting discounts and commissions, fees for legal and auditing services, and other offering costs. Upon the closing of the offering, we sold to the underwriter warrants to purchase up to 52,500 shares of our common stock.  In December 2009, a total of 2,510 shares of common stock were issued upon the cashless exercise of 5,000 of the warrants. The remaining 47,500 outstanding warrants are exercisable at a per share price of $3.90 and expire if unexercised after five years.

Reverse Stock Split

On June 19, 2008, we effected a 5-for-8 reverse stock split of all of our issued and outstanding shares of common stock (the “Reverse Stock Split”) by filing an amendment to our Certificate of Incorporation with the Secretary of the State of Delaware. The par value and number of authorized shares of our common stock remained unchanged. The number of shares and per share amounts included in the consolidated financial statements and the accompanying notes included in the F- section have been adjusted to reflect the Reverse Stock Split retroactively. Unless otherwise indicated, all references to number of share, per share amounts and earnings per share information contained in this report give effect to the Reverse Stock Split.

Share Exchange

On October 20, 2007, we entered into a share exchange agreement (the “Exchange Agreement”) with all of the shareholders of HKHT, consisting of 35 shareholders. Pursuant to the Exchange Agreement, we agreed to issue shares of our common stock in exchange for all of the issued and outstanding securities of HKHT (the “Share Exchange”). The Share Exchange closed on November 2, 2007. Upon the closing of the Share Exchange, we (i) became the 100% parent of HKHT, and HKHT’s wholly-owned subsidiary Shenzhen Highpower, (ii) assumed the operations of HKHT and its subsidiary and (iii) changed our name from SRKP 11, Inc. to Hong Kong Highpower Technology, Inc.  We changed our name to Highpower International, Inc. in October 2010.

Upon the closing of the Share Exchange, we issued an aggregate of 9,248,973 shares of our common stock to the shareholders of HKHT and/or their designees in exchange for all of the issued and outstanding securities of HKHT. In addition, immediately prior to the closing of the Share Exchange and the Private Placement, as described below, we and certain of our stockholders agreed to cancel an aggregate of 1,597,872 shares of common stock such that there were 1,777,128 shares of common stock outstanding immediately prior to the Share Exchange and Private Placement. We issued no fractional shares in connection with the Share Exchange.

The transactions contemplated by the Exchange Agreement were intended to be a “tax-free” incorporation pursuant to the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.

Private Placement

On November 2, 2007, concurrently with the close of the Share Exchange, we received gross proceeds of $3.1 million in a private placement transaction (the “Private Placement”). Pursuant to subscription agreements entered into with the investors, we sold an aggregate of 1,772,745 shares of common stock at $1.76 per share. The investors in the Private Placement also entered into a lock up agreement pursuant to which they agreed not to sell their shares until ninety (90) days after our common stock was listed on the NYSE Amex (formerly the American Stock Exchange), when one-tenth of their shares are released from the lock up, after which their shares will automatically be released from the lock up on a monthly basis pro rata over a nine month period. After commissions and expenses related to the Private Placement, we received net proceeds of approximately $2,738,000 in the Private Placement. The purpose of the Private Placement was to raise working capital. All of the proceeds from the Private Placement were used for working capital and the development of our lithium-ion battery manufacturing business.

39

WestPark acted as placement agent in connection with the Private Placement. For its services in connection with the Share Exchange and as placement agent, WestPark received an aggregate commission equal to 10% of the gross proceeds from the Private Placement, in addition to $30,000 in connection with the execution of the Exchange Agreement and a $40,000 success fee for the Share Exchange, for an aggregate amount fee of $382,000. No other consideration was paid to WestPark or to SRKP 11 in connection with the Share Exchange or Private Placement. Some of the controlling shareholders and control persons of WestPark were also, prior to the completion of the Share Exchange, controlling shareholders and control persons of our company, including Richard Rappaport, who is the Chief Executive Officer of WestPark and was the President and a significant shareholder of our company prior to the Share Exchange, and Anthony C. Pintsopoulos, who is the Chief Financial Officer of WestPark and was a controlling stockholder and an officer and director of our company prior to the Share Exchange. Each of Messrs. Rappaport and Pintsopoulos resigned from all of their executive and director positions with our company upon the closing of the Share Exchange.

Critical Accounting Policies, Estimates and Assumptions

The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

The preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates on historical experience, actuarial valuations and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Some of those judgments can be subjective and complex and, consequently, actual results may differ from these estimates under different assumptions or conditions. While for any given estimate or assumption made by our management there may be other estimates or assumptions that are reasonable, we believe that, given the current facts and circumstances, it is unlikely that applying any such other reasonable estimate or assumption would materially impact the financial statements. The accounting principles we utilized in preparing our consolidated financial statements conform in all material respects to generally accepted accounting principles in the United States of America.

Use of Estimates. In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation on useful lives of plant and equipment. Actual results could differ from those estimates.

Accounts Receivable. Accounts receivable are stated at original amount less allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the period end. An allowance is also made when there is objective evidence that we will not be able to collect all amounts due according to original terms of receivables. Bad debts are written off when identified. We extend unsecured credit to customers in the normal course of business and believe all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible. We do not accrue interest on trade accounts receivable.

Revenue Recognition. We recognize revenue when the goods are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Sales of goods represent the invoiced value of goods, net of sales returns, trade discount and allowances.

We do not have arrangements for returns from customers and do not have any future obligations directly or indirectly related to product resales by the customer. We have no incentive programs.

40

 

Inventories. Inventories are stated at the lower of cost or market value. Cost is determined on a weighted average basis and includes purchase costs, direct labor and factory overheads. In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. Our reserve requirements generally increase based on management’s projected demand requirements, and decrease due to market conditions and product life cycle changes. Our production process results in a minor amount of waste materials. We do not record a value for the waste in our cost accounting. We record proceeds on an as realized basis, when the waste is sold. We offset the proceeds from the sales of waste materials as a reduction of production costs.

Income Taxes. We use the asset and liability method of accounting for income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes.” Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have also adopted FIN 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.”

Foreign Currency Translation. Our functional currency is the Renminbi (“RMB”). We maintain our financial statements in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.

For financial reporting purposes, our financial statements, which are prepared using the functional currency, are then translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment in other comprehensive income, a component of stockholders’ equity.

41

 

Results of Operations

The following table sets forth the consolidated statements of operations of the Company for the years ended December 31, 2010 and 2009 (U.S. dollars) and :

Consolidated Statements of Operations	Year Ended December 31,
	2010					2009
	(in thousands except share and per share information)
Net Sales	$	104,855		100.0	%	$	70,331		100.0	%
Cost of Sales		(83,080	)	79.2	%		(55,300	)	78.6	%
Gross profit	$	21,775		20.8	%	$	15,031		21.4	%
Depreciation		(320	)	0.3	%		(270	)	0.4	%
Selling and distribution costs		(4,046	)	3.9	%		(2,355	)	3.3	%
General and administrative costs including stock-based compensation		(9,315	)	8.9	%		(6,405	)	9.1	%
Loss on exchange rate difference		(786	)	0.7	%		(60	)	-
Share of loss of an associate		(39	)	-			-		-
Income from operations	$	7,269		6.9	%	$	5,941		8.4	%
Change in fair value of currency forwards		-		-			(117	)	0.2	%
Change in fair value of warrants		-		-			-		-
Other income		448		0.4	%		509		0.7	%
Interest expense		(407	)	0.4	%		(528	)	0.8	%
Other expenses		-		-			(214	)	0.3	%
Income before taxes	$	7,310		7.0	%	$	5,591		7.9	%
Income taxes		(1,268	)	1.2	%		(1,148	)	1.6	%
Net income	$	6,042		5.8	%	$	4,443		6.3	%
Net income per common share – basic and diluted	$	0.44				$	0.33
Weighted average common shares outstanding
-basic		13,582,106					13,608,265
-diluted		13,629,606					13,667,697
Dividends declared per common share

42

Years ended December 31, 2010 and 2009

Net sales for year the ended December 31, 2010 were $104.9 million compared to $70.3 million for the year ended December 31, 2009, an increase of 49.1%. The increase in net sales for the year ended December 31, 2010 over the year ended December 31, 2009 was due to a 1.8% increase in the average selling price of our Ni-MH battery units, a 18.2% increase in the number of Ni-MH battery units sold, a 16.8% increase in the average selling price of our Li-ion battery units, and a 88.6% increase in the number of Li-ion battery units sold.  In addition, our materials revenue increased to $12.5 million in 2010 from $0.96 million in 2009.  The increase in the number of battery units sold in 2010 was primarily attributable to increased orders from our new and existing customers. The 16.8% increase in the average selling price of our Li-ion battery units was due to our sale of more improved quality and higher capacity products, which we sold at a higher selling price.

Cost of sales consists of the cost of nickel and other materials, labor, and overhead. Costs of sales were $83.1 million for the year ended December 31, 2010 as compared to $55.3 million for the comparable period in 2009. As a percentage of net sales, cost of sales increased to 79.2% for the year ended December 31, 2010 compared to 78.6% for the comparable period in 2009. This was attributable to a higher percentage of materials revenue with lower margin during the year ended December 31, 2010 as compared to the comparable period in 2009.

Gross profit for the year ended December 31, 2010 was $21.8 million, or 20.8% of net sales, compared to $15.0 million, or 21.4% of net sales, respectively, for the comparable period in 2009. Management considers gross profit to be a key performance indicator in managing our business. Gross profit margins are usually a factor of cost of sales, product mix and demand for products.

To cope with pressure on our gross margins we intend to control production costs by preparing budgets for each department and comparing actual costs with our budgeted figures monthly and quarterly. Additionally, we have reorganized the Company’s production structure and have focused more attention on employee training to enhance efficiency. We also intend to expand our market share by investing in greater promotion of our products in regions such as the U.S., Russia, Europe and India, and by expanding our sales team with more experienced sales personnel. We have also begun production of a line of Li-ion batteries as to complement our current Ni-MH battery products so that we are less vulnerable to price increases in nickel. We intend to expand production of our Li-ion battery products in the future.

Selling and distribution costs were $4.0 million for the year ended December 31, 2010, or 3.9% of net sales, compared to $2.4 million for the comparable period in 2009, or 3.3% of  net sales, an increase of 71.8%.  Selling and distribution costs increased due to the expansion of our salesforce and marketing activities such as participation in industry trade shows and international travel to promote and sell our products abroad.

General and administrative costs were $9.3 million, or 8.9% of net sales, for the year ended December 31, 2010, compared to $6.4 million, or 9.1% of net sales, for the comparable period in 2009. Management considers these expenses as a percentage of net sales to be a key performance indicator in managing our business. The decrease as a percentage of net sales was primarily due to a greater growth of our net sales for the year the ended December 31, 2010 compared to the comparable period in 2009.

Research and development expenses increased $0.5 million for the year ended December 31, 2010 over the year ended December 31, 2009 due to our increased research and development activities towards higher performance products.

We experienced losses on the exchange rate difference between the U.S. Dollar and the RMB of $786,000 and $60,000, respectively, in the years ended December 31, 2010 and 2009, due to the devaluation of the U.S. Dollar relative to the RMB over the respective periods.  In 2010 and 2009, to cope with devaluation of the U.S. Dollar relative to the RMB, we engaged in currency hedging and adjusted the selling price of batteries to vary with the U.S. Dollar exchange rate relative to the RMB.

Other income from operations, which consists of bank interest income, forward contract gains and losses and sundry income, was $448,000, for the year ended December 31, 2010, as compared to $509,000 for the year ended December 31, 2009. The decrease was due to a decrease of $135,000 of income from a government sponsor and a decrease of $26,000 in sundry income, partially offset by a $55,000 gain on a forward contract during 2010 and a $42,000 increase in bank interest income.

43

Interest expense was $407,000 for the year ended December 31, 2010, as compared to $528,000 for the respective comparable period in 2009. The decrease was primarily due to lower interest rates. We increased our short-term borrowings by $7.75 millions in the year ended December 31, 2010 as compared to the year ended December 31, 2009. The increased short-term borrowing was mainly due to needs for working capital, and increased trade financing including bank acceptance bills. Increases in borrowing rates would further increase our interest expense, which would have a negative effect on our results of operations.

During the year ended December 31, 2010, we recorded a provision for income taxes of $1.3 million, as compared to $1.1 million for the respective comparable period in 2009. The increase in income taxes for the year ended December 31, 2010 as compared to the year ended December 30, 2009 was a result of an increase in our net taxable income.

Net income for the year ended December 31, 2010 was $6.0 million, compared to a net income of $4.4 million for the comparable period in 2009, an increase of 40.0%.

Years ended December 31, 2009 and 2008

Net sales for year the ended December 31, 2009 were $70.3 million compared to $75.0 million for the year ended December 31, 2008, a decrease of 6.2%. The decrease in net sales for the year ended December 31, 2009 over the year ended December 31, 2008 was due to a 21% decrease in the average selling price of our battery units, and a 19% increase in the number of battery units sold.  The increase in the number of battery units sold in 2009 was primarily attributable to increased orders from our major customers, Energizer Battery Manufacturing, Inc. and Gigaset Communications GmbH.  Sales of battery seconds decreased from $412,311 during the year ended December 31, 2008 to $213,849 during the year ended December 31, 2009.The 21% decrease in the average selling price of our battery units was due to adjusting the selling prices of our batteries in accordance with the market price of nickel.

Cost of sales consists of the cost of nickel and other materials. Costs of sales were $55.3 million for the year ended December 31, 2009 as compared to $62.2 million for the comparable period in 2008. As a percentage of net sales, cost of sales decreased to 78.6% for the year ended December 31, 2009 compared to 83.0% for the comparable period in 2008. This was attributable to a 25% decrease in the average per unit cost of goods sold during the year ended December 31, 2009 as compared to the comparable period in 2008, which resulted from a 30% decrease in the average cost of nickel during the year ended December 31, 2009 compared to the comparable period in 2008.

Gross profit for the year ended December 31, 2009 was $15.0 million, or 21.4% of net sales, compared to $12.8 million, or 17.0% of net sales, respectively, for the comparable period in 2008. Management considers gross profit to be a key performance indicator in managing our business. Gross profit margins are usually a factor of cost of sales, product mix and demand for product. The increase in our gross profit margin for the year ended December 31, 2009 is primarily due to a 30% decrease in the average cost of nickel during the year ended December 31, 2009 compared to the comparable period in 2008.

To cope with pressure on our gross margins we intend to control production costs by preparing budgets for each department and comparing actual costs with our budgeted figures monthly and quarterly. Additionally, we have reorganized the Company’s production structure and have focused more attention on employee training to enhance efficiency. We also intend to expand our market share by investing in greater promotion of our products in regions such as the U.S., Russia, Europe and India, and by expanding our sales team with more experienced sales personnel. We have also begun production of a line of Li-ion batteries as to complement our current Ni-MH battery products so that we are less vulnerable to price increases in nickel. We intend to expand production of our Li-ion battery products in the future

Selling and distribution costs were $2.4 million for the year ended December 31, 2009, compared to $2.4 million for the comparable period in 2008.  Selling and distribution costs remained flat due to our enhanced selling and distribution cost controls.

44

 

General and administrative costs were $6.4 million, or 9.1% of net sales, for the year ended December 31, 2009, compared to $6.1 million, or 8.1% of net sales, for the comparable period in 2008. Management considers these expenses as a percentage of net sales to be a key performance indicator in managing our business. The increase as a percentage of net sales was primarily due to an increase in personnel and  labor costs and research and development expenses.  Labor and personnel costs increased $216,772 for year ended December 31, 2009 over the comparable period in 2008 due to the expansion of our technician and administrative team to expand our market share.  Research and development expenses increased $718,412 for the year ended December 31, 2009 over the year ended December 31, 2008 due to our increased commitment to advance our research and development activities. Although we anticipate our general and administrative expenses to continue to increase on an absolute dollar basis as a result of additional legal, accounting and other related costs from becoming a public reporting company, we do not believe that general and administrative expenses as a percentage net sales will trend upward as we believe that our net sales will also increase.

We experienced losses on the exchange rate difference between the U.S. Dollar and the RMB of $60,000 and $1.2 million, respectively, in the years ended December 31, 2009 and 2008, a decrease of 94.9%, due to the stabilization of the U.S. Dollar relative to the RMB over the respective periods.  In 2009, to cope with devaluation of the U.S. Dollar relative to the RMB, we engaged in currency hedging and adjusted the selling price of batteries to vary with the U.S. Dollar exchange rate relative to the RMB.

Other income from operations, which consists of bank interest income, forward contract gains and losses and sundry income, was $509,000, for the year ended December 31, 2009, as compared to $463,000 for the year ended December 31, 2008, an increase of 10.0%. The increase was due to a gain related to a local government sponsor which was the sponsor for our listing on the NYSE Amex from the Shenzhen government of $248,000 in 2009, partially offset by decreases of $87,000 and $65,000 in bank interest income and sundry income, respectively, and a gain of $50,000 on a forward contract in 2008.

Interest expense was $528,000 for the year ended December 31, 2009, as compared to $642,000 for the respective comparable period in 2008. The decrease was primarily due to lower borrowing levels. We decreased our borrowings by $40,000 in the year ended December 31, 2009 as compared to the year ended December 31, 2008. Increases in borrowing rates would further increase our interest expense, which would have a negative effect on our results of operations.

During the year ended December 31, 2009, we recorded a provision for income taxes of $1.1 million, as compared to $529,000 for the respective comparable period in 2008. The increase in income taxes for the year ended December 31, 2009 as compared to the year ended December 30, 2008 was a result of an increase in our net taxable income.

Net income for the year ended December 31, 2009 was $4.4 million, compared to a net income of $2.0 million for the comparable period in 2008, an increase of 121%.

Liquidity and Capital Resources

We had cash and cash equivalents of approximately $8.5 million as of December 31, 2010, as compared to $3.0 million as of December 31, 2009. Our funds are kept in financial institutions located in the PRC, which do not provide insurance for amounts on deposit.  Moreover, we are subject to the regulations of the PRC which restrict the transfer of cash from the PRC, except under certain specific circumstances. Accordingly, such funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC.

To provide liquidity and flexibility in funding our operations, we borrow amounts under bank facilities and other external sources of financing. As of December 31, 2010, we had in place general banking facilities with seven financial institutions aggregating $54 million. The maturity of these facilities is generally up to one year. The facilities are subject to annual review and approval. These banking facilities are guaranteed by us and our Chief Executive Officer, Dang Yu Pan, and contain customary affirmative and negative covenants for secured credit facilities of this type. However, these covenants do not have any impact on our ability to undertake additional debt or equity financing. Interest rates are generally based on the banks’ reference lending rates. No significant commitment fees are required to be paid for the banking facilities. As of December 31, 2010, we had utilized approximately $23 million under such general credit facilities and had available unused credit facilities of $31 million.

For the year ended December 31, 2010, net cash provided by operating activities was approximately $2.8 million, as compared to net cash provided by operating activities of $3.3 million for the comparable period in 2009. The decrease in net cash provided by operating activities is primarily attributable to an increase in accounts receivable levels.  For the year ended December 31, 2009, net cash provided by operating activities was approximately $3.3 million, as compared to net cash provided by operating activities of $6.3 million for the comparable period in 2008. The decrease in net cash provided by operating activities is primarily attributable to an increase in accounts receivable levels.

45

Net cash used in investing activities was $5.2 million for the year ended December 31, 2010 compared to $3.7 million for the comparable period in 2009. The increase of cash used in investing activities was primarily attributable to an increase in the acquisition of property and equipment in 2010. Net cash used in investing activities was $3.7 million for the year ended December 31, 2009 compared to $4.6 million for the comparable period in 2008. The decrease of cash used in investing activities was primarily attributable to a decrease in the acquisition of plant and equipment over the respective periods.

Net cash provided by financing activities was $7.8 million for the year ended December 31, 2010 as compared to net cash used in financing activities of $778,000 for the comparable period in 2009. The increase in net cash provided by financing activities is primarily attributable to an increase in the new short-term bank loans.  Net cash used in financing activities was $778,000 for the year ended December 31, 2009 as compared to net cash provided by financing activities of $890,000 for the comparable period in 2008. The decrease in net cash provided by financing activities is primarily attributable to the issuance of common stock in 2008.

For Fiscal 2010 and 2009, our inventory turnover was 6.9 and 5.1 times, respectively. The average days outstanding of our accounts receivable at December 31, 2010 were 61 days, as compared to 60 days at December 31, 2009. Inventory turnover and average days outstanding are key operating measures that management relies on to monitor our business.  In the next 12 months, we expect to expand our research, development and manufacturing of lithium-based batteries and anticipate additional capital expenditures of approximately $0.5 million, which will be paid out of cash on hand.

We are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, and a housing assistance fund, in accordance with relevant regulations. We expect these contributions will contribute to administrative and other operating expenses in an amount of approximately $60,000 per month based on the size of our current workforce. We expect the amount of our contribution to the government’s social insurance funds to increase in the future as we expand our workforce and operations.

Based upon our present plans, we believe that cash on hand, cash flow from operations and funds available under our bank facilities will be sufficient to fund our capital needs for the next 12 months. However, our ability to maintain sufficient liquidity depends partially on our ability to achieve anticipated levels of revenue, while continuing to control costs. If we did not have sufficient available cash, we would have to seek additional debt or equity financing through other external sources, which may not be available on acceptable terms, or at all. Failure to maintain financing arrangements on acceptable terms would have a material adverse effect on our business, results of operations and financial condition.

The use of working capital is primarily for the maintenance of our accounts receivable and inventory. We provide our major customers with payment terms ranging from 30 to 75 days. Additionally, our production lead time is approximately 30 to 40 days, from the inspection of incoming materials, to production, testing and packaging. We need to keep a large supply of raw materials and work in process and finished goods inventory on hand to ensure timely delivery of our products to our customers. We use two methods to support our working capital needs: (1) paying our suppliers under payment terms ranging from 30 to 60 days; and (2) using short-term bank loans. We use our accounts receivable as collateral for our loans. Upon receiving payment for our accounts receivable, we pay our short-term loans. Our working capital management practices are designed to ensure that we maintain sufficient working capital.

Guarantees of Bank Loans

Dang Yu Pan, our Chairman and Chief Executive Officer, has provided personal guarantees under our outstanding banking facilities. The following table shows the amount outstanding on each of our bank loans as of December 31, 2010 and the identity of the officer(s) who guaranteed each loan.

46

Name of Bank	Amount Granted		Amount Outstanding Under Loan		Guaranteed by Officers
Bank Of China	$	13.5 million	$	5.0 million	Dang Yu Pan
Shenzhen Development Bank Co., Ltd	$	9.0 million	$	3.0 million	Dang Yu Pan
Shanghai Pudong Development Bank Co. Ltd.		*	$	3.5 million	-
Citibank (China) Co., Ltd.	$	9.5 million	$	4.0 million	Dang Yu Pan
Standard Chartered Bank	$	11.0 million		-	Dang Yu Pan
China Everbright Bank	$	7.5 million	$	4.0 million	-
China Merchants Bank	$	3.7 million	$	3.0 million	Dang Yu Pan
Total:	$	54.2 million	$	22.5 million	Dang Yu Pan

* Shanghai Pudong Development Bank Co. Ltd. originally granted us an $8.3 million credit line, which expired October 29, 2010. The $3.5 million trade financing currently outstanding with with the bank has no underlying guarantees.

Each of Shenzhen Springpower, a wholly-owned subsidiary of HKHT, and Dang Yu Pan, entered into a guarantee agreement to guarantee Shenzhen Highpower’s obligations under the Agreement and Line of Credit with Bank of China. The Company may not enter into any counter-guarantee agreement or similar agreement that impairs the rights of the Bank of China under the Agreement.

Each of HKHT and Dang Yu Pan entered into a guarantee agreement to guarantee Shenzhen Highpower’s and Shenzhen Springpower’s obligations under the loan agreements with Citibank Citibank (China) Co., Ltd.

Each of HKHT and Dang Yu Pan entered into a guarantee agreement to guarantee Shenzhen Highpower’s obligations under the loan agreement with China Merchants Bank Co., Ltd.

We did not and do not intend to pay any compensation to the guarantor for the guarantees.

Inflation and Seasonality

Inflation has not had a significant impact on our operations during the last two fiscal years. However, the volatile nickel prices affect our cost of sales constantly. In times of economic downturn, nickel prices tend to decline, and our gross margin tends to be higher than the periods when of economy growth, which usually brings higher metal prices.

The first quarter of each fiscal year tend to be our slow season due to the Chinese new year holidays. Our factories, according to our order backlog, usually shut down for 1-2 weeks.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet debt, nor do we have any transactions, arrangements or relationships with any special purpose entities.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Credit Risk

We are exposed to credit risk from our cash at bank, fixed deposits and contract receivables. The credit risk on cash at bank and fixed deposits is limited because the counterparts are recognized financial institutions. Contract receivables are subject to credit evaluations. We periodically record a provision for doubtful collections based on an evaluation of the collectibility of contract receivables by assessing, among other factors, the customer’s willingness or ability to pay, repayment history, general economic conditions and our ongoing relationship with the customers.

47

Foreign Currency and Exchange Risk

 

The Company maintains its financial statements in the functional currency of Renminbi (“RMB”). Substantially all of our operations are conducted in the PRC and we pay the majority of our expenses in RMB. Approximately 67% of our sales are made in U.S. Dollars. During the year ended December 31, 2010, the exchange rate of the RMB to the U.S. Dollar increased approximately 3% from the level at the end of December 31, 2009. This fluctuation resulted in a slight increase in our material costs during the year ended December 31, 2009. A future appreciation of the RMB against the U.S. Dollar would increase our costs when translated into U.S. Dollars and could adversely affect our margins unless we make sufficient offsetting sales. Conversion of RMB into foreign currencies is regulated by the People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of the RMB, there can be no assurance that such exchange rate will not continue to appreciate significantly against the U.S. Dollar. Exchange rate fluctuations may also affect the value, in U.S. Dollar terms, of our net assets. In addition, the RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. Due to the volatility of the US Dollar to our functional currency the Company put into place a hedging program to attempt to protect it from significant changes to the US Dollar which affect the value of its US dollar receivables and sales. As of December 31, 2010, the Company had a series of currency forwards totaling a notional amount $3.5 million expiring from January 2011 to May 2011. The terms of these derivative contracts are generally for 12 months or less. Changes in the fair value of these derivative contracts are recorded in earnings to offset the impact of foreign currency transaction gains and losses. The net gains of $54,674 attributable to these activities are included in “other income” for the year ended December 31, 2010.

Country Risk

The substantial portion of our business, assets and operations are located and conducted in Hong Kong and China. While these economies have experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of Hong Kong and China, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations applicable to us. If there are any changes in any policies by the Chinese government and our business is negatively affected as a result, then our financial results, including our ability to generate revenues and profits, will also be negatively affected.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is incorporated by reference to information begins on Page F-1 of this Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Disclosure controls and procedures are internal controls and other internal audit procedures that are designed and adopted by management to ensure that information required to be disclosed by us in the reports that we file or submit under the Security Exchange Act 1934 is properly recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and regulations. Disclosure controls and procedures include, without limitation, internal controls and internal audit procedures designed to ensure that all necessary information required to be disclosed by the Company in the reports that we file or submit under the Security Exchange Act 1934 is properly recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

48

(b)  Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that as of December 31, 2010, our internal control over financial reporting is effective based on those criteria.

(c) Changes in internal control over financial reporting

In October 2010, the Company engaged Albert Wong & Co., LLP., an independent internal control consulting firm, to evaluate and advise on our SOX 404 internal control and procedures. The primary objective is to streamline our internal control structure. The consulting firm will study and examine our well-defined line of responsibility and delegation of authority for our functional operation areas so that they can evaluate whether responsibility lines are clearly be drawn. Then, they will introduce a comprehensive system with key auditable internal control and procedures integrated. The consulting company helps develop an internal control environment that allows continuous input by various levels of management and employees with an effective and efficient information flow and internal communication network. A periodic risk assessment exercise are performed to enhance our system’s integrity and to assess areas of risk. Our internal control department develops additional control activities to ensure the effective function of our controls. The internal audit department directly reports to our audit committee. The anticipated changes in internal control over financial reporting will enhance our control environment with improving internal information flow and communication network. We will identify new risks through a constant risk assessment process and make our control activities an effective tool of monitoring our internal controls. The pillar of our internal control improvement is the audit committee of the board of directors that interacts with our internal control department, top management, and our external auditors to ensure a proper and reliable financial report with a reasonable assurance.  Other than as described above, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

49

ITEM 9B.  OTHER INFORMATION

Agreement on Line of Credit with Bank of China

 

On December 8, 2010, Shenzhen Highpower Technology Co., Ltd. entered into an Agreement on Line of Credit (the “BOC Agreement”) for a revolving line of credit in the amount of RMB90,000,000 (US$13.5 million) with Bank of China Limited, Shenzhen Buji Branch (“Bank of China”), which includes a RMB20,000,000 (US$3.0) million short-term line of credit, a RMB30,000,000 (US$4.5 million) line of bank acceptance, a RMB35,000,000 (US$5.2 million) line of trade financing and a RMB5,000,000 (US$0.8) line of foreign currency trading earnest money. The BOC Agreement expires on December 8, 2011.

Each of Springpower Technology (Shenzhen) Co., Ltd., a wholly-owned subsidiary of Hong Kong Highpower Technology Co., Ltd. and Dang Yu Pan entered into a guarantee agreement to guarantee Shenzhen Highpower’s obligations under the BOC Agreement. The Company may not enter into any counter-guarantee agreement or similar agreement with any guarantor that impairs the rights of the Bank of China under the BOC Agreement.

The following events constitute a default under the BOC Agreement: failure to perform its payment or settlement obligations under the BOC Agreement or any agreements entered into with the Bank of China pursuant to the BOC Agreement; failure to use the funds for purposes as stated in the BOC Agreement, breach of any representations in the BOC Agreement or any agreements entered into with the Bank of China pursuant to the BOC Agreement; failure to provide a new guarantee and replacement guarantor in circumstances including merger, sale of assets and bankruptcy; termination of business or bankruptcy; breach of any other agreements related to the BOC Agreement; default under any other contract with the Bank of China or its related organizations; and any guarantor’s breach of the guarantee contract or default under any other contract with the Bank of China or its related organizations.

Upon the occurrence of any events of default under the BOC Agreement, the Bank of China may require Shenzhen Highpower or the guarantors to correct the default within a specified time period; reduce, suspend or terminate the line of credit, the BOC Agreement, or any other agreement between the parties in whole or in part; suspend or terminate the issuance of any loan not issued, any trading financing business and letter of guarantee not handled; accelerate the maturity of any amount outstanding under the BOC Agreement; terminate or cancel the BOC Agreement, terminate or cancel other agreements between Shenzhen Highpower and the Bank of China in whole or in part; require Shenzhen Highpower to indemnify losses caused by the default to the Bank of China; deduct any sum owed to the Bank of China from Shenzhen Highpower’s bank account with the Bank of China; exercise its security interest; require the guarantors to undertake their guarantee responsibilities; or any other measures deemed necessary by the Bank of China.

In the event that Shenzhen Highpower’s total line of credit with all banks exceeds RMB140 million, the Bank of China may suspend credit issued to Shenzhen Highpower.  Additionally, Shenzhen Highpower must obtain the consent of the Bank of China prior to applying for any credit from other commercial banks.  In the event that Shenzhen Highpower fails to obtain the prior consent of the bank before obtaining such credit, the Bank of China may terminate the line of credit.

Line of Credit Contract with Shenzhen Development Bank Co., Ltd.

On July 20, 2010, Shenzhen Highpower entered into a Line of Credit Contract with Shenzhen Development Bank Co., Ltd. Shenzhen Xinzhou Sub-branch providing for a revolving line of credit of up to RMB 60,000,000 ($9.0) million.  The agreement expires on June 16, 2011.

The following events constitute an event of default under the agreement:  Shenzhen Highpower is in breach of any loan contract executed pursuant to the agreement; the concealment of important information from the bank; the change in the use of the loan funds, misappropriation of loan proceeds or use of bank loans in illegal or irregular transactions; the inaccuracy of any certifications or documents provided to the bank; refusal to sign any contract with the bank required by the bank; the breach by a guarantor of a guaranty contract; a transfer of property to avoid creditors; use of false contracts or arrangement with third parties to deceive the bank; evading bank debts; the occurrence of major problems with Shenzhen Highpower’s business circumstances, such as a deteriorated financial situation or significant financial loss or loss of assets; imposition of administrative penalties or criminal sanctions against Shenzhen Highpower; a merger, spin-off, acquisition or reorganization, significant disposal of assets, capital reduction, or bankruptcy of Shenzhen Highpower; a change in the controlling shareholder that the bank believes endangers its claims under the agreement; an adverse change in Shenzhen Highpower’s industry; Shenzhen Highpower’s failure to apply for settlement or deposit taking; and other situations that may endanger the realization of claims under the contract.

Upon the occurrence of any events of default under the agreement, the bank may change, suspend or terminate the line of credit; accelerate the maturity of any amount outstanding under the agreement; request an additional guaranty; deduct funds from Shenzhen Highpower’s account at the bank; or demand the guarantor perform under a guaranty agreement.

50

Line of Credit with China Merchants Bank Co., Ltd.

On November 8, 2010, Shenzhen Highpower entered into a Line of Credit Agreement with China Merchants Bank Co., Ltd.  providing for a revolving line of credit of up to RMB 25,000,000 ($3.7) million.  The agreement will expire on November 8, 2011.  HKHT and Dan Yu Pan jointly guaranteed the loan.

Each of the following is deemed to be an Event of Default: (1) providing false information to the Merchant Bank or concealing the truth or material information, or not cooperating with the Merchant Bank’s due diligence, review and inspection; (2) refusing or avoiding the supervision from the Merchant Bank about the use of funds and the Company’s relevant production, operation, and financial activities; (3) failing to perform the use of the loan and/or other credit lines stipulated under the agreement; (4) failing to repay the principal and interest, in full and on time, of the underlying loan and other credit lines under the agreement; (5) unilaterally transferring the debt under the agreement, in whole or in part, to a third party; (6) handling the existing major assets improperly; or (7) or any other situation which damages the legitimate rights and interests of the Merchant Bank.

Upon the occurrence of an event of default, the bank may reduce the line of credit or stop the Company’s use of the remaining line of credit; accelerate the amounts due under outstanding loans, request a side margin amount, pursue recourse to on Shenzhen Highpower’s accounts receivable for any factoring arrangement; and deduct sums owed to the bank  from Shenzhen Highpower’s deposit accounts with the bank.

Uncommitted Short Term Revolving Facility Agreements with Citibank (China) Co., Ltd.

On August 12, 2010, Shenzhen Highpower entered into an Uncommitted Short Term Revolving Facility Agreement with Citibank (China) Co., Ltd . (“Citibank”) Shenzhen Branch providing for a revolving facility of up to $3,000,000.  The purpose of the facility is for hedging and risk management.  The loan is guaranteed by  HKHT, Shenzhen Springpower and Dang Yu Pan.  Loans made pursuant to the agreement may only be used for working capital purposes and not for any investment in securities or in any non-core business of the Company.  Loans pursuant to the facility may not be used to pay for any transactions with related parties.

On August 12, 2010, Shenzhen Highpower  and Shenzhen Springpower entered into an Uncommitted Short Term Revolving Facility Agreement with Citibank providing for a revolving facility of up to $6,500,000.  The purpose of the facility is to be used for general liquidity needs and the purchase of raw materials.  The loan is guaranteed by  HKHT and Dang Yu Pan.  Loans made pursuant to the agreement may only be used for working capital purposes and not for any investment in securities or in any non-core business of the Company.  Loans pursuant to the facility may not be used to pay for any transactions with related parties.

Comprehensive Line of Credit Contract

On March 3, 2010, Shenzhen Highpower entered into a Comprehensive Line of Credit Contract with China Everbright Bank Shenzhen Longhua Sub-branch providing for a maximum credit line of RMB 50,000,000 ($7.5) million.  The term of the agreement was one year.  The bank may adjust the maximum credit limit upon: a major adjustment in China’s monetary policy; the occurrence of financial risks in Shenzhen Highpower’s region of operation; a great change in Shenzhen Highpower’s market; Shenzhen Highpower’s suffering or potential to suffer operating difficulty or risk; Shenzhen Highpower undergoes a merge, termination or other major institutional change; Shenzhen Highpower does not use loan proceeds for the required purposes; Shenzhen Highpower transfers property or money to avoid debt; a default by Shenzhen Highpower under the agreement; a shortage of funds or operating difficult of a guarantor; damage of collateral; or anything that, in the bank’s opinion, which decreases Shenzhen Highpower’s solvency or damages the bank’s interests.  The agreement is guaranteed by Xiamen Tungsten Co., Ltd., a supplier of Shenzhen Highpower. Shenzhen Highpower must alert the bank in advance of providing a guarantee for a third party, which guaranty may not affect Shenzhen Highpower’s ability  to pay off its debt pursuant to the agreement.

51

Credit Facilities with Standard Chartered Bank (China) Limited

On April 7, 2010, Shenzhen Highpower entered into banking facility with Standard Chartered Bank (China) Limited providing for financing of up to $5.0 million.  Shenzhen Springpower and Dang Yu Pan guaranteed the loan.  Shenzhen Highpower must pledge a 30% cash margin with the bank as security for the loan.  In the event Shenzhen Highpower is in breach of any term of the agreement or if the bank believes that circumstances exist that could adversely affect the ability or willingness of Shenzhen Highpower to comply with its obligations thereunder, then amounts due under the facility is repayable upon demand by the bank.

On April 9, 2010, HKHT entered into a banking facility with Standard Chartered Bank (Hong Kong) Limited providing for financing of up to $6.0 million.  Dang Yu Pan guaranteed the loan.

Term Loan with Wing Lung Bank Limited

On December 21, 2010, HKHT entered into a term loan agreement with Wing Lung Bank Limited providing for a loan of up to $11.5 million.  Pursuant to the agreement, HKHT may drawdown the term loan for three (3) months from the date of the agreement and the final maturity date of the loan is one year from the first drawdown date.  Interest will accrue at a rate of 1.1% per annual above LIBOR.  As security for the loan, HKHT will provide a security deed over its deposits in RMB in an amount no less than 105% of the drawdown amount.  Any outstanding principal amount under the loan must be repaid in one lump sum upon the final maturity date.

The following events constitute a default under the term loan agreement:  any failure by HKHT to repay within 2 banking days when due or demand any sum payable under the agreement; non-payment; failure to comply with any other obligations subject to agreed remedy periods if capable of remedy; misrepresentation; cross default; insolvency and analogous events; failure to maintain ownership of HKHT; unlawfulness; repudiation or material adverse change. Upon a default, the lender may charge default interest at 7% above the contract rate.

Uncommitted Demand Credit Facility with Citibank, N.A. Hong Kong Branch

On January 31, 2011, we entered into an uncommitted, revolving short term credit facility for up to an aggregate of $3.0 million with Citibank, N.A. Hong Kong Branch (“Citibank”).  Letters of credit issued pursuant to the facility are for a maximum of 120 days.  Interest accrues at a rate of 1.5% annual over the higher of LIBOR and Citibank’s cost of funding.  A commission of 0.125% of the principal amount of each letter of credit upon the issuance of a letter of credit.  The facility is repayable upon demand by Citibank.  Security for the facility consisted of a standby letter of credit issued by Citibank (China) Co., Ltd. Shenzhen Branch acceptable to Citibank for a sum of HKD23,400,000 in favor of Citibank.

Banking Facility with Standard Chartered

On January 21, 2011, HKHT entered into a banking facility with Standard Chartered Bank (Hong Kong) Limited (“Standard Bank”) with a facility limit of $13.0 million.  For the trade finance facility, which has a $3.0 million facility limit, interest on import/export facilities accrues at a rate of 1.75% over HIBOR and interest on foreign currency import/export facilities accrues at a rate of 1.75% per annum over LIBOR.  The term of such trade finance facilities may not exceed 120 days.  For the short term money market loan, which has a $10.0 million facility limit, interest accrues at 1% per annum over LIBOR, payable at the maturity of each advance, which is generally 12 months after the drawdown date, or quarterly in arrears if a six month period is selected.  Interest is paid monthly.  Partial drawdowns are permitted with minimum amounts of $500,000 or above in multiples of $100,000.  The facility is secured by all bank accounts of the Company with Standard Bank and a personal guarantee dated May 26, 2010 executed by Dang Yu Pan, our Chief Executive Officer, for $9.0 million, plus interest and other charges.

The information included in this Item 9B is provided in accordance with Item 1.01 and Item 2.03 of Form 8-K.

52

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The following individuals constitute our board of directors and executive management:

Name	Age	Position
Dang Yu Pan	43	Chairman of the Board and Chief Executive Officer
Wen Liang Li	45	Vice President, Chief Technology Officer and Director
Wen Wei Ma	41	Vice President of Manufacturing
Henry Sun	38	Chief Financial Officer and Corporate Secretary
Michael Wang	39	Vice President of Sales and Marketing
Bin Ran	41	Vice President of Strategy and Human Resources
Wen Jia Xiao	34	Vice President of Quality Control
Xinhai Li	48	Director
Chao Li	66	Director
Ping Li	46	Director

Dang Yu Pan has been the Chairman of the Board and Chief Executive officer of the Company and HKHT since November 2007 and July 2003, respectively. Mr. Pan is the founder of Shenzhen Highpower and has served as the Chairman of the Board and Chief Executive Officer of Shenzhen Highpower since October 2002. From May 2001 to October 2002, Mr. Pan was the General Manager and Chairman of the Board of Guangzhou HaoPeng Technology Co., Ltd. From January 1997 to July 2000, Mr. Pan was the Vice General Manager of Nanhai Shida Battery Co., Ltd. From January 1995 to December 1996, Mr. Pan served as a director of the HuangPu Aluminum Factory. Additionally, from August 1990 to December 1994, Mr. Pan worked in the sales department of the Guangzhou Aluminum Products Factory. Mr. Pan received a bachelor’s degree in metallurgical engineering from Central South University in China in 1990. We believe Mr. Pan’s qualifications to sit on our Board include his extensive understanding of our business, our products and the battery industry that he has acquired over his 14 years working in the battery industry, including over 7 years as an officer and director of as a director of Shenzhen Highpower.

Wen Liang Li has been a director of the Company since November 2007 and a director of HKHT since July 2003. Since January 2003, Mr. Li. has served as a director and as Vice General Manager and Chief Technology Officer of Shenzhen Highpower. From January 1996 to December 2002, Mr. Li served as Vice General Manager of Zhuhai Taiyi Battery Co., Ltd., a battery manufacturer. Mr. Li received a master’s degree in Electrochemistry from the Harbin Institute of Technology in China in 1991. We believe that Mr. Li’s 18 years of working experience in the battery industry, including 7 years as an officer and director of Shenzhen Highpower, well qualify Mr. Li to serve on our Board.

Wen Wei Ma has served as the Company’s Vice President of Manufacturing since November 2007 and as a director of HKHT since July 2003. Mr. Ma has served as a director and as a Vice General Manager of Manufacturing of Shenzhen Highpower since October 2002. Mr. Ma received a diploma in chymic analysis from the Guangzhou Trade School of Light Industry in China in 1989.

Henry Sun has served as the Chief Financial Officer of the Company since January 2011. Mr. Sun joined the Company in

November 2010 as the President’s Assistant.  Prior to joining the Company, Mr. Sun was the Chief Financial Officer of Zoomlion Concrete Machinery Company from November 2009 to October 2010.  From November 2008 to September 2009, Mr. Sun served as the Finance Director of Yasheng Group USA (OTCBB: YHGG). From December 2006 to November 2008, he was the senior finance manager of Cepheid, Inc. (NASDAQ: CPHD).  From October 2003 to September 2006, he was a financial consultant at Merrill Lynch.  Mr. Sun is a graduate of the Thunderbird School of Global Management.

53

 

Michael Wang joined Highpower in November 2009 as Director of Sales and was appointed Vice President of Sales and Marketing in March 2011.  Before joining Highpower, from September 2001 to October 2009, Mr. Wang served at various positions at Vale Inco, one of the world’s largest nickel miners and producers. Mr. Wang first joined Vale Inco’s Shanghai Office late 2001, in charge of the sales of Inco Special Products. In June 2005, Michael began working at Vale Inco’s Headquarters in Canada as the segment leader of Li-ion cathode materials. In June 2006, Michael returned to Vale Inco’s Shanghai Office, as the Director of Marketing for Nickel Downstream Products, focusing primarily on battery materials. From May 1997 to August 2001, Mr. Wang worked in various departments of Beijing Zhongke Sanhuan Hi-Tech Co., Ltd. Mr. Wang received his masters degree in materials science and engineering from the Beijing Institute of Technology in 1997, and received a second masters degree in Enterprise Management from the University of International Business and Economics of China in 2002.

Bin Ran joined Highpower in June 2010 as General Manager of Human Resources.and was appointed Vice President of Strategy and Human Resources in March 2011. From April 2004 to April 2010, he worked for Shenzhen Joint Financial Group Co., Ltd, serving in positions at various of its portfolio companies, including General Manager of several companies such as Shenzhen Cbhandsun Management Consulting Co., Ltd, Guangzhou Cbhandsun Management Consulting Co., Ltd, Shenzhen Flink Training Center and Singapore Flink Training Center.  From July 1998 to March 2004, he worked as a management consultant at various companies including Shenzhen Quanxi Management Consulting Company, Singapore Corey Consulting Company. He was also invited as MBA professor of Zhongshan University, University of Northern Virginia, Inter American University.  From 1995 to 1997, Mr. Ran worked as an Engineer of GP Batteries International Limited. Mr. Ran received a bachelors degree in Electrochemistry from the Sichuan Light Chemical Engineering Institute in 1993.

Jia Wei Xiao has served as Vice President of Quality Control of the Company since November 2007 and as Vice General Manager of Quality Control of Shenzhen Highpower since October 2005. From October 2002 to September 2005, Mr. Xhio served as the Minister of the Quality Control Department of Shenzhen Highpower. Mr. Xiao received a bachelor’s degree in Check Technology and Instrument in 2000 from the China Institute of Metrology.

Xinhai Li has served as a director of the Company since January 2008. Sine August 1990, Mr. Li has served as a director and professor at the China Central South University Metallurgical Science and Engineering School in China. Mr. Li received a PhD in Physical Chemistry of Metallurgy from China Central South University in August 1990.  We believe that Mr. Li’s qualifications to sit on our Board include his extensive understanding of our business and his understanding of U.S. GAAP and financial statements.

Chao Li has served as a director of the Company since January 2008. Since August 2000, Mr. Li has served as Chairman of the Guangdong Association of Productivity. From July 1991 to November 2004, Mr. Li served as the Vice-Chairman of the Development Research Center for the PRC Government of Guangdong Province. Mr. Li received a bachelor’s degree in metallurgy from Central South University in China in August 1969.  We believe that Mr. Li’s qualifications to sit on our Board include his extensive understanding of our business and his understanding of U.S. GAAP and financial statements.

Ping Li has served as a director of the Company since January 2008. Since November 2008, Mr. Li has served as Director at Intel Capital, focusing on Intel’s investment activities in China. From July 2003 to October 2008, Mr. Li served as the Managing Director of Investment at ChinaVest, a venture capital firm. From February 2002 to July 2003, Mr. Li served as Chief Financial Officer of Great Wall Technology Co., Ltd., an investment technology company. Mr. Li received a master’s degree in biology from Columbia University in 1989 and an MBA in finance in 1994 from the Wharton School of the University of Pennsylvania.  We believe that Mr. Li’s qualifications to sit on our Board include his knowledge of the capital market and his experience, expertise and background with respect to accounting matters, including his experience as a chief financial officer and familiarity with U.S. GAAP and financial statements.

Family Relationships

There are no family relationships among any of the officers and directors.

54

Director Independence

 

Subject to certain exceptions, under the listing standards of the NASDAQ Stock Market, LLC, a listed company’s board of directors must consist of a majority of independent directors. Currently, our board of directors has determined that each of the non-management directors, Xinhai Li, Chao Li and Ping Li, is an “independent” director as defined by the listing standards of the NASDAQ Marketplace Rules currently in effect and approved by the U.S. Securities and Exchange Commission (“SEC”) and all applicable rules and regulations of the SEC.  All members of the Audit, Compensation and Nominating Committees satisfy the “independence” standards applicable to members of each such committee. The board of directors made this affirmative determination regarding these directors’ independence based on discussion with the directors and on its review of the directors’ responses to a standard questionnaire regarding employment and compensation history; affiliations, family and other relationships; and transactions with the Company. The board of directors considered relationships and transactions between each director or any member of his immediate family and the Company and its subsidiaries and affiliates. The purpose of the board of director’s review with respect to each director was to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent under the NASDAQ Marketplace Rules.

Board Committees

Audit Committee

We established our Audit Committee in January 2008. The Audit Committee consists of Xinhai Li, Chao Li and Ping Li, each of whom is an independent director. Mr. Ping Li, Chairman of the Audit Committee, is an “audit committee financial expert” as defined under Item 407(d) of Regulation S-K. The purpose of the Audit Committee is to represent and assist our board of directors in its general oversight of our accounting and financial reporting processes, audits of the financial statements and internal control and audit functions. The Audit Committee’s responsibilities include:

· The appointment, replacement, compensation, and oversight of work of the independent auditor, including resolution of disagreements between management and the independent auditor regarding financial reporting, for the purpose of preparing or issuing an audit report or performing other audit, review or attest services.

· Reviewing and discussing with management and the independent auditor various topics and events that may have significant financial impact on our company or that are the subject of discussions between management and the independent auditors.

The board of directors has adopted a written charter for the Audit Committee. A copy of the Audit Committee Charter is posted on the Company’s website at: www.highpowertech.com.

Compensation Committee

We established our Compensation Committee in January 2008. The Compensation Committee consists of Xinhai Li and Chao Li, each of whom is an independent director. Xinhai Li is the Chairman of the Compensation Committee. The Compensation Committee is responsible for the design, review, recommendation and approval of compensation arrangements for the Company’s directors, executive officers and key employees, and for the administration of our equity incentive plans, including the approval of grants under such plans to our employees, consultants and directors. The Compensation Committee also reviews and determines compensation of our executive officers, including our Chief Executive Officer. The board of directors has adopted a written charter for the Compensation Committee. A current copy of the Compensation Committee Charter is posted on the Company’s website at: www.highpowertech.com.

Nominating Committee

The Nominating Committee consists of Xinhai Li and Chao Li, each of whom is an independent director. Chao Li is the Chairman of the Nominating Committee. The Nominating Committee assists in the selection of director nominees, approves director nominations to be presented for stockholder approval at our annual general meeting and fills any vacancies on our board of directors, considers any nominations of director candidates validly made by stockholders, and reviews and considers developments in corporate governance practices. The board of directors has adopted a written charter for the Nominating Committee. A current copy of the Nominating Committee Charter is posted on the Company’s website at: www.highpowertech.com.

55

Section 16(a) Beneficial Ownership Reporting Compliance

 

The Company’s securities are currently registered under Section 12 of the Securities Exchange Act of 1934, as amended. As a result, and pursuant to Rule 16a-2, the Company’s directors and officers and holders of 10% or more of its common stock are currently required to file statements of beneficial ownership with regards to their ownership of equity securities under Sections 13 or 16 of the Exchange Act. Based on a review of written representations from our executive officers and directors, we believe that during the fiscal year ended December 31, 2010, our directors, officers and owners of more than 10% of our common stock complied with all applicable filing requirements.

Code of Ethics

The Company’s board of directors has adopted a Code of Business Conduct and Ethics, which applies to all directors, officers and employees. The purpose of the Code is to promote honest and ethical conduct. The Code is posted on the Company’s Web site located at www.highpowertech.com, and is available in print, without charge, upon written request to the Company at Highpower International, Inc., Building A1, Luoshan Industrial Zone, Shanxia, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China. The Company intends to post promptly any amendments to or waivers of the Code on its Web site.

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning the compensation for the fiscal years ended December 31, 2010 and 2009 of the principal executive officer and up to two other officers who compensation exceeded $100,000 during such years (our “named executive officers”).

Name and Position	Year	Salary		Bonus		Stock Awards (1)		All other compensation			Total
Dang Yu Pan	2010	$	18,000	$	-	$	-	$	25,000	(2)	$	43,000
Chief Executive Officer and	2009	$	18,000	$	-	$	-	$	25,000	(2)	$	43,000
Chairman of the Board
Henry Ngan (3)	2010	$	150,000	$	-	$	-	$	-		$	150,000
Chief Financial Officer	2009	$	137,500	$	-	$	137,870	$	-		$	275,370

(1)  The amounts disclosed reflect the value of awards for grants of restricted stock. These stock awards reflect the full grant date fair values in accordance with FASB ASC Topic 718.

(2)  Includes $25,000 for fees earned or paid in cash for service as a director of the Company.

(3) Mr. Ngan was appointed Chief Financial Officer and Corporate Secretary of the Company effective February 1, 2009.  Mr. Ngan resigned as the Company’s Chief Financial Officer in January 2011.

Outstanding Equity Awards at 2010 Fiscal Year End

There were no unexercised options or unvested stock awards outstanding held by our named executive officers as of December 31, 2010.

Employment Agreements and Termination of Employment and Change of Control Arrangements

We entered into an Offer Letter of Employment with our Chief Financial Officer, Henry Ngan, effective February 2009.  Pursuant to the Offer Letter, Mr. Ngan is entitled to a base salary at an annual rate of $150,000 and 17,000 shares of restricted common stock of the Company under the Company’s 2008 Omnibus Incentive Plan, 8,500 of which vested on January 31, 2010 and 8,500 of which vested on December 2, 2010, the vesting of which was accelerated by the Compensation Committee.  Mr. Ngan is also entitled to reasonable vacation and sick time and reimbursement for the cost of standard medical and dental insurance premiums and for business expenses.  Mr. Ngan resigned as the Company’s Chief Financial Officer on January 4, 2011.

56

Director Compensation

The following table shows information regarding the compensation earned during the fiscal year ended December 31, 2010 by members of board of directors. Compensation information for Dang Yu Pan, our Chief Executive Officer and Chairman of the Board, is described in the summary compensation table above.

Name	Fees Earned or Paid in Cash  ($)		Stock Awards  ($)		Option  Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings		All Other Compensation ($)		Total ($)
Wen Liang Li		20,000		-		-		-		-		-		20,000
Chao Li		18,000		-		-		-		-		-		18,000
Xinhai Li		18,000		-		-		-		-		-		18,000
Ping Li		18,000		-		-		-		-		-		18,000

Dang Yu Pan and Wen Liang Li are management board members. We offer our management board members a total compensation package, which includes salary, bonus and director fees, based on benchmarks reported by Shenzhen Labor Bureau. Once we determine the total compensation for our management board members using the benchmarks, we allocate a portion of their total annual compensation to compensation for services rendered as board members. In the future, we expect to continue to allocate a portion of our management board members’ total annual compensation as compensation for their service as directors.

We do not have a formal policy with respect to the compensation of our non-executive board members.  We pay our non-executive directors for their services at the rate of $1,500 to $2,500 per month.

Directors are eligible to receive, from time to time, grants of options to purchase shares under our equity incentive plan.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2010 regarding compensation plans, including any individual compensation arrangements, under which equity securities of Highpower International, Inc. are authorized for issuance.

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options,  warrants and rights		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders		100,000	$	3.85		1,883,000	(1)
Equity compensation plans not approved by security holders		-		-		-
Total		-		N/A		1,883,000

(1) In October 2008, the Company adopted the 2008 Omnibus Incentive Plan (the “Plan”).

As of April 11, 2011, there were 998,000 shares available for issuance pursuant to the Plan.

57

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or become exercisable within 60 days of April 11, 2011 are deemed outstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

The following table sets forth as of April 11, 2011 certain information with respect to beneficial ownership of our common stock based on 13,582,106 issued and outstanding shares of common stock, by:

· Each person known to be the beneficial owner of 5% or more of the outstanding common stock of our company;

· Each named executive officer;

· Each director; and

· All of the executive officers and directors as a group.

The number of shares of our common stock outstanding as of April 11, 2011 excludes 47,500 shares of our common stock issuable upon exercise of outstanding warrants and 985,000 shares of our common stock issuable upon the exercise of outstanding options.  Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise indicated, the address of each stockholder listed in the table is c/o Building A1, Luoshan Industrial Zone, Shanxia, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China.

Name and Address  of Beneficial Owner	Title	Amount and Nature of Beneficial Ownership			Percent of Class
Directors and Executive Officers
Dang Yu Pan	Chief Executive Officer and Chairman of the Board		3,422,114			25.20	%
Wen Liang Li	Vice President, Chief Technology Officer and Director		2,034,770			14.98	%
Henry Sun	Chief Financial Officer and Corporate Secretary		-			-
Xinhai Li	Director		-			-
Chao Li	Director		-			-
Ping Li	Director		-			-
Officers and Directors as a Group (total of 8 persons)			6,451,781	(1)		47.26	%

(1) Includes 70,000 shares issuable upon the exercise of outstanding options.

58

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Hong Kong Highpower Technology Co., Ltd.

Hong Kong Highpower Technology Co., Ltd. (“HKHT”), a wholly-owned subsidiary of Highpower International, Inc., and each of HKHT’s wholly owned –subsidiaries Shenzhen Highpower Technology Co., Ltd., Huizhou Highpower Technology Co., Ltd., Springpower Technology (Shenzhen) Company Limited and Ganzhou Highpower Technology Co., Ltd., each have interlocking executive and director positions with the Company.

Guarantee Agreements

Dang Yu Pan, our Chairman and Chief Executive Officer, has provided personal guarantees under our outstanding banking facilities. The following table shows the amount outstanding on each of our bank loans as of December 31, 2010 and the identity of the officer(s) who guaranteed each loan.

Name of Bank	Amount Granted		Amount Outstanding Under Loan		Guaranteed by Officers
Bank of China	$	13.5 million	$	5.0 million	Dang Yu Pan
Shenzhen Development Bank Co., Ltd	$	9.0 million	$	3.0 million	Dang Yu Pan
Shanghai Pudong Development Bank Co. Ltd.		*	$	3.5 million	-
Citibank (China) Co., Ltd.	$	9.5 million	$	4.0 million	Dang Yu Pan
Standard Chartered Bank	$	11.0 million		-	Dang Yu Pan
China Everbright Bank	$	7.5 million	$	4.0 million	-
China Merchants Bank	$	3.7 million	$	3.0 million	Dang Yu Pan
Total:	$	54.2 million	$	22.5 million	Dang Yu Pan

* Shanghai Pudong Development Bank Co. Ltd. originally granted us an $8.3 million credit line, which expired October 29, 2010. The $3.5 million trade financing currently outstanding with the bank has no underlying guarantees.

Policy for Approval of Related Party Transactions

We do not currently have a formal related party approval policy for review and approval of transactions required to be disclosed pursuant to Item 404 (a) of Regulation S-K.

Director Independence

See Item 10 “Directors, Officers and Corporation Governance” for a discussion of board member independence.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table presents fees, including reimbursements for expenses, for professional audit services rendered by Dominic K.F. Chan & Co. for the audits of the Company’s annual financial statements and interim reviews of the Company’s quarterly financial statements for the years ended December 31, 2010 and December 31, 2009 and fees billed for other services rendered by Dominic K.F. Chan & Co. during those periods.

	Year ended December 31,
	2010		2009
Audit Fees(1)	$	80,000	$	73,000
Audit-Related Fees		-		-
Tax Fees		-		-
All Other Fees		-		-
Total	$	80,000	$	73,000

     (1) These are fees for professional services performed by Dominic K.F. Chan & Co. for the audit of our annual financial statements and review of our quarterly reports.

59

Pre-Approval Policy

The Audit Committee on an annual basis reviews audit and non-audit services performed by the independent registered public accounting firm for such services. The audit committee pre-approves (i) auditing services (including those performed for purposes of providing comfort letters and statutory audits) and (ii) non-auditing services that exceed a de minimis standard established by the committee, which are rendered to the Company by its outside auditors (including fees).

60

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1. Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 7 of this annual report on Form 10-K.

2. Financial Statement Schedule: Not applicable.

3. Exhibits: The exhibits listed in the accompanying “Index to Exhibits” are filed or incorporated by reference as part of this Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Shenzhen, People’s Republic of China, on April 12, 2011.

	Highpower International, Inc.
	(Registrant)
Dated: April 12, 2011	/s/  Dang Yu Pan
	By:  Dang Yu Pan
	Chief Executive Officer and
	Chairman of the Board
	(Principal Executive Officer)

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.

Signature	Capacity	Date
	Chief Executive Officer and	April 12, 2011
/s/  Dang Yu Pan	Chairman of the Board
By:  Dang Yu Pan	(Principal Executive Officer)
/s/  Henry Sun	Chief Financial Officer	April 12, 2011
By:  Henry Sun	(Principal Financial and Accounting Officer)
/s/  Wen Liang Li	Vice President, Chief Technology Officer and	April 12, 2011
Wen Liang Li	Director
/s/  Xinhai Li	Director	April 12, 2011
Xinhai Li
/s/  Chao Li	Director	April 12, 2011
Chao Li
/s/  Ping Li	Director	April 12, 2011
Ping Li

61

 

EXHIBIT INDEX

Exhibit
Number	Description
2.1	Share Exchange Agreement, dated as of October 20, 2007, by and among the Registrant, Hong Kong Highpower Technology Company Limited and all of the shareholders of Hong Kong Highpower Technology Company Limited (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2007).
3.1	Certificate of Incorporation (incorporated by reference from Exhibit 3.1 to the Registration Statement on Form 10-SB (File No. 000-52103) filed with the Securities and Exchange Commission on July 5, 2006).
3.2	Bylaws (incorporated by reference from Exhibit 3.2 to the Registration Statement on Form 10-SB (File No. 000-52103) filed with the Securities and Exchange Commission on July 5, 2006).
3.3	Articles of Merger Effecting Name Change (incorporated by reference from Exhibit 3.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2007).
3.4	Certificate of Amendment to Certificate of Incorporation (incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on October 20, 2010).
10.1	Form of Subscription Agreement (incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2007).
10.2*	Amended Consumer Battery License Agreement, amended as of August 8, 2007, by and between Shenzhen Highpower Technology Co., Ltd and Ovonic Battery Company, Inc. (incorporated by reference from Exhibit 10.2 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 11, 2008).
10.3	State-owned Land Use Rights Grant Contract No. 441302 – B – 112 dated as of May 23, 2007, by and between the Land and Resources Bureau of Huizhou City, Guangdong Province and Shenzhen Highpower Technology Co., Ltd. (translated to English) (incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2007).
10.4	Agreement on Line of Credit dated as of December 8, 2010 by and between Bank of China Limited, Shenzhen Buji Subbranch and Shenzhen Highpower Technology Co., Ltd. (translated to English).
10.4(a)	Guaranty Contract of Maximum Amount dated as of December 8, 2010 by and between Dan Yu Pan and the Shenzhen Buji Subbranch of Bank of China Limited (translated to English).
10.5	Uncommitted Short Term Revolving Facility Agreement dated as of August 12, 2010 by and between Citibank (China) Co., Ltd. Shenzhen Branch and Shenzhen Highpower Technology Co., Ltd. (translated to English).
10.5(a)	Guaranty dated as of August 12, 2010 by and between Dan Yu Pan and Citibank (China) Co., Ltd. (translated to English).
10.6	Uncommitted Short Term Revolving Facility Agreement dated as of August 12, 2010 by and between Citibank (China) Co., Ltd. Shenzhen Branch, Shenzhen Highpower Technology Co., Ltd. and Sprintpower Technology (Shenzhen) Co., Ltd. (translated to English).
10.7	Line of Credit Contract dated as of November 8, 2010 by and between China Merchants Bank Co., Ltd., Shenzhen Longgang Sub-branch (translated to English).
10.7(a)	Form of Irrevocable Guaranty Contract of Maximum Amount by and between China Merchants Bank Co., Ltd., and the persons indicated in Schedule A attached to the Form of Agreement (translated to English).
10.8	Line of Credit Contract dated as of June 20, 2010 by and between Shenzhen Development Bank Co., Ltd. and Shenzhen Highpower Technology Co., Ltd. (translated to English).
10.8(a)	Maximum Amount Guarantee dated as of July 13, 2010 by and between Shenzhen Development Bank Co., Ltd. and Dan Yu Pan (translated to English).

62

10.9	Comprehensive Line of Credit Contract dated as of March 3, 2010 by and between Shenzhen Highpower Technology Co., Ltd. and China Everbright Bank Shenzhen Longhua Sub-branch (translated to English).
10.10	FCY Banking Facility dated as of April 7, 2010 by and between Shenzhen Highpower Technology Co., Ltd. and Standard Chartered Bank (China) Limited (translated to English).
10.10(a)	Guarantee dated as of April 7, 2010 by and between Standard Chartered Bank (China) Limited and Dang Yu Pan (translated in English).
10.11	Banking Facility dated as of January 21, 2011 by and between Hong Kong Highpower Technology Co., Ltd. and Standard Chartered Bank (China) Limited.
10.12	Uncommitted Demand Credit Facility dated as of January 31, 2011 by and between Hong Kong Highpower Technology Co., Ltd. and Citibank, N.A., Hong Kong Branch.
10.13	Term Loan Agreement dated as of December 21, 2010 by and between Hong Kong Highpower Technology Co., Ltd. and Wing Lung Bank Limited.
10.14	Banking Facility dated as of April 9, 2010 by and between Hong Kong Highpower Technology Co., Ltd. and Standard Chartered Bank (China) Limited.
10.14(a)	Guarantee dated as of May 26, 2010 by and between Standard Chartered Bank (Hong Kong) Limited and Dang Yu Pan.
10.14(b)	Amendment Letter to Guarantee dated as of January 21, 2011 by and between Standard Chartered Bank (Hong Kong) Limited and Dang Yu Pan.
21.1	List of Subsidiaries (incorporated by reference from Exhibit 21.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 12, 2010).
23.1	Consent of Dominic K.F. Chan & Co.
31.1	Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* The Registrant received from the Securities and Exchange Commission an order dated June 9, 2008 granting confidential treatment under the Securities Exchange Act of 1934.

** This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

63

HIGHPOWER INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2010 and 2009

	Page
Report of Independent Registered Public Accounting Firm	F-2
Financial Statements:
Consolidated Balance Sheets as of  December 31, 2010 and 2009	F-3
Consolidated Statements of Operations for the years ended
December 31, 2010 and 2009	F-5
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended
December 31, 2010 and 2009	F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2010 and 2009	F-7
Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Highpower International Inc.

We have audited the accompanying consolidated balance sheets of Highpower International, Inc. (the “Company”, formerly known as “Hong Kong Highpower Technology Inc.”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity and comprehensive income, and cash flows for the years ended December 31, 2010, 2009 and 2008.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years ended December 31, 2010, 2009 and 2008, in conformity with accounting principles generally accepted in the United States of America.

Dominic K.F. Chan & Co

Certified Public Accountants

Hong Kong

Date: March 31, 2011

F-2

   

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (Stated in US Dollars)

	At December 31,
	2010		2009
	$		$
ASSETS
Current Assets:
Cash and cash equivalents		8,490,629		2,967,586
Restricted cash		6,044,960		5,478,418
Accounts receivable		20,846,540		14,896,503
Notes receivable		256,574		596,795
Prepaid expenses and other receivables – Note 7		3,231,211		2,366,734
Inventories – Note 10		13,447,432		10,633,566
Total Current Assets		52,317,346		36,939,602
Plant and equipment, net – Note 11		13,652,254		10,284,873
Leasehold land – Note 12		3,022,293		3,019,509
Intangible asset, net – Note 13		800,000		850,000
Investment in an associate – Note 14		103,123		-
Investment securities– Note 15		53,904		52,732
TOTAL ASSETS		69,948,920		51,146,716
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current Liabilities:
Non-trading foreign currency derivatives liabilities – Note 17		77,699		11,041
Accounts payable		13,407,204		10,738,714
Other payables and accrued liabilities – Note 19		4,983,269		3,563,308
Income taxes payable		1,164,007		876,739
Bank borrowings – Note 20		22,539,032		14,787,714
Total Current Liabilities		42,171,211		29,977,516
COMMITMENTS AND CONTINGENCIES – Note 22

(continued)

F-3

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(Stated in US Dollars)

	At December 31,
	2010		2009
	$		$
STOCKHOLDERS’ EQUITY
Preferred Stock
Par value: $0.0001
Authorized: 10,000,000 shares
Issued and outstanding: none		-		-
Common stock
Par value : $0.0001
Authorized: 100,000,000 shares
Issued and outstanding: 2010 –13,582,106 shares (2009 –13,582,106 shares)		1,358		1,358
Additional paid-in capital		5,180,318		5,065,426
Accumulated other comprehensive income		2,475,749		2,023,858
Retained earnings		20,120,284		14,078,558
TOTAL STOCKHOLDERS’ EQUITY		27,777,709		21,169,200
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		69,948,920		51,146,716

See accompanying notes to consolidated financial statements.

F-4

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Stated in US Dollars)
 

	Years Ended December 31,
	2010			2009			2008
	$			$			$
Net sales		104,854,870			70,331,277			75,004,242
Cost of sales		(83,079,927	)		(55,299,955	)		(62,238,982	)
Gross profit		21,774,943			15,031,322			12,765,260
Depreciation		(320,123	)		(270,078	)		(194,496	)
Selling and distribution costs		(4,046,012	)		(2,354,967	)		(2,416,220	)
General and administrative costs including stock-based compensation		(9,315,313	)		(6,404,724	)		(6,097,580	)
Loss on exchange rate difference		(785,576	)		(60,294	)		(1,182,076	)
Share of loss of an associate		(39,391	)		-			-
Income from operations		7,268,528			5,941,259			2,874,888
Change in fair value of currency forwards		-			(117,171	)		115,568
Change in fair value of warrants – Note 18		-			-			(276,000	)
Other income – Note 3		448,196			509,294			463,142
Interest expense – Note 4		(406,534	)		(527,940	)		(642,161	)
Other expenses – Note 5		-			(214,092	)		-
Income before taxes		7,310,190			5,591,350			2,535,437
Income taxes – Note 6		(1,268,464	)		(1,147,804	)		(528,950	)
Net income		6,041,726			4,443,546			2,006,487
Net Income per common share – Note 9
- Basic		0.44			0.33			0.15
- Diluted		0.44			0.33			0.15
Weighted average common shares outstanding
- Basic		13,582,106			13,608,265			13,205,599
- Diluted		13,629,606			13,667,697			13,233,353

See accompanying notes to consolidated financial statements.

F-5

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Stated in US Dollars)

							Accumulated
					Additional		other
	Common stock				paid-in		comprehensive			Retained
	Shares		Amount		capital		income			earnings		Total
					$
Balance, January 1, 2008		12,798,846		1,280		2,765,870		1,157,872			7,628,525		11,553,547
Gross proceeds from shares sold in offering – interim closing		160,000		16		519,984		-			-		520,000
Gross proceeds from shares sold in offering – final closing		603,750		60		1,486,340		-			-		1,486,400
Stock based compensation		-		-		276,000		-			-		276,000
Comprehensive income
Net income		-		-		-		-			2,006,487		2,006,487
Foreign currency translation adjustments		-		-		-		731,049			-		731,049
Net deferred loss from cash flow hedges		-		-		-		(293,830	)		-		(293,830	)
Total comprehensive income		-		-		-		-			-		2,443,706
Balance, December 31, 2008		13,562,596		1,356		5,048,194		1,595,091			9,635,012		16,279,653
Common stock issued under Omnibus incentive plan		17,000		2		17,232		-			-		17,234
Exercise of warrants		2,510		-		-		-			-		-
Comprehensive income
Net income		-		-		-		-			4,443,546		4,443,546
Foreign currency translation adjustments		-		-		-		145,978			-		145,978
Settlement of Cash Flow Hedges		-		-		-		293,830			-		293,830
Net deferred loss from cash flow hedges		-		-		-		(11,041	)		-		(11,041	)
Total comprehensive income		-		-		-		-			-		4,872,313
Balance, December 31, 2009		13,582,106		1,358		5,065,426		2,023,858			14,078,558		21,169,200
Share based compensation expenses		-		-		114,892		-			-		114,892
Exercise of warrants		-		-		-		-			-		-
Comprehensive income		-		-		-		-			-		-
Net income		-		-		-		-			6,041,726		6,041,726
Foreign currency translation		-		-		-		-			-		-
adjustments		-		-		-		518,549			-		518,549
Settlement of Cash Flow Hedges		-		-		-		11,041			-		11,041
Net deferred loss from cash flow hedges		-		-		-		(77,699	)		-		(77,699	)
Total comprehensive income		-		-		-		-			-		6,493,617
Balance, December 31, 2010		13,582,106		1,358		5,180,318		2,475,749			20,120,284		27,777,709

See accompanying notes to consolidated financial statements..

F-6

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

	Years ended December 31,
	2010			2009			2008
				$			$
Cash flows from operating activities
Net income		6,041,726			4,443,546			2,006,487
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities :
Bad debts written off		4,911			74,112			4,460
Depreciation		1,388,218			1,088,341			838,725
Amortization of intangible asset		50,000			50,000			50,000
Amortization of leasehold land		67,099			62,798			61,939
Loss on disposal of plant and equipment		87,741			151,825			44,198
Change in fair value of currency forwards		-			117,171			(115,568	)
Change in fair value of warrants		-			-			276,000
Stock based compensation		114,891			233,897			303,333
Changes in operating assets and liabilities :
(Increase) decrease in -
Accounts receivable		(5,950,037	)		(6,102,967	)		8,095,692
Notes receivable		340,221			(164,724	)		(40,702	)
Prepaid expenses and other receivables		(864,476	)		(606,750	)		2,093,103
Inventories		(2,813,866	)		691,174			4,046,251
Increase (decrease) in -
Accounts payable		2,668,490			2,341,687			(12,422,508	)
Other payables and accrued liabilities		1,419,961			382,470			721,654
Income taxes payable		287,268			500,216			321,781
Net cash provided by operating activities		2,842,147			3,262,796			6,284,845
Cash flows from investing activities
Acquisition of plant and equipment		(5,077,297	)		(3,661,111	)		(4,614,385	)
Proceeds from Investment securities		-			(52,641	)		-
Investment in an associate		(103,123	)		-			-
Net cash used in investing activities		(5,180,420	)		(3,713,752	)		(4,614,385	)
Cash flows from financing activities
Proceeds from issuance of common stock		-			-			1,486,400
Proceeds from new short-term bank loans		19,332,717			2,924,518			2,932,586
Repayment of short-term bank loans		(13,776,439	)		(2,995,847	)		(2,573,781	)
Repayment of other loans		-			-			(5,316,389	)
Net advancement of other bank borrowings		2,841,107			(124,949	)		3,414,456
Decrease / (Increase) in restricted cash		(566,542	)		(581,261	)		946,508
Net cash provided by financing activities		7,830,843			(777,539	)		889,780
Net increase in cash and cash equivalents		5,492,570			(1,228,495	)		2,560,240
Effect of foreign currency translation on cash and cash equivalents		30,473			20,301			126,278
Cash and cash equivalents - beginning of year		2,967,586			4,175,780			1,489,262
Cash and cash equivalents - end of year		8,490,629			2,967,586			4,175,780

See accompanying notes to consolidated financial statements.

F-7

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

1. Organization and Basis of Presentation

Highpower International, Inc. (“Highpower” or the “Company,” formerly known as Hong Kong Highpower Technology, Inc.) was incorporated in the State of Delaware on January 3, 2006 to locate a suitable acquisition candidate to acquire.

The Company was organized principally to engage in the manufacturing and trading of nickel metal hydride rechargeable batteries.

As used herein, the “Company” refers to Highpower and its wholly-owned subsidiaries, unless the context indicates otherwise.

In January 2008, HKHTC invested $749,971 in Huizhou Highpower Technology Co., Ltd. (“HZ Highpower”). HZ Highpower is a wholly-owned subsidiary of HKHTC. Huizhou Highpower has not commenced business as of December 31, 2010.

On June 20, 2008, HKHTC invested $250,000 in Springpower Technology (Shenzhen) Co., Ltd. (“SZ Springpower”) which became a wholly-owned subsidiary of HKHTC. On July 9, 2008, HKHTC invested an additional $750,000 in SZ Springpower. SZ Springpower commenced business in June 2008 and specializes in researching and manufacturing Lithium-ion rechargeable batteries.

On June 19, 2008, the Company effected a  5-for-8 reverse stock split of the Company’s issued and outstanding shares of common stock (the Reverse Stock Split”). The par value and number of authorized shares of the common stock remained unchanged.  All references to number of shares and per share amounts included in these consolidated financial statements and the accompanying notes have been adjusted to reflect the Reverse Stock Split retroactively.

The Company’s common stock commenced trading on the Nasdaq Global Market on December 21, 2009.  Prior to December 21, 2009, shares of the Company’s common stock were listed for trading on the NYSE Amex.

On June 19, 2008, the Company issued 603,750 shares of common stock upon the closing of a public offering. The Company’s sale of common stock, which was sold indirectly by the Company to the public at a price of $3.25 per share, resulted in net proceeds of $1,486,400. These proceeds were net of underwriting discounts and commissions, fees for legal and auditing services, and other offering costs.

On June 19, 2008, the Company issued 160,000 shares of common stock upon the closing of the public offering. The shares are treated as compensation for investor relations services. The services provided were for the period of one year pursuant to a contract dated June 19, 2008, which has expired.

On November 18, 2009, HKHTC invested an additional $1,227,487 in SZ Highpower.

F-8

HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Stated in US Dollars)

1. Organization and Basis of Presentation (continued)

On May 25, 2010, the Company invested $142,514 in Springpower International, Inc. (“Springpower International”) which became an associate of HKHTC. Springpower International, which is incorporated in Canada, mainly researches and develops advanced, high performance battery materials and clean energy materials.

On September 21, 2010, the Company invested $293,574 in Ganzhou Highpower Technology Co., Ltd. (“GZ Highpower”). GZ Highpower is a wholly owned subsidiary of SZ Highpower. GZ Highpower is expected to engage in the trading and research of battery materials.

On October 21, 2010, the Company invested an additional $2,000,000 in HZ Highpower.

On October 20, 2010, with stockholders’ approval, the Company officially changed its name from Hong Kong Highpower Technology, Inc. to Highpower International, Inc.

Description of business

The subsidiaries of the Company include the following:

Name of company	Place and date of incorporation	Attributable equity interest held		Principal activities
Hong Kong Highpower Technology Co., Ltd (“HKHTC”)	Hong Kong July 4, 2003	100	%	Investment holding
Shenzhen Highpower Technology Co., Ltd (“SZ Highpower”)	PRC October 8, 2002	100	%	Manufacturing of batteries
Highpower Energy Technology (Huizhou) Co., Ltd (“HZ Highpower”)	PRC January 29, 2008	100	%	Inactive
Springpower Technology (Shenzhen) Co., Ltd (“SZ Springpower”)	PRC June 4, 2008	100	%	Manufacturing of batteries
Ganzhou Highpower Technology Co., Ltd (“GZ Highpower”)	PRC September 21, 2010	100	%	Processing, marketing and research of battery materials

F-9

HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Stated in US Dollars)

1. Organization and Basis of Presentation (continued)

The associate of the Company includes the following:

Springpower International, Inc. (“Springpower International”) Canada March 22, 2010 40 %   Research and development of advanced batteries

2. Summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.

Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation

On June 29, 2009, the Financial Accounting Standards Board (FASB) established the FASB Accounting Standards Codification (Codification) as the single source of authoritative U.S. generally accepted accounting principles (GAAP) for all nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) are also sources of authoritative U.S. GAAP for SEC registrants. The Codification does not change U.S. GAAP but takes previously issued FASB standards and other U.S. GAAP authoritative pronouncements, changes the way the standards are referred to, and includes them in specific topic areas. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification did not have any impact on the Company’s financial statements.

The results of subsidiaries acquired or disposed of during the years are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.

Associate

Associate is entity over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investment in associate is accounted for using the equity method of accounting and are initially recognized at cost. The group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.

The group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income.

Use of estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.  These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories, deferred income taxes and the estimation on useful lives of plant and equipment.  Actual results could differ from those estimates.

F-10

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Economic and political risks

The Company’s operations are conducted in the People’s Republic of China (the “PRC”).  Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC and by the general state of the PRC economy.

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe.  These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange.  The Company’s results may be adversely affected by changes in the political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad and rates and methods of taxation, among other things.

Concentrations of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable.  The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security.  In order to minimize the credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts.  Further, the Company reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.  In this regard, the directors of the Company consider that the Company’s credit risk is significantly reduced.  Other than set forth below, no customers represented 10% or more of the Company’s net sales and accounts receivable.

A substantial percentage of the Company's sales are made to the following customers.  Details of the customers accounting for 10% or more of total net revenue in any of the years ended December 31, 2010 , 2009 and 2008 are as follows:

	2010			2009			2008
Company A		24	%		20	%		23	%
		24	%		20	%		23	%

Details of the accounts receivable from the customers with the largest receivable balances at of December 31, 2010 and 2009 are as follows:

	Percentage of accounts receivable
	December 31,			December 31,
	2010			2009
Company A		34	%		27	%
Company B		17	%		15	%
Largest receivable balances		51	%		42	%

F-11

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Cash and cash equivalents

Cash and cash equivalents include all cash, deposits in banks and other liquid investments with initial maturities of three months or less.

Restricted cash

Certain cash balances are held as security for short-term bank borrowings and are classified as restricted cash in the Company’s balance sheets.

Accounts receivable

Accounts receivable are stated at the original amount less an allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at period end.  An allowance is also made when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables.  Bad debts are written off when identified.  The Company extends unsecured credit to customers in the normal course of business and believes all accounts receivable in excess of the allowances for doubtful receivables to be fully collectible.  The Company does not accrue interest on trade accounts receivable.

During the years ended December 31, 2010, 2009 and 2008, the Company experienced bad debts of $4,911, $74,112 and $4,460, respectively.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined on a weighted average basis and includes purchase costs, direct labor and factory overheads. There are no significant freight charges, inspection costs and warehousing costs incurred for any of the periods presented. In assessing the ultimate realization of inventories, management makes judgments as to future demand requirements compared to current or committed inventory levels. The Company’s reserve requirements generally increase based on management’s projected demand requirements, and decrease due to market conditions and product life cycle changes.  During the years ended December 31, 2010, 2009 and 2008, the Company make  allowance for slow-moving or defective inventories were $303,445 in 2010, $274,909 in 2009 and Nil in 2008. The Company’s production process results in a minor amount of waste materials.  The Company does not record a value for the waste in its cost accounting. The Company records proceeds on an as realized basis, when the waste is sold. The Company has offset the proceeds from the sales of waste materials as a reduction of production costs. Proceeds from the sales of waste materials were approximately $293,419 in 2010, $213,849 in 2009 and $412,311 in 2008. Generally, waste materials on hand at the end of a year are nominal.

F-12

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Plant and equipment

Plant and equipment are stated at cost less accumulated depreciation.  Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.  Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Depreciation of plant and equipment is provided using the straight-line method over their estimated useful lives at the following annual rates:

Buildings	5% - 10	%
Furniture, fixtures and office equipment	20	%
Leasehold improvement	50	%
Machinery and equipment	10	%
Motor vehicles	20	%

Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Construction in progress represents the properties and plant and machinery in the course of development for production or buildings under development and are stated at cost, less any identified impairment losses.  When the construction is completed and the asset is ready for its intended use, the related cost is transferred to an appropriate category of property, plant and equipment and depreciated in accordance with the above policy.

Investment Securities

Investments in less than twenty percent owned entities are accounted for under the cost basis and are reviewed for impairment periodically.

Management have strategic investments in certain debt and equity securities that are included in noncurrent “Investment securities” on our Consolidated Balance Sheets accounted for using the cost methods of accounting.

The Company ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans.  Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.

F-13

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Intangible Assets and Long-Lived Assets

FASB ASC 350 “Intangibles – Goodwill and Other”, requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Accordingly, the consumer battery license is being amortized over its useful life of 20 years. The Company does not have any goodwill.

The Company accounts for the impairment of long-lived assets, such as plant and equipment, leasehold land and intangible assets, under the provisions of FASB ASC 360 “Property, Plant and Equipment – Overall”. ASC 360 establishes the accounting for impairment of long-lived tangible and intangible assets other than goodwill and for the disposal of a business. Pursuant to ASC 360, the Company periodically evaluates, at least annually, whether facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether impairment exists. In the event that the carrying amount of long-lived assets exceeds the undiscounted future cash flows, then the carrying amount of such assets is adjusted to their fair value. The Company reports an impairment cost as a charge to operations at the time it is recognized.

There was no impairment of long-lived assets in 2008, 2009 or 2010.

Revenue recognition

The Company recognizes revenue when the goods are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Sales of goods represent the invoiced value of goods, net of sales returns, trade and allowances.

The Company does not have arrangements for returns from customers and does not have any future obligations directly or indirectly related to product resales by the customer.  The Company has no incentive programs.

Advertising and promotion expenses

Advertising and promotion expenses are charged to expense as incurred.

Advertising and promotion expenses amounted to $27,752, $30,100 and $48,210 for the years ended December 31, 2010, 2009 and 2008, respectively, and are included in selling and distributing costs.

F-14

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in consolidated statements of income in the period that includes the enactment date or date of change in tax rate. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company adopted FASB ASC 740, “Accounting for Uncertainty in Income Taxes” clarifies the accounting for uncertain tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgement occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as a component of income tax expense in the consolidated statements of income. 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 errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The adoption of ASC 740 did not have a significant effect on the consolidated financial statements.

Comprehensive income

The Company has adopted FASB ASC 220 “Comprehensive income”, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments of the Company.

F-15

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Foreign currency translation

The functional currency of the Company is the Renminbi (“RMB”).  The Company maintains its financial statements in the functional currency.  Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates.  Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.  Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective year.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, are then translated into United States dollars.  Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates.  Any translation adjustments resulting are not included in determining net income but are included in foreign exchange adjustment in other comprehensive income, a component of stockholders’ equity.

	2010		2009		2008
Year end RMB : US$ exchange rate		6.679		6.827		6.898
Average yearly RMB : US$ exchange rate		6.782		6.839		6.933

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.  No representation is made that RMB amounts could have been, or could be, converted into US$ at rates used in translation.

Transactions and balances

Transactions in foreign currencies are translated into the functional currency at the approximate rates of exchange ruling on the transaction date. Exchange gains and losses resulting from this translation policy are recognized in the statements of operations.

Fair value of financial instruments

The carrying values of the Company’s financial instruments, including cash and cash equivalents, restricted cash, trade and other receivables, deposits, trade and other payables, approximate their fair values due to the short-term maturity of such instruments.  The carrying amounts of borrowings approximate their fair values because the applicable interest rates approximate current market rates.

The Company is exposed to certain foreign currency risk from export sales transactions and the related accounts receivable as they will affect the future operating results of the Company.

F-16

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.  Summary of significant accounting policies(continued)

Foreign currency derivative

From time to time the Company may utilize forward foreign currency exchange contracts to reduce the impact of foreign currency exchange rate risks. Forward contracts are cash flow hedges of the Company’s foreign currency exposures and are recorded at the contract’s fair value. The effective portion of the forward contract is initially reported in “Accumulated other comprehensive income,” a component of shareholders’ equity, with a corresponding asset or liability recorded based on the fair value of the forward contract. When the hedged transaction is recorded (generally when revenue on the associated sales contract is recognized), any unrecognized gains or losses are reclassified into results of operations in the same period. Any hedge ineffectiveness is recorded to operations in the current period. The Company measures hedge effectiveness by comparing changes in fair values of the forward contract and expected cash flows based on changes in the spot prices of the underlying currencies. Cash flows from forward contracts accounted for as cash flow hedges are classified in the same category as the cash flows from the items being hedged.

Earnings per share

The Company reports earnings per share in accordance with FASB Accounting Standard Codification Topic 260 (“ASC 260”) “Earnings Per Share” (Formerly known as SFAS No. 128, “Earnings Per Share”). Basic earnings per share is computed using the weighted average number of common shares outstanding during the periods presented. The weighted average number of shares represents the common stock outstanding during the years, as adjusted retroactively to reflect the November 2007 recapitalization as described at Note 1. Diluted earnings per common share computations are based on the weighted average number of common shares outstanding during the period, plus the dilutive effect of stock options, warrants and restricted stock awards.

Stock-Based Compensation

The Company accounts for stock-based payment transactions in which the Company receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Stock-based compensation cost for restricted stock units (“RSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period. The Company will recognize a benefit from stock-based compensation in equity if an incremental tax benefit is realized by following the ordering provisions of the tax law. In addition, the Company accounts for the indirect effects of stock-based compensation on the research tax credit, the foreign tax credit and the domestic manufacturing deduction through the income statement. Further information regarding stock-based compensation can be found in Note 9, “Shareholders’ Equity and Stock-Based Compensation.”

Share-based compensation expense was $114,891, $233,897 and $303,333 for the years ended December 31, 2010, 2009 and 2008, respectively.

F-17

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.  Summary of significant accounting policies(continued)

Recently issued accounting pronouncements

In March 2008, the FASB issued ASC 815 (formerly SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”) to amend and expand the disclosures about derivatives and hedging activities. The standard requires enhanced qualitative disclosures about an entity’s objectives and strategies for using derivatives, and tabular quantitative disclosures about the fair value of derivative instruments and gains and losses on derivatives during the reporting period. This standard is effective for both fiscal years and interim periods that begin after November 15, 2008. The adoption of this standard on December 29, 2008, the beginning of the Company’s fiscal year, did not have a material impact on its consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities.  For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.

In September 2009, the FASB has published ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted.   The Company is in the process of evaluating the impact of this standard on its consolidated financial position and results of operations.

F-18

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.  Summary of significant accounting policies(continued)

Recently issued accounting pronouncements (Continued)

In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

ASC 105, Generally Accepted Accounting Principles (“ASC 105”) (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162), reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority. 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. Accordingly, all other accounting literature will be deemed “non-authoritative”. ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company’s references to GAAP authoritative guidance but did not impact the Company’s financial position or results of operations.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2012); early adoption is permitted.  The Company is currently evaluating the impact of adopting ASU 2009-14 on its financial statements.

F-19

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (continued)

Recently issued accounting pronouncements (Continued)

In February 2010, FASB issued ASU 2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-9 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its results of operations or financial position.

Effective July 1, 2010, we adopted the update to the accounting standard regarding derivatives and hedging (Topic 815). This update clarifies how to determine whether embedded credit derivatives, including those interests held in collateralized debt obligations and synthetic collateralized debt obligations, should be bifurcated and accounted for separately. The adoption of this standard did not have a significant impact on our results of operations.

In December 2010, the FASB issued Accounting Standards Update ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805). The update requires public companies to disclose pro forma information for business combinations that occur in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The Company’s adoption of FASB ASU No. 2010-29 effective December 1, 2010 did not have an impact on the Company’s consolidated results of operations or financial position but did result in additional disclosures.

F-20

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

3.  Other income

	Years Ended December 31,
	2010		2009		2008
	$		$		$
Bank interest income		104,904		62,805		149,558
Gain on cash flow hedging forward contract		54,674		-		50,357
Sundry income		175,120		198,212		263,227
Government sponsor		113,498		248,277		-
		448,196		509,294		463,142

4.  Interest expense

	Years Ended December 31,
	2010		2009		2008
	$		$		$
Interest on trade related bank loans		195,814		214,721		166,867
Interest on short-term bank loans		210,720		313,219		475,294
		406,534		527,940		642,161

5.  Other expenses

	Years Ended December 31,
	2010		2009		2008
	$		$		$
Foreign exchange contract expenses		-		214,092		-
		-		214,092		-

F-21

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

6.  Income taxes

The Company and its subsidiaries file separate income tax returns.

USA

The Company is incorporated in the United States, and is subject to United States federal and state income taxes. The Company did not generate taxable income in the United States in 2008, 2009 and 2010.

PRC

Prior to January 1, 2008, the PRC’s statutory income tax rate was 33%. In addition, SZ Highpower, being located in the Shenzhen Special Economic Zone in the PRC, were subject to a reduced tax rate of 15%. Since SZ Highpower agreed to operate for a minimum of 10 years in the PRC, it entitled to a tax holiday of a two-year tax exemption followed by three-year 50% tax reduction from the first profit making year after offsetting accumulated tax losses of it.

On March 16, 2007, the National People’s Congress passed the new Corporate Income Tax law (the “new CIT law”) which unify the income tax rate to 25% for all companies. The new CIT law was effective as of January 1, 2008. The new CIT law provides a five-year transition period from its effective date for those companies which were established before March 16, 2007 and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations, as well as grandfathering tax holidays. The transitional tax rates are 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively. Under the new tax law, it allows entities that qualify as high-technology enterprises to be taxed at a reduced tax rate of 15%. SZ Highpower is eligible for the reduced tax rate of 15% as of December 31, 2010. Accordingly, SZ Highpower has used the reduced tax rate of 15% in determining its deferred taxes as of December 31, 2010. HZ Highpower and SZ Springpower did not generate taxable income in the PRC in 2010.

F-22

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

6. Income taxes (continued)

Hong Kong

HKHTC is incorporated in Hong Kong and is subject to Hong Kong Profits Tax.  HKHTC did not generate taxable income in Hong Kong in 2008, 2009 or 2010.

The components of income before income taxes are:

	Years Ended December 31,
	2010			2009			2008
	$			$			$
United States		-			(216,667	)		(579,333	)
Hong Kong		(797,604	)		(338,970	)		(6,367	)
People’s Republic of China		8,107,794			6,146,987			3,121,137
		7,310,190			5,591,350			2,535,437

The components of the provision for income taxes are:

	Years Ended December 31,
	2010		2009		2008
	$		$		$
PRC income tax
Current year		1,268,464		1,042,335		603,072
Deferred taxes		-		105,469		(74,122	)
		1,268,464		1,147,804		528,950

The following table accounts for the differences between the actual tax provision and the amounts obtained by applying the applicable statutory income tax rate to income before taxes for the years ended December 31, 2010, 2009 and 2008, respectively.

F-23

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

6. Income taxes (continued)

	Years Ended December 31,
	2010			2009			2008
	$			$			$
Income before taxes		7,310,190			5,591,350			2,535,437
Provision for income taxes at applicable income tax rate		1,864,771			1,397,838			633,859
Change in valuation allowance		-			(116,767	)		(44,218	)
Income not subject to tax		(106,213	)		(6,425	)		(17,335	)
Non-deductible expenses for income tax purposes		298,354			721,648			400,153
Tax exemption of PRC subsidiary		(856,243	)		(822,474	)		(413,605	)
Tax rate differential		67,795			(26,016	)		(29,904	)
		1,268,464			1,147,804			528,950

Based on the above, the pro forma effect of the tax exemption of SZ Highpower is as follows:

	Years Ended December 31,
	2010			2009			2008
	$			$			$
Statutory income tax rate		25	%		25	%		25	%
Exempted income tax rate		10	%		10	%		10	%
Income tax exemption		856,243			822,474			413,605
Tax effect derived from exemption
(per share)	$	0.06		$	0.06		$	0.03

F-24

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

6. Income taxes (continued)

Accounting for Uncertainty in Income Taxes

The Company adopted the provisions of FASB Accounting Standard Codification Topic 740 (ASC 740) “Income Taxes”. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 740, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of the provisions of ASC 740 did not have a material effect on the Company’s financial statements.

Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

7.  Prepaid expenses and other receivables

	As December 31,
	2010		2009
	$		$
Purchase deposits paid		688,041		800,437
Advance to staff		72,047		150,139
Other deposits and prepayments		500,362		423,058
Value-added tax prepayment		975,552		339,868
Other receivables		995,209		653,232
		3,231,211		2,366,734

F-25

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

8.  Share – based compensation expenses

The Company has outstanding equity awards issued under its legacy equity plans and equity plans assumed as a result of previous acquisitions. While the Company maintains a number of legacy and acquired equity incentive plans that have awards outstanding, equity awards are currently made only from the 2008 Omnibus Incentive Plan as described below.

2008 Omnibus Incentive Plan

The 2008 Omnibus Incentive Plan (the “2008 Plan”) was approved by the Company’s Board of Directors on October 30, 2008 and became effective upon the approval of the Company’s stockholders on December 11, 2008. The 2008 Plan has a ten year term. The 2008 Plan reserves two million shares of common stock for issuance, subject to increase from time to time by the number of shares: (i) subject to outstanding awards granted under the Company’s prior equity compensation plans that terminate without delivery of any stock (to the extent such shares would have been available for issuance under such prior plan), and (ii) subject to awards assumed or substituted in connection with the acquisition of another company.

The 2008 Plan authorizes the issuance of awards including stock options, restricted stock units (RSUs), restricted stock, unrestricted stock, stock appreciation rights (SARs) and other equity and/or cash performance incentive awards to employees, directors, and consultants of the Company. Subject to certain restrictions, the Compensation Committee of the Board of Directors has broad discretion to establish the terms and conditions for awards under the 2008 Plan, including the number of shares, vesting conditions and the required service or performance criteria. Options and SARs have a maximum term of five years, and their exercise price may not be less than 110% of fair market value on the date of grant. Repricing of stock options and SARs is prohibited without stockholder approval. Each share subject to an award other than stock options or SARs will reduce the number of shares available for issuance under the 2008 Plan by 17,000 shares. Certain change in control transactions may cause awards granted under the 2008 Plan to vest, unless the awards are continued or substituted for in connection with the transaction. As of December 31, 2010, there were 1,883,000 shares authorized and available for issuance under the 2008 Plan.

F-26

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

8.  Share – based compensation expenses (continued)

The restricted stock activity in 2010 related to the Company’s 2008 Plan was as follows:

				Weighted Average Grant Date Price
	Shares			$
Non-vested at January 1, 2010
Granted		17,000			8.11
Vested		(17,000	)		5.74
Forfeited		-			-
Non-vested at December 31, 2010		-	*		-

* At the date of report, as the above participant has resigned already in January 2011, the restricted stock award was accelerated on December 2, 2010.

9.  Earning per share

Basic earning per common share is computed by dividing income available to common shareholders by the weighted-averages number of shares of common stock outstanding during the period. Diluted earning per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock outstanding that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, restricted shares. The dilutive effect of potentially dilutive securities is reflected in diluted earning per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

F-27

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

9.  Earning per share(continued)

The following tables set forth the computation of basic and diluted earnings per common share for the three years ended December 31, 2010, 2009 and 2008

	Years Ended December 31,
	2010		2009		2008
	$		$		$
Numerator:
Net income		6,041,726		4,443,546		2,006,487
Denominator:
Weighted-average shares outstanding		13,582,106		13,608,265		13,205,599
Effect of dilutive securities		47,500		59,432		27,754
Weighted-average shares diluted		13,629,606		13,667,697		13,233,353
Basic earning per common share		0.44		0.33		0.15
Diluted earning per common share		0.44		0.33		0.15

10.  Inventories

	At December 31,
	2010		2009
Raw materials		3,743,307		4,090,897
Work in progress		1,847,390		1,086,523
Finished goods		7,841,283		5,441,554
Packing materials		15,452		14,592
		13,447,432		10,633,566

F-28

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

11.  Plant and equipment

	At December 31,
	2010		2009
	$		$
Cost
Construction in progress		3,499,495		1,207,274
Furniture, fixtures and office equipment		2,310,868		1,748,650
Leasehold improvement		732,560		750,050
Machinery and equipment		10,783,907		9,040,243
Motor vehicles		1,045,843		710,245
Building		253,709		61,901
		18,626,382		13,518,363
Accumulated depreciation
Construction in progress				-
Furniture, fixtures and office equipment		962,193		619,020
Leasehold improvement		691,393		362,042
Machinery and equipment		2,890,437		1,962,512
Motor vehicles		417,193		288,931
Building		12,912		985
		4,974,128		3,233,490
Net
Construction in progress		3,499,495		1,207,274
Furniture, fixtures and office equipment		1,348,675		1,129,630
Leasehold improvement		41,167		388,008
Machinery and equipment		7,893,470		7,077,731
Motor vehicles		628,650		421,314
Building		240,797		60,916
		13,652,254		10,284,873

F-29

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

11.  Plant and equipment(continued)

The components of depreciation charged are:

	Years ended December 31,
	2010		2009
	$		$
Included in cost of sales and selling and distribution costs		1,112,774		850,731
Included in operating expenses		275,444		237,610
		1,388,218		1,088,341

12.  Leasehold land

	At December 31,
	2010			2009
	$			$
Cost		3,215,205			3,145,322
Accumulated amortization		(192,912	)		(125,813	)
Net		3,022,293			3,019,509

The leasehold land is being amortized annually using the straight-line method over the lease terms of 50 years.

13.  Intangible asset - Consumer battery license

	At December 31,
	2010			2009
	$			$
Cost
Consumer battery license		1,000,000			1,000,000
Accumulated amortization		(200,000	)		(150,000	)
Net		800,000			850,000

Amortization expenses are included in selling and distributing costs during the years.

F-30

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

13.  Intangible asset - Consumer battery license(continued)

Shenzhen Highpower Technology Co., Ltd. (SZ Highpower), a wholly-owned subsidiary of the Company, entered into a Consumer Battery License Agreement with Ovonic Battery Company, Inc. (Ovonic), an unrelated party, dated May 14, 2004, pursuant to which SZ Highpower acquired a royalty-bearing, non-exclusive license to use certain patents owned by Ovonic to manufacture rechargeable nickel metal hydride batteries for portable consumer applications (Consumer Batteries) in the PRC, and a royalty-bearing, non-exclusive worldwide license to use certain patents owned by Ovonic to use, sell and distribute Consumer Batteries.  SZ Highpower made an up-front royalty payment to Ovonic of $50,000 in 2004. 

On August 8, 2007, SZ Highpwer and Ovonic amended the Consumer Battery License Agreement pursuant to which SZ Highpower agreed to pay a total of $112,580, which was to be made in two equal payments of $56,290, one of which was to be made within 15 days of August 8, 2007, and the other within 45 days of August 8, 2007, as royalties for its use of the licensed technology in 2004, 2005 and 2006.  Both of these payments were made during 2007 and were recorded as royalty expense in prior years, which was included in selling and distributing costs in the statement of operations.

The Consumer Battery License Agreement also requires the Company to pay an additional up-front royalty payment of $1,000,000 by four annual installments and an annual royalty fee based on the gross sales of consumer batteries over the term of the Consumer Battery License Agreement. During 2009, the Company recorded a total of approximately $363,301 as royalty expense, which was included in selling and distributing costs in the statement of operations.  Accordingly, during the year ended December 31, 2008, the Company recorded a total up-front royalty payment obligation of $1,000,000, which was included in other payables and accrued liabilities at December 31, 2008, with the related debit recorded as an intangible asset entitled consumer battery license agreement. At December 2010 and 2009, accrued royalty fees payable were $1,159,594 and $1,071,787, respectively (see Note 19).

The Company is amortizing the $1,000,000 cost of the Consumer Battery License Agreement over a period of 20 years on the straight line basis.  The accounting for the Consumer Battery License Agreement is based on the Company’s estimate of the useful life of the underlying technology, which is based on the Company’s assessment of existing battery technology, current trends in the battery business, potential developments and improvements, and the Company’s current business plan.  Amortization expense related to the Consumer Battery License Agreement included in selling and distributing costs during the years ended December 31, 2010, 2009 and 2008 were $50,000, $50,000 and $50,000, respectively.

Amortization of the License for the next five years is as follows:

Years ending December 31	$
2011		50,000
2012		50,000
2013		50,000
2014		50,000
2015 and thereafter		600,000

F-31

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

14.  Investment in an associate

	2010
	$
Acquisition of associate		142,514
Share of loss		(39,391	)
		103,123

On March 22, 2010, the group acquired 40% of the share capital of Springpower International, Inc, which is an intellectual property development company operating in Canada. The group’s share of the results of its associate and its aggregated assets and liabilities, are as follows:

Name	Country of incorporation	Assets $		Liabilities $		Revenue $		Loss $		% interest held
Springpower International, Inc.	Canada		369,052		78,612		3,045		101,523		40

15.  Investment Securities

	As December 31,
	2010		2009
	$		$
Investment securities - cost method		53,904		52,732
		53,904		52,732

The investments in less than twenty percent owned entities are accounted for under the cost basis.

F-32

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

16.  Fair Value Measurements

The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), related to the Company’s financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets and liabilities.

Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

ASC 820 also provides guidance for determining the fair value of a financial asset when the market for that asset is not active, and for determining fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate when a transaction is not orderly. The adoption of ASC 820 did not have a material impact on the Company’s financial condition or results of operations.

See Note 6 to the consolidated financial statements in this Report on Form 10-K for additional investment information.

F-33

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

16.  Fair Value Measurements (Continued)

The following table details the fair value measurements of assets and liabilities within the three levels of the fair value hierarchy at December 31 2010 and December 31, 2009:

			Fair Value Measurements at reporting date using
	December 31, 2010		Quoted Price in active Markets for identical assets (level 1)		Significant Other Observable Inputs  (Level 2)		Significant Other Unobservable Inputs (Level 3)
	$		$		$		$
Assets
Accounts receivable		20,846,540		-		-		20,846,540
Prepaid expenses and other receivables		3,231,210		-		-		3,231,210
Notes receivable		256,574		-		-		256,574
Liabilities
Non-trading foreign currency derivatives liabilities		77,699		-		77,699		-
Accounts payable		13,407,204		-		-		13,407,204
Other payables and accrued liabilities		4,983,269		-		-		4,983,269

F-34

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

16.  Fair Value Measurements (Continued)

			Fair Value Measurements at reporting date using
	December 31, 2009		Quoted Price in active Markets for identical assets (level 1)		Significant Other Observable Inputs  (Level 2)		Significant Other Unobservable Inputs (Level 3)
	$		$		$		$
Assets
Accounts receivable		14,896,503		-		-		14,896,503
Prepaid expenses and other receivables		2,366,734		-		-		2,366,734
Notes receivable		596,795		-		-		596,795
Liabilities
Non-trading foreign currency derivatives liabilities		11,041		-		11,041		-
Accounts payable		10,738,714		-		-		10,738,714
Other payables and accrued liabilities		3,563,308		-		-		3,563,308

Level 2 financial assets represent the fair value of our foreign currency exchange contracts that were valued using pricing models that take into account the contract terms as well as multiple inputs are applicable, such as currency rate. Level 3 financial assets represent the fair value of our accounts receivables.

F-35

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

17.  Risk Management Activities, Including Derivative

The Company recognized the following gains and losses attributable to its derivative financial instruments during the following periods:

	Years Ended December 31,
	2010		2009		2008
	$		$		$
Foreign exchange contracts, net
Gains recognized in Other income, net		54,674		-		50,357
Loss recognized in Other expenses, net		-		214,092		-

Hedging Activities

Due to the volatility of the US Dollar to the Company’s functional currency, the Company has put into place a hedging program to attempt to protect it from significant changes to the US Dollar, which would affect the value of the Company’s US dollar receivables and sales. At December 31, 2010, the Company had a series of currency forwards totaling a notional amount US$3,500,000 expiring from January 2011 to May 2011.

SZ Highpower uses foreign currencies derivative instruments to manage foreign exchange resulting from fluctuations in US Dollar to the Company’s functional currency (RMB). The notional amounts of these financial instruments are based on expected cash flow from operations.

F-36

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

17.  Risk Management Activities, Including Derivative(continued)

At the inception of a derivative contract, SZ Highpower historically designated the derivative as a cash flow hedge. For all derivatives designated as cash flow hedges, SZ Highpower formally documented the relationship between the derivative contract and the hedged items, as well as the risk management objective for entering into the derivative contract. To be designated as a cash flow hedge transaction, the relationship between the derivative and the hedged items must be highly effective in achieving the offset of changes in cash flows attributable to the risk both at the inception of the derivative and on an ongoing basis. SZ Highpower historically measured hedge effectiveness on a quarterly basis and hedge accounting would be discontinued prospectively if it was determined that the derivative was no longer effective in offsetting changes in the cash flows of the hedged item. Gains and losses deferred in accumulated other comprehensive income related to cash flow hedge derivatives that became ineffective remained unchanged until the related cash flow was received. If SZ Highpower determined that it was probable that a hedged forecasted transaction would not occur, deferred gains or losses on the derivative were recognized in earnings immediately.

Derivatives, historically, were recorded on the balance sheet at fair value and changes in the fair value of derivatives were recorded each period in net income or other comprehensive income, depending on whether a derivative was designated as part of a hedge transaction and, if it was, depending on the type of hedge transaction. SZ Highpower’s derivatives historically consisted primarily of cash flow hedge transactions in which SZ Highpower was hedging the variability of cash flows related to a forecasted transaction. Period to period changes in the fair value of derivative instruments designated as cash flow hedges were reported in other comprehensive income and reclassified to net income in the periods in which the contracts are settled. The ineffective portions of the cash flow hedges were reflected in net income as an increase or decrease to other income (expense). Gains and losses on derivative instruments that did not qualify for hedge accounting were also recorded as an increase or decrease to other income (expense), in the period in which they occurred. The resulting cash flows from derivatives were reported as cash flows from operating activities.

The cost of the effective portion of the cash flow hedges was $11,041 and $77,699 for the years ended December 31, 2009 and 2010.

18.  Change in fair value of share warrants

On June 19, 2008, the Company issued to WestPark Capital, Inc. warrants to purchase 52,500 shares of common stock at an exercise price of $3.90 per share in connection with the initial public offering. The warrants have a term of five years and are exercisable no sooner than one year and no later than five years.

The fair value of the warrants at June 19, 2008, the date of issue is $276,000. The fair value of the warrants is appraised by an independent qualified valuer.

On December 16, 2009, a warrant holder exercised 5,000 shares of the warrants via a cashless exercise.  The Company issued 2,510 shares of common stock upon the exercise of the warrants at no consideration. At December 31, 2010, warrants to purchase 47,500 shares of common stock were still outstanding.

F-37

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

19.  Other payables and accrued liabilities

	At December 31,
	2010		2009
	$		$
Accrued expenses		2,469,391		2,056,261
Royalty fee		1,159,594		1,071,787
Sales deposits received		1,007,201		259,550
Other payables		347,083		175,710
		4,983,269		3,563,308

20. Bank borrowings

	At December 31,
	2010		2009
	$		$
Secured:
Repayable within one year
Short term bank loans		8,306,299		2,929,550
Other trade related bank loans		14,232,733		11,858,164
		22,539,032		14,787,714

As of December 31, 2010 the Company’s banking facilities are comprised of the following:

	Amount
Facilities granted	Granted		Utilized		Unused
	$		$		$
Short term bank loans		14,973,198		8,306,299		6,666,899
Other trade related loan facilities including:
- Accounts payable financing		39,216,497		14,232,733		24,983,764
		54,189,695		22,539,032		31,650,663

F-38

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

20. Bank borrowings (continued)

As of December 31, 2010 the above bank borrowings were secured by the following:

(a) charge over bank deposits of $6,044,960 which is included in restricted cash on the Balance sheet;

(c) personal guarantee executed by the directors of the Company;

(d) the legal charge over leasehold land with carrying amount $3,022,293; and

The interest rates of trade related bank loans were at bank’s prime lending rate per annum with various maturity dates.  The rates at December 31, 2010 ranged from 4.86% to 7.33%.
 

The rates of interest rates of short term bank loans were at 4.86% per annum at December 31, 2010.

21.  Pension plans

For employees in PRC, the Company contributes on a monthly basis to various defined contribution plans organized by the relevant municipal and provincial government in the PRC based on certain percentages of the relevant employees’ monthly salaries.  The municipal and provincial governments undertake to assume the retirement benefit obligations payable to all existing and future retired employees under these plans and the Company has no further constructive obligation for post-retirement benefits beyond the contributions made.  Contributions to these plans are expensed as incurred.

Total pension cost was $670,808, $515,379 and $432,402 for the years ended December 31, 2010, 2009 and 2008, respectively.

22. Commitments and contingencies

Operating leases commitments

The Company leases factory and office premises under various non-cancelable operating lease agreements that expire at various dates through years 2010 to 2011, with a options to renew the leases.  All leases are on a fixed payment basis.  None of the leases includes contingent rentals.  Minimum future commitments under these agreements payable as of December 31, 2010 are as follows:

Years ending December 31	$
2010		812,728
2011		258,084
		1,070,812

Rental expense for the years ended 2010, 2009 and 2008 were $948,450, $944,575 and $1,019,505, respectively.

F-39

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

23. Segment information

The Company uses the “management approach” in determining reportable operating segments.  The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operating results solely by monthly revenue (but not by sub-product type or geographic area) and operating results of the Company and, as such, the Company has determined that the Company has one operating segment as defined by FASB Accounting Standard Codification Topic 280 (ASC 280) “Segment Reporting” (Formerly known as SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”).

All long-lived assets of the Company are located in the PRC.  Geographic information about the revenues and accounts based on the location of the Company’s customers is set out as follows:

	Years Ended December 31,
	2010		2009		2008
Net revenue	$		$		$
Hong Kong and China		58,289,354		33,053,941		30,893,163
Asia		6,018,456		3,908,783		4,810,282
Europe		27,874,479		23,096,172		27,979,918
North America		11,927,077		9,932,122		10,885,903
South America		333,606		42,002		434,976
Africa		158,291		206,014		-
Other		253,607		92,243		-
		104,854,870		70,331,277		75,004,242

	At December 31,
	2010		2009		2008
Accounts receivable	$		$		$
Hong Kong and China		14,944,284		8,511,192		5,012,472
Asia		603,275		476,659		169,376
Europe		3,441,242		4,050,519		2,695,166
North America		1,847,730		1,846,832		875,022
South America		2,080		900		13,558
Africa		7,929		10,300		-
Other		-		101		-
		20,846,540		14,896,503		8,765,594

F-40

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

24.  Dividends

No dividend was paid or proposed for the years ended December 31, 2009 and 2010 nor any dividend been proposed since the end of the reporting period.

F-41

 HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

25.  Quarterly Results of Operations (unaudited)

The following table sets forth unaudited quarterly results of operations for the years ended December 31, 2010 and 2009. This unaudited quarterly information has been derived from the Company’s unaudited financial statements and, in the Company’s opinion, includes all adjustments, including normal recurring adjustments, necessary for a fair presentation of the information for the periods covered.  The operating results for any quarter are not necessarily indicative of the operating results for any future period.

	Three Months Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2010		2010		2010		2010		2010
	$		$		$		$		$
Net revenue		20,223,372		28,978,114		27,774,213		27,879,171		104,854,870
Gross profit		4,246,330		5,399,411		5,873,901		6,255,301		21,774,943
Net income		1,580,700		1,585,347		1,435,609		1,440,069		6,041,725
Net income per common share:
Basic		0.12		0.12		0.11		0.11		0.44
Diluted		0.12		0.12		0.11		0.11		0.44
Weighted average common shares outstanding
Basic		13,582,106		13,582,106		13,582,106		13,880,106		13,582,106
Diluted		13,632,096		13,732,096		13,732,096		13,930,096		13,629,606

	Three Months Ended								Year Ended
	March 31,		June 30,		September 30,		December 31,		December 31,
	2009		2009		2009		2009		2009
	$		$		$		$		$
Net revenue		11,309,805		15,445,484		21,056,149		22,519,839		70,331,277
Gross profit		2,396,096		3,073,808		5,221,039		4,340,379		15,031,322
Net income		402,966		968,656		2,433,676		638,248		4,443,546
Net (loss) income per common share:
Basic		0.03		0.07		0.18		0.05		0.33
Diluted		0.03		0.07		0.18		0.05		0.33
Weighted average common shares Outstanding
Basic		13,562,596		13,762,217		13,562,597		13,566,601		13,608,265
Diluted		13,562,596		13,812,547		13,612,097		13,632,096		13,667,697

F-42

EX-10.4

Agreement on Line of Credit

No. 2010 Zhen Zhong Yin Bu E Xie Zi No. 000788

Party A: Shenzhen Highpower Technology Co., Ltd.

Business License No.: 440307503274740

Legal representative/principal: Pan Dangyu

Domicile: A2 Block, Luoshan Industrial Park, Pinghu Town, Luogang District, Shenzhen

Postal Code: 518111

Opening financial institution & account: Bank of China, Pinghu Subbranch, 814809259208091001

Tel.: 89686236                                                            Fax: 89686298

Party B: Bank of China Limited, Shenzhen Buji Subbranch

Legal representative/Principal: Jiang Guoliang

Domicile: No. 108, Buji Road, Buji Town, Longgang District, Shenzhen

Postal Code: 518112

Tel.: 28274825                                                            Fax: 28270847

Party A and Party B, in light of developing friendly and mutual benefit cooperation relationship, reached the following agreement through negotiation pursuant to principles of voluntariness, equality, mutual benefit and good faith.

Article 1: Scope of business

Party B will provide Party A the line of credit as agreed in the Agreement. Party A may, subject to the preconditions as agreed herein and in relevant single agreement, apply to Party B for revolving use, adjustment or one-time use of the line of credit for the purpose of RMB short-term loan, foreign currency short-term loan, trade financing, Letter of Guarantee, funding business and other credit business (collectively referred to as “single loan business”).

Trade financing, as mentioned herein, includes opening international L/C, opening domestic L/C, import bill advance, lading guarantee, packing credit, export bill advance, discounting acceptance draft under time L/C, buyer bill advance for domestic L/C, seller bill advance for domestic L/C, negotiation of domestic L/C and other international and domestic trade financing businesses.

Article 2: Types and Sum of Line of Credit

Party B agrees to provide the following line of credit to Party A:

Currency: RMB

Sum: (in words) ninety million Yuan

 (in figures) RMB90, 000,000.00

The detailed types and sum are as follows:

1. Line of credit for loan RMB 20,000,000.00 (in words: twenty million Yuan),which includes:

(1) Line of credit for Short-term loan RMB 20,000,000.00 (in words: twenty million Yuan)

2. Line of bank acceptance：RMB 30,000,000.00 (in words: thirty million Yuan)

3. Line of trade financing: RMB 35,000,000.00 (in words: seventy-five million Yuan), which includes:

(1) Factoring line of credit: RMB 20,000,000.00 (in words: thirty-five million Yuan)

(2) Line of credit for opening domestic L/C (incl. buyer bill advance): RMB15,000,000.00 (in words: forty million Yuan)

4. Line of fund: RMB 5,000,000.00 (in words: five million Yuan), which includes:

  Line of foreign currency trading earnest money RMB 5,000,000.00 (in words: five million Yuan)

Article 3: Use of the line of credit

1. Within the use period of the line of credit as agreed in the agreement, Party A may, without exceeding the scope of line regarding respective single loan business as agreed herein, use the respective line of credit by the following  (1) manner:

(1) Revolving use: the detailed types of line of credit are factoring line of credit and line of credit for opening domestic L/C (incl. buyer bill advance), line of credit for Short-term loan， line of fund.

(2) One-time use: the detailed types of line of credit are:        /                     .

In case Party A intends to adjust the use of line of loan of credit as agreed in Article 1, it shall apply to Party B in written form, subsequent to which Party B shall determine whether or not grant and the details of the adjustment and inform Party A in written form accordingly.

2. As of the effective date of the Agreement, the balance of credit based on Agreement on Line of Credit or similar agreement and single agreement thereof previously effective shall be deemed the credit generated hereunder.

In which, the balance of credit in the line of credit shall be deemed the line of credit hereunder.

3. Unless otherwise agreed, the following businesses shall not be incorporated into the line of credit:

(1) Export bill advance where the L/C is consistent with documents;

(2) Bill advance or financing based on the export L/C acceptable by Party B and accepted/ honored/ confirmed for payment/ confirmed by the opening bank or confirming house, or based on the bill of exchange or sum under domestic L/C;

(3) Where Party A would provide deposit, national debt, or deposit receipt issued by Party B, or the acceptance bill, letter of guarantee and standing L/C acceptable to Party B, the sum of credit corresponding to the said guarantee will not be incorporated into the line of credit;

(4)

(…) Other businesses not incorporated into the line of credit otherwise confirmed by both parties in written form.

Though the said items will not be incorporated into the line of credit, the business agreements thereof shall still constitute the single agreement hereunder and the integral part hereof and shall be bound by the Agreement hereof, unless otherwise agreed in the said business agreements.

Article 4: Agreements Executed in Single Loan Business

Party A shall, in case of applying to Party B for the single loan business hereunder, submit respective application and/or execute respective contract/agreement (collectively referred to as “single agreement”) with Party B.

Article 5: Use period of the line of credit

The use period of the line of credit as stated in Article 2 hereof shall be from the effective date of the Agreement to 8 December 2011.

At the expiration of the aforesaid use period, where Party B provides the line of credit to Party A through negotiation, both parties may execute supplemental agreement in written form, define clearly the new line of credit and use period etc. The said supplemental agreement shall constitute integral part of the Agreement hereof, and any items uncovered in supplemental agreement shall be subject to provisions herein. The supplemental agreement shall be of the equal force adeffect as of the Agreement hereof.

Expiration of the use period as aforementioned shall not influence the force effect of the Agreement and shall not constitute the cause of terminating the Agreement. Single loan business executed between Party A and Party B in light of the Agreement will be performed as per the agreements in the Agreement and in relevant single agreement. Any rights and obligations already generated shall be performed completely.

Article 6: Preconditions for single loan business

Party A shall comply with the following conditions regarding single loan business as required by Party B:

1. Reserve for Party B relevant Company file, document, seal, namelist of relevant staff, specimen signature relevant to the Agreement and single agreement, and fill in relevant certificates;

2. Open the account required by single loan business;

3. The guarantee agreed in the Agreement and single agreement has been effectively established;

4. Other preconditions required of the single business agreed in single business agreement;

5. Other conditions to be met by Party A deemed necessary by Party B.

Article 7: Guarantee

With respect to the liabilities of Party A to Party B arising from the Agreement and any single agreements, both parties agree to guarantee the liabilities by the following methods:

(1) Surepower Technology (Shenzhen) Co., Ltd will, subject to 2010 Zhen Zhong Yin Bu Bao Xie Zi No. 000788A Contract on Maximum Guarantee, provide the maximum guarantee and sign corresponding Contract on Maximum Guarantee;

(2) Hong Kong Highpower Technology Co., Ltd will, subject to 2010 Zhen Zhong Yin Bu Bao Xie Zi No. 000788A Contract on Maximum Guarantee, provide the maximum guarantee and sign corresponding Contract on Maximum Guarantee;

（3）Pan Dangyu will, subject to 2010 Zhen Zhong Yin Bu Bao Xie Zi No. 000788B Contract on Maximum Guarantee, provide the maximum guarantee and sign corresponding Contract on Maximum Guarantee;

Maximum pledge:

(1)Shenzhen Highpower Tech. Co., Ltd. subject to 2010 Zhen Zhong Yin Bu Di Xie Zi No.000788 Contract on Maximum pledge  will provide the maximum pledge and sign corresponding Contract on Maximum Pledge.

(2) /   will provide the maximum pledge and sign corresponding Contract on Maximum Pledge.

The guarantee contract shall be singed corresponding to the detailed loan business agreement in case single loan business is to be provided.

In case of any events occurred to Party A or the guarantor which is deemed to be influencing the performance capacity of Party A or the guarantor, or in case the guarantee contract turns to invalid, is cancelled or rescinded, or in case Party A or the guarantor seriously deteriorates in the financial position or is involved in significant litigation or arbitration cases or any other conditions which may influence its performance capacity hereunder, or in case the guarantor breaches the guarantee contract or any other contract executed between Party B, or in case the collateral is depreciated, damaged, lost or sealed which weakens or eliminates the guarantee value, Party B shall have the right to require Party A and Party A shall be obligated to provide new guarantee, to change guarantor etc to guarantee the liabilities hereunder.

Article 8: Representations and commitments

Party A represents as follows:

1. Party A is lawfully registered and existed and of the full capacity for private rights and the full capacity for civil acts as needed for the execution and performance of the Agreement;

2. Executing and performing the Agreement and single agreements shall be the declaration of Party A's true intention with legal and valid authorization in accordance with the articles of association or other internal management document. Execution and performance of the Agreement and single agreements will not breach any agreement, contract or other legal documents binding Party A. Party A has acquired or will acquired all relevant approvals, permissions, filings or registrations needed by the execution and performance of the Agreement;

3. All documents, financial statements, certificates and other materials provided by Party A hereunder and under any single agreement shall be true, complete, accurate and valid;

4. The background of the transaction hereunder shall be true and legal, which will not be used for illegal purposes like money laundering etc;

5. Party A did not conceal from Party B any event which may influence the financial position and performance capacity of itself and the guarantor.

Party A makes the commitment as follows:

1. Party A will submit the financial statements (including but not limited to annual statements, quarterly statements and monthly statements) on a regular basis or in a timely manner as required;

2. Party A will accept and cooperate with Party A’s inspection and monitor over the use condition of the line of credit and relevant production and operation, financial activities;

3. In case Party A executes with the guarantor hereunder any counter-guarantee contract or similar contract, it shall not impair any rights of Party B hereunder;

4. In case of any conditions which may influence the financial position and performance capacity of Party A or the guarantor hereunder, including but not limited to the split-up, merging, pooling, joint venture with foreign investors, cooperation, contract operation, reconstruction, transformation, planning for listing etc of its business manner in any form, reduction of registered capital, significant asset or equity transfer, bearing of significant indebtedness, setup of new significant liability on the collateral, seal-up of the collateral, wind-up, revocation or (being applied) application for bankruptcy etc, or engaging in any significant litigation or arbitration cases, Party A shall timely inform Party B;

5. Party A agrees to follow Party B’s relevant regulations and business practices regarding any items not covered in the Agreement and in any single agreement.

Article 9: Internal related transaction and disclosure thereof in Party A’s Group

Both parties agreed to follow the item 1 as mentioned hereunder:

1. Party A did not fall into the customer group as determined in Guidelines for the Risk Management by Commercial Banks for Granting Credit to Customer Groups (“Guidelines”);

2. Party A falls into the category of customer group as defined by Party B in compliance with Guidelines. Party A shall, subject to provisions of Article 17 of Guidelines, timely report to Party B the conditions of any related transaction over 10% of Party A’s net assets, including the related relation of parties concerned, transaction items, transaction nature, sum or respective ratio, pricing policies (incl. transaction without any sum or with only symbolic sum).

Article 10: Defaults and treatment

Any of the following conditions shall constitute or be deemed as the default of Party A hereunder or under any single agreement:

1. Party A fails to perform the payment and settlement obligations to Party B as agreed in the Agreement and single agreement;

2. Party A fails to use the funds acquired for agreed purposes as stated in the Agreement and single agreement;

3. The representations made by Party A in the Agreement and single agreement were untrue or breached the commitment of Party B in the Agreement and single agreement.

4. In case of the condition provided in Article 8, item 2 (4) which is deemed by Party B as influencing Party A’s financial position and performance capacity, or influencing the guarantor’s financial position and performance capacity, while Party A fails to provide new guarantee and replace guarantor as agreed in the Agreement.

5. Party A terminates the business or is engaged in any wind-up, cancellation or bankruptcy issues.

6. Party A breaches any other agreements regarding involving party's obligations in the Contract or in single agreement.

7. Party A was engaged in any default issues under any other contract with Party B or other organizations under Bank of China Limited;

8. The guarantor breaches the agreement in guarantee contract, or is engaged in any default issues under any other contract with Party B or other organizations under Bank of China Limited.

Party B shall, according to the actual situation, have the right to take the following measures jointly or respectively regarding the aforesaid default issues:

1. Require Party A and the guarantor to correct the default action within required duration;

2. Reduce, suspend or terminate in whole or in part the line of credit to Party B;

3. Suspend or terminate in whole or in party any business application of Party A under the Agreement, single agreement or any other agreement between Party A and Party B; suspend or terminate in whole or in part the issuance and handling of any loan not issued, any trading financing business and letter of guarantee business not handled;

4. Declare that the loan, trade financing sum, principal and interest of advanced sum for letter of guarantee not repaid and other payables under the Agreement, single agreement or any other agreement between Party A and Party B shall be in whole or in part be mature immediately;

5. Terminate or cancel the Agreement, terminate or cancel single agreements and other agreements between Party A and Party B in whole or in part;

6. Require Party A to indemnify the losses caused to Party B thereby;

7. With prior or after notice, deduct the sum in the account opened in Party B to discharge all or part liabilities of Party B attributable to Party A. Any premature sum in the account shall be deemed mature in advance. Where the currency of the account is different from the pricing currency of Party B’s business, the settlement exchange rate applicable to Party B at the time of deduction shall be followed for the translation;

8. Exercise the security interest;

9. Require the guarantor to undertake the guarantee responsibility;

10. Party A promises that, within the effective period of the Agreement, the total line of credit (which may be extended to total amount of exposed credit) in all banks shall not exceed RMB140 million, or else Party B shall have the right to suspend the credit;

11. Any other measures deemed necessary by Party B.

Article 11: Rights reservation

Any party’s failure in performing the rights under the Agreement, single agreement in whole or in part or in requiring the other party to perform and undertake partial or whole liabilities and obligations shall not constitute the waiver of the rights or release of the liabilities or obligations.

Any party’s allowance or extension to the other party or delay in performing the rights under the Agreement or single agreement shall not affect any of its rights under the Agreement, single agreement, laws or regulations and shall not be deemed as the waiver of the rights.

Article 12: Modification, alteration, termination and partial invalidity

The Agreement may be subject to modification or alteration with both parties’ negotiation and consensus, and any modification or alteration made thereby shall constitute integral part of the Agreement.

Unless otherwise provided by laws or regulations or otherwise agreed by both parties concerned, the Agreement shall not be terminated prior to the complete performance of the rights and obligations hereunder and under single agreement.

Unless otherwise provided by laws or regulations or otherwise agreed by both parties concerned, the invalidity of any provisions herein shall not influence the validity of any other provisions herein.

Article 13: Applicable laws and dispute settlement

Unless otherwise agreed by parties concerned, the Agreement and single agreement shall be governed by laws of the People’s Republic of China.

Unless otherwise agreed by parties concerned, upon the coming into force of the Agreement and single agreement, any and all disputes arising from or in connection with the execution and performance of the Agreement and single agreement shall be subject to negotiation between both parties, failing which any party hereto may solve the dispute under question by the 2 manner mentioned below:

1. Submit to     /        arbitration committee for arbitration.

2. Appeal to the people's court in the place where Party B resides or where any other organizations under Bank of China Limited performing rights and undertaking obligations under the Agreement or single agreement reside.

3. Appeal to the people’s court with jurisdiction.

During the dispute settlement period, any other articles not affected by the dispute shall be performed as well.

Article 14: Expense

Unless otherwise provided for by law or otherwise agreed by both parties, the expenses (incl. attorney fee) for concluding, performing and dispute settling of the Agreement and single agreement shall be borne by Party A.

Article 15: Attachments

The following attachments and any other attachments and single agreements jointly confirmed by both parties shall constitute integral part of the Agreement and be of the same force adeffect with the Agreement.

Attachment 7: Opening of Domestic L/C.

Attachment 9: Buyer Bill Advance of Domestic L/C.

Attachment 12:       /            .

Article 16: Other provisions

1. Party A, without the consent of Party B in written, shall not assign any rights and obligations hereunder or under any single agreement to any third party.

2. In case Party B shall, as required by business, entrust other organizations under Bank of China Limited to exercise the rights and undertake obligations under the Agreement and single agreement, Party A shall agree with the arrangement. Other organizations under Bank of China Limited as authorized by Party B shall have the right to exercise all rights under the Agreement and single agreement and shall have the right to appeal to the people’s court or to arbitration institution for any dispute under the Agreement or single agreement.

3. The Agreement shall be binding upon both parties and successors and assignees legally generated of both parties without affecting any other provisions herein and in single agreement.

4. Unless otherwise agreed, domicile designated by both parties herein shall be the address of both parties for communication. Both parties commit to inform the other party in written form in case of changing the said domicile.

5. Headings and business names as mentioned herein shall be used only for the convenience of reference, which shall not be regarded as the interpretation of provisions contained herein or rights and obligations of parties hereto.

6. Party A commits to take Party B as the secondary mortgagee upon acquiring the property right certificate of Lilang Production Base.

7. Party A commits that it will take the settlement account opened in Party B as the main account of recovering sales proceeds, and the relevant deposit and settlement sum therein shall not be less than the credit tranche granted to Party A by Party B.

8. Party A commits that it shall inform Party B in written form and shall obtain the consent of Party B prior to applying for any credit from other commercial banks, otherwise Party B shall have the right to terminate the credit.

Article 17: Effectiveness

The Agreement shall come into force with the signature of both parties’ legal representatives, principals or authorized signatories and with both parties’ official seals.

The Agreement shall be made in sextuplicate, out of which Party A shall hold one, Party B shall hold two , the Guarantor shall hold two and the pledge registration authority shall hold one. The six originals shall be of the same force.

Party A: Shenzhen Highpower Technology Co., Ltd.

Signatory: /s/ Pan Dang Yu            (Official Seal)

8 December 2010

Party B: Bank of China Limited, Shenzhen Buji Subbranch

Signatory: /s/ jiang Guo Liang            (Official Seal)

8 December 2010

Attachment 7: For Opening of Domestic L/C

1. Where there is any difference between the Attachment and the Agreement, the Attachment shall be applied.

2. Preconditions agreed in the Agreement shall be met in case Party A applies to Party B for opening domestic L/C.

3. Party A undertakes the following responsibilities irrevocably:

(1) Party A is willing to comply with Rules for the Settlement of Domestic Letter of Credit and relevant national regulations, agrees that Party B will go through all issues under the L/C based on the Rules for the Settlement of Domestic Letter of Credit and relevant national regulations and agrees to bear all responsibilities thus generated.

(2) Party A guarantees that all materials provided to Party B for opening the L/C shall be true, complete and valid, and that the L/C to be opened shall be based upon actual transaction. Party A agrees to bear all responsibilities for the provision of any false and/or incomplete and/or invalid materials to Party B and/or for the lack of actual transaction background for the L/C to be opened.

(3) Prior to paying the sum of L/C to Party B by Party A, Party A commits that the title to the goods shall be attributable to Party B in case the goods under L/C is subject to actual control of Party A.

(4) Party A shall bear all effects arising from the unclear or ambiguous application letter.

4. Opening and Modification of domestic L/C

(1) In case Party B accepts Party A’s application for opening domestic L/C, it shall issue domestic L/C according to Application Letter for Opening Domestic L/C submitted by Party A, while the detailed content shall be subject to the domestic L/C issued by Party B.

(2) Party’s requirement of submitting documents or files such as trade contracts etc relating to the opening of domestic L/C shall not be interpreted as Party’s obligation to issue the domestic L/C subject to the said documents or files.

(3) In case Party A intends to modify domestic L/C, it shall submit Application Letter for the Modification of Domestic L/C to Party B. Party A agrees that Party B will go through the modification issues of domestic L/C in compliance with Rules for the Settlement of Domestic Letter of Credit and agrees to undertake the liabilities and responsibilities thus generated. The Application Letter for the Modification of Domestic L/C shall, upon issuance, be binding upon Party A.

(4) Party B shall have the independent discretion regarding the modification of domestic L/C, it shall have the right to reject the modification application letter of Party A and the right to propose the modification content. In case the modification of domestic L/C involves sum and period etc which is deemed by Party B to increase the obligation of the guarantor, Party B shall be entitled to require Party A to increase deposit, and/or require Party A to obtain the signature and agreement of the guarantee in the Application Letter for the Modification of Domestic L/C, or else Party B shall have the right to reject the modification application of Party A.

(5) Modification of domestic L/C shall not modify other rights and obligations of Party A in the Agreement and the Attachment.

(6) Content relating to domestic L/C in the Application Letter for the Opening of Domestic Letter of Credit and the Application Letter for the Modification of Domestic L/C shall be filled in Chinese, and all responsibilities generated due to the ambiguity caused by the unclear writing or ambiguous wording in application letter shall be borne by Party A.

(7) Party A shall pay all expenses (incl. relevant banking fees refused by the beneficiary of the L/C) arising from the opening and modification of domestic L/C in a timely manner, the charging method shall be subject to Party B’ rules.

5. Payment under domestic L/C

(1) Within the valid period of domestic L/C, Party A shall, upon receiving Party A’ notice about documents received, inform Party B within agreed period in the notice the method of processing documents; or else it shall deemed that Party A holds no rejection opinions about the documents and agrees Party B to pay/commit for payment; in case Party A inform Party B within agreed period in the notice to receive documents, and Party B agrees with Party A’s document handling opinions, Party B may pay the sum/commit to pay the sum concerned. Party A shall deposit payable sum as agreed in Application Letter for Opening Domestic Letter of Credit.

In case Party A informs Party B to receive documents yet Party B disagrees with Party A’s document handling opinions, Party B shall have the right to determine at its own discretion whether or not reject the payment solely in light of documents; where Party A agrees to provide sufficient deposit or other payment guarantee to Party B, Party B shall have the right to determine whether to release the right of reject or not according to actual situations or whether to reserve the right of rejection at its own discretion.

(2) In case Party A deems any discrepancy existed in documents and request to reject the payment/ commitment of payment within agreed period in notice, it shall list discrepancies all at once and shall submit the Cause for Rejection of Demand in duplicate stamped with Party A’s reserved seal. Party B shall have the right to deem discrepancies listed in the Cause for Rejection of Demand as all discrepancies proposed by Party A regarding documents. Party B may reject the payment in case it agrees with Party A for discrepancies proposed, while Party B shall have the right to determine the payment/commitment of payment in case it deems, according to review subject to practices, the discrepancies listed by Party A can not hold water, or the discrepancies listed are immaterial discrepancies which can not lead to reject of payment, subsequent to which Party B may pay the sum by the payable sum deposited by Party A, all obligations and responsibilities arisen thereby shall be undertaken by Party A.

(3) In case the payable sum deposited by Party A hereunder is sufficient and thereby Party B advances for Party A the sum payable, it shall constitute, upon the payment of the sum, Party A’s liability to Party B under the Agreement and the Attachment.

6. Supplemental agreement

In addition to the content agreed in the Agreement, Party A hereby makes the following supplemental commitment to Party B regarding the business under the Attachment:

(1) Upon the issuance of domestic letter of credit, Party A shall immediately inform Party B in written form in case of any modification made to trade contracts which relates to the domestic letter of credit;

(2) With respect to delayed payment confirmed by Party B, Party A shall not request Party B to suspend the payment for any cause and shall waive the right, as required by laws, regulations and rules, to apply to the people’s court for freezing the sum under domestic letter of credit or the right to appeal to the people’s court for suspending the sum under domestic letter of credit;

(3) The risk of missing, delaying, omitting or damaging correspondence or documents under domestic letter of credit in mail delivery, telecommunication delivery or other delivery and the risk of using third party service by Party B shall be borne by Party A.

7. Any other issues under the Attachment shall be subject to the agreement in the Application Letter for Opening Domestic Letter of Credit and Application Letter for Modification of Domestic Letter of Credit.

Attachment 9: Buyer Bill Advance of Domestic L/C

1. Where there is any difference between the Attachment and the Agreement, the Attachment shall be applied.

2. Buyer bill advance refers to that Party B will, upon receiving documents from negotiation bank or remitting bank, will grant Party A short-term finance with Party A’s requirement to pay the sum subject to the documents.

3. Preconditions of bill advance:

(1) The preconditions agreed in the Agreement shall be met for Party A’s application of buyer bill advance with Party B.

(2) The letter of credit shall indicate the Rules for Settlement of Domestic Letter of Credit issued by the People’s Republic of China or the updated version thereof with the form and content reviewed and approved by Party B.

4. Party B’s application for bill advance

Party A shall submit the Application for Bill Advance under Domestic Letter of Credit for each application of bill advance business (“transaction”).

Every transaction hereunder shall be interdependent, which shall be in compliance with the Attachment, relevant Letter of Credit and Party A’s application.

5. Payment

Upon meeting preconditions for bill advance, Party B will accept Party A’s application for buyer bill advance, while Party B shall, subject to the sum agreed in Application for Bill Advance under Domestic Letter of Credit acceptable by it, pay the sum under L/C on behalf of Party A.

Relevant issues including period of bill advance etc shall be subject to the Application for Bill Advance under Domestic Letter of Credit aforementioned.

6. Party A acknowledges hereby that:

(1) Party B shall be entitled to dispose of the complete set of documents/goods under buyer bill advance or any other security interest or interest in property attributable to it by any applicable laws and regulations. In case the right of disposing of the complete set of documents/goods under buyer bill advance shall be attributing to Party A in accordance with applicable laws and regulations or the judgment of any people's court or arbitration institution with jurisdiction, Party A agrees that within the largest extent as permitted by applicable laws and regulations it will transfer the right to Party B and acknowledge any actions and omission of Party A in disposing of the documents/goods. In case the right of disposing of the complete set of documents/goods under buyer bill advance shall be attributing to Party B in accordance with applicable laws and regulations or the judgment of any people's court or arbitration institution with jurisdiction, Party B will reserve the right until the complete discharge by Party A of the bill advance financing surrendered by Party B.

(2) Party A, as Party B’s assignee, applies to Party B for holding documents/goods and repay the bill advance financing by Party B through sales proceeds, which include but not limited to, on behalf of Party B, keeping relevant documents, going through the warehousing, storage, transport, processing, sales and insurance etc of the goods under the documents, keep the sales proceeds or deposit the sales proceeds in the account designated by Party B. Party A shall indicate the status hereunder when selling goods to third party.

(3) All expenses (including but not limited to insurance, warehousing, storage, port fee etc) arising from goods under Party A’s custody shall be borne by Party A; Party A commits to insure the goods against all possible risks a the market value of the goods, list Party B as the insured in the original insurance certificate and present original insurance certificate to Party B for safekeeping. Party B shall have the right to claim against insurance company in case of losses to insured goods.

(4) Without Party B’s permission, Party A shall not dispose of the goods through delayed payment, payment in non-monetary manner or at the price lower than market price. Party A shall not pledge or mortgage the goods to any party or set the goods bound by any lien. Upon Party B’s demand, Party A shall submit to Party B the details of the account of the goods, any sales revenue or any sales contract relating to the goods; Party B shall be entitled to inspect the actual condition of the goods in warehouse or occupy the goods again.

7. Supplemental commitment

In addition to the content agreed in the Agreement, Party A shall make the following supplemental commitment to Party B regarding the business under the Attachment:

Party A commits that the sales proceeds under the domestic letter of credit shall be used for the repayment of the financing for Party A surrendered by Party A.

8. Any other detailed issues relating to the business under the Attachment shall be subject to the agreement contained in the Application for the Buyer Bill Advance under Domestic L/C.

* The line of credit converted into U.S. dollars is 13.5 million at December 31, 2010 exchange rates.

EX-10.4(A)

Guaranty Contract of Maximum Amount

No.:000788B Account Guarantee Agreement Issued in 2010 by (Shenzhen Buji Subbranch) Bank of China

Guarantor:  Pan Dangyu

No of business license/ID No: 

Legal Representative/Person in Charge:  /                           

Residential Address:  Dormitory of Shenzhen Highpower Technology Co., Ltd.

Post Code:  518000

Related Bank of Opening and Account Number:  /                           

Phone:  89686238Fax:  89686298

Party B:  Shenzhen Buji Subbranch of Bank of China Limited

Legal Representative/Person in Charge:  Jiang Guoliang

Residential Address:  No 108, Phuket Road, Phuket Town, Longgang District, Shenzhen

Phone:  2827482Fax:  28270847

Post Code:  518112

In order to ensure that the liabilities described in Article I of the contract can be performed, the guarantor is ready to provide the creditor with assurance. This contract is established based on the equal negotiation between the two sides. Otherwise additional agreements, explanations of clauses in this contract shall depend on the main contract.

Article I Main Contract

Main contract of the contract is as follows:

The creditor with the debtor, Shenzhen Highpower Technology Co., Ltd. signed the Agreement of Line of Credit numbered 000788 Account Guarantee Agreement Issued in 2010 by (Shenzhen Buji Subbranch) Bank of China and the single agreements that have been signed or to be signed based on this agreement, and revisions or supplements are agreed to belong to the main contract of this contract.

Article II Principal Creditor’s Rights and Its Valid Period

Besides the valid period defined by law or agreements, in the following periods the creditor’s rights actually working under the main contract construct the principal creditor’s rights of the contract:

From the day when Agreement of Line of Credit mentioned in Article I comes into force to the day when the line of credit defined in the agreement and its revisions or supplements expires.

Article III Guaranteed Highest Amount of Credit

1. Principal balance of the guaranteed highest amount of credit in this contract is:

Type of currency:  RMB       .

Sum: (in words) ninety million Yuan

(in figures) RMB90, 000,000.00

2. On the day when the principal creditor’s rights defined in Article II come to the end, if what is defined to belong to the guaranteed principal creditor’s right in the contract, then the resulting interest (including legal interest, contract interest, compound interest, default interest), penal sum, claim for damages, cost for realizing creditor’s rights (including but not limit to court cost, attorney fee, notarial fee, executive fee, etc) based on the principal creditor’s right, loss to the creditor caused by the debtor’s breach and other payable costs all belong to the guaranteed creditor’s rights, specific amount of which shall be determined when being paid.

The summation of the creditor’s rights defined according to the above two articles is the guaranteed highest amount of credit of the contract.

Article IV Guaranteeing Modes

The guaranteeing mode of this contract is No. 1 of the followings:

1. Guaranteed with responsibilities;

2. General guaranty.

Article V Occurrence of Guaranteeing Responsibilities

If the debtor does not clean off the debt to the creditor on any normal paying day or advanced day for paying under the main contract, the creditor observes the right to ask the guarantor to bear the guaranteeing responsibilities.

The normal paying day referred in the above article means the day of principal repayments, interest paying day agreed in the main contract or the time when the debtor shall pay any fund to the creditor according to the contract. The advanced paying day mentioned in the above article refers to the paying day put forward by the debtor and agreed by the creditor the paying time in which the creditor requests the debtor to clear off the principal and interest or any other found ahead of time in line with the contract or certain agreement.

In case the main liabilities consists of other collaterals or guarantees besides that of the contract, it does not affect the creditor’s any right and performance under the contract and the guarantor shall not defend the creditor for this reason.

Article VI Guaranteeing Period

The guaranteeing period of the contract is within two years since the expiring date of occurrence period of the principal liabilities specified in Article II of the contract.

During the guaranteeing period, the creditor has the right to require the guarantor to bear the guaranteeing responsibilities for all or part of, a number of or single, together or individual principal creditor’s rights.

Article VII Suit Time Effect of Guaranteeing Liabilities

If the creditor is not repaid under the mode of guaranteeing with responsibilities and the creditor requests the guarantor to bear guaranteeing responsibilities before the expiring date of the guaranteeing period specified in Article VI of the contract, then since the day when the creditor asks the guarantor to bear guaranteeing responsibilities, the guaranteeing liabilities shall start to be calculated and the time effect of suit is workable.

Under the general guaranteeing mode, if the creditor suits the debtor or applies arbitration before the expiring date of the guaranteeing period specified in Article VI of the contract, then from the date of entry into force of adjudication or judgment of arbitration, the guaranteeing liabilities shall start to be calculated and the time effect of suit is workable.

2

Article VIII Relationship between the Contract and the Main Contract

If the main contract contains Agreement of Line of Credit or General Agreement of Loan Business, inwhich the service life of line of credit and the clause of partnership are extended, the written approval of the guarantor is hereby needed; if the guarantor does not agree or rejects, the guarantor only bears the guaranteeing responsibilities for the principal creditor's rights occurring in the service life of the original line of credit or the clause of partnership of the business within the guaranteed highest amount of credit specified in Article III of the contract and the guaranteeing period is also the original one.

As for modifications of the other contents or matters of Agreement of Line of Credit or General Agreement of Loan Business, modifications of the single-agreement under them or of single main contract, the approval of the guarantor is unnecessary, and the guarantor also bears the guaranteeing responsibilities of the modified main contract within the guaranteed highest amount of credit specified in Article III of the contract.

In case the creditor and the guarantor reach a consensus through consultation, the guaranteed highest amount of credit specified in Article III of the contract can be modified in the form of writing.

If the creditor entrusts China Bank Limited or other banks to carry out all or part of the rights and obligations under the main contract or transfers the principal creditor’s right to a third party, it is unnecessary to get the guarantor’s approval and the guaranteeing responsibilities of the guarantor shall not be reduced or exempted for this reason.

Article IX Declaration and Commitment

The guarantor made the following declarations and commitments:

1. The guarantor shall register by law and carry out legal duration, process absolute capacity for private rights and capacity for action required to sign and implement the contract;

2. The guarantor thoroughly understands the content of the main content, so signing and implementing the contract is the guarantor’s genuine intention, for which the guarantor has got the legal and effective authorization in line with the statute or regulations of other internal administrative documents.

If a company as the guarantor providing the guaranty, it has been passed by the resolution on the board of directors or board of shareholders, general meeting of stockholders according to the regulations of the company statute; when the guaranteed total amount and the single guaranteed amount are limited in the company statute, the guaranteed amount under the contract is not beyond the specified limitation.

Signing and implementation of the contract shall not violate any contract, agreement or other law documents which have restricting power to the guarantor;

3. All the documents and data provided for the creditor by the guarantor shall be accurate, true, complete and effective;

4. The guarantor shall receive supervision and inspection carried out by the creditor as to production, operation and finance situation, and provide help and cooperation;

5. The guarantor does not hide the heavy debts bearing since the signing date of the contract to the creditor;

3

6. If the followings possibly affecting the finance and capacity to perform the contract of the guarantor occur, including but not limit to any forms of changes in schism, amalgamation, joint operation, cooperation with foreign business, cooperation, contract operation, recombination, reform,  planned going to market, reduction of registered capital, grand capital or share holding transfer, bearing heavy debts, disbandment, revocation, forced into bankruptcy, etc or being involved in important lawsuits or arbitrations, the guarantor shall timely inform the creditor.

Article X Disclose of the Involved Parties and Involved Transactions inside the Group of the Guarantor

Both sides agree to apply No 1 clause mentioned below:

1. The guarantor does not belong to the customer group defined by the creditor in line with Guidelines for the Risk Management by Commercial Banks for Granting Credit to Customer Groups, short for Guidelines.

2. The guarantor belongs to the customer group defined by the creditor based on Guidelines. The guarantor shall in line with Article XVII of Guidelines timely report to the creditor more than 10percent of the involved transaction, including the related relationship of the transaction parties, transaction clauses, nature, amount or related ratio and pricing policy (including transactions with zero amount or symbolic amount).

Article XI Event of Default and Handling

One of the following events constitutes or can be considered as the guarantor’s default of the contract:

1. The guarantor does not timely perform the guaranteeing responsibilities according to the agreement of the contract;

2. The declarations made in the contract are not true or breach the commitments made in the contract;

3. The event described in Clause 6 of Article IX occurs, having a strong impact on the finance and capacity to perform the contract of the guarantor;

4. The guarantor terminates operation or events of disbandment, revocation and bankrupt occur;

5. The guarantor violates other agreements relating to rights and obligations of litigants;

6. The guarantor has other events of default under the contract with the creditor or Bank of China Limited or other banks.

When the events of default specified in the above clauses appear, the creditor has the right to separately or simultaneously take the following actions as the case maybe:

1. Require the guarantor to correct the breach within a limited time;

2. Wholly or partly scale down, suspend or terminate the guarantor’s line of credit;

3. Wholly or partly suspend or terminate other business applications of the guarantor under the contract; wholly or partly suspend or terminate the granting and handling of the non-granted credit and non-handled trade financing;

4. Announce that the whole or part of the guarantor’s outstanding loan, interest on principal of trade financing and other payable fund under the contract become immediately due;

5. Terminate or cancel the contract, and wholly or partly terminate or cancel other contracts between the guarantor and the creditor;

6. Require the guarantor to compensate the loss of the creditor caused by the breach;

4

7. The creditor only needs the advance notice or post notice to deduct the fund from the guarantor’s account opened at the creditor’s side to wholly or partly clear off the guarantor’s debt to the creditor. The undue funds in the account shall be considered to be due ahead of time. In case the currency type of the account is different from the creditor’s money of account, the deduction is in line with the exchange rate of the foreign exchange sale and purchase.

8. Other actions that the creditor considers necessary.

Article XII Reservation of Right

If one party does not exercise all or part of the rights under the contract, or does not require the other to exercise, bear part of or all the obligations, responsibilities, it shall not mean the party gives up the rights or exempts from the obligations, responsibilities.

If one party allows any tolerance, extension and delay in implementing the rights under the contract upon the other party, it shall not affect the party to process any right in line with the contract, related law and regulations, and it also shall not considered giving up the right.

Article XIII Modification, Revision and Termination

The contract agreed by both parties shall be modified and revised in the form of writing, and any modification and revision shall become the inseparable part of the contract.

Otherwise it is additionally specified by law or regulations or agreed by the litigants, the contract shall not terminate before all the involved rights and obligations are completely performed.

Otherwise it is additionally specified by law or regulations or agreed by the litigants invalidity of any clause of the contract has no impact on the legal force of other clauses of the contract.

Article XIV Application of Law and Dispute Resolution

Laws of the People's Republic of China apply to the contract.

As for all the controversies, disputes resulted in the contract shall be resolved through negotiation of both parties, if failure, then the both parties shall adopt the resolution of disputes in line with the agreement in the main contract.

During the resolving period, if the dispute has no impact on the implementing of other clauses, other clauses shall continue to be performed.

Article XV Costs

Otherwise it is additionally specified by law or regulations or agreed by the litigants, costs (including attorney fee) resulted in the establishment, performance and dispute resolution of the contract shall be born by the guarantor.

Article XVI Appendix

Appendixes conformed by both parties shall become the inseparable part of the contract, sharing the same legal force with the contract.

Article XVII Other Agreement

1. Without the written approval of the creditor, the guarantor shall not transfer any right, obligation to a third party;

2. If the creditor entrusts the Bank of China Limited or other banks to implement the rights and obligations of the contract because of business need, the guarantor shall approve this, so the Bank of China Limited or other banks entrusted by the creditor observes the right to implement all the rights of the contract and lodge a complaint to the court or submit to the arbitration agency for adjudication as to the disputes resulting in the contract;

5

3. In case other agreements of contract are not affected, the contract has the same legal force to the both parties, the generated successors by law and transferees;

4. Otherwise there is additional agreement, the residential address named herein by both parties shall be the mailing address and contact address, for which both parties shall promise to timely inform the other party in case the mailing address or contact address is changed;

5. Titles and business names in the contract are only adopted out of convenience, which shall not be used to explain the clause contents and rights, obligations of the litigants.

Article XVIII Entry into Force of the Contract

This contract shall take effect since being signed and sealed by legal representatives, persons in charge and the entrusted signer of both parties.

This contract is in triplicate, and Party A has one, Party B has one, all of which are of the same effect.

Guarantor: Pan Dangyu

Creditor: Shenzhen Buji Subbranch， Bank of Bank of China Limited

Authorized Signatory: /s/ Pan Dangyu	Authorized Signatory:/s/ Jiang Guoliang
December 8, 2010	December 8, 2010

6

EX-10.5

UNCOMMITTED SHORT TERM REVOLVING FACILITY AGREEMENT

Dated Aug, 12, 2010,

[No.: FA750506100812]

BETWEEN:

(1) CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH (the "Bank"), with legal address at 34/F Duty-Free, Business Building No.6, 1st Fuhua Road, Futian CBD

Shenzhen, China; and

(2) SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.

with legal address at Luoshan Industrial Zone,Pinghu, Longgang, Shenzhen, Guangdong, China and

IT IS AGREED as follows:

1. The attached "General Terms and Conditions applying to Facility Agreement" and the contents of any Ancillary Documents are expressly incorporated as terms of this Agreement.

2. Maximum Facility Amount: Equivalent to US Dollars Three Million Only (USD3, 000, 000)

For the purpose of calculating the Maximum Facility Amount, the calculation shall be made at relevant exchange rate determined by the Bank. If the aggregate of all amounts outstanding under this Agreement at any one time exceed the aforesaid Maximum Facility Amount as a result of a change in the exchange rate, the Bank shall reserve its right to demand immediate repayment of any such excess amount. In any event, the aggregate amounts of the outstanding under the Facility Agreement for the two customers shall not exceed the Maximum Facility Amount.

3. Currency of the Facility: USD/RMB

4. Forms and Sublimit of Utilization:

Account Receivable Financing: up to USD1,500,000 or its equivalence

. Export Financing: up to USD1,500,000 or its equivalence

. Discounting Business: up to Equivalent to USD1,500,000 or its equivalence;

In any event, the aggregate amounts of the outstanding under the above respective forms of utilization shall not exceed the Maximum Facility Amount.

5. Maximum Tenors for Each Utilization:

. Account Receivable Financing: 3 Months

Export Financing: 3 Months

. Discounting Business: 12 Months

6. Interest Rate / Commission Rate / Financing Rate

. In respect of each issuance of a Export Financing; Financing Rate is decided by Attached documents.

. In respect of any Account Receivable Financing, Financing Rate is decided by Attached documents.

 7. Purpose for which the Facility is to be used: Prior to settlement risk, its purpose: customer hedging and risk management should be carried out for the purpose of all derivatives transactions. At any time, the customer shall not, under this Agreement to any financing for fixed assets, equity or equity investment, or for the national ban on the production and use of management areas, or for the purpose of other non-core business customers.

8. Payment

(a) Paid by self-pay way to make payments, loans, loan line review by the appropriate conditions, according to the customer's withdrawal notice, the disbursement of funds to finance customer accounts, (such loan payments is called "self-pay") ;

(b) Trustee to pay by way of financing the payment, Bank  approval and the appropriate conditions, according to the customer's withdrawal notice and payment of commission, funds will be paid to the withdrawal notice in the Customer's designated recipient (the customer Trading counterparties)( payment of such loans as “trustee to pay”)

(c) Withdrawal Amount under this Agreement is equal to or lower than single 20 millions yuan (or Equivalent in foreign currency), should be used to pay for self-pay; single withdrawal amount under this Agreement more than 20 millions yuan (or Equivalent in foreign currency), should be trusteed to pay.

(d) Overdraft services under this Agreement are paid by self-pay to pay the way

Despite the above provisions，when credit state of customer going down, profit ability of main business not strong or using of financing appear abnormal, the lender have rights to adjust the providing and/ or payment of any financing.

9．Account of gathering

Customer allowed the below accounts for gathering the financing fund and promise that will provide the cash in and out of these accounts in according with appointments of general items and terms.

Account name: Shenzhen Highpower Technology CO., LTD

Bank name: CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH

Account number:

10. Security and Security Provider:

. The Corporate Guarantee provided by the Guaranty signed by Hong Kong Highpower Technology Company Limited on Aug 12 2010.

. The Corporate Guarantee for SHENZHEN HIGHPOWER TECHNOLOGY CO.,LTD. provided by the Guaranty signed by SPRINGPOWER THECNOLOGY (SHENZHEN)CO.,LTD. on Aug 12 2010.

. The Corporate Guarantee for SPRINGPOWER THECNOLOGY (SHENZHEN)CO.,LTD. provided by the Guaranty signed by SHENZHEN HIGHPOWER TECHNOLOGY CO.,LTD.  on Aug 12 2010.

. The Personal Guarantee provided by the Guaranty signed by PAN DANG YU on Aug 12 2010.

. The collateral Guaranty provided by the Agreement on pledges over account signed between the Customer and the Bank.

11. Default Interest Rate:

Subject to Clause 12 of the General Terms and Conditions applying to Facility

Agreement, the default interest rate shall be:

RMB: the default interest rate shall be the minimum default rate for overdue loans (including principle and interest) permitted to be charged under applicable PBOC regulations.

USD: the default interest rate shall be determined by the bank.

12.  Limitation of related transactions

12.1 Customer must promise that the financing fund will not use for paying for related transactions between customer and related party, otherwise permitted by the lender on written way. Related party include (1) affiliation, share holding companies,(whether hold directly or indirectly), joint companies, share holder (including legal person and natural person) of customer, other company that the shareholder directly or indirectly hold shares( whether dominate or not); (2) shareholder’s spouse (natural person), immediate relationship or not immediate relationship within three generations, director, supervisor, advanced management officer, and any company directly or indirectly hold by above mentioned person(whether dominate or not).

13. Facility Fee: The customer should pay facility fee according to the facility fee letter singed by the bank.

14. Independency and Severability:

14.1 Each utilization of the Facility provided by the Bank according to this Agreement is an independent transaction. This Agreement, together with each of Ancillary Documents submitted by the Customer to the Bank in respect of each utilization of the Facility, constitutes an independent contract with respect thereto. Such contract shall be automatically terminated after the Customer has repaid all the principal and interests under respective utilization of Facility.

14.2 The obligations of each Customer under this Agreement are joint and several. If any of the Customers fails to repay any amount due and payable under this Agreement, then the Bank is entitled to claim against any or all other Customers for such amounts.

14.3 If the Bank decides to cancel and/or terminate the facility granted to any of the Customers, and/or to accelerate the maturity of and demand repayment of any or all outstanding Advances, the Bank is entitled to accelerate the outstanding of other Customers at its sole discretion.

14.4 Any amendment to this Agreement shall be made in written form and shall be executed by/between the affected parties only and no consent or confirmation is required further from the other parties. Any amendment so executed shall bind upon the Bank and the Customer executing such amendment only.

15. Special Commitment

From the date of signing of this agreement until the Customer under this Agreement in full settlement of the arrears date, the customer commitment to comply with the following

Customer committed to the sale of goods and / or services income are paid into accounts opened (the "income"), and the customer's average annual receipts of not less than all of its unpaid Financing four times.

Customer hereby pledge to the lender, unless prior written consent of the lender, customers will not have any assets in which they set up any third party other than  the loan mortgage (not including the signing of this agreement has set up a security interest prior to the date Assets).

16. Special Condition:

By signing this Agreement, the Customer acknowledges and agrees that (i) the facility agreement dated March 12, 2010 (the “Original Facility Agreement”) entered into by SHENZHEN HIGHPOWER TECHNOLOGY CO.,LTD. and CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH with contract no.FA751091100312 shall be deemed superceded in its entirety by this Agreement; and (ii) all amounts outstanding under the Original Facility Agreement as of the date of this Agreement shall be deemed to be outstanding under this Agreement.

AS WITNESS the hands of the duly authorized representatives of the parties hereto the day and year first before written. This Facility Agreement shall come into force upon execution by the duly authorized representatives of the parties.

/s/ [COMPANY SEAL]	/s/ [COMPANY SEAL]
[Authorized signatory of the Bank]	[Authorized signatory of the Customer]
[Printed name of signatory]	[Printed name of signatory]
Address of the Bank:	Address of the Customer:
	Corporate Seal of the Customer

GENERAL TERMS AND CONDITIONS APPLYING TO FACILITY AGREEMENT

1. INTRODUCTION

1.1 These terms and conditions (these “Terms and Conditions”) will apply to each utilization of Facility under the facility agreement (the “Facility Agreement”), entered or to be entered into between the Customer and relevant branch of Citibank (China) Co., Ltd. as specified in the Facility Agreement where the Facility is granted (the “Bank”) from time to time and are binding on both the Customer and the Bank.

1.2 These Terms and Conditions are supplemented and/or amended by the Facility Agreement and shall be read together with the Facility Agreement and constitute an integral part of the Facility Agreement (collectively the “Agreement”).

1.3 If there is a conflict between these Terms and Conditions and the Facility Agreement, the Facility Agreement shall prevail; and if there is a conflict between the Agreement and any Ancillary Document (as defined below), the Ancillary Document shall prevail.

2. FACILITY

2.1 The Customer may request and the Bank may but not be obligated to grant to the Customer, upon the terms and conditions contained in the Agreement and any Ancillary Document, an uncommitted short term credit facility (the "Facility") consisting of advance, bank guarantee, standby letter of credit, trade letter of credit, discounting business, overdraft, bank acceptance draft, account receivable/payable financing and/or import/export financing (wherever applicable and subject to the Clause 4 of the Facility Agreement) in the maximum aggregate amount set out in the Clause 2 (the "Maximum Facility Amount") of the Facility Agreement on an on demand basis to the extent specified by this Agreement.

2.2 For the purposes of this Agreement, “Ancillary Document” shall be any or all of the following documents (as the case may be) which the Customer has executed or acknowledged:

In respect of an Advance, (a) Notice for Drawdown; and (b) Confirmation Advice (if any).

In respect of a Bank Guarantee or a Standby Letter of Credit, Application and Agreement for SBLC/Guarantee /Bond.

In respect of a Trade Letter of Credit, (a) Application for Documentary Letter of Credit; and (b) Agreement for Irrevocable Documentary Credit.

In respect of a Discounting Business, (a) Discounting Business Contract; and (b) any other related documents which may be executed by the Customer.

 In respect of an Overdraft, (a) Overdraft Agreement; and (b) any other related documents which may be executed by the Customer.

In respect of a Bank Acceptance Draft, (a) Bank Acceptance Draft Agreement; and (b) any other related documents which may be executed by the Customer.

In respect of an Account Receivable Financing or Account Payable Financing, (a)

Application Letter; and (b) any other related documents which may be executed by the Customer.

In respect of an Import or Export Financing, (a) Application Letter; and (b) any other related documents which may be executed by the Customer.

3. CONDITIONS PRECEDENT

3.1 Unless otherwise expressly provided in the Facility Agreement or any Ancillary Documents, any and each utilization of the Facility must satisfy any and all of the general conditions precedent listed in the Schedule to these Terms and Conditions to the satisfaction of the Bank.

4. DRAWDOWN AND TERMS FOR ADVANCES

4.1 In respect of each Advance, the Customer shall provide a Notice for Drawdown to the Bank not less than two (2) business days before the date of the proposed drawdown. In each Notice for Drawdown, the Customer shall set out (a) proposed drawdown date; (b) proposed drawdown amount; and (c) repayment date for the proposed drawdown. Once the Bank receives the Notice for Drawdown, the Customer shall not cancel the proposed drawdown; and, if the Customer cancels drawdown after such notice, the Customer shall pay to the Bank all costs, expenses and/or losses incurred by the Bank from such cancellation.

4.2 In respect of each Advance, the Bank will send to the Customer a confirmation advice (each a “Confirmation Advice”). The Confirmation Advice shall set out such details as the Bank may select. The Confirmation Advice (or, if there is none, the internal records [whether in document or electronic form] of the Bank) shall be conclusive evidence as against the Customer of the terms upon which any Advance is made save for manifest error.

5. REPAYMENT OF ADVANCES AND INTEREST

5.1 Subject to Clause 5.2, the Customer shall repay each Advance in full together with accrued interests and all other amounts in respect of such Advance on the repayment date as specified in relevant Notice for Drawdown. If the repayment date is not a business day, then the repayment shall be made on the immediately following business day (and interest shall be adjusted accordingly) unless that day falls in the next calendar month, in which case repayment shall be made on the immediately preceding business day. Any amount repaid in accordance with this Clause may be re-borrowed by the Customer pursuant to the terms and conditions under this Agreement.

5.2 The Customer may request the Bank to rollover part or all of principal amount of an Advance due for repayment by providing to the Bank a new Notice for Drawdown not less than two (2) business days before the repayment date.

(a) Where the currency of the Advance is United States Dollar and the Bank agrees to rollover, then on that repayment date, the Customer shall be deemed to have repaid the Advance (or part thereof, as the case may be) and the Bank shall be deemed to have granted a new Advance to the Customer in accordance with the terms of this Agreement. For the avoidance of doubt, the Customer is still obligated to pay the accrued interest and all other amounts owing in respect of the Advance on the repayment date.

(b) Where the currency of the Advance is RenMinBi, then the aggregate rollover tenor of the Advance shall not exceed its previous drawdown tenor. If the Bank agrees to rollover, on that repayment date, the Customer is not required to repay the part or all (as the case may be) of the principal amount of the Advance that the Bank has agreed to rollover, but should repay (1) the part of the principal amount of the Advance that the Bank does not agree to rollover (wherever applicable), and (2) the accrued interest and all other amounts owing in respect of the Advance up to the repayment date. With respect to the part or all of the principal amount of the Advance that the Bank has agreed to rollover, the tenor thereof shall be calculated on aggregated basis, being the previous drawdown tenor plus the rollover tenor, accordingly, the interest for the rollover tenor shall be calculated at the corresponding interest rate on the rollover date (which is the next calendar day of the repayment date) that is applicable to a loan with the corresponding tenor.

6. PREPAYMENT OF ADVANCES, CASH COVER AND CANCELLATION OF

LC/GUARANTEES

6.1 The Customer may, with the prior written consent of the Bank and subject to compliance with any SAFE regulations (wherever necessary), prepay any Advance together with accrued interest. Any prepayment will be subject to the Customer paying to the Bank an amount sufficient to indemnify the Bank against any costs and losses incurred by it as a result of such prepayment. No other prepayments shall be permitted.

6.2 The Bank may at any time request the Customer to provide cash cover for all or part of the Bank’s contingent liabilities under a Trade Letter of Credit and/or a Standby Letter of Credit (collectively, “LC”) and/or a Bank Guarantee notwithstanding that the maturity thereof has not arrived or that the Bank has not been called upon to pay thereunder. The Customer shall provide such cash cover within three (3) business days upon request.

6.3 Notwithstanding Clauses 6.2, the Customer shall not be released from any obligation or liability under the terms of this Agreement or any Ancillary Document until the Bank notifies the Customer in writing that the Customer is so released. Notwithstanding any such notice, the indemnities contained in Clause 13 shall continue thereafter if subsequently it transpires that the Bank still has any liability under the LC/Guarantee. The Bank's decision as to whether the Bank has been released from all liabilities under a LC/Guarantee shall be binding on the Customer.

7. TAX

7.1 All payments by the Customer under the Agreement shall be made without any deduction and free and clear of and without any deduction for or on account of any taxes, except to the extent that the Customer is required by law to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by the Customer under the Agreement, the Customer shall pay such additional amounts as may be necessary to ensure that the Bank receives a net amount equal to the full amount which it would have received had payment not been made subject to tax or any other deduction. All taxes required by law to be deducted by the Customer from any amounts paid or payable under this Agreement shall be paid when due and the Customer shall, within fifteen (15) days of the payment being made, deliver to the Bank evidence satisfactory to the Bank (including all relevant tax receipts) that the payment has been duly remitted to the appropriate authority.

8. REPRESENTATIONS

8.1 The Customer represents and warrants that it is a corporation duly organised under the laws of the People's Republic of China, it has the power to enter into this Agreement and any Ancillary Document and all corporate and other actions required (if any) to make this Agreement and any Ancillary Document legal, valid, binding and enforceable have been duly taken.

8.2 The representations and warranties made by the Customer hereunder shall be deemed to be repeated by the Customer on each date when an Advance is to be made or a LC/ Bank Guarantee issued or an Account Receivable/Payable Financing or an Import/Export Financing made.

9. COVENANTS

9.1 The Customer shall go through, obtain, comply with and maintain in full force and effect any and all verifications, authorizations, approvals, registrations, licenses and consents required by the PRC law to enable it lawfully to enter into and perform its obligations hereunder or under any Ancillary Document, and if required by the Bank, promptly provide evidence of the same.

9.2 The Customer shall notify the Bank forthwith of the occurrence of any event that may affect its ability to perform any of its obligations hereunder.

9.3 The Facility hereunder shall only be applied by the Customer towards financing its general working capital requirements or other purpose specified in this Agreement. The Facility hereunder must not be used for, or applied towards, any investment in stocks or in any non-core business of the Customer. The Bank is not bound to monitor or verify the application of any Facility hereunder.

10. SPECIAL CLAUSE FOR OFFSHORE SECURITIES [IF APPLICABLE]

10.1 The Customer shall comply with all relevant rules and regulations promulgated by the State Administration of Foreign Exchange (the “SAFE”) from time to time in respect of the facility secured by offshore securities. The Customer hereby undertakes: during the valid term of this Facility Agreement, the aggregate amount of (1) the aggregate drawn amount of its medium-to-long term foreign debt, (2) the outstanding amount of its short-term foreign debt and (3) the total amount delivered under securities provided by offshore institutions and/or individuals [calculated on the basis of the Customer’s actual amount of foreign debt] (the “Outstanding Debt”) shall not exceed the gap between its total investment and registered capital (the “Gap”). The Customer shall register its foreign debt with SAFE after such offshore securities have been delivered.

10.2 For the purpose of the previous paragraph, the Customer hereby undertakes: during the valid term of this Facility Agreement, it will promptly, or upon the request of the Bank from time to time, provide the Bank with relevant documents and/or information with regard to its Outstanding Debt and Gap. The Customer further represents that such documents and/or information is true, accurate and complete.

11. COSTS AND EXPENSES

11.1 The Customer shall reimburse the Bank on demand for all costs and expenses incurred by it in connection with the negotiation, preparation, execution, preservation and/or enforcement of the terms of this Agreement or any Ancillary Document and the completion of the transactions contemplated herein or therein. The Customer shall pay all stamp duty and other taxes or fees to which this Agreement or any Ancillary Document may be subject.

 12. DEFAULT INTEREST

12.1 Default interest in relation to any due but unpaid sum relating to any Advance, LC/Guarantee, Account Receivable/Payable Financing, and/or Import/Export Financing shall be payable monthly on any sum not paid on the due date thereof until the actual payment date. The default interest rate is specified in Clause 9 of the Facility Agreement. Any interest overdue shall be compounded monthly.

13. INDEMNITIES

13.1 The Customer shall indemnify the Bank against all losses, amounts, liabilities (including environmental liabilities), costs (including the Bank’s lawyer fee and all other legal costs incurred in respect of any enforcement or recovery action taken against the Customer), charges and expenses arising from this Agreement or the transactions contemplated herein, except to the extent resulting from the Bank’s gross negligence or wilful misconduct.

13.2 The currency of payment under this Facility shall be the same as described in Clause 3 of the Facility Agreement. If an amount is received in a currency other than the currency of the relevant Facility that the Bank has granted (“Granted Currency”), pursuant to a judgment or order or in the liquidation of the Security Provider or otherwise, the Customer’s obligations under this Agreement shall be discharged only to the extent that the Bank may purchase Granted Currency with such other currency in accordance with normal banking procedures upon receipt of such amount. If the amount in Granted Currency which the Bank is able to purchase, after deducting any costs of exchange, is less than the relevant sum payable under this Agreement, the Customer shall indemnify the Bank independent of and in addition to any other obligations under this Agreement.

13.3 Both parties hereby agree that in no event shall one party be liable to the other party for any indirect or consequential losses or damages with respect to this Agreement.

14. PAYMENTS AND NOTICES

14.1 All payments under this Agreement or any Ancillary Document shall be made by the Customer to the Bank for value on the due date at such time and in such funds and to such account as the Bank may specify from time to time. Notice shall be delivered to each party to this Agreement either at the respective addresses of each party referred to in the Facility Agreement or such other address as a party may notify to the other in writing from time to time.

15. SET-OFF

15.1 The Customer agrees that in addition to any right to which the Bank may be entitled by law, the Bank may at any time and without notice to the Customer combine or consolidate all or any of the accounts of the Customer with any of its liabilities to the Bank and set off or transfer any sum or sums standing to the credit of any one or more of such accounts in or towards satisfaction of any of the liabilities of the Customer to the Bank hereunder, whether such liabilities be actual, contingent, primary, collateral, several, joint, matured, unmatured, of any nature or in any currencies. Further insofar as any of the liabilities of the Customer to the Bank are contingent or future, the Bank’s liability to the Customer to make payment of any sum or sums standing to any of the Customer’s accounts shall to the extent necessary to cover such liabilities be suspended until the happening of the contingency or future event.

16. TERMINATION OF THE FACILITY

16.1 The Customer hereby acknowledges that the Facility granted hereunder is of short-term nature and the Bank has the right to annually review the Facility.

16.2 Notwithstanding Clause 16.1 above, the Bank shall be entitled, at any time, without any reason and without prior notice to the Customer, to cancel and/or terminate the Facility and/or to accelerate the maturity of and demand immediate repayment of any or all outstanding Advances, and/or modify any provisions of this Agreement.

17. ASSIGNMENT

17.1 The Customer may not assign, transfer, novate or dispose of any of, or any interest in, its rights and/or obligations under this Agreement. The Bank may at any time assign or transfer any of its rights and/or obligations under this Agreement and/or any Ancillary Document to any other entity/person by giving a notice of the assignment or transfer to the Customer. The Customer agrees that the notice of assignment or transfer may be in any written form at the sole discretion of the Bank and no consent or approval from the Customer is required for such assignment or transfer. This Agreement and/or any Ancillary Document will continue to be effective against the Customer, and the Customer agrees to be bound and continue to be bound by this Agreement and/or any Ancillary Document notwithstanding such assignment or transfer. The Bank may disclose to any entity/person with whom it is proposing to enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement and/or any Ancillary Document a copy of this Agreement and any information (including, without limitation, any information on the Customer and the Security Provider and the credit relationship of the Customer with the Bank) which the Bank has acquired under or in connection with this Agreement and/or any Ancillary Document.

18. INFORMATION DISCLOSURE

18.1 The Customer hereby consents to the Bank’s disclosure to any of its branches or sub-branches, subsidiaries, parent companies, affiliates, representative offices, agents and third parties selected by any of them (the “Related Party”, wherever situated) any information relating to the Customer and this Facility (including without limitation, any information obtained by the Bank for credit review and assessment purpose) for confidential use (including without limitation, for data processing, statistical, risk analysis and credit monitoring and tracking purpose). The Customer shall procure and cause the Security Provider to consent to such disclosure and to comply with the provisions herein. The Bank and any Related Party may disclose any such information as required by any applicable law, regulation or rule, court, regulator or legal process.

19. GOVERNING LAW AND JURISDICTION

19.1 This Agreement shall be governed and construed in accordance with the PRC law. The courts of the place where the Bank is located shall have a non-exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement.

20. INSTRUCTIONS BY TELEPHONE OR FAX

20.1 The Bank shall not be obliged to act on or accept any oral or facsimile instructions from the Customer, unless otherwise agreed by the parties. In any event the Bank shall not be liable to the Customer for any losses arising from any misunderstanding arising out of any ambiguous, illegible or unclear instructions.

21. SEVERABILITY OF PROVISIONS

21.1 The invalidity, illegality or unenforceability of any provision of this Agreement or any Ancillary Document shall not in any way affect or impair the validity, legality or enforceability of the remaining provisions of this Agreement or any such Ancillary Document.

22. FAILURE OR DELAY NOT A WAIVER, AMENDMENT

22.1 No delay or omission by the Bank to exercise any right under this Agreement or any Ancillary Document shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Agreement or any Ancillary Document shall be deemed a waiver of any other breach or default. No amendment or waiver of any provision of this Agreement or any Ancillary Document shall in any event be effective unless the same shall be in writing and signed by the Bank.

23. LANGUAGE

23.1 This Agreement shall be executed in both Chinese and English and each version shall be equally valid. In case of any conflict between the Chinese version and the English version, the Chinese version shall prevail.

SCHEDULE

General Conditions Precedent Pursuant to the Clause 3 of the Terms and Conditions Applying to the Facility Agreement, all of the following conditions must be met to the satisfaction of the Bank before each and any utilization of the Facility:

1. The Bank has received all the following documents regarding the Customer:

(a) a copy of the Customer’s valid Articles of Association and any of its amendments;

(b) a copy of the Customer’s valid Business License;

(c) board resolution(s) of the Customer, including the approval of and the authorization to the Customer's borrowing of the Facility and the execution of the Agreement and any Ancillary Document;

(d) the authorization from the Customer of a person or persons to execute this Agreement and any Ancillary Document and the specimen signature(s) of such authorized person(s);

(e) the copy of loan card of the Customer (applicable to the Customer which is established under PRC law).

2. Any and all the Ancillary Documents have been duly completed, executed and received in form and substance satisfactory of the Bank.

3. The proposed date for the making of an Advance or the issuance of a LC/Guarantee is a business day of the Bank.

4. Other documents the Bank may request from time to time.

EX-10.5(A)

Guaranty

Guaranty, dated as of Aug 12th, 2010 made by Pan Dangyu citizen of the PRC and I.D. card NO. (the guarantor), in favor of Citibank (China) CO., LTD. and each of its branches and sub-branches (the warrantee).

Guaranty includes (1) credit facility agreement (the facility agreement) dated as of Aug 12th, 2010 signed by Shenzhen Highpower CO., LTD. (the master debtor) and the warrantee with the credit financing USD9,500,000.00 (the financing) provided by warrantee, contract no. FA751091100812 and FA750506100812; (2) derivatives Master Agreement (the master agreement), this contract together with the facility agreement) dated as of Aug 12th, 2010 signed by the master debtor as party A and the warrantee as party B with contract no. MDA750506100312.

The words used in this guaranty not defined but defined in the facility or master agreement have the same definition with the facility or master agreement.

Since the warrantee and master debtor signed this contract, the guarantor agrees as follow:

1. Guaranty and compensation

The guarantor unconditionally guarantees the punctual payment including all payables (now or hereafter existing) due or will due and with other surety or not when due, whether upon maturity, by acceleration or otherwise, under this contract (including modification, supplement and trade confirmation documents or similar confirmation documents). The debt includes but limited to the principal, interest, fees, default interest, fines, costs, expenses, replenishment, payments, expenses, and other payment caused by enforcing the right under the guaranty (no matter how defined) (all such being the debt). If the master debtor fails to pay any debt in full (whether at stated maturity, by acceleration or otherwise), the guarantor will pay the same to the warrantee when required. The guarantor will also pay all interest of the debt which is from the date of due to all debt paid off, and the rate is the same with that in the facility agreement. The guaranty is guarantee for repayment other than collection of debt. The finial amount is the past due debt and fees provided by the warrantee. As separate obligation, if the guarantor agrees any debt ensured become invalid or illegal (whether now existing or notice any party of the guaranty), as a main obligation, the guarantor will repay any cost, lost or debt of the warrantee when required. The sum of cost, lost and debt is the same with the amount received by the warrantee.

2. Absolute guaranty

The guaranty is continuous. It is effective from the signing, in full and continuous effect.

Permitted by the law of China (China), the purpose of guaranty, not includes Hong Kong and Macao or Taiwan), the obligation of the guarantor is unconditional and irrespective of: (1) any illegality, lack of validity or enforceability, (2) any amendment, modification, waiver or consent to departure from the terms of any obligation, including any renewal or extension of the time or change of the manner or place of payment, (3) any exchange, substitution, release, non-perfection or impairment of any collateral securing payment of any obligation, (4) any change in the corporate existence, structure or ownership of the obligor, or any insolvency, bankruptcy, reorganization, or other similar proceeding affecting the obligor or its assets or any resulting release or discharge of any obligation, (5) the existence of any claim, set-off or other rights that the guarantor may have at any time against the obligor, Citibank, or any other corporation or person, whether in connection herewith or any unrelated transactions, provided that nothing herein will prevent the assertion of any such claim by separate suit or compulsory counterclaim, (6) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation or Citibank’s rights with respect thereto, including, without limitation: (A) the application of any such law, regulation, decree or order, including any prior approval, which would prevent the exchange of a Non-USD currency (as hereinafter defined) for U.S. dollars or the remittance of funds outside of such jurisdiction or the unavailability of U.S. dollars in any legal exchange market in such jurisdiction in accordance with normal commercial practice; or (B) a declaration of banking moratorium or any suspension of payments by banks in such jurisdiction or the imposition by such jurisdiction or any governmental authority thereof of any moratorium on, the required rescheduling or restructuring of, or required approval of payments on, any indebtedness in such jurisdiction; or (C) any expropriation, confiscation, nationalization or requisition by such country or any governmental authority that directly or indirectly deprives the companies in such jurisdiction of any payment obligation under any obligations; or (D) any war (whether or not declared), insurrection, revolution, hostile act, civil strife or similar events occurring in such jurisdiction which has the same effect as the events described in clause (A), (B)or (C) above (in each of the cases contemplated in clauses (A) through (D) above, to the extent occurring or existing on or at any time after the date of the guaranty),and (7) any other circumstance (including without limitation, any statute of limitations) or any existence of or reliance on any representation by Citibank that might otherwise constitute a defense to, or a legal or equitable discharge of, the obligor or the guarantor.

Without limiting the generality of the foregoing, with respect to any obligations that, in accordance with the express terms of any agreement pursuant to which such obligations were created, were denominated in U.S. dollars or any currency other than the currency of the jurisdiction where the obligator is principally located, the guarantor guarantees that it shall pay Citibank strictly in accordance with the express terms of such agreement, including in the amounts and in the currency expressly agreed to thereunder, irrespective of an without giving effect to any laws of the jurisdiction where the obligator is principally located in effected from time to time, or any order, decree or regulation in the jurisdiction where the obligator is principally located.

It is the intent of this section 2 that the guarantor’s obligations hereunder are and shall be absolute and unconditional under any and all circumstance.

3. Waiver

The guarantor waivers (1) promptness, diligence, notice of acceptance, notice of dishonor and any other notice with respect to any obligation and this guaranty and (2) any requirement that Citibank exercise any right or take any action against the obligator or any collateral security or credit support.

4. Reinstatement

This guaranty will continue to be effective or be reinstated, as the case may be, if at any time any payment of any obligation is rescinded or must otherwise be returned by Citibank upon the insolvency, bankruptcy or reorganization of the obligator or otherwise, all as though such payment had not been made.

2

5. Subrogation

The guarantor will not assert, enforce or otherwise exercise any rights which it may acquire by way of subrogation under this guaranty, by any payment made hereunder or otherwise, until payment in full of the obligations and the termination of any and all agreements under which Citibank is committed to provide extensions of credit.

6. No competition

The guarantor should not have or assert the right of the master debtor’s asset or compete with the warrantee when bankruptcy or clear. If the guarantor fails to follow the term and assert the right, any amount by this way should be pay to the warrantee as soon as received.

7. Secondary creditor

The guarantor ensures not to require the master debtor for payment or prior repayment for guarantee, whether by cash, intangible asset or by the way of offset. But when required by laws or the warrantee to assert secondary rights, the guarantor should act as the warrantee’s order and pay to the warrantee as soon as received. As master debtor, the guarantor give up all rights of claiming repayment to the master debtor prior the warrantee.

8. Taxes

Any and all payments by the guarantor hereunder will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholding, and all liabilities with respect thereto, excluding income or franchise taxes imposed on Citibank’s net income by the jurisdiction under the law of which Citibank is organized or any political subdivision thereof or by the jurisdiction of Citibank’s lending office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being taxes). If the guarantor is required by law to deduct any taxes from or in respect of any sum payable hereunder (1) the sum payable will be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this section) Citibank will receive an amount equal to the sum it would have received had no such deductions been made, (2) the guarantor will make such deductions, and (3) the guarantor will pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. In addition, the guarantor will pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this guaranty or the obligations (other taxes). The guarantor will promptly furnish to Citibank the original or a certified copy of a receipt evidencing payment thereof. The guarantor will indemnify Citibank for the full amount of taxes or other taxes paid by Citibank or any liability (including penalties, interest and expenses) arising therefrom, or with respect thereto, whether or not such taxes or other taxes were correctly or legally asserted, within 30days of Citibank’s request therefore. Without prejudice to the survival of any other agreement contained herein, the guarantor’s agreement and obligations contained in this section will survive the payment in full of the obligations, principal and interest hereunder and any termination of this guaranty.

3

9. Place and currency of payment

If any obligation is payable in U.S. dollars, the guarantor will make payment hereunder to Citibank in U.S. dollars to the place and account designated by Citibank. If any obligation is payable in a currency other than U.S. dollars (a Non-USD currency) and/or at a place other than the United States, and such payment is not made as and when agreed, the guarantor will, at Citibank’s option, either (1) make payment in such Non-USD currency and at the place where such obligation is payable, or (2) pay Citibank’s in U.S. dollars to the place and account designated by Citibank. In the event of a payment pursuant to clause (2) above, the guarantor will pay Citibank the equivalent of the amount of such obligation in U.S dollars calculated at the rate of exchange at which, in accordance with normal banking procedures, Citibank may buy such Non-USD currency in the place of payment on the date the guarantor makes such payment; provided, however, that the foregoing provisions of this sentence shall not apply to any payments hereunder in respect of obligations that have been re-denominated into a Non-USD currency as a result of the application of any law, order, decree or regulation in any jurisdiction other than the United States, which obligations shall, for purposes of the guaranty, be deemed to remain denominated in U.S. dollars and payable to Citibank in accordance with the first sentence of this section 9. The guarantor should pay the fees of foreign exchange. For purposes of section 9, it is sufficient evidence that as soon as exchange the warrantee will be damaged.

10. Set-off

If the guarantor fails to pay any of its obligations hereunder when due and payable, Citibank is authorized at any time and from time to time, to set off and apply any and all deposits ( general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Citibank has made any demand under this guaranty. Citibank will promptly notify the guarantor after any such set-off and application, provided that the failure to give such notice will not affect the validity of such set-off and application. Citibank’s rights under this section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that Citibank may have.

11. Representations and warranties

The guarantor represents and warrants that: (1) the execution, delivery and performance by the guarantor of this guaranty are within its corporate powers, have been duly authorized by all necessary corporate action, and do not contravene its charter or by-laws or any law or any contractual restriction binding on or affecting the guarantor or any entity that controls it, (2) no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the guarantor of this guaranty, and (3) this guaranty has been duly executed and delivered by the guarantor and is its legal, valid and binding obligation, enforceable against the guarantor in accordance with its terms.

12. Promise

The guarantor promises that any debt remains outstanding, unless agreed by the warrantee, guarantor shall be (1) comply with all laws, regulations, the request and orders of government agencies with jurisdiction; (2) all payment and settlement imposed on the guarantor or its income, profits or property of all taxes, valuation, government fees and charges or the imposition of the penalty payment should be before they arose and if not paid all lawful claims may constitute a lien on his property, mortgage, or the right Burden, (3) to achieve the intended purpose of this guaranty, sign all other papers and documents, including negotiable documents and to take and make all reasonable action and issues requested for guarantee, (4) without the prior written consent of the warrantee, not (A) assume, guarantee, endorse obligations of others, directly or indirectly responsible for the obligations of others. Obligations of others are that any other person, company or enterprise not including the obligations of the guarantor's obligation, or (B) sell, lease, or otherwise transfer or dispose of a substantial part of its assets.

4

13. Continuing guaranty

This is a continuing guaranty and applies to all obligations whenever arising. This guaranty is irrevocable and will remain in full force and effect until the payment in full of the obligations and all amounts payable hereunder and the termination of all of the agreement relating to the obligations. This guaranty is an additional assurance to any other guarantee or security held outside for the debt now or in the future, and it does not affect other guarantee or be affected by others. In order to protect the maximum amount received by the warrantee in the case of the actual or potential bankruptcy, insolvency (different from the principal debtor as a result of the payment to the warrantee), the guarantor will put it in temporary account permitted by law of China. The amount on the account (interest credited to the provisional accounts) until the warrantee feels satisfied that the guarantor has no obligation to make any payments on the debt or the warrantee irrevocable received all the debt of all amounts payable.

14. Amendments

No amendment or waiver of any provision of this guaranty, and no consent to departure by the guarantor herefrom, will in any event be effective unless the same is in writing and signed by the warrantee, and then such waiver or consent will be effective only in the specific instance and for the specific purpose for which given.

15. Addresses

All notices and other communications provided for hereunder will be in writing (including telecopier communication), and mailed, telecopied or delivered to it, if to the guarantor, at its address at Luoshan Industrial Zone, Pinghu Town, Longgang District, Shenzhen, attention: Pan Dangyu, and if to Citibank, at its address at ____________ attention: Johnson Liu, or as to either party, at such other address as is designated by such party in a written notice to the other party. All such notices and other communications will, when mailed or telecopied, be effective when deposited in the mails or telecopied, respectively.

16. Guarantor’s credit decision

The guarantor has, independently and without reliance on Citibank and based on such documents and information as the guarantor has deemed appropriate, made its own credit analysis and decision to enter into this guaranty. The guarantor has adequate means to obtain from the Obligor on a continuing basis information concerning the financial condition, operations and business of the obligor, and the guarantor is not relying on Citibank to provide such information now or in the future. The guarantor acknowledges that it will receive substantial direct and indirect benefit from the extensions of credit contemplated by this guaranty.

5

17. The right to assign or transfer

In China, the extent permitted by law, the guarantor of the letter of guarantee, the guarantor's heirs and successors are binding and that they should be used to guarantee and his successors and assignee's interest. Guarantor should not be without the consent of the guarantor or transfer of rights or obligations to transfer their billing. In the notice to the guarantor, the guarantor may at any time assign or transfer its rights in the letter of guarantee rights or obligations under (if any) to any other entities / individuals. Guarantor agree to notify the transfer of rights and transfer of discretion can be the guarantor of any written manner, assign or transfer such rights without obtaining the approval and consent of the guarantor and the guarantor agrees to bound by the letter of guarantee letter of guarantee will be sustained by The more the subject to such assignment or transfer of rights.

18. Cumulative Rights

Letter of Guarantee under this warranty shall be the guarantor for the rights and remedies in law or other agreement or document under the enjoyment of rights and remedies of any additional non-exclusive rights. Delay in exercising any right guaranteed person shall not be deemed a waiver of such right.

19. Joint and several liability

Guarantor under the laws of the debtor under this and any other guarantor (if any) to take joint and several liability guarantee. Guarantor acknowledges and agrees that under the debt obligations of the other guarantor is revoked or terminated, and / or guarantor of the obligations of the other becomes invalid, illegal or unenforceable, the guarantor of the obligations under the letter of guarantee will not be lifted, or in any way damaged or affected.

20. A waiver of confidentiality

Guarantor hereby irrevocably and unconditionally consent of the guarantor held by the guarantor to disclose the relevant guarantor, debt, remittances, deposits or other transactions with the guarantee, the guarantor of the information or similar information (i) to the professional advisory body or person or other persons providing services to the guarantor and / or (ii) to the guaranteed party headquarters and its branches or affiliates and / or (iii) to regulatory agencies, the judiciary or the Chinese and other U.S. government agencies (including state, provincial, have municipal government agency) or any other warrantee, warrantee headquarters, branches or affiliates in the other jurisdiction in which the business of government agencies, and / or (iv) the rights to any participant or assignee or transferee ( including any loans and debt-related potential participants or rights under the transferee or assignee) to / or (v) to any potential guarantor for the acquisition of the assets and who is responsible for the potential merger candidates for the guarantor or its successors or in connection with similar people.

21. Personal Data

Guarantor hereby agrees to provide any guarantor will provide to the guarantor or the guarantor of personal information about the collection, processing and use of personal data may also be that the warrantee for the (i) dealing with the purpose of the guarantor and the guarantor of the transaction, ( ii) solicit business from the guarantor or allow third parties to solicit business from the purpose of the guarantor, and / or (iii) Other laws and regulations, other purposes permitted by the guarantor obtained.

6

22. Severability

If any provision of this letter of guarantee in any jurisdiction is or becomes illegal, invalid or unenforceable, it will not affect (i) other provisions of this letter of guarantee in that jurisdiction the validity or enforceability; or (ii ) the terms or other terms in other jurisdictions, the validity or enforceability.

23. judgment

If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder in U.S. dollars into a Non-USD dollars currency, the guarantor agrees that the rate of exchange used will be that at which, in accordance with normal banking procedures, Citibank could purchase U.S. dollars with such Non-USD currency on the business day preceding that on which final judgment is given. The obligation of the guarantor in respect of any sum due hereunder will, notwithstanding any judgment in a Non-USD currency, be discharged only to the extent that on the date the guarantor makes payment to Citibank of any sum adjudged to be so due in such Non-USD currency, Citibank may, in accordance with normal banking procedures, purchase U.S. dollars with such Non-USD currency; if the U.S. dollars so purchased are less than the sum originally due to Citibank in U.S. dollars, the guarantor agrees, as a separate obligation and notwithstanding any such judgment, to indemnify Citibank against such loss, and if the U.S. dollars so purchased exceed the sum originally due to Citibank in U.S. dollars, Citibank agrees to remit to the guarantor such excess.

24. governing law

The guaranty is signed according to Chinese law and explained by Chinese legal interpretation. The guarantor hereby irrevocably comply with a court of competent jurisdiction where the guarantor of the non-exclusive jurisdiction.

Pan Dangyu

/s/ Pan Dangyu ( signature)

Name: Pan Dangyu

Title:

ID number:

Witnessed By:

/s/ Johnson Liu

Assistant Vice President

7

EX-10.6

UNCOMMITTED SHORT TERM REVOLVING FACILITY AGREEMENT

Dated Aug, 12, 2010,

[No.: FA751091100812]

BETWEEN:

(1) CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH (the "Bank"), with legal address at 34/F Duty-Free, Business Building No.6, 1st Fuhua Road, Futian CBD Shenzhen, China; and

(2) SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD. with legal address at Luoshan Industrial Zone, Pinghu, Longgang, Shenzhen, Guangdong, China and

(3) SPRINGPOWER  TECHNOLOGY  (SHENZHEN) CO., LTD., with legal address at Chaoshun Industrial Zone, Renmin Road, Fumin, Guanlan, Baoan, Shenzhen, Guangdong, China ((2) and (3) are combined as the "Customer").

IT IS AGREED as follows:

1. The attached "General Terms and Conditions applying to Facility Agreement" and the contents of any Ancillary Documents are expressly incorporated as terms of this Agreement.

2. Maximum Facility Amount: Equivalent to US Dollars Six Million Five Hundred Thousand Only (USD6, 500, 000)

For the purpose of calculating the Maximum Facility Amount, the calculation shall be made at relevant exchange rate determined by the Bank. If the aggregate of all amounts outstanding under this Agreement at any one time exceed the aforesaid Maximum Facility Amount as a result of a change in the exchange rate, the Bank shall reserve its right to demand immediate repayment of any such excess amount. In any event, the aggregate amounts of the outstanding under the Facility Agreement for the two customers shall not exceed the Maximum Facility Amount.

3. Currency of the Facility: USD/RMB

4. Forms and Sublimit of Utilization:

(1) SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.  applies to the forms and sublimit as follows:

. Import Financing: up to USD6,500,000 or its equivalence

. Trade Letters of Credit: up to USD6,500,000 or its equivalence

. Discounting Business: up to Equivalent to USD6,500,000 or its equivalence

. Account Payable Financing: up to USD6,500,000 or its equivalence

In any event, the aggregate amounts of the outstanding under the above respective forms of utilization shall not exceed the Maximum Facility Amount.

(2) SPRINGPOWER  TECHNOLOGY  (SHENZHEN) CO.,LTD.a pplies to the forms and sublimit as follows:

. Discounting Business: up to Equivalent to USD2,500,000 or its equivalence

. Account Payable Financing: up to USD2,500,000 or its equivalence

In any event, the aggregate amounts of the outstanding under the above respective forms of utilization shall not exceed the Maximum Facility Amount.

In any event, the aggregate amounts of the outstanding under the above respective forms of utilization for the two customers shall not exceed the Maximum Facility Amount.

5. Maximum Tenors for Each Utilization:

. Trade Letters of Credit: 1 Month

. Discounting Business: 6 Months

. Account Payable Financing: 6 Months

. Import Financing: 5 Months

6. Interest Rate / Commission Rate / Financing Rate

. In respect of each issuance of a Trade Letter of Credit, the Commission Rate is:

0.2% per quarter.

. In respect of any Discounting Business, the discounting interest rate shall be determined under the relevant Ancillary Documents.

. In respect of any Import financing, the financing rate shall be determined under the relevant Ancillary Documents.

7. Purpose for which the Facility is to be used: Liquidity needs and the purchase of raw materials.

8. Payment

(a) Paid by self-pay way to make payments, loans, loan line review by the appropriate conditions, according to the customer's withdrawal notice, the disbursement of funds to finance customer accounts, (such loan payments is called "self-pay") ;

(b) Trustee to pay by way of financing the payment, Bank  approval and the appropriate conditions, according to the customer's withdrawal notice and payment of commission, funds will be paid to the withdrawal notice in the Customer's designated recipient (the customer Trading counterparties) (payment of such loans as “trustee to pay”)

(c) Withdrawal Amount under this Agreement is equal to or lower than single 20 millions yuan (or Equivalent in foreign currency), should be used to pay for self-pay; single withdrawal amount under this Agreement more than 20 millions yuan (or Equivalent in foreign currency), should be trusteed to pay.

(d) Overdraft services under this Agreement are paid by self-pay to pay the way

Despite the above provisions，when credit state of customer going down, profit ability of main business not strong or using of financing appear abnormal, the lender have rights to adjust the providing and/ or payment of any financing.

9.  Account of gathering

Customer allowed the below accounts for gathering the financing fund and promise that will provide the cash in and out of these accounts in according with appointments of general items and terms.

Account name: Shenzhen Highpower Technology CO., LTD

Bank name:  CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH

Account number:

Account name: Springpower (Shenzhen) CO., LTD

Bank name: CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH

Account number:

10. Security and Security Provider:

. The Corporate Guarantee provided by the Guaranty signed by Hong Kong Highpower Technology Company Limited on Aug 12 2010.

. The Corporate Guarantee for SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD. provided by the

Guaranty signed by SPRINGPOWER THECNOLOGY (SHENZHEN) CO., LTD. on Aug 12 2010.

. The Corporate Guarantee for SPRINGPOWER TECHNOLOGY (SHENZHEN) CO., LTD. provided by the Guaranty signed by SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD. on Aug 12 2010.

. The Personal Guarantee provided by the Guaranty signed by PAN DANG YU on Aug 12 2010.

. The collateral Guaranty provided by the Agreement on pledges over account signed between the Customer.

11. Default Interest Rate:

Subject to Clause 12 of the General Terms and Conditions applying to Facility Agreement, the default interest rate shall be:

RMB: the default interest rate shall be the minimum default rate for overdue loans (including principle and interest) permitted to be charged under applicable PBOC regulations.

USD: the default interest rate shall be determined by the bank.

12.  Limitation of related transactions

12.1 Customer must promise that the financing fund will not use for paying for related transactions between customer and related party, otherwise permitted by the lender on written way. Related party include (1) affiliation, share holding companies, (whether hold directly or indirectly), joint companies, share holder (including legal person and natural person) of customer, other company that the shareholder directly or indirectly hold shares (whether dominate or not); (2) shareholder’s spouse (natural person), immediate relationship or not immediate relationship within three generations, director, supervisor, advanced management officer, and any company directly or indirectly hold by above mentioned person(whether dominate or not).

13. Facility Fee: The customer should pay facility fee according to the facility fee letter singed by the bank.

14. Independency and Severability:

14.1 Each utilization of the Facility provided by the Bank according to this Agreement is an independent transaction. This Agreement, together with each of Ancillary Documents submitted by the Customer to the Bank in respect of each utilization of the Facility, constitutes an independent contract with respect thereto. Such contract shall be automatically terminated after the Customer has repaid all the principal and interests under respective utilization of Facility.

14.2 The obligations of each Customer under this Agreement are joint and several. If any of the Customers fails to repay any amount due and payable under this Agreement, then the Bank is entitled to claim against any or all other Customers for such amounts.

14.3 If the Bank decides to cancel and/or terminate the facility granted to any of the Customers, and/or to accelerate the maturity of and demand repayment of any or all outstanding Advances, the Bank is entitled to accelerate the outstanding of other Customers at its sole discretion.

14.4 Any amendment to this Agreement shall be made in written form and shall be executed by/between the affected parties only and no consent or confirmation is required further from the other parties. Any amendment so executed shall bind upon the Bank and the Customer executing such amendment only.

15. Special Commitment

From the date of signing of this agreement until the Customer under this Agreement in full settlement of the arrears date, the customer commitment to comply with the following

Customer committed to the sale of goods and / or services income are paid into accounts opened (the "income"), and the customer's average annual receipts of not less than all of its unpaid Financing four times.

Customer hereby pledge to the lender, unless prior written consent of the lender, customers will not have any assets in which they set up any third party other than  the loan mortgage (not including the signing of this agreement has set up a security interest prior to the date Assets).

16. Special Condition:

By signing this Agreement, the Customer acknowledges and agrees that (i) the facility agreement dated March 12, 2010 (the “Original Facility Agreement”) entered into by SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD. and CITIBANK (CHINA) CO., LTD. SHENZHEN BRANCH with contract no.FA751091100312 shall be deemed superceded in its entirety by this Agreement; and (ii) all amounts outstanding under the Original Facility Agreement as of the date of this Agreement shall be deemed to be outstanding under this Agreement.

AS WITNESS the hands of the duly authorized representatives of the parties hereto the day and year first before written. This Facility Agreement shall come into force upon execution by the duly authorized representatives of the parties.

[Authorized signatory of the Bank]	[Authorized signatory of the Customer]
/s/ [COMPANY SEAL]	/s/ [COMPANY SEAL]
[Printed name of signatory]	[Printed name of signatory]
Address of the Bank:	Address of the Customer:
	Corporate Seal of the Customer

GENERAL TERMS AND CONDITIONS APPLYING TO FACILITY AGREEMENT

1. INTRODUCTION

1.1 These terms and conditions (these “Terms and Conditions”) will apply to each utilization of Facility under the facility agreement (the “Facility Agreement”), entered or to be entered into between the Customer and relevant branch of Citibank (China) Co., Ltd. as specified in the Facility Agreement where the Facility is granted (the “Bank”) from time to time and are binding on both the Customer and the Bank.

1.2 These Terms and Conditions are supplemented and/or amended by the Facility Agreement and shall be read together with the Facility Agreement and constitute an integral part of the Facility Agreement (collectively the “Agreement”).

1.3 If there is a conflict between these Terms and Conditions and the Facility Agreement, the Facility Agreement shall prevail; and if there is a conflict between the Agreement and any Ancillary Document (as defined below), the Ancillary Document shall prevail.

2. FACILITY

2.1 The Customer may request and the Bank may but not be obligated to grant to the Customer, upon the terms and conditions contained in the Agreement and any Ancillary Document, an uncommitted short term credit facility (the "Facility") consisting of advance, bank guarantee, standby letter of credit, trade letter of credit, discounting business, overdraft, bank acceptance draft, account receivable/payable financing and/or import/export financing (wherever applicable and subject to the Clause 4 of the Facility Agreement) in the maximum aggregate amount set out in the Clause 2 (the "Maximum Facility Amount") of the Facility Agreement on an on demand basis to the extent specified by this Agreement.

2.2 For the purposes of this Agreement, “Ancillary Document” shall be any or all of the following documents (as the case may be) which the Customer has executed or acknowledged:

In respect of an Advance, (a) Notice for Drawdown; and (b) Confirmation Advice (if any).

In respect of a Bank Guarantee or a Standby Letter of Credit, Application and Agreement for SBLC /Guarantee /Bond.

In respect of a Trade Letter of Credit, (a) Application for Documentary Letter of Credit; and (b) Agreement for Irrevocable Documentary Credit.

In respect of a Discounting Business, (a) Discounting Business Contract; and (b) any other related documents which may be executed by the Customer.

In respect of an Overdraft, (a) Overdraft Agreement; and (b) any other related documents which may be executed by the Customer.

In respect of a Bank Acceptance Draft, (a) Bank Acceptance Draft Agreement; and (b) any other related documents which may be executed by the Customer.

In respect of an Account Receivable Financing or Account Payable Financing, (a) Application Letter; and (b) any other related documents which may be executed by the Customer.

In respect of an Import or Export Financing, (a) Application Letter; and (b) any other related documents which may be executed by the Customer.

3. CONDITIONS PRECEDENT

3.1 Unless otherwise expressly provided in the Facility Agreement or any Ancillary Documents, any and each utilization of the Facility must satisfy any and all of the general conditions precedent listed in the Schedule to these Terms and Conditions to the satisfaction of the Bank.

4. DRAWDOWN AND TERMS FOR ADVANCES

4.1 In respect of each Advance, the Customer shall provide a Notice for Drawdown to the Bank not less than two (2) business days before the date of the proposed drawdown.

In each Notice for Drawdown, the Customer shall set out (a) proposed drawdown date; (b) proposed drawdown amount; and (c) repayment date for the proposed drawdown. Once the Bank receives the Notice for Drawdown, the Customer shall not cancel the proposed drawdown; and, if the Customer cancels drawdown after such notice, the Customer shall pay to the Bank all costs, expenses and/or losses incurred by the Bank from such cancellation.

4.2 In respect of each Advance, the Bank will send to the Customer a confirmation advice (each a “Confirmation Advice”). The Confirmation Advice shall set out such details as the Bank may select. The Confirmation Advice (or, if there is none, the internal records [whether in document or electronic form] of the Bank) shall be conclusive evidence as against the Customer of the terms upon which any Advance is made save for manifest error.

5. REPAYMENT OF ADVANCES AND INTEREST

5.1 Subject to Clause 5.2, the Customer shall repay each Advance in full together with accrued interests and all other amounts in respect of such Advance on the repayment date as specified in relevant Notice for Drawdown. If the repayment date is not a business day, then the repayment shall be made on the immediately following business day (and interest shall be adjusted accordingly) unless that day falls in the next calendar month, in which case repayment shall be made on the immediately preceding business day. Any amount repaid in accordance with this Clause may be re-borrowed by the Customer pursuant to the terms and conditions under this Agreement.

5.2 The Customer may request the Bank to rollover part or all of principal amount of an Advance due for repayment by providing to the Bank a new Notice for Drawdown not less than two (2) business days before the repayment date.

(a) Where the currency of the Advance is United States Dollar and the Bank agrees to rollover, then on that repayment date, the Customer shall be deemed to have repaid the Advance (or part thereof, as the case may be) and the Bank shall be deemed to have granted a new Advance to the Customer in accordance with the terms of this Agreement. For the avoidance of doubt, the Customer is still obligated to pay the accrued interest and all other amounts owing in respect of the Advance on the repayment date.

(b) Where the currency of the Advance is RenMinBi, then the aggregate rollover tenor of the Advance shall not exceed its previous drawdown tenor. If the Bank agrees to rollover, on that repayment date, the Customer is not required to repay the part or all (as the case may be) of the principal amount of the Advance that the Bank has agreed to rollover, but should repay (1) the part of the principal amount of the Advance that the Bank does not agree to rollover (wherever applicable), and (2) the accrued interest and all other amounts owing in respect of the Advance up to the repayment date. With respect to the part or all of the principal amount of the Advance that the Bank has agreed to rollover, the tenor thereof shall be calculated on aggregated basis, being the previous drawdown tenor plus the rollover tenor, accordingly, the interest for the rollover tenor shall be calculated at the corresponding interest rate on the rollover date (which is the next calendar day of the repayment date) that is applicable to a loan with the corresponding tenor.

6. PREPAYMENT OF ADVANCES, CASH COVER AND CANCELLATION OF

LC/GUARANTEES

6.1 The Customer may, with the prior written consent of the Bank and subject to compliance with any SAFE regulations (wherever necessary), prepay any Advance together with accrued interest. Any prepayment will be subject to the Customer paying to the Bank an amount sufficient to indemnify the Bank against any costs and losses incurred by it as a result of such prepayment. No other prepayments shall be permitted.

6.2 The Bank may at any time request the Customer to provide cash cover for all or part of the Bank’s contingent liabilities under a Trade Letter of Credit and/or a Standby Letter of Credit (collectively, “LC”) and/or a Bank Guarantee notwithstanding that the maturity thereof has not arrived or that the Bank has not been called upon to pay thereunder. The Customer shall provide such cash cover within three (3) business days upon request.

6.3 Notwithstanding Clauses 6.2, the Customer shall not be released from any obligation or liability under the terms of this Agreement or any Ancillary Document until the Bank notifies the Customer in writing that the Customer is so released. Notwithstanding any such notice, the indemnities contained in Clause 13 shall continue thereafter if subsequently it transpires that the Bank still has any liability under the LC/Guarantee. The Bank's decision as to whether the Bank has been released from all liabilities under a LC/Guarantee shall be binding on the Customer.

7. TAX

7.1 All payments by the Customer under the Agreement shall be made without any deduction and free and clear of and without any deduction for or on account of any taxes, except to the extent that the Customer is required by law to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by the Customer under the Agreement, the Customer shall pay such additional amounts as may be necessary to ensure that the Bank receives a net amount equal to the full amount which it would have received had payment not been made subject to tax or any other deduction. All taxes required by law to be deducted by the Customer from any amounts paid or payable under this Agreement shall be paid when due and the Customer shall, within fifteen (15) days of the payment being made, deliver to the Bank evidence satisfactory to the Bank (including all relevant tax receipts) that the payment has been duly remitted to the appropriate authority.

8. REPRESENTATIONS

8.1 The Customer represents and warrants that it is a corporation duly organised under the laws of the People's Republic of China, it has the power to enter into this Agreement and any Ancillary Document and all corporate and other actions required (if any) to make this Agreement and any Ancillary Document legal, valid, binding and enforceable have been duly taken.

8.2 The representations and warranties made by the Customer hereunder shall be deemed to be repeated by the Customer on each date when an Advance is to be made or a LC/ Bank Guarantee issued or an Account Receivable/Payable Financing or an Import/Export Financing made.

9. COVENANTS

9.1 The Customer shall go through, obtain, comply with and maintain in full force and effect any and all verifications, authorizations, approvals, registrations, licenses and consents required by the PRC law to enable it lawfully to enter into and perform its obligations hereunder or under any Ancillary Document, and if required by the Bank, promptly provide evidence of the same.

9.2 The Customer shall notify the Bank forthwith of the occurrence of any event that may affect its ability to perform any of its obligations hereunder.

9.3 The Facility hereunder shall only be applied by the Customer towards financing its general working capital requirements or other purpose specified in this Agreement. The Facility hereunder must not be used for, or applied towards, any investment in stocks or in any non-core business of the Customer. The Bank is not bound to monitor or verify the application of any Facility hereunder.

10. SPECIAL CLAUSE FOR OFFSHORE SECURITIES [IF APPLICABLE]

10.1 The Customer shall comply with all relevant rules and regulations promulgated by the State Administration of Foreign Exchange (the “SAFE”) from time to time in respect of the facility secured by offshore securities. The Customer hereby undertakes: during the valid term of this Facility Agreement, the aggregate amount of (1) the aggregate drawn amount of its medium-to-long term foreign debt, (2) the outstanding amount of its short-term foreign debt and (3) the total amount delivered under securities provided by offshore institutions and/or individuals [calculated on the basis of the Customer’s actual amount of foreign debt] (the “Outstanding Debt”) shall not exceed the gap between its total investment and registered capital (the “Gap”). The Customer shall register its foreign debt with SAFE after such offshore securities have been delivered.

10.2 For the purpose of the previous paragraph, the Customer hereby undertakes: during the valid term of this Facility Agreement, it will promptly, or upon the request of the Bank from time to time, provide the Bank with relevant documents and/or information with regard to its Outstanding Debt and Gap. The Customer further represents that such documents and/or information is true, accurate and complete.

11. COSTS AND EXPENSES

11.1 The Customer shall reimburse the Bank on demand for all costs and expenses incurred by it in connection with the negotiation, preparation, execution, preservation and/or enforcement of the terms of this Agreement or any Ancillary Document and the completion of the transactions contemplated herein or therein. The Customer shall pay all stamp duty and other taxes or fees to which this Agreement or any Ancillary Document may be subject.

12. DEFAULT INTEREST

12.1 Default interest in relation to any due but unpaid sum relating to any Advance, LC/Guarantee, Account Receivable/Payable Financing, and/or Import/Export Financing shall be payable monthly on any sum not paid on the due date thereof until the actual payment date. The default interest rate is specified in Clause 9 of the Facility Agreement. Any interest overdue shall be compounded monthly.

13. INDEMNITIES

13.1 The Customer shall indemnify the Bank against all losses, amounts, liabilities (including environmental liabilities), costs (including the Bank’s lawyer fee and all other legal costs incurred in respect of any enforcement or recovery action taken against the Customer), charges and expenses arising from this Agreement or the transactions contemplated herein, except to the extent resulting from the Bank’s gross negligence or wilful misconduct.

13.2 The currency of payment under this Facility shall be the same as described in Clause 3 of the Facility Agreement. If an amount is received in a currency other than the currency of the relevant Facility that the Bank has granted (“Granted Currency”), pursuant to a judgment or order or in the liquidation of the Security Provider or otherwise, the Customer’s obligations under this Agreement shall be discharged only to the extent that the Bank may purchase Granted Currency with such other currency in accordance with normal banking procedures upon receipt of such amount. If the amount in Granted Currency which the Bank is able to purchase, after deducting any costs of exchange, is less than the relevant sum payable under this Agreement, the Customer shall indemnify the Bank independent of and in addition to any other obligations under this Agreement.

13.3 Both parties hereby agree that in no event shall one party be liable to the other party for any indirect or consequential losses or damages with respect to this Agreement.

14. PAYMENTS AND NOTICES

14.1 All payments under this Agreement or any Ancillary Document shall be made by the Customer to the Bank for value on the due date at such time and in such funds and to such account as the Bank may specify from time to time. Notice shall be delivered to each party to this Agreement either at the respective addresses of each party referred to in the Facility Agreement or such other address as a party may notify to the other in writing from time to time.

15. SET-OFF

15.1 The Customer agrees that in addition to any right to which the Bank may be entitled by law, the Bank may at any time and without notice to the Customer combine or consolidate all or any of the accounts of the Customer with any of its liabilities to the Bank and set off or transfer any sum or sums standing to the credit of any one or more of such accounts in or towards satisfaction of any of the liabilities of the Customer to the Bank hereunder, whether such liabilities be actual, contingent, primary, collateral, several, joint, matured, unmatured, of any nature or in any currencies. Further insofar as any of the liabilities of the Customer to the Bank are contingent or future, the Bank’s liability to the Customer to make payment of any sum or sums standing to any of the Customer’s accounts shall to the extent necessary to cover such liabilities be suspended until the happening of the contingency or future event.

16. TERMINATION OF THE FACILITY

16.1 The Customer hereby acknowledges that the Facility granted hereunder is of short-term nature and the Bank has the right to annually review the Facility.

16.2 Notwithstanding Clause 16.1 above, the Bank shall be entitled, at any time, without any reason and without prior notice to the Customer, to cancel and/or terminate the Facility and/or to accelerate the maturity of and demand immediate repayment of any or all outstanding Advances, and/or modify any provisions of this Agreement.

17. ASSIGNMENT

17.1 The Customer may not assign, transfer, novate or dispose of any of, or any interest in, its rights and/or obligations under this Agreement. The Bank may at any time assign or transfer any of its rights and/or obligations under this Agreement and/or any Ancillary Document to any other entity/person by giving a notice of the assignment or transfer to the Customer. The Customer agrees that the notice of assignment or transfer may be in any written form at the sole discretion of the Bank and no consent or approval from the Customer is required for such assignment or transfer. This Agreement and/or any Ancillary Document will continue to be effective against the Customer, and the Customer agrees to be bound and continue to be bound by this Agreement and/or any Ancillary Document notwithstanding such assignment or transfer. The Bank may disclose to any entity/person with whom it is proposing to enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement and/or any Ancillary Document a copy of this Agreement and any information (including, without limitation, any information on the Customer and the Security Provider and the credit relationship of the Customer with the Bank) which the Bank has acquired under or in connection with this Agreement and/or any Ancillary Document.

18. INFORMATION DISCLOSURE

18.1 The Customer hereby consents to the Bank’s disclosure to any of its branches or sub-branches, subsidiaries, parent companies, affiliates, representative offices, agents and third parties selected by any of them (the “Related Party”, wherever situated) any information relating to the Customer and this Facility (including without limitation, any information obtained by the Bank for credit review and assessment purpose) for confidential use (including without limitation, for data processing, statistical, risk analysis and credit monitoring and tracking purpose). The Customer shall procure and cause the Security Provider to consent to such disclosure and to comply with the provisions herein. The Bank and any Related Party may disclose any such information as required by any applicable law, regulation or rule, court, regulator or legal process.

19. GOVERNING LAW AND JURISDICTION

19.1 This Agreement shall be governed and construed in accordance with the PRC law.

The courts of the place where the Bank is located shall have a non-exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement.

20. INSTRUCTIONS BY TELEPHONE OR FAX

20.1 The Bank shall not be obliged to act on or accept any oral or facsimile instructions from the Customer, unless otherwise agreed by the parties. In any event the Bank shall not be liable to the Customer for any losses arising from any misunderstanding arising out of any ambiguous, illegible or unclear instructions.

21. SEVERABILITY OF PROVISIONS

21.1 The invalidity, illegality or unenforceability of any provision of this Agreement or any Ancillary Document shall not in any way affect or impair the validity, legality or enforceability of the remaining provisions of this Agreement or any such Ancillary Document.

22. FAILURE OR DELAY NOT A WAIVER, AMENDMENT

22.1 No delay or omission by the Bank to exercise any right under this Agreement or any Ancillary Document shall impair any such right, nor shall it be construed to be a waiver thereof. No waiver of any single breach or default under this Agreement or any Ancillary Document shall be deemed a waiver of any other breach or default. No amendment or waiver of any provision of this Agreement or any Ancillary Document shall in any event be effective unless the same shall be in writing and signed by the Bank.

23. LANGUAGE

23.1 This Agreement shall be executed in both Chinese and English and each version shall be equally valid. In case of any conflict between the Chinese version and the English version, the Chinese version shall prevail.

SCHEDULE

General Conditions Precedent

Pursuant to the Clause 3 of the Terms and Conditions Applying to the Facility Agreement, all of the following conditions must be met to the satisfaction of the Bank before each and any utilization of the Facility:

1. The Bank has received all the following documents regarding the Customer:

(a) a copy of the Customer’s valid Articles of Association and any of its amendments;

(b) a copy of the Customer’s valid Business License;

(c) board resolution(s) of the Customer, including the approval of and the authorization to the Customer's borrowing of the Facility and the execution of the Agreement and any Ancillary Document;

(d) the authorization from the Customer of a person or persons to execute this Agreement and any Ancillary Document and the specimen signature(s) of such authorized person(s);

(e) the copy of loan card of the Customer (applicable to the Customer which is established under PRC law).

2. Any and all the Ancillary Documents have been duly completed, executed and received in form and substance satisfactory of the Bank.

3. The proposed date for the making of an Advance or the issuance of a LC/Guarantee is a business day of the Bank.

4. Other documents the Bank may request from time to time.

EX-10.7

Comprehensive line of credit contract

NO: 00106082367

Party A：China Merchants Bank CO.，LTD. Shenzhen Longgang  Sub-branch

Party B：SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.

Party A agrees to provide credit facilities for Party B to use by the application of Party B. In accordance with the relevant laws and regulations, Party A and Party B make the agreement after the equal consultations, and signing the following terms of the contract.

I. Line of credit

1.1   Party A provides the credit line of RMB twenty five million (including other equal currencies, exchange rates convert according to the actual foreign exchange rate Party B announced.)

[√] Cyclic line of credit

[  ] One-off Line of credit

Cyclic line of credit is the maximum limit of the credit line balance during the period, including continuous and cyclic loan, trade financing, discounting bill of exchange, trade bill accepted, letter of guarantee, legal person’s account overdraft, domestic factoring, forward foreign exchange.

One-off line of credit is the total amount which is the sum of each business provided by Party B under the agreement, and shall not exceed the credit limits. Party B can not recycle the credit line, and businesses occupy the credit line until it is over .

Trade financing includes establishment of L/C, import documentary credit, delivery against bank guarantee, inward bill purchased under collection, packing credit, outward documentary credit, outward bill purchased under collection, import/export remittance financing, short-term financing, import factoring, export factoring (except two-factor system without recourse, hereinafter inclusive).

1.2 If Party A transacts businesses of the import factor, the domestic factoring without recourse, the amounts receivable occupy the credit line. If Party B applies for the business of domestic factoring with recourse and export factoring business, the basic acquisition provided by Party A (basic purchase money) takes the credit line.

1.3 In accordance with its internal process, Party B transfers L/C to the beneficiary by delegating other branches of China Merchants Bank after opening the L/C, the import documentary credit and shipping guarantee occurred under the line of credit take the credit line.

1.4 The credit line does not contain the margin or deposit pledged of the specific business provided by Party B or the third party under the agreement, hereinafter inclusive.

[  ] 1.5 Party A and Party B signed the credit agreement of number ------, since the effective date of this agreement, the outstanding amounts of the specific business under the credit line incorporate into it and take the credit line. (if this provision applies, please write √ in [ ])

2. The period of the credit line

The period is from Sep 1st 2010 to Sep 1st 2011. Party B should apply for the use of the credit during the period, and Party A will not accept the application out of the period except as otherwise provided.

3. The use of the credit line

3.1 The type and scope of the credit line

The credit line above belongs to (either-or and write √)

(√)3.1.1 Comprehensive line of credit contains the following type：

Working capital loans, trade bill accepted (margin is not less than 30 percent), forward foreign exchange (5 percent of the specific business is deducted from the margin credit line.)

Party B can transfer the business, and

[  ] All types of business can transfer.

[√]Part types of business can transfer, including working capital loans and trade bill accepted (not exceed CNY 20,000,000), forward foreign exchange without margin (not exceed CNY 5,000,000).

(---) 3.1.2 Single credit line

3.2 During the period, cyclic credit line can be circularly used and one-off can not. Party B must apply when using each single credit line which must be approved by Party A. The amount, deadline and use of each loan or other credit are decided by the contract and agreement signed by Party A and Party B or by the application of Party B.

Under the domestic factoring without recourse, “notice of transferring the debt of amount receivable” issued by Party A is approved by Party A, then they have reached “specific business contract”.

 3.3 The period of each loan and other credit is decided by the specific business between Party A and Party B, and the maturity date can be later than the maturity date of the credit line.

IV. Interest and expense

The rate of loan and financing and the expense of related businesses is paid in accordance with the contract of specific business.

V. Guarantee clause

5.1 The party under the agreement of all debt owed by the Party of Hong Kong Highpower Technology Co., Ltd., Pan Dangyu as the joint responsibility of the party guarantor, the Party shall issue the maximum amount of irrevocable letter of guarantee. And / or

5.2 The party under the agreement of all the debt owed by the Party or all --- its --- the right to dispose of property according to law for credit (pledged), and the two parties signed a guarantee contract.

Guarantor fails to sign this section and completed the security procedures security text, Party A has the right to refuse to provide credit.

IV. Rights and Obligations of Party B

6.1 Party B shall have the following rights:

6.1.1 the right to request Party A to provide the conditions of this agreement within the line of credit loans or other credit;

6.1.2 have the right to use the credit line agreement;

6.1.3 the right to request Party A to keep secret of the production, management, property, accounts, etc. provided by Party B except by law and regulations and regulatory authorities;

6.1.4 obtaining consent, the right to transfer debt to a third party.

6.2 Party B shall undertake the following obligations:

6.2.1 Party B shall truthfully provide the requested documents (including but not limited to the period required by Party A to provide real financial statements and annual financial reports, production, operation, management of major decisions and changes), and all bank accounts, account number and balance of deposits and loans, and to cooperate with Party A’s investigation, review and inspection;

6.2.2 Party B shall be subject to their use of credit funds and related production and management, supervision of financial activities;

6.2.3 should be under this Agreement and the specific contract and / or commitment to use only loans and / or other credit;

6.2.4 should be under this Agreement and the specific contract to repay the loan in full and on time, advances and other credit debt principal and interest;

6.2.5 obligations under this Agreement in whole or in part transferred to a third party, shall obtain a written consent;

6.2.6 Occurring the following circumstances Party B shall immediately notify the Party A, and actively cooperate with Party A under this Agreement, implement loans, advances and other credit debt principal and interest and reimbursement of all costs associated with security safeguards:

6.2.6.1 significant financial loss, loss of assets or other financial crisis;

6.2.6.2 To provide loans or provide guarantees for third-party guarantee, or to own property (rights) to provide credit (pledged) guarantee;

6.2.6.3 In case of merger (the merger), division, restructuring, joint (cooperative), property (shares) the right to transfer, joint-stock reform and other change matters;

6.2.6.4 occurred closure, revocation or cancellation of business license, the applicant or filed for bankruptcy, dissolution of the situation;

6.2.6.5 its controlling shareholders and other related company or major financial crisis, affecting its normal operation;

6.2.6.6 its controlling shareholders and other related material related party transactions between the company, affecting its normal operation;

6.2.6.7 its business or property status occurred a material adverse consequences of any litigation, arbitration or criminal or administrative penalties;

6.2.6.8 Other possible occurrence of major issues affecting their solvency.

6.2.7 shall not be delayed in their maturity and recourse debt management, or other appropriate disposition of unpaid principal existing property.

VII.  Rights and Obligations of Party A

7.1 Party A shall have the following rights:

7.1.1the right to request Party B to pay loans, advances and other credit debt principal and interest of this Agreement and the specific contract;

7.1.2 the right to request Party B to provide the information of credit ;

7.1.3 the right to know the production and operation and financial activities of Party B;

7.1.4 the right to supervise Party B to use the loan contract and / or other credit under this Agreement and the specific purpose of the contract;

7.1.5 to apply in L/C under its internal processes, the commission in favor of the location of other branches of China Merchants Bank to transfer L/C to the beneficiary;

7.1.6 the right to debit the account directly from the Party B’s account to repay the specific debt owed under the contract;

7.1.7 Party A has the right to transfer its claims, and the right to take appropriate ways, including but not limited to fax, mail, hand delivery, notice in the public media to notify party B assignment, and the collection.

7.1.8 Other rights under this Agreement.

7.2 Party A shall bear the following obligations:

7.2.1 provide the line of credit loans or other credit to Party B under this Agreement and the specific conditions stipulated in the contract;

7.2.2 Party A should keep the assets, finance, production, operation secret, except by laws and regulations, and as required by regulatory authorities.

VIII.  Party B shall in particular ensure the following matters

8.1 Party B is formally established under the laws and legal existence, the entity with legal personality, have full civil capacity and performance to sign the Agreement;

8.2 The signing and performance of this agreement has been obtained from the Board or any other authorized institutions;

8.3 Information of guarantors, collateral (pledge), mortgagors (quality) material documents, data, evidence, etc. provided by Party B is true, accurate, complete and effective, and does not contain significant errors or omit any material facts;

8.4 Party B should strictly compliance with the signing of specific contracts and issuing to the owner of the undertaking, trust receipts and other relevant documents in the agreement.

8.5 In signing this agreement there does not occur significant adverse consequences for the main property of Party B, such as litigation, arbitration or criminal, administrative penalties, and during the execution of this Agreement there will not happen to such litigation, arbitration or criminal, administrative punishment. If it occurs, Party B shall promptly notify Party A;

8.6 Strict compliance with national laws and regulations, strictly in accordance with the provisions, Party B should carry out the approved business scope of business license, and inspect by time and registration procedures;

8.7 To maintain or improve the existing management level, to ensure the value of existing assets increasing, do not give up any due claims, nor to free or other inappropriate disposition to deal with the existing main property;

8.8 Without Party A’s allowing, Party B shall not pay off other long-term debt in advance, and ---;

8.9 In signing this agreement, Party B does not have other major events to affect Party B’s obligations under the agreement.

IX. Other costs

The fees of the credit investigation, inspection, notary and other fees, and when Party B can not repay the debt owed by Party A under this Agreement, fees paid for the realization of legal fees, court costs, travel expenses , advertising fees, service fees, all costs borne by Party B in full, authorized by Party A to debit directly from the bank account of Party B. Shortfall, if any, Party B shall ensure the receipt of Party A's notice shown with repayment.

X  Events of Default and handling

10.1 One of the following circumstances is deemed to have an Event of Default:

10.1.1 breach of this Agreement, the obligations of Article 6.2.1, to the Party A providing false or conceal the true situation in the important case, not with the employer's investigation, review and inspection;

10.1.2 breach of this Agreement, the obligations of Article 6.2.2, no Party A to accept or avoid their use of credit funds and related production and management, supervision of financial activities;

10.1.3 breach of section 6.2.3 of the Agreement obligations, fails to agree to this Agreement and the specific contracts used for the purposes of loans and / or other credit;

10.1.4 breach of Article 6.2.4 of the protocol obligations, failure to this Agreement and / or the specific contract, full and on time repayment of loans, advances and other credit debt principal and interest;

10.1.5 breach of Article 6.2.5 of the protocol obligations unilaterally without the debt under this Agreement to a third party; or violation of Article 6.2.7 of the protocol obligations, lazy management, and recourse to the due claims, or improper disposition of free and other major existing property;

10.1.6 breach of this Agreement obligations under Article 6.2.6 provides that in the event which provides the situation, not timely notify Party A or Party B occurs which requires that the circumstances require Party B to increase the agreement debt under the safeguards do not match B, or Party of principal and interest that is not conducive to safe recovery of credit;

10.1.7 breach of this Agreement shall first 8.1,8.2,8.5, or contrary to section 8.3,8.4,8.6,8.7,8.8,8.9 article, fails Party called for an immediate correction;

10.1.8 the other party that the damage occurred the legitimate rights and interests of Party A's situation.

10.2 guarantor of the following circumstances, a Party that may affect the ability of the guarantor guarantees require the guarantor eliminate the adverse effects resulting or to request Party B to increase, replace the guarantee conditions, the guarantor and Party B is not complementary, that is deemed to have Event of Default:

10.2.1 Section 6.2.6 of the contract occurred similar to the situation described in one article;

10.2.2 an irrevocable guarantee issued by concealing their own responsibility of guarantee the actual capacity, or authorized access to the right authority;

10.2.3 late in the annual check up procedures;

10.2.4 lazy management and pursue their claims due, unpaid or otherwise inappropriate or dispose of existing principal property.

10.3 mortgagor (or pledgor) of the following circumstances, a Party that may cause collateral (or collateral) is not established or collateral (or quality of goods) less than the value of collateral required (or pledgor) to exclude this adverse effects, or to request Party B to increase, replace the guarantee conditions of security (or pledgor) and the Party does not match, that is regarded as an event of default has occurred:

10.3.1 of the collateral (or quality of goods) no ownership or disposition, or ownership dispute;

10.3.2 Collateral (or pledged property) incurred and rent, was closed down, was seized by regulators, there is the priority of the earlier statutory (including but not limited to, paragraph construction priority), etc., and / or concealment has occurred in such cases;

10.3.3 mortgagor without the written consent, the unauthorized transfer, lease, mortgage or any other further inappropriate disposition of collateral, although with a written consent or dispose of the mortgaged property, but income does not require by Party Party in the repayment of the debt owed by Party B;

10.3.4 mortgagor does not increase the collateral safekeeping, maintenance and repair, causing the value of the mortgaged property was derogatory; or directly endanger human conduct mortgage collateral, resulting in reduction of the value of collateral; or not the mortgage by the mortgagor during the period Party calls for collateral for insurance.

10.4 Upon the occurrence of any of the provisions of Article 10.1,10.2,10.3 event of default, the owner the right to separately or simultaneously to take the following measures:

10.4.1 the reduction of the line of credit under the Agreement, or stop the use of the remaining line of credit;

10.4.2 within the credit line in advance to recover the loan principal and interest has been paid and associated costs;

10.4.3 in the credit period for the Party a draft accepted or opening (including commission or turn on) the letter of credit, guarantee, delivery guarantee letter, etc., regardless of whether the advances Party, Party B may request side margin amount, or the other party in a prescribing into their margin account deposit account under the agreement as a settlement of advances to the next party margin, or the corresponding amount will be deposited by a third party, as a future advances for the B side margin;

10.4.4 Party A shall have recourse to the domestic factoring, export factoring the transferee from Party B under the accounts receivable has not been settled claims, the right to request Party B to perform an immediate repurchase obligations; for the Party In the domestic non-recourse factoring, import factoring the transferee under the accounts receivable of the party claims the right to recourse to Party B immediately.

10.4.5 Party B received settlement account by direct debit and / or other deposit account, in satisfaction of Party B under this Agreement and the specific obligations under the contract of all;

10.4.6 Article 13 under this contract recourse.

Ⅺ agreement and the lifting of the changes

This agreement of both parties reach a written agreement by consensus and can be changed and removed. Prior written agreement is reached, the agreement remains in force. Any party to this agreement will be allowed to unilaterally change, modify or discharge.

Ⅻ Other matters

12.1 in force of this Agreement, Party A Party B acts of any default or impose any delay tolerance, indulgence or delay the implementation of this Agreement Party shall be entitled to the interest or right, it can not harm, affect or limit in accordance with the relevant Party As the law and this Agreement shall be entitled to all rights of creditors and rights, not as a party to any violation of this Agreement the license or approval, nor as a party to abandon the breach of existing or future right to take action.

12.2 Agreement for whatever reason, to become null and void in law, or part of the clause invalid, Party B shall undertake to repay Party under this Agreement, all outstanding debt obligations. If this occurs, Party A is entitled to terminate this Agreement, and immediately to the Party B under this Agreement recover all debts owed.

12.3 Party A and Party B and this Agreement notice requirements shall be in writing.

Party Address: Lung Cheung Road, Central City, Longgang District, No. 8029

Party Address: Industrial Area, Longgang District Pinghu Luoshan

By hand delivery, the recipient sign as a service (the recipient rejected, deemed completed at the rejection); to submit postal correspondence, and sent as a service after the expiry of seven days; to submitted by fax, fax the recipient receives the fax as a delivery system.

Party to the media in the public notice to notify Party B or Party B claims for the transfer of collection matters, and the date of the announcement as a service.

Address change any of the parties shall promptly notify the other party, or to bear the loss which may arise.

12.4 The two sides agreed, under the trade finance business in all business applications, according to Party B's "chop reserved power of attorney" can be stamped with seal reserve, both sides recognized the validity of the signature.

12.5 A and B sides of this agreement by consensus on the outstanding issues, change issues a written supplementary agreement reached, and under this Agreement as of the particular contract attached hereto, and constitute an integral part of this agreement.

12.6 ---

12.7 ---

12.8 ---

Article 13 Applicable law and dispute resolution

13.1 This agreement is made, interpretation and dispute settlement are applicable PRC laws, A and B sides of the rights and interests of the PRC law.

13.2 A, B both in the performance of this agreement the disputes by consultation. The negotiation fails, either party may (three alternative, playing "√" choice):

【√】13.2.1 where the people's court to the party;

【---】13.2.2 to the arbitration committee for arbitration;

13.2.3 【---】submitted (if this election, the following Alternatively, mark "√" choice):

  【 ---】China International Economic and Trade Arbitration Commission

  【 ---】China International Economic and Trade Arbitration Commission --- Branch

Financial Disputes Arbitration Rules shall be in accordance with the arbitration.

13.3 The Agreement and the specific contracts for granted by both parties to enforce the effectiveness of the notary, the Party for the recourse to this Agreement and the specific B owed under the contract, directly to the people's court has jurisdiction to enforce .

Article 14 agreement comes into effect

This agreement of both parties the legal representative / responsible person or his authorized agent signature (or the cover name of chapter) and affix the official seal / seal the contract come into effect after the date of expiration of the period to the credit under this Agreement or B Party all the debts owed by Party and all other related costs automatically lapse date of settlement is completed (whichever is the later date).

Article 15 Supplementary Provisions

This agreement is in quadruplicates, Party, Party B and the guarantor, witness the agency keeps one copy, have the same legal effect.

Special Note: all of the terms of this Agreement by the parties had a full consultation. Bank has drawn special attention to the other parties to waive or limit the responsibility of banks, the banks have some of the unilateral right to increase or limit the liability of other parties to the rights of other parties to the terms, and its comprehensive and accurate understanding. Banks should be the requirements of other parties to the terms of the corresponding instructions. Contracting parties understand the terms of this Agreement consistent.

Party A (Stamp)：China Merchants Bank CO.，LTD. Shenzhen Longgang  Sub-branch

Signature of legal representative or deputy: /s/ [illegible signature]

Date: 8 Nov, 2010

Party B (Stamp)：SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.

Signature of legal representative or deputy: /s/ Pan Dangyu

Date: Sep 25, 2010

EX-10.7(A)

Irrevocable Guaranty Contract of Maximum Amount

Contract No.: 2010 Long Zi No. 00106082367-1

To: China Merchants Bank CO., Ltd. Shenzhen Longgang  Sub-branch

Bank and Shenzhen Highpower Technology Co., Ltd. (referred to as "Credit Applicant ") on __ __ 2010 signed the 2010 Long Zi No. 00106082367 of the "Credit Agreement" (referred to as "Credit Agreement"). Under the "Credit Agreement", between the September 1, 2010 and September 1, 2011 the credit period (referred to as "Credit Period"), within the Bank to credit the applicant for a total of RMB 2.5million (Including the equivalent in other currencies) line of credit (referred to as "credit line").

Required by the credit applicant, the sponsor agreed to provide the guarantees, letters of credit the applicant voluntarily <Credit Agreement> under all the debt owed to the Bank assume joint guarantee responsibilities. As follows:

 1 Guaranty Contract is the maximum amount of guarantee.

1.1  In the credit period, the Bank can provide loans or other credit, according to the "Credit Agreement" and / or the contracts under the Agreement of the graded credit applicant. Credit line credit application cycle can be recycled, disposable credit line credit application shall not recycled. Each loan or other credit in the amount, duration, and other specific uses can be agreed upon by the specific contract.

Maturity date of the specific business may be later than the "Credit Agreement" the credit period agreed upon expiration date.

1.2 Credit expiration of the period, the Bank provided loans to the credit applicant, there are still outstanding advances or other credit, that by the guarantor in the guarantee as defined in Article 2 to ensure that bear several and joint liability within; in the credit before the expiry of the period, such as the Bank under the "Credit Agreement" and / or the specific contract to provide for early recourse to the credit applicant, the guarantor of the guarantee also defined in Article 2 of the guarantee liability within the bear joint and several guarantees.

1.3 Bank credit to your credit within the period provided by the applicant acceptance of commercial drafts, open letters of credit (including commissioned switch to open letters of credit, the same below), open letter of guarantee,  the opening letter of credit business delivery guarantee, even if the credit expiration of the period the Bank advances has not happened, but your credit after the expiry of the period under the Bank to such business advances to the actual, resulting credit applicants by all obligations of the guarantor in the guarantee as defined in Article 2 bear joint and several guarantees to ensure that within the responsibility.

1.4 In the "Credit Agreement" under the specific business lines and credit performance of the applicant and bank between the duration of the specific business, interest rate and amount to reach agreement on renewal or change the terms, or your warranty period under the Bank "Credit Agreement" and / or adjust the interest rate of each specific contract, and without the consent of the guarantor's consent or notify the guarantor and the guarantee to be accepted per person, does not affect the guarantee of the Guarantor under this warranty assumed.

1.5 If the Credit Agreement of credit business under the Bank received the documents for review by the Bank appear to be discrepant, but the credit applicant to accept the discrepancy, the Bank pursuant to acceptance or payment of foreign debt principal and interest arising, The sponsor is still in accordance with the provisions of this Guaranty assume security responsibility, not because the Bank did not consent to accept the discrepancy or the guarantor agrees to notify the guarantor and any defense.

1.6 Credit under the letter of credit, letter of guarantee (or standby letter of credit) of the changes, forward letter of credit payment is due upon acceptance or extension of payment terms, etc., without the consent of the guarantor's consent or notify the guarantor per capita and the guarantee to be recognized, does not affect the Guarantor under this Guaranty assumed warranty.

2 Warranty

2.1 The scope of the guarantor to guarantee security for your line under the "Credit Agreement" within the credit line provided by the applicant credit loans and other credit balances of principal and (to a maximum of RMB 2.5million) and interest, penalty interest, compound interest, liquidated damages, costs and achieve debt factoring and other related costs. Including but not limited to:

2.1.1 the Bank under the "Credit Agreement" under the specific contract principal balance of loans and related interest, penalty interest, compound interest, penalty and related costs;

2.1.2 The performance of the Bank due to "Credit Agreement" under commercial bills of exchange, letters of credit, guarantees, delivery guarantees and other payment obligations under the letter of credit the applicant for the principal balance of advances advances and interest, penalty interest, compound interest, penalty and related costs;

2.1.3 under the factoring business, your line of credit applicants on the transferee of receivables overdue debt and the corresponding penalty (fines), and / or your credit line to purchase shall be paid a basic (basic commitment purchase money) and related security management costs;

2.1.4 Your line "Credit Agreement" under the trade finance business, the bank commissioned to make the advances and payments of foreign principal balance and interest, penalty interest, compound interest, penalty and related costs;

2.1.5 Bank shall credit the applicant claims the credit, the commission of other branches of China Merchants Bank to open letters of credit transfer to the beneficiary, the Bank under the credit, the issuing bank to fulfill the obligations for the credit advanced by the applicant and because of the advances that occurred issuing the import financing, delivery of secured debt principal balance and interest, penalty interest, compound interest, penalty and related costs;

[-----] 2.1.6 Bank and credit the applicant signed a number of the original --- the Credit Agreement, since the effective date of this Agreement, the original Credit Agreement under the specific business in the balance of outstanding (such as the provisions applicable in the fight in the [  ] "√");

2.1.7 the Bank to credit the applicant for all debt collection costs incurred (including but not limited to legal fees, legal fees, advertising fees, service fees, travel expenses, etc.).

2

2.2 The credit for recycling purposes, such as your credit line provided by the applicant to the loan or other credit line of credit balance in excess of the amount of principal, the guarantor of the loan balance exceeds the credit line does not undertake to guarantee some amount of responsibility, not only over credit limit the amount of principal balance of loans or other credit part of their interest, penalties, compound interest, liquidated damages, fees and other bear joint and several liability guarantee.

Notwithstanding the foregoing, but the guarantor clear: even if your credit line at some point during the credit provided by the applicant to the loan or other credit line of credit balance in excess of the amount of principal, but the Bank require the guarantor to assume the responsibility to ensure that all and the principal balance of the loan does not exceed credit limit, the guarantor shall not dispute the grounds of the aforementioned agreement, and respond to the principal balance of all credit and interest, penalty interest, compound interest, liquidated damages, fees, etc. (specific to the first range of 2.1 to the specific date) assume joint guarantee responsibilities.

3 Guarantees way

Confirm the guarantor guarantees in Article 2 within the scope of all debts and liabilities of the applicant's credit economy, joint and several liability law. If the applicant fails to credit, "Credit Agreement" and / or the specific contract, the Bank timely settlement of all outstanding loans, advances and other credit debt principal and interest and related costs, or "Credit Agreement" and / or the specific contract any other prescribed an event of default occurs, the Bank the right to direct recourse to the guarantor, without first recourse to the credit applicant or proceedings. Even if the applicant for the secured loan, "Credit Agreement" under the timely repayment of all debts can be equipped with the mortgage or pledge or other security, the Bank has the right to select applicants for credit in the "Credit Agreement" all the debts under the direct recourse to the guarantor, without first dealing with collateral, pledged property or goods under trade financing, bills and also other guarantor without first recourse.

Bank issued notice of a claim is conclusive, the guarantor no objection to this. The guarantor agrees to receive a written claim your bank within five days after the notice, shown with the applicant to repay credit, "Credit Agreement" under all the debt, without any certificate issued by the Bank and other documents. Except in cases of obvious and significant errors, the company received the money the Bank claims the amount of accurate data.

The right to take the Bank deems appropriate, including but not limited to fax, mail, hand delivery, notice in the public media and other means of collection of the guarantor.

4 Responsibility

The responsibility of the guarantor during the guarantee from the effective date of this Guaranty until the "Credit Agreement" under each loan or other financing or accounts receivable the Bank claims the transferee or each due date of advances advances Day plus two years. Either a specific credit extension, the extension to the extension of the warranty period plus two years only after the expiry of the period.

5 Guarantees the independence

This guarantee is an independent, sustainable and effective, irrevocable and unconditional, not subject to "Credit Agreement" and the effect of specific contracts, from credit applicant and any units / individuals entered into any agreement, document the impact, nor Applicants for credit fraud, restructuring, closure, dissolution, liquidation, bankruptcy, merger (the merger), division, restructuring, etc. of any change, from your bank to give credit applicants on the grace period and any time extension or delay the exercise of the Bank Recovery of credit applicants according to the agreement the rights owed affected in any way.

Even arrived at the same time otherwise the quality, charge or other security guarantor under the Bank to give up, change or dissolve credit, guarantee or pledge to change the responsibility to ensure that lifting the other guarantor, the guarantor under this guarantee is still the contents of your bank responsibility of guarantee.

3

6 Representations and Warranties of the Guarantor in particular the following:

6.1 The guarantor is established by law, legal entities with the guarantor, or other organizations with a qualified guarantor or the guarantor for the full civil capacity of natural persons (identity card number is 430104196803184316), willing to use all or any law of the guarantor secured the right to dispose of assets to ensure the performance of its obligations under this Guaranty;

6.2 The Guarantor guarantees have been issued by the full authority or higher authority / Board of Directors shall be entitled to approval;

6.3 This guarantee is issued by the true intention of the guarantor, there is no element of fraud or coercion;

6.4 The failure of the guarantor before the guarantee, the total amount of all foreign security (including foreign currency translation) does not exceed the total equity of the Guarantor;

6.5 The Bank requires the Bank to provide timely financial statements, and timely notification to the Bank of the guarantor in the production, operation and management of major decisions and changes;

6.6 guarantor to the Bank to provide financial statements and all other documents are true and legal, the legal representative of the sponsor or other responsible person can not shirk this liability;

6.7 According to the requirements of the Bank, issued "to guarantee" the book;

6.8 Registration of the guarantor's business, organizational structure, ownership structure, mode of operation or financial condition or the occurrence of any change in the debt restructuring, significant related party transactions and other matters, shall not affect the guarantee legally binding on the guarantor, such as the above changes occurred may affect the guarantor's ability to fulfill this guarantee, the guarantor of the obligation to immediately notify the Bank;

6.9 Guarantor's heirs or assigns all of this Guaranty subject to the terms. Not by the written consent of the Bank, the Guarantor will not transfer the warranty obligations.

6.10 The provisions of this Guaranty Guarantor fails to pay off the secured debt, the guarantor of the Bank is entitled to open your bank account or other financial institutions entrusted to the institution from the guarantor of the account opening charge until paid Qing "Credit Agreement" under the credit applicant all the debt owed the Bank so far.

7  Abstention

The effective period of this guarantee, the Bank of the credit applicant and the guarantor of any default or delay in the act to impose any tolerance, indulgence or delay the implementation of "Credit Agreement" and this guarantees the Bank shall enjoy the interest or right, are not damage, affect or limit the Bank in accordance with relevant legal provisions and the guarantees as a creditor should be entitled to all benefits and rights can not be regarded as giving up your bank breach of existing or future right to take action.

8 Disputes and Dispute Resolution

This guarantee applies to the laws, because this guarantees the controversy and disputes arising from the guarantor agreed to "Credit Agreement" by the agreed mode of settlement of disputes.

4

9 Terms

Terms used in this Guarantee, unless otherwise expressly stated, all with the "Credit Agreement" provides the same meaning.

10 Notice

Between the Bank and the Guarantor on the Guarantee of the notice requirements shall be in writing. By hand delivery, the recipient sign as a service (the recipient rejected, deemed completed at the rejection); to submit postal correspondence, and sent as a service after the expiry of the 7th; to submitted by fax, fax the recipient receives the fax as a delivery system.

Bank to the public announcement, the media collection to the guarantor, the date of the announcement as a service.

The sponsor's contact address is:

Change the contact address of the Guarantor shall promptly inform the Bank, and may otherwise have to bear the loss.

11 Guarantees entry into force of this

11.1 The Guarantor is a legal person or other organization, this guarantees the legal representative of the guarantor / responsible person or his authorized representative signature / cover and stamped with the name of chapter guarantor Seal / seal date of the contract.

11.2 The guarantor is a natural person, the guarantor of the guarantee of the date of signature.

12 Claims and guarantees the right to transfer from

12.1 Whether the maximum amount of secured claim is determined to ensure that your credit under the agreement about to transfer all third party claims, the most high security were transferred together from the right to claim the assignee.

12.2 Guaranty secured claim is confirmed, your bank transfer part of the claim, the guarantor of security in part be transferred from the right, your bank to transfer part of the debt is not part of the assigned claims and claims by the assignee of the surety the amount of shared security interests; the guarantee secured claims determined before the transfer of part of the Bank claims, security interests in part be transferred, the original guaranteed maximum security of your main line of a corresponding reduction in the maximum amount of debt (i.e. the original maximum security the maximum amount of the principal claim your bank deduct the amount of the transferred part of the debt), the Bank does not transfer to be part of the principal claim is confirmed, your bank to transfer part of the debt is not part of assigned claims with the assignee of the amount shared by credit guarantee of the guarantor interests.

5

13 Supplementary Provisions

This Guaranty is three originals, the Bank, credit applicants, guarantors, and institutions, armed with a witness, the same legal effect.

Special Note: all the provisions of this Guaranty made by the parties to full consultation. Bank has drawn special attention to the other parties to waive or limit the responsibility of banks, the banks have some of the unilateral right to increase or limit the liability of other parties to the rights of other parties to the terms, and its comprehensive and accurate understanding. Banks should be the requirements of other parties to the terms of the corresponding instructions. Contracting parties, the terms of this Guaranty understanding of exactly the same.

Guarantoris a legal personor otherorganizationto sign thiscolumn:

Guarantor: (Seal)

Legal representative/responsiblepersonor authorized agent(signatureorcovername ofchapter):

GuarantorLegal address:

Whenthe guarantoris a natural personto sign thiscolumn:

Guarantor(Signature):

GuarantorAddress: ---

GuarantorBank:---

Guarantorsettlement accounts: ---

Tel: ---

Fax: ---

6

[INFORMATION FOR PURPOSES OF FILING WITH THE SECURITIES AND EXCHANGE COMMISSION]

SCHEDULE A

PERSONS WHO ENTERED INTO THE

IRREVOCABLE GUARANTY CONTRACT OF MAXIMUM AMOUNT

●      Pan Dangyu

●      Hong Kong Highpower Technology Company Limited

7

EX-10.8

Line of credit contract

Contract No: 20100713001

Party A: SHENZHEN DEVELOPMENT BANK CO., LTD. Shenzhen Xinzhou Sub-branch

Add: Zhongchengtianyi Building, Xinzhou Road, Futian District, Shenzhen, GD, PRC

Tel: 23480048                                              Fax: 23480054

Principal: Fu Nannan                                 Position: President

Party B: SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.

Add: Building A2, Luoshan Industrial Zone, Shanxia, Pinghu, Shenzhen, Guangdong, China

Tel: 89686236                                                        Fax: 89686819

Legal Representative: Pan Dangyu                     Postcode: 518111

In accordance with the relevant laws and regulations, Party A and Party B make the agreement after the equal consultations, and both of them are willing to follow all terms of the contract.

¨.Content of Comprehensive line of credit

1. Sum of Comprehensive line of credit

RMB 60,000,000.00 (CNY SIXTY MILLIONS ONLY)

Currency exchange rates convert according to the actual foreign exchange rate Party B announced except RMB.

2. The validity of Comprehensive line of credit: from Jul. 20th 2010 to Jun. 16th 2011. During this period, Comprehensive line of credit can be recycled using many times, each time Party A and Party B confirm the method, amount, duration, etc., but the use of credit balances in various ways can not exceed the amount of Comprehensive line of credit.

Start Date and End Date of the actual business must be between Jul. 20th 2010 and Jun. 16th 2011, and End Date subject to the terms of the contract.

If Party A doesn’t give Party B any credit in six months from          , this Comprehensive line of credit is an automatic termination.

¨.Transfer credit under the line of credit

Party B agrees to transfer the line of credit to the third party (the following party can also use this line of credit), Party B should take the joint guarantee liability for all the debts (including contingent liabilities) the principals, interests, penalties and compound interest, costs to fulfill claims ( including but not limited to expenses of litigation, lawyer, notarization, execution, etc.), other damage and fee because of debtor’s default. There is 2 years of guarantee from the effective date of the contract to the expiration of the credit contract (including debt’s early maturity).

The specific object and amount:

1. ( transfer credit to ) , amount to  

( the capital form )                                                                   ;

2. ( transfer credit to ) , amount to 

( the capital form )                                                                   ;

3. ( transfer credit to ) , amount to 

( the capital form )                                                                   ;

4.  

.

¨.This contract entered into according to PRC laws , and applies to PRC laws. If there is a dispute during the performance of the contract, Party A and Party B should consult or mediate; once negotiation or mediation fails, Party A and Party B should solve disputes according to the first term:

1. A lawsuit to the people’s court of Party A locating.

2. To  arbitration committee for arbitration.

3. .

¨. Obliged execution notarization

Both parties agree to transact the obliged execution notarization on this contract.

Once both parties transact the obliged execution notarization on this contract, if Party B fails to perform or not to meet contractual obligations, Party A has the right to apply to the execution notarization of original notary public, and petitions for enforcement to the competent court (the court where the person subject to enforcement lives or his (her) property is) with original notarization and the execution notarization.

No obliged execution notarization of this contract

¨. Other matters both parties agree to: (1) Party B must complement the full margin at least before one month if Party B use the credit with Bandar’s note or trade bill, otherwise Party A has the right to stop credit in advance. (2) The applicant can not distribute the profits during the period of credit line, otherwise Party A has the right to stop credit in advance. Party A mentioned above is our bank, and the applicant is Party B.

¨. This agreement is written in five originals, two for Party A, and one for Party B and       /    . Each original enjoy the equally authentic.

¨. The way of comprehensive credit

The ways of comprehensive line of credit include but not limited to the following:

loans, lending, bill acceptance and discount, overdraft, factoring, guarantees, loan commitments, letters of credit, etc.

The specific way of credit subjects to the specific business contract signed by the two sides.

¨. The use of comprehensive credit line

The applicant of the use of comprehensive credit line must be Party B, and examined and approved by Party A, then the two sides sign the corresponding business contract.

¨. Statement, guarantee and promise of Party B

1. Party B is a validly existing and good reputation company founded in the judicial area, with all the corporate rights and government licensing and approval in current business.

2. Party B has the legal power, right and authority to sign, deliver and perform this contract. This contract constitutes a valid and binding agreement to Party B, and according to the terms of the contract execution can be done to Party B.

3. Party B guarantees that the information provided is true, complete, legal, valid, and does not contain any false record, misleading statement or significant omission

4. Party B hereby promises to completely performance all obligations in good way under the contract, and without prior written consent of Party A, Party B will not make any behavior (including Party B shall act but not, or should not act but act) to endanger the realization of claims under the contract.

5. Party B hereby promises to give a written notice to Party A within ten days when changing residence, mailing address, telephone number and business scope, legal representative of such matters. If Party B does not fulfill the obligation to notify Party A, the notice and documents are deemed to have been delivered in accordance with the original mailing address.

6. Party B hereby confirms that signing this contract is the true meaning by having carefully reviewed and fully being aware of and understanding all the terms of this contract.

¨. Particularly credit agreement of group clients and related transactions

1. Customers of the group are enterprise legal persons with the following characteristics:

(1) Controlling of other enterprise legal persons or controlled by other enterprise legal persons directly or indirectly in the equity or management;

(2) Controlled together by the third enterprise legal person;

(3) Major investment individuals, key management personnel or close family members (including immediate family members within three generations and collateral relatives within two generations) common control directly or indirectly;

(4) It should be treated as credit management of group clients when transferring assets and profits may not be in accordance with the principles of fair prices with other relationship.

2. As a group client, Party B should write a report to Party A within ten days from the date of more than 10% of the net assets of affiliated transactions. Contents of the report include affiliated parties of the transaction, the transaction and the nature of the transaction, the transaction amount or the appropriate percentage and the pricing policies (including those with no or only a nominal amount of the transaction).

¨. Event of default and liability for breach of contract

1. Event of default

One of the following circumstances shall constitute a default:

(1) Party B is found to be in breach of contract or fails to fulfill its duties and obligations, or expressly states or indicates by its conduct that it will not perform its obligations under a contract either.

(2) The relevant certifications and documents Party B submitted to or any announcements Party B made are untrue, inaccurate, incomplete or contain any false records, misleading statements or major omissions.

(3) Party B conceals the true important situation, and doesn’t match the survey, review and inspection of Party A.

(4) Party B arbitrarily changes the use of loan funds, misappropriates loans or uses bank loans in illegal or irregular transactions.

(5) Party B violates the agreement to sign any other similar contract with Party A or other third party (including but not limited to credit contracts, loan contracts, security contracts), or release of any debt securities in nature, or litigate or arbitrate because of the contract or the securities.

(6)Party B's guarantor breaches of the guarantee contract (including but not limited to the credit contract, mortgage contract, pledge contract) occurred an event of default under the guarantee contract, or the guarantee contract does not entry into force, is invalid or revoked.

(7) To Party B there exists indolent management and recourse debt maturity, or it transfers property or uses other ways to evade debts with ways of gratis, unreasonably low price and other improper means.

(8) Party B uses the false contracts and arrangements of any third party (including but not limited to Party B's related party), including but not limited to claims discount or pledge with no real background of notes receivable to obtain Party A’s or other banks’ funds or credit.

(9)Party B evades bank debts on purpose through related party transactions or other ways.

(10) There are major problems in Party B’s business circumstances, such as deteriorated financial situation, significant financial loss, loss of assets (including but not limited to loss of assets because of the external security), or other financial crisis.

(11) Party B is subject to administrative penalties, criminal sanctions because of illegal operations or being surveyed by authorities, and may be subject to administrative penalties, criminal sanctions.

(12) Party B is subject to spin-off, merger, major merger, acquisition or reorganization, a significant disposal of assets, capital reduction, liquidation, reorganization, revocation, declared bankrupt, dissolution, etc.

(13) The controlling shareholder or actual controller of Party B changes which has been or may endanger to achieve claims of this Contract in Party A’s opinion, or Party B's controlling shareholder, actual controllers, legal representatives, senior management occur major events, including but limited to be subject to administrative penalties, criminal sanctions because of illegal operations or being surveyed by authorities, and may be subject to administrative penalties, criminal sanctions. And there occur litigation or arbitration cases, serious deterioration of the financial situation, declaring bankruptcy or dissolution, etc.

(14) Party B’s industry has adverse change, Party A considers which has been or may endanger to achieve claims of this contract.

(15) Party B does not apply for settlement or deposit-taking or other related businesses in accordance with the contract.

(16) There are situations that endanger or may endanger the realization of claims under this contract associated with Party B.

2. Liability for breach of contract

(1) Right to change, cancel or suspend the comprehensive credit line of this contract, or adjust the term of validity.

(2) Party B will be requested to repay all or part of the credit that has been used immediately when Party A announced that the debt is due soon in whole or in part under the credit.

(3) Party B is requested of additional guaranty, or other measures taken to ensure that the lawful rights and interests of Party A shall not be violated.

(4) Party A shall have the right to deduct the money from Party B’s account or the guarantor’s account directly to pay off all the debt that Party B owed in the contract and other specific business under the contract (including debt that Party A requested to pay in advance), without prior consent of Party B.

(5) Party A shall have the right to perform the guaranty, demand the guarantee to realize the liability of the guaranty, or dispose of the pawn and/or the pledge to realize creditor's rights.

¨. This agreement becomes effective after being signed (it should be signed and sealed by authorized person).

Party A (Stamp)

/s/ [illegible signature]

Signature of legal representative or deputy:

Date: Jul 7th, 2010

Party B (Stamp)

/s/ Pan Dangyu

Signature of legal representative or deputy:

Date: Jul 7th, 2010

* The line of credit converted into U.S. dollars is 9 million at December 31, 2010 exchange rates.

EX-10.8(A)

The maximum amount Guarantee Contract

Contract No: 20100713001

Party A: SHENZHEN DEVELOPMENT BANK CO., LTD. Shenzhen Xinzhou Sub-branch

Add: Zhongchengtianyi Building, Xinzhou Road, Futian District, Shenzhen, GD, PRC

Tel: 23480048	Fax: 23480054
Principal: Fu Nannan	Position: President

Party B (guarantor): Pan Dangyu

Type of voucher: I.D. card       No of voucher:

In order to perform the contract (hereinafter referred to as the master contract) between Party A and Shenzhen Highpower CO., LTD (hereinafter referred to as the debtor), Party B is willing to provide joint and several liability guarantee as the guarantor of the debtor under the master contract. Party A and Party B sign the agreement after the equal consultations, and both of them are willing to follow all terms of the contract.

Part 1 range of guarantee

Under No. 20100713001 comprehensive line of credit contract, the debtor should take the joint guarantee liability for all the debts (including contingent liabilities) the principals, interests, penalties and compound interest, costs to fulfill claims. The maximum amount of the debt principal is RMB 60,000,000.00.

Interest, penalty interest and compound interest are calculated in accordance with the master contract until the date of the debt paid off. The cost of achieving debt includes but not limited to expenses of notice, express, identification, litigation, lawyer, notarization, assessment, auction, execution, etc.

Currency exchange rates convert according to the actual foreign exchange rate Party B announced except RMB.

Part 2 the period of guarantee

The period of guarantee is:

From the effective date of this contract until the due of all the concrete credit debt under the main contract plus two more years. The period of any specific contract is calculated separated, and if any credit defers, the period also defers two years from the due of credit.

Part 3 The debtor transfers the line of credit to a third party, Party B agrees to take the joint guarantee liability for the transferred part, and the specific transferred party and amount is:

1.  ( transfer credit to ) , amount to 

( the capital form )                                ;

2.  ( transfer credit to ) , amount to 

( the capital form )                                ;

3.  ( transfer credit to ) , amount to 

( the capital form )                                ;

4.  

.

Part 4 Other terms the two party sign:

Part 5 This agreement is written in four originals, two for Party A, and one for Party B and debtor       /    . Each original enjoy the equally authentic.

Part 6 Obliged execution notarization

Both parties agree to transact the obliged execution notarization on this contract.

Once both parties transact the obliged execution notarization on this contract, if Party B fails to perform or not to meet contractual obligations, Party A has the right to apply to the execution notarization of original notary public, and petitions for enforcement to the competent court (the court where the person subject to enforcement lives or his (her) property is) with original notarization and the execution notarization.

No obliged execution notarization of this contract

Part 7 responsibility of guarantee

Party B ensures to take the joint guarantee liability for all the debts (including contingent liabilities) the principals, interests, penalties and compound interest, costs to fulfill claims. The debtor does not fulfill the repayment obligations when the credit is due (including contract expires and early maturity) or other occurrence of the default under the contract, party A can either claim to the debtor, or directly claim to Party B for compensation. Party B irrevocably authorized party A to debit the expired amount directly from the Party B's bank account if the debtor does not fulfill the repayment obligations when the credit is due (including contract expires and early maturity) or other occurrence of the default under the contract.

Regardless of whether the debtor or a third party provides the property security (mortgage or pledge), party A has the right to request Party B to bear the responsibility of guarantee, without first dispose of collateral.

Part 8 The guarantee of the contract is separate, and is not effected by other guarantor’ security.

Part 9 The guarantee of the contract is Irrevocable, and it is not effected by any contract signed between debtor and any other party or changed by debtor's bankruptcy, insolvency, loss of business qualifications, change of the Articles of Association

Part 10 Event of default and liability for breach of contract

1. Event of default

One of the following circumstances shall constitute a default:

(1) Party B fails to fulfill its duties and obligations, or expressly states or indicates by its conduct that it will not perform its obligations under the contract.

(2) The relevant certifications and documents Party B submitted to or any announcements Party B made are untrue, inaccurate, incomplete or contain any false records, misleading statements or major omissions.

(3) Party B conceals the true important situation, and doesn’t match the survey, review and inspection of Party A.

(4) To Party B there exists indolent management and recourse debt maturity, or it transfers property or uses other ways to evade debts with ways of gratis, unreasonably low price and other improper means.

(5) Party B violates the agreement to sign any other similar contract with Party A or other third party (including but not limited to credit contracts, loan contracts, security contracts), or release of any debt securities in nature, or litigate or arbitrate because of the contract or the securities.

(6) The guarantee contract is invalid or revoked.

(7)The debt of principal contract expires or has a early maturity, all or part debt is not paid off.

2

(8) Party B intends to avoid bank debt through related party transactions or other ways.

(9) When Party B is a company:

9.1 There are major problems in Party B’s business circumstances, such as deteriorated financial situation, significant financial loss, loss of assets (including but not limited to loss of assets because of the external security), or other financial crisis.

9.2 Party B is subject to administrative penalties, criminal sanctions because of illegal operations or being surveyed by authorities, and may be subject to administrative penalties, criminal sanctions.

9.3 Party B is subject to spin-off, merger, major merger, acquisition or reorganization, a significant disposal of assets, capital reduction, liquidation, reorganization, revocation, declared bankrupt, dissolution, etc.

9.4 The controlling shareholder or actual controller of Party B changes which has been or may endanger to achieve claims of this Contract in Party A’s opinion, or Party B's controlling shareholder, actual controllers, legal representatives, senior management occur major events, including but limited to be subject to administrative penalties, criminal sanctions because of illegal operations or being surveyed by authorities, and may be subject to administrative penalties, criminal sanctions. And there occur litigation or arbitration cases, serious deterioration of the financial situation, declaring bankruptcy or dissolution, etc.

9.5 Party B’s industry has adverse change, Party A considers which has been or may endanger to achieve claims of this contract.

(10) when Party B is personal:

10.1 Disability, unemployment, relocation, job changes, business changes and such any changes that have been or may affect Party B to fulfill security responsibilities.

10.2 Party B is held criminally responsible, or by other enforcement measures or to restrict a right taken by the relevant authorities that has been or may affect Party B to fulfill security responsibilities.

10.3 The heir or legatee of Party B give up inheritance, bequest, or accept the inheritance, bequest, but refuse to assume security responsibility.

(11)The other situations have been or may affect Party B to fulfill security responsibilities.

2. Liability for breach of contract

(1) Require Party B to take guarantee responsibility, and the right to deduct the money from Party B’s account for all the debts (including contingent liabilities) the principals, interests, penalties and compound interest, costs to fulfill claims ( including but not limited to expenses of litigation, lawyer, notarization, execution, etc.)

(2) Require Party B to provide new guarantee including but not limited to mortgage or pledge

(3) To require Party B to repay all damage of Party A

(4) Claim subrogation to debtor of Party B, in accordance with the requirements of Party A，Party B needs to provide all necessary cooperation and assistance, and Party B shall bear the cost.

(5) Request the people's court for revocation of that party B give up due credit or transfer property freely or with manifestly unreasonable behavior of low-cost

(6)Claim other relief measures according to law and the contract.

Part 11 Party A has the right to require the debtor to repay the credit according to law when the master contract or the specific contract is invalid for whatever reason. When the situation above occurs, the contract is not effected, and Party B still take guarantee responsibility for the contract.

3

Part 12 the claim, guarantee and promise of Party B

1. Party B has the legal power, right and authority to sign, deliver and perform this contract. This contract constitutes a valid and binding agreement to Party B, and according to the terms of the contract execution can be done to Party B.

2. Party B is a validly existing and good reputation company founded in the judicial area, with all the corporate rights and government licensing and approval in current business.

3. Party B guarantees that the information provided is true, complete, legal, valid, and does not contain any false record, misleading statement or significant omission

4. Party B hereby promises to completely performance all obligations in good way under the contract, and without prior written consent of Party A, Party B will not make any behavior (including Party B shall act but not, or should not act but act) to endanger the realization of claims under the contract.

5. Party B hereby promises to give a written notice to Party A within ten days when changing residence, mailing address, telephone number and business scope, legal representative of such matters. If Party B does not fulfill the obligation to notify Party A, the notice and documents are deemed to have been delivered in accordance with the original mailing address.

6. Party B hereby confirms that signing this contract is the true meaning by having carefully reviewed and fully being aware of and understanding all the terms of this contract.

Part 13 modify the contract

1.Agreed with both parties, the contract can be modified with written type.

2.When the master contract is modified, Party A should notice Party B in time, and Party B still take guarantee responsibility for the modified contract after agreement. But when the change of contract make the credit of debtor less (including but not limited to the less of credit amount or the period), Party B should agree the change and Party A need not to notice Party B, Party B still take guarantee responsibility for the modified contract.

Part 14 The duration of this contract, Party A take tolerance, indulgence or delay to any breach of the act or delay of Party B under this contract that shall not prejudice, influence or restrict all the rights of creditor in accordance with the contract and relevant laws and regulations, and should not be regarded as the permission to any acts of destruction under the contract or give up the right to take action on existing or future violations.

Part 15 Applicable Law and Dispute Resolution

1. This contract is signed in accordance with PRC laws and applicable PRC laws.

2. x The contract dispute can be resolved in accordance with the main contract.

Part 16 This agreement becomes effective after being signed (if natural person, it should be signed by party, if legal person or other organization, it should be signed and sealed by authorized person).

Party A (Stamp)

Signature of legal representative or deputy:

/s/ [illegible signature]

Date: July 13, 2010

4

Party B (sign)

Signature of legal representative or deputy:

/s/ Pan Dangyu

Date: July 13, 2010

5

EX-10.9

Comprehensive line of credit contract

Party A: SHENZHEN HIGHPOWER TECHNOLOGY CO., LTD.

Add: Building A2, Luoshan Industrial Zone, Shanxia, Pinghu, Shenzhen, Guangdong, China

Legal Representative: Pan Dangyu

Tel: 89686236

Fax: 89686819

Party B：China Everbright Bank Shenzhen Longhua Sub-branch

Add：first floor, No.3, 4building, yinquan garden, people south road, Longhua, Baoan

Tel：81483350

Fax：28138641

In accordance with the relevant laws and regulations, like ‘Republic of China on Commercial Banks’and ‘Interim Measures of commercial banks authorize and credit’, Party A and Party B make the agreement after the equal consultations, and both of them are willing to follow all terms of the contract.

Part 1 Definitions and interpretation

1. Except as otherwise explained in the context, the following terms of this agreement meaning:

Comprehensive credit: Party B shall provide one or several conditional commitment by credit support to Party A.

Specific business: According to comprehensive credit, Party B shall provide the loans, bank acceptances, trade finance and other specific credit business to Party A.

The maximum credit limits: According to comprehensive credit, the highest balance of debt principal by using the specific businesses Party A can apply to Party B within the validity period of the comprehensive credit agreement.

Specific line of credit: According to the maximum credit limits, the highest balance of debt principal by using one specific business Party A can apply to Party B within the validity period of the comprehensive credit agreement.

Used line of credit: According to specific line of credit, the sum of debt principal by using one specific outstanding business Party A applied within the validity period of the comprehensive credit agreement.

Specific business contract: The contract signed by Party A and Party B about the specific using of the business and Line of credit.

Part 2 The maximum credit limits and Specific line of credit

2. The maximum credit limits under this contract (Currency exchange rates convert according to the actual foreign exchange rate): RMB50,000,000

3. According to the maximum credit limits, the specific line of credit as:

bank acceptances: the specific line of credit RMB50,000,000

Part 3 The period of credit

4. The period of the maximum credit limits:  from March 3th 2010 to March 3th 2011. The period of the specific business is determined by the specific contract, but the start date of the specific business must not exceed the effective use of the deadline of the maximum credit limits.

Part 4 the using of the maximum credit limits and specific line of credit

5. According to the maximum credit limits, Party A can apply to use the specific line of credit once or several times during the period of credit. Party B determine the name, sum and period of specific business by the credit of Party A and the credit policy of Party B.

6. Requirements on recycling: During the period of the maximum credit limits, Party A can cycle the line of credit. The debt of one specific business is paid off, the same kind of new specific business can be used except that Party B prohibited recycling.

7. Party A and Party B should sign specific contract for specific business. If the specific business contract is inconsistent with this agreement, it should subject to specific business contract.

Part 5 The rate

8. According to every specific business contract, Party A and Party B should rule the interest rate, exchange rate, fee rate and other fee receivable by Party B in the specific contract.

Part 6 Adjustment of the maximum credit limits and specific line of credit

9. Party B has the right to adjust the maximum credit limits and specific line of credit and the period or end the line of credit when one of the following things occurred:

（1）Country's monetary policy has major adjustment；

（2）The region of Party A is suffering or will suffer financial risks;

（3）The market related to Party A has great change；

（4）Party A is suffering or will suffer operating difficulty or risk；

（5）Party A appears merger, termination or other major institutional change;

（6）Party A has not used credit fund for the required purposes;

（7）Party A has such acts as transfer of property, withdrawal of funds or avoiding debt;

（8）Party A has the act of violation of commitments under this Agreement;

（9）Guarantor of this Agreement suffers the serious shortage of funds or operating difficulties, which has seriously affected the security capabilities;

（10）Collateral for the guarantee damages, endangering the Party B's debt security;

（11）There occurs everything，according to Party B’s opinion，which Decreases the solvency of Party A or damages the interests of Party B;

10. Signed the contract, Party A can write application to adjust specific line of credit. After the written consent of Party B, the contract can be adjusted, and not subject to the constraints. The written application and written consent are considered to the modification of the part 3, which has the same power of the contract.

Part 7 Guarantee

11. In order to ensure that claims under this agreement are satisfied, take the following security methods:

The guarantor Xiamen Tungsten Co., Ltd. Signed China Everbright Bank warehouse operations confirmed the tripartite agreement with Party A and Party B.

Part 8 Commitment of Party B

13.  Party A applies to use the specific credit in accordance with the agreement，Party B should examine and notice the result to Party A in time.

14. Except as otherwise provided in this Agreement, Party B can not adjust the contract which may lead adverse effects to Party A.

Part 9 Commitment of Party A

15. Party A should pay off the debt and fees on time according to the specific business credit.

16. The using of fund under the specific contract should follow the provisions of the law and the agreement, and accept Party B's examination at any time.

17. During the period of credit, Party A should submit to Party B true financial statements, truthfully provide major domestic bank, bank account, deposit and loan balance and other relevant information of the operating conditions.

18. Party A should prescribe settlement account in Party B, the average daily balance sheet account balances can not less than 30% of the sum of used line of credit.

19. During the period of credit, Party A should notice Party B in advance when providing guarantee for third party, which can not effect the ability to pay off debt.

20. During the period of credit, Party A has the following obligation:

(1) If the legal representative or legal residence, place of business, or the registered capital of a major investment in equity change, Party A shall notice to Party B within 15 days from the date of change and provide the relevant information.

(2) In the credit period, Party A involved in significant litigation, arbitration or other judicial proceedings, administrative punishment procedures, or a significant change in operating conditions and financial condition, which may affect the realization of Party B’s debt, Party A shall notify Party B immediately.

21. If Party A fails to the rule of any specific business contract, then it can be seemed to breach the agreement, and Party B has the right to end the agreement and require all outstanding claims.

Party A to Party B for breach of contract for any losses caused by Party A to pay a full compensation for all the obligations.

Part 10 Agreement enters into force

22. This agreement signed by both parties’ the legal representative or agent or sealed and stamped comes into effect when the guarantee contract comes into effect. If there is not the guarantee contract, the agreement comes into effect when it signed by both parties’ the legal representative or agent or sealed and stamped.

Part 11 Disputes and resolution

23. If two parties have a dispute, amicable settlement is accepted firstly. Necessary action is needed if the consultation fails, either party may apply to the local court.

Part 12 Integrity Agreement

24. Every specific business contract signed by Party A and Party B is the effective part of this agreement, which make up integrity agreement.

25. If Party A fails to the rule of any specific business contract, then it can be seemed to breach the agreement, and Party B has the right to end the agreement and require all outstanding claims.

26. Matters not covered in this Agreement, the parties may be reach a written agreement as an annex to this Agreement which is the integral part of this agreement, and has the same legal effect.

Part 13 Supplementary Provisions

27. This agreement is in quadruplicate, Party A one, Party B three, which have the same legal effect.

28. This agreement is signed on March 3th 2010 at Shenzhen.

29. The two parties agreed to notarize the contract and promise to give the contract enforceability. When the party fails to perform, do not fully comply with any legal obligations, Party B has the right to direct the people's court having jurisdiction for enforcement. Party A makes ​​no objection to the enforcement application under the agreement. (Not applicable)

30. If at any time, any provision of this contract in any way becomes illegitimate, invalid or unenforceable, the legality, validity or enforceability of the other provisions of this contract is not effected.

31. Other conventions

Party A (Stamp)

/s/ Pan Dangyu

Signature of legal representative or deputy:

Party B (Stamp)

/s/ [illegible signature]

Signature of legal representative or deputy:

EX-10.10

STRICTLY PRIVATE & CONFIDENTIAL

[Shenzhen Highpower Technology Co., Ltd]

Date: April 7, 2010

Dear Sirs,

Re:      Renminbi /FCY Banking Facility

We refer to the recent discussions regarding the financing requirements of Shenzhen Highpower Technology Co., Ltd, (herein referred to as “the Company”) and are pleased to confirm that Standard Chartered Bank (China) Limited, acting through its Shenzhen Branch (herein referred to as “the Bank” which term shall include Standard Chartered Bank (China) Limited and/or its Shenzhen Branch), is willing to make the following banking facility available to the Company.

1. Import Invoice Financing

Amount:	USD5,000,000
Purpose:	To finance the local purchase of raw materials in China
Tenor:	Up to 120 days.
Handling Fee:	0.15% of financing amount
Prepayment Percentage:	100% of invoice amount.
Drawdown:	Subject to availability of funds, A written drawdown notice duly signed by the authorized signatories of the Company will normally be required to be submitted 3 banking days’ prior to the date of drawdown. Any drawdown of the loan is at the Bank’s sole discretion. Drawdown should be paid directly to the bank accounts of the specified suppliers.And supported by the following document:
	Drawdown request and payment instruction submitted by the Company;
	Original VAT invoice (for domestic trade) or Original copy of commercial invoice
	Original Delivery evidence
Interest:	COF+2.5% p.a.
Repayment:	Unless otherwise agreed by the Bank, all outstanding advances shall be repaid within the maturity date of such drawing (each is referred to as a “Repayment Date”).

*** Banking Facility Letter*** Page 1

Prepayment:	Allowed with prepayment penalty of 0.25% flat, subject to the Company giving at least 16 days prior written notice. Any breaking funding cost is for the Company's account.
Clean Up	No rollover is allowed.
Clause:

2. Import Invoice Financing

Amount:	RMB equivalent to USD5,000,000.-
Purpose:	To finance the local purchase of raw materials in China
Tenor:	Up to 120 days.
Handling Fee:	0.15% of financing amount
Prepayment	90% of equivalent CNY bills
Percentage:
Drawdown:	Subject to availability of funds, A written drawdown notice duly signed by the authorized signatories of the Company will normally be required to be submitted 3 banking days’ prior to the date of drawdown. Any drawdown of the loan is at the Bank’s sole discretion. Drawdown should be paid directly to the bank accounts of the specified suppliers.And supported by the following document:
	Drawdown request and payment instruction submitted by the Company;
	Original VAT invoice (for domestic trade) or Original copy of commercial invoice
	Original Delivery evidence
Interest:	The interest shall be collected at the interest rate which is 110% of the base rate published by the People's Bank of China (the “PBOC”) on the day of drawdown, and shall be payable on the Interest Payment Date by debiting the Company's account held with the Bank on the same day.  Therefore, the Company shall maintain sufficient funds in its account before each Interest Payment Date.
Repayment:	Unless otherwise agreed by the Bank, all outstanding advances shall be repaid within the maturity date of such drawing (each is referred to as a “Repayment Date”).

*** Banking Facility Letter*** Page 2

Prepayment:	Allowed with prepayment penalty of 0.25% flat, subject to the Company giving at least 16 days prior written notice. Any breaking funding cost is for the Company's account.
Clean Up	No rollover is allowed.
Clause:

3. LOANS AGAINST TRUST RECEIPT/IMPORT LOAN

Amount:	USD5,000,000.-
Purpose:	For the granting of Loans Against Trust Receipt/Import Loan to meet the drawings under irrevocable letters of credit secured/unsecured by goods opened by the Bank.
Tenor :	Up to 90 days
Interest:	COF + 2.5% per annum.
Handling Comm	0.125% of bills amount
Commission in lieu of exchange:	0.125% of bills amount
Availability	All application forms and other supporting documents to be in form and substance satisfactory to the Bank

4. IRREVOCABLE LETTER OF CREDIT SECURED/UNSECURED BY GOODS

Amount:	USD5,000,000.-
Purpose:	For opening of irrevocable letters of credit secured/unsecured by goods , calling for drafts drawn at sight or usances of up to 90 days covering imports of raw materials. /Prior evidence of insurance will be required for all “free on board’ and ‘cost and freight’ shipment /.
Tenor:	Up to 90 days.
Issuance fee:	0.15% of LC amount, Min USD40.00 per LC
Acceptance fee;	0.1% per month, Min USD40.00
Other Fee:	standard rates.
Availability	All application forms and other supporting documents to be in form and substance satisfactory to the Bank

*** Banking Facility Letter*** Page 3

5. FOREIGN EXCHANGE FACILITIES

The Bank will be pleased to quote rates for foreign exchange spot transactions and forward transactions up to 24 months. Quotes for same day or next day settlement can normally be provided subject to the currency involved and the time of day.  Such quotes will always be at the sole discretion of the Bank.

6. COMMODITY DERIVATIVE FACILIITIES

The Bank will also offer a commodity derivative facility including hedging solutions that meet the Company's specific requirements subject to an ISDA Master Agreement.

Notes

1. For facility 1 and 2, the approved suppliers list is listed as below:

GOLD SKY ENGRGY MATERIALS CO. LTD

XIAMEN TUNGSTEN CO., LTD.

BAOTOU SANTOKU BATTERY MATERIALS CO. LTD

ALANTUM ADVANCED TECHNOLOGY MATERIALS SHENYANG CO. LTD

ADVANCED TECHNOLOGY MATERIALS DALIAN CO. LTD

INNER MONGOLIA BAOTOU STEEL RARE EARTH HI-TECH. LTD

WUXI CITY JINGYANG NEW TYPE POWER SUPPLY CO., LTD

SHENZHEN HONGYANG JINSHUWANG CO., LTD

HUIZHOU YULONG INDUSTRIAL TRADING COMPANY

HEZE TIANYU TECHNOLOGY DEVELOPMENT LIMITED LIABILITY COMPANY

HENAN XINFEIDELONGPOWER SOURCE CO. LTD

SHENZHEN NONFEMET HI-POWER BATTERY MATERIAL CO. LTD

TAIXINGZHENGXING ELECTRON CO. LTD

NICKEL-METROPOLIS INDUSTRIAI COMPANY

NINGBO JINHE NEW MATERIALS CO., LTD

TIANJIN B＆M SCIENCE AND TECHNOLOGY JOINT-STOCK.,LTD

DONGGUAN XURAN BATTERY CO., LTD

SHANGHAI SHAENINTERNATIONAL TRADING CO., LTD

UNITED COPPER FOILS (HUIZHOU) LTD

*** Banking Facility Letter*** Page 4

DONGGUAN CITY SHANSHAN  BATTERY MATERIALS CO., LTD

NINGBO SHANSHAN ADVANCED MATERIAL TECHNOLOGY CO., LTD

HUNAN SHANSHAN  ADVANCED MATERIAL CO., LTD

SHANGHAI SHAENINTERNATIONAL TRADING CO., LTD

SCM INDUSTRIAL CHEMICAL CO.,LTD

CIXI FEILAN NONFERROUS METALS CO.,LTD.

Ningbo Yanmen Chemical Co., Ltd

WUXI CITY DONGYANG  ELECTRON CO. LTD

Wuxi Jinyang Wanyi Electronics Co., Ltd

Jiangmen Fangyuan Environment Technology Ltd.

Any changes should be approved by the Bank at any time.

2. The combined tenor of facility 3 and 4 should not exceed 120 days.

3. The facility 1, 2, 3 and 4 are complementary, such that the aggregate of the outstanding should not exceed USD5,000,000.- or its equivalent at any time.

Security

1. 30% cash margin to be pledged with the Bank on pro-rata basis to Import LCs, LATR,OIL and IIF. In case it is in different currency, an additional 10% buffer is to be taken, i.e: 33% cash margin in different currency.

2. Corporate guarantee for USD5,000,000.- in the Bank’s standard form issued by Springpower Technology (Shenzhen) Co., Ltd

3.Personal guarantee for USD11,000,000.- in the Bank’s standard form issued by Pan Dan Yu

Top Up Clause

The Company shall at all times comply with the security requirement specified in this letter or as notified by the Bank to the Company from time to time. If the value of the security shall at any time fall below the amount required by the Bank, the Company shall provide additional security acceptable to the Bank and /or reduce the relevant outstanding in order to comply with the relevant requirements within the time limit imposed by the Bank from time to time.

*** Banking Facility Letter*** Page 5

Availability and Repayment

The offer for facility finance is available for acceptance by the Company within 30 days of the date hereof. The facility is available for drawdown at the Bank’s sole discretion after the date of the Company’s acceptance of this letter.  It is thereafter subject to periodic review by the Bank at its discretion, and it is expressly agreed that they will at all time be available at the sole discretion of the bank.

The FCY facility is however subject to periodic review on or before 31 March 2011 by the Bank at its sole discretion, and it is expressly agreed that they will at all times be available at the sole discretion of the Bank.

Notwithstanding any other provisions contained in this letter or in any other document, the Bank will at all times have the right to require immediate payment and/or cash collateralization of all or part of any sums actually or contingently owing to it, and the right to immediately terminate or suspend, in whole or in part, the facility and all further utilization of the facility without prior notice to the Company.

Conditions Precedent

The facility described in this letter will (subject to the other provisions of this letter) not become available, and the Bank shall have no obligation to make any advances or to make any of the facility available for utilization hereunder, unless the Bank has first received the documents listed in the attachment in form and substance satisfactory to the Bank.

Exchange Control

The Company undertakes that, from the date of this letter for so long as any amount is outstanding under this letter or any facility remains available for utilization, it shall procure that all reports, verifications and approvals required by applicable regulations are carried out and obtained to enable all payments (including, without limitation, interest payment, principal repayments and principal prepayments) to be made under this letter in foreign exchange and otherwise in accordance with the terms of this letter, and shall submit all supporting documents to the Bank upon request for filing and registration as required by applicable regulations.

Covenants

The Company undertakes that it will:

1. obtain and maintain current all approvals, licenses and consents required under Chinese law to enable it to enter into and perform its obligations under this letter, which shall be legally enforceable and admissible in China;

2. ensure that at all times the claims of the Bank against the Company under this letter rank at least pari passu with the claims of all its other present and future unsecured and unsubordinated creditors;

3. provide to the Bank at the Bank’s request the Company’s [and Guarantor’s] valid lending IC control card(s) for the Bank’s inspection and input of information to the Credit Registration & Consultation System (“System”); and

*** Banking Facility Letter*** Page 6

4. at each annual renewal of Company’s [and Guarantor’s] lending IC Control card(s), promptly provide such card(s) to the Bank to enable the Bank to verify and continue input of information to the System.

5. route no less than CNY25Mn sales proceeds through SCB quarterly

6. The top management change to be advised to the Bank.

7. submit to the bank at their respective due dates:

1) a signed original copy of the Company’s audited financial statements within 150 days after its financial year end, which shall disclose relevant related party transactions required by any applicable laws, regulations and guidelines or equivalent from time to time;

2) a signed original copy of the Company’s unaudited semi-annual financial statements within 90 days after the end of the relevant accounting period.

Indemnity

The Company acknowledges, by its counter-signature of this letter, that in consideration of the Bank from time to time making available the banking facility set forth herein for its account, it will unconditionally and irrevocably indemnify the Bank and keep the Bank indemnified against all claims, liabilities, losses and reasonable expenses of whatever nature which the Bank may incur in any way as a consequence of its making available any such facility and to pay to the Bank on demand all sums which may be claimed from the Bank (including without limitation any amount under any draft discounted by the Bank which for any reason the Bank fails to recover from the payer of that draft) or which the Bank may pay or become liable to pay under or by reason of or in connection with any such facility together with interest thereon calculated from the date on which the Bank paid or incurred the relevant sum or other liability and reasonable costs.  The Bank may pay immediately any and all amounts claimed from it or which the Bank may become liable to pay under or in connection with any such facility without reference to or further authority from the Company. Any action taken by the Bank in good faith under or in connection with any such facility shall be binding on the Company.

Representation

The Company represents that this facility letter is legal, valid, binding and enforceable on the Company.

Taxes

All payments from the Company to the Bank must be made free and clear of all taxes, withholdings and deductions of whatever nature.

*** Banking Facility Letter*** Page 7

Events of Default

If the Company is in breach of any term of this facility letter or if the Bank is of the opinion at any time that circumstances exist that could adversely affect the ability or willingness of the Company to comply with its obligations under this facility letter, then the facility is repayable on first demand by the Bank.

Default Interest, Commission

In respect of each RMB Advance and any other RMB amount(s) which are not repaid or paid, as the case may be, when such Advance or other amount(s) are due hereunder, the Company shall pay default interest at the rate equivalent to 150% of the interest rate calculated from the Repayment Date to the date on which the Bank receives payment in full of the sum due.

In the event that the Company misappropriates any or all amounts under any RMB  Advance, the Company shall pay penalty interest at the rate equivalent to 150% of the interest rate calculated from the date when such amounts are misappropriated to the date on which the Company ceases misappropriating such amounts.

In the event that the Company fails to repay any RMB Advance or any other RMB amount(s) which are due hereunder and misappropriates the same amount, the Bank shall, at its own discretion, have the right to charge penalty interest incurred in connection with such amount.

Unless otherwise specified, a default rate of COF + 5% per annum will apply to amount(s) not paid when due or in excess of agreed FCY facility amounts and be calculated from the date of default until the date the Bank receives the respective sum under the said facility.

Unless otherwise specified, commission will be collected at the Bank’s announced standard charges from time to time.

Fees and Expenses

Whether or not the documentation for the facility is executed or the facility is made available to the Company as contemplated following the Company’s acceptance of this letter, the Company shall forthwith on demand reimburse the Bank all out of pocket expenses (including but not limited to stamp duty, legal fees and disbursements) incurred by the Bank in connection with the facility including, without limitation, the negotiation, preparation, execution and/or enforcement of this letter.

Stamp duty cost incurred by the Bank will be payable upon the Bank’s receipt of returned and signed facility letter.  It will be reimbursed by debiting the Company’s RMB account with the Bank.  Therefore the Company should ensure that sufficient funds are maintained in its account after acceptance of this letter.  Should the payable remain outstanding when the facility is going to be utilized, the Bank has the right to deduct the payable amount from the drawdown proceeds without prior notice to the Company.

*** Banking Facility Letter*** Page 8

Costs

The Company indemnifies the Bank against any claim, cost, loss or expense incurred by the Bank as a result of default by the Company in the payment of any sum due under this letter, or the refusal of the Bank to grant an advance, or of the repayment of an advance on a date other than an interest payment date (including, without limitation, any broken funding costs).

Increased Costs

If any change in, or in the interpretation of or compliance with any law or regulation subjects the Bank to tax in respect of sums payable by the Company hereunder (other than tax on the Bank’s overall net income), or reduces the amount of any payment receivable by the Bank hereunder, then the Company shall pay the Bank on demand all amounts needed to compensate the Bank therefore.  Provided that the Company shall not be liable in respect of any increased costs of which the Bank shall have become aware and failed to notify the Company promptly if and to the extent prompt notice could have been avoided or lessened payments by the Company hereunder.  So long as the circumstances giving rise to such increased costs continue, the Company may, after giving the Bank not less than three business days prior notice, prepay all of the Loan together with interest accrued thereon to the date of payment and all other moneys payable hereunder, and upon the giving of such notice, the facility shall be cancelled.

Set-Off

The Company authorizes the Bank to apply any credit balance on any of the Company’s accounts with the Bank in repayment of any sum due from the Company to the Bank but unpaid.  The Bank is authorized to purchase with the amounts in any such account such other currencies as may be necessary to effect such repayment.

Miscellaneous

All payments for RMB facility to be made by the Company under this letter shall be made in Renminbi in same day funds to an account specified by the Bank.

Assignment and Transfer

The Bank (but not the Company) may assign or transfer all or any part of its rights and/or obligations under this letter and in that event the assignee or the transferee shall have the same rights and/or obligations against the Company as it would have had if it had been party hereto.

Governing Law

This letter is governed by and shall be construed in accordance with the laws of PRC and the Company hereby submits to the non-exclusive jurisdiction of the courts of PRC.  The Company agrees that any communication to it shall be deemed to have been delivered if sent by any means to the latest address advised by the Company to the Bank.

*** Banking Facility Letter*** Page 9

 

Disclosure

The Company hereby consents to the Bank, its officers and agents disclosing information relating to the Company and the Company’s account(s) and/or dealing relationship(s) with the Bank and Standard Chartered Bank (including all its branches and subsidiaries) (“SCB”), including but not limited to details of its facility, any security taken, transactions undertaken and balances and positions with the Bank and SCB, to

1) the holding company of the Bank, any of its subsidiaries or subsidiaries of its holding company, affiliates, representative and branch offices in any jurisdiction (the “Permitted Parties”);

2) the professional advisors and service providers of the Permitted Parties who are under a duty of confidentiality to the Permitted Parties;

3) any actual or potential participant or sub-participant in relation to any of the Bank’s rights and/or obligations under any agreement between the Company and the Bank, or assignee, novatee or transferee  ( any agent or adviser of any of the foregoing);

4) any rating agency, insurer or insurance broker of, or direct or indirect provider of credit protection to any Permitted Party;

5) any court or tribunal or regulatory, supervisory, governmental or quasi-governmental authority with jurisdiction over the Permitted Parties.

Documentation

This letter summarizes the principal terms of banking facility provided to the Company by the Bank.  Operation of the facility will require completion of standard documentation from time to time in accordance with the then current practices of the Bank.

Before the above facility may be used, the enclosed copy of this letter and the Bank’s standard form General Customer Agreement (07) must be signed and returned to us together with appropriate authorizing board resolutions.

In addition to this, other documentation (please see the attachment) will also be required prior to utilization of the facility.

To signify your agreement to the above arrangement, please sign and return to us the duplicate of this letter within 30 days. Your acceptance of the facility and issuance of the supporting security documents should be authorized by a board resolution and the relative board minutes forwarded to the Bank.  In this connection, please arrange for due execution of the enclosed documents as in the Attachment.

The facility detailed above will not become operative until all terms and conditions have been complied with to the satisfaction of the Bank.

*** Banking Facility Letter*** Page 10

In case of any queries, please feel free to contact Ms. [Chen Yang] [Telephone No.: [0755-82461688] who will be more than happy to assist you with the execution of the required documentation.  Please return the duly executed documents to Standard Chartered Bank (China) Limited, Shenzhen Branch, Address: Unit1-8, 52/F, Di Wang Commercial Center, Shenzhen, China.

We are pleased to be of service to you.

Yours faithfully,

For and on behalf of

Standard Chartered Bank (China) Limited, Shenzhen Branch

/s/ Chen Yang	/s/ Fang Jie Ling
Relationship Manager	Branch Manager
Standard Chartered Bank (China) Limited, Shenzhen Branch	Standard Chartered Bank (China) Limited, Shenzhen Branch

We hereby accept and agree to abide by all the above terms and conditions.

For and on behalf of

Shenzhen Highpower Technology Co., Ltd

/s/ Pan Dangyu

[Signed by Authorised person]

[Affix Company Chop]

Ref:

*** Banking Facility Letter*** Page 11

Schedule:

1. The original of this letter executed by the Company in duplicate with the supporting Board Minutes and specimen signatures of authorized signatories.

2. The original of the General Customer Agreement (07) executed by the Company with the supporting Board Minutes.

3. Corporate Guarantee for USD5,000,0000 in the Bank’s standard form issued by Springpower Technology(Shenzhen) Co., Ltd with  the supporting Board Minutes.

4. Personal Guarantee for USD11,000,0000 in the Bank’s standard form issued by Pan Dang Yu.

5. Cash Pledge Agreement  with the supporting Board Minutes.

*** Banking Facility Letter*** Page 12

Attachment

1. Municipal government approval for operating business issued by Ministry of Commerce.

2. Business License with the updated annual check..

3. Articles of Association.

4. Supplementary to Articles of Association (if any).

5. Specimen signature of the person(s) authorized to sign the Security Documents with certified true copies of their ID card or passport.

6. Lending IC card reference number.

7. Any other security documents/information as the Bank may request from time to time.

Conditions Subsequent

Evidence of Payment of Stamp Duty

*** Banking Facility Letter*** Page 13

 

EX-10.10(A)

TO:Standard Chartered Bank (China) Co., Ltd.

The maximum amount Guarantee Contract

In view of the Bank and between the Bank and Shenzhen Highpower Technology Co., Ltd. ("Customer ") from time to time enter into a loan agreement, financing agreement to provide the letter or other written documents of financing (the "Financing Letter"), according to the terms agreed to provide the financing, the undersigned (the "Guarantor ") is willing to function in the financing of debt obligations under its guarantee of all responsibilities and ensure the Bank is as follows:

Unconditional and irrevocable guarantee of (1) to the Bank guarantee, the customer will repay all the loan principal, your letter down the line because of the financing of all expenditures other financing payments, interest, penalty interest, liquidated damages, damages , the Bank all costs and expenses to achieve cost claims (including but not limited to, attorneys fees) ("secured debt"), and (2) ensure that the request from your bank immediately required by the Bank to assume guarantee responsibilities to the Bank payment of secured debt. Bank customers to produce proof of payment due and payable shall be final and binding and the guarantor.

Guarantor under the Guarantee in the principal obligation secured (ie the amount of the loan principal amount and other financing) should not exceed the total amount of five hundred million dollars the whole (or the equivalent in other currencies). For the secured debt in the period from April 7, 2010 to April 6, 2015 ("secured debt in the period"), that is the guarantor of the secured debt in the period preceding the occurrence of all secured obligations jointly and severally liable. Since the finance function to ensure that during the term financing first document the actual withdrawal date or the date, until the letter of the Bank pursuant to the financing of the period in secured debt financing to provide all the latest financing due a due date only two years ("Warranty Period").

Guarantor further unconditionally and irrevocably guaranteed the Bank immediately upon demand compensation to the Bank the finance function as customers of any payment obligations under any reason (whether your bank know the reason) to become invalid, illegal can result in revocation or non-implementation of the Bank for any costs, losses or liabilities (the obligation to compensate is an independent primary obligation.)

The guarantor under the guarantee responsibility to honor the bond payments to the Bank, should be secured debt owed by the customer paid in the currency of payment should be no offset, no deduction or withholding for any reduction in charge.

The Guarantee is a continuing guarantee, the guarantor shall undertake all security responsibilities under the letter without any factors, such factors include, but are not limited to (1) the Bank or any other person to give customers the tolerance or extension (including but not limited to the rights and waive any other security interest); (2) any change in financial terms (including but not limited to the loan principal, interest, interest rate and term changes, on the other financing may increase your customer line the obligations of any changes. and / or your bank financing granted to customers of any new project); (3) the Bank or any other person the customer the right to have any flaws; (4) customer, the guarantor or any other person killed , bankruptcy, receivership, insolvency, liquidation, dissolution, incapacity, or subject to any restrictions; or (5) any party other act, neglect, events or circumstances, these things if not for this provision, may lessen release, discharge or affect the guarantor's responsibility.

The Bank Guarantee is a form of security held by any other supplement (if any mortgage or pledge), the guarantor of your request to the front line, without first exercising your rights under the Bank other security (including but not limited to waive any other security rights and interests).

As long as there is no outstanding secured debt, the guarantor will not be to the client (1) the exercise of any guarantor of any claims or may have the power, and (2) does not exercise any rights to enable customers to guarantee the exercise of due obligations under this warranty the compensation surety.

Guarantor guarantees to pay the Bank the implementation of the Guarantee of any right under all the costs that may occur, and such fees constitute a part of secured debt.

Guarantor hereby authorizes Bank, without giving any notice of the guarantor, that the right to dispose off and spend the guarantor of any account in your bank, any amount in any currency (whether or not to notify and whether due) to repay the guarantor Bank debt.

The letter of guarantee to maintain a comprehensive and fully effective until the earlier the following two: (1) secured debt to be paid in full the day, and (2) ensure that the date of expiration of the period. If the foregoing letter of guarantee (1) and expire one year after the due date but, if the repayment of debt due to any applicable bankruptcy laws and regulations is found invalid and / or forced return, the Bank will continue to have the right to implement the letter of guarantee.

Guarantor under the Guarantee to ensure that responsibility is assumed, "PRC Security Law" and its judicial interpretation of the definition of joint guarantee responsibilities.

Agreed by the guarantor of the Bank may be under the Bank Guarantee of any transfer of rights to anyone.

Acknowledge that the Guarantee is a guarantee commercial transactions, surety or guarantor in the property for any action to waive any defense of sovereign immunity or similar defense.

Guarantor hereby agrees that the Bank and its staff and agents to the relevant guarantor, surety accounts and / or with the Standard Chartered Bank and the United Kingdom limited liability company (including all its branches and subsidiaries) ("Standard Chartered Bank") trading relationship , including but not limited to the details of the guarantor credit line, to provide security, guarantee transactions and the Bank and Standard Chartered Bank balances and transactions of information disclosed to:

(A) of the bank holding company, its subsidiaries or its holding company's subsidiaries, affiliates, representatives and any country or region in the Branch (the "Licensee");

(B) of the licensee's obligation of confidentiality to the licensee's professional advisers and service providers;

(C) between the Bank and the Guarantor and the Bank of any rights under the agreement and / or obligations related to actual or potential participant or sub-participant or transferee or replacement (or their agents or consultants) ;

(D) Licensee's credit rating agencies, insurance companies, insurance brokers, or directly or indirectly to the credit protection provided by licensed third party;

(E) of the licensee in any court having jurisdiction or the jurisdiction of organization, or normative, regulatory, governmental or quasi-governmental authority of the department.

Established by the Bank to provide or will provide services and promote the Bank and / or its affiliates and sponsor relations between the management of banking business.

Associated with an individual company is a subsidiary or holding company or any other subsidiary of the holding company.

Any individual holding company refers to the individual as a subsidiary of the company.

Is a subsidiary of an individual directly or indirectly controlled, directly or indirectly, more than 50% of the voting shares or similar ownership entity. For the purposes here, the control means control the management and policies of the entity the power, whether through the ownership of voting shares, contract or otherwise.

If the letter of guarantee of any provision in any jurisdiction is invalid for any reason, only valid within the scope of the invalid, the remaining provisions shall not affect the validity or other jurisdictions involved in terms of effectiveness.

The letter of guarantee shall be governed by Chinese law and in accordance with China's legal interpretation, the guarantor agrees with this letter of guarantee to, or derived from legal action and legal action shall be the seat of the Court of the Bank, and irrevocably accept the above non-exclusive courts jurisdiction.

The letter of guarantee can be signed by Chinese or other language text. If there is any inconsistency of the language text, the Chinese version shall prevail.

Date: April 7, 2010

Guarantee Corporation:

Authorized signatory to sign and affix the company seal

/s/ Pan Dang Yu

EX-10.11

Date:                                21st January 2011

Our Ref:                           OCC/MM/Team 11/BVD

CONFIDENTIAL

Hong Kong Highpower Technology Company Limited

Room 4, Block 4, 13/F, Tai Ping Ind Ctr,

51A Ting Kok Road, Tai Po,

New Territories.

Attn:  Mr. Eric Li

Dear Sirs,

BANKING FACILITIES

Standard Chartered Bank (Hong Kong) Limited [chinese symbols] (the “Bank”) is pleased to offer certain banking facilities including, amongst other facilities, those terms set out in this facility letter (the “Facilities”) to the Customer(s) below for the purpose(s) of general working capital, trade finance and treasury requirement, subject to the terms and conditions set out in this facility letter, and subject to the following additional terms and conditions (each attached to this facility letter):

· Standard Terms

· General Trade Terms

· Terms and Conditions for Foreign Exchange Business

(collectively referred to as “Standard Terms and Conditions”)

A.CUSTOMER(S):

Hong Kong Highpower Technology Company Limited

B.FACILITY LIMITS:

(1)General Banking Facilities

Type(s) of Facility	Facility Limit(s)	Designated Customer(s) and Sub-limit(s), if applicable
1.     Trade Finance (Please refer to Appendix 1 for product details.)	USD3,000,000.-	-

Standard Chartered Bank (Hong Kong) Limited [chinese symbols]

Credit Documentation Unit

Wholesale Banking Legal

11th Floor Standard Chartered Tower

388 Kwun Tong Road Kwun Tong Hong Kong

LA-467060 v1

Hong Kong Highpower Technology Company Limited Page 2 

(a)     Trade Finance Group All		·     The Customer (USD3,000,000.-)
(b)     Trade Finance Group 1		·     The Customer (USD3,000,000.-)
(c)     Trade Finance Group 2		·     The Customer (USD3,000,000.-)
(d)     Trade Finance Group 3		·     The Customer (USD3,000,000.-)
2.     Short Term Money Market Loan	USD10,000,000.-	·     The Customer
Total Facility Limit:	USD13,000,000.-
Note: ·     The aggregate amounts outstanding Limit to which the Sub-limits relate and not at any time exceed the Total Facility under all Sub-limits shall not at any time exceed the Facility the aggregate amounts outstanding under all Facilities shall Limit.

(2) Treasury Facilities (The Bank may arrange for these facilities to be available through Standard Chartered Bank or other members of the Standard Chartered Group and separate documentation would be executed where necessary.)

Type(s) of Facility	Designated Customer(s) and Sub-limit(s), if applicable
3.     Foreign Exchange Contract(s) (I)         (Spot and Forward)         Facility Limit to be determined by the Bank on a case by case basis.	·     The Customer
4.     Currency and Interest Rate Risk Management (I)	·     The Customer
5.     Foreign Exchange Contract(s) (II) (Forward)         Facility Limit to be determined by the Bank on a case by case basis.	·     The Customer
6.     Currency and Interest Rate Risk Management (II)	·     The Customer

Hong Kong Highpower Technology Company Limited Page 3 

C.  PRICING AND CONDITIONS:

1.     Trade Finance

Interest: HKD import/export facilities: 1.75% per annum over HIBOR. Foreign currency import/export facilities: 1.75% per annum over LIBOR. Commission: Standard rates. Maximum tenor/advance percentage for: Import facilities:  Combined usance and import loan period of any transaction is not to exceed 120 days. Export facilities:  Not to exceed 120 days. Import invoice financing: Up to 120 days from the date of invoice, and up to 100% of the invoice amount against submission of certified true copy of suppliers’ original invoices and relevant transport documents. Loan proceeds will be directly remitted to suppliers bank accounts. Suppliers to be approved by the Bank.

2.     Short Term Money Market Loan

Interest:  1% per annum over LIBOR, payable at the maturity of each advance or quarterly in arrears if a six month period is selected. Drawdown:  Partial drawdown is allowed with minimum amounts of USD500,000.- or above and in multiples of USD100,000.- for periods of 12 months.  Drawdown notice shall be delivered to the Bank at or before 11:00 a.m. on the proposed drawdown date. Other Conditions: ·      Loan drawdown is subjected to deposit at Customer’s CNY account. The drawdown amount is no more than the amount of pledged deposit in the pledged account. ·      Loan outstanding will be repaid up to 12 months after loan drawdown date. ·      Interest will be payable on monthly basis, by debiting its USD Current account #36800806332. ·      Pledged deposit in CNY accounts in Standard Chartered Bank Hong Kong under Customer’s name can be released in proportion to the repaid amount of the Short Term Money Market Loan facility at maturity. ·      Default interest: 4% per annum over LIBOR. ·      Regarding the USD Short Term Money Market Loan proceeds applied for capital injection, the Customer is required to submit supporting documents to the Bank.

Hong Kong Highpower Technology Company Limited Page 4 

3.     Foreign Exchange Contract(s) (I)         (Spot and Forward)	Tenor:  Up to 24 months.
4.     Currency and Interest Rate Risk Management (I)	Tenor:  Up to 24 months.
5.     Foreign Exchange Contract(s) (II) (Forward)	Tenor:  Up to 12 months.
6.     Currency and Interest Rate Risk Management (II)	Tenor:  Up to 12 months.

Special Condition:  If required by the Bank in its sole and absolute discretion, the Customer undertakes to provide additional security acceptable to the Bank within the time limit imposed by the Bank at the relevant time. Without prejudice to any other provision of this Letter, the Customer agrees that failure to strictly comply with this undertaking gives the Bank (or any member of the Standard Chartered Group that is providing such Treasury Facilities) a right to terminate all or any part of the Treasury Facilities.

Market Disruption:

1. If a Market Disruption Event occurs in relation to the Short Term Money Market Loan facility, then the rate of interest of that facility shall be the rate per annum which is the aggregate of:

(a) 1% per annum for the Short Term Money Market Loan facility; and

(b) the rate which expresses as a percentage rate per annum the cost to the Bank of funding that loan from whatever source it may reasonably select.

2. In this letter:

(a) “Market Disruption Event” means:

(i) at or about noon on the Quotation Day the Screen Rate is not available or the Screen Rate is zero or negative, or reasonable and adequate means do not exist for ascertaining Prime or LIBOR (as the case may be);

Hong Kong Highpower Technology Company Limited Page 5 

(ii) matching deposits are not readily available in the relevant Interbank Market; or

(iii) before close of business in the principal city of the relevant Interbank Market on the Quotation Day, the cost to the Bank of obtaining matching deposits in the relevant Interbank Market would be in excess of Prime or LIBOR (as the case may be).

(b) “Quotation Day” means, in relation to any period for which an interest rate is to be determined two London business days before the first day of that period (as the case may be), or such other period which the Bank decides accords with market practice in the relevant Interbank Market.

(c)  “Screen Rate” means the standard market interest rate for the relevant currency and period displayed on the relevant page of the on-line electronic information service which for the time being the Bank normally uses for obtaining Prime or LIBOR (as the case may be).

Default Interest In this letter, “HIBOR” means the Hong Kong Interbank Offered Rate quoted by the Bank for the relevant period; “LIBOR” means the London Interbank Offered Rate quoted by the Bank for the relevant period; and “Prime” means the respective rates which the Bank announces or applies from time to time as its prime rates for lending Hong Kong Dollars and United States Dollars. The Bank shall charge interest on any sum(s) outstanding or owing by the Customer(s) from time to time. Unless otherwise specified, interest will accrue on a daily basis and shall be calculated, compounded and payable on such basis and in such manner as the Bank may determine at its sole discretion. Unless otherwise stipulated, a default rate of 8% per annum over Prime or the Bank’s cost of fund, whichever is higher, will apply to amounts not paid when due or in excess of any facility limit. All past due bills shall bear interest at 5% per annum above the rates charged on the trade finance facilities.

D.SECURITY AND CONDITIONS PRECEDENT:

The availability of the Facilities is conditional upon the Bank’s receipt of the following documents, items and evidence (both in form and substance) satisfactory to the Bank:

1. This letter duly executed by the Customer.

2. A Security Agreement over Bank Account (All Monies) executed by the Customer in favour of the Bank in respect of its own obligations.

3. A personal guarantee dated 26th May 2010 (as amended from time to time) executed by Mr. Pan Dangyu for USD9,000,000.- plus interest and other charges.

Hong Kong Highpower Technology Company Limited Page 6 

4. A Letter of Comfort issued by Highpower International, Inc.

5. A Letter of Comfort issued by Shenzhen Highpower Technology Co Ltd. [chinese symbols]

6. Certified true copies of the certificate of incorporation, memorandum and articles of association or equivalent constitutional documents of High power International, Inc.

7. Original/Certified copies of all necessary consents, approvals and other authorisations (including board resolutions) in connection with the execution, delivery and performance of this letter and all other documents mentioned above, if applicable.

8. (if any of the facilities referred to in this letter are to be made available by Standard Chartered Bank or other members of the Standard Chartered Group) All such documents, items or evidence with, in favour of or to Standard Chartered Bank or, as the case may be, such member of the Standard Chartered Group as the Bank may request.

9. Such other documents, items or evidence that the Bank may request from time to time.

E.COVENANTS AND UNDERTAKINGS:

The Customer undertakes to the Bank that it will:

1. promptly submit to the Bank copies of all its audited and unaudited financial statements and such other reports and information relating to the Customer and/or guarantor as required by the Bank as soon as they become available but in any event no later than the period specified by the Bank from time to time.

2. procure the submission of individual financial statement(s) of the personal guarantor(s) within 30 days from the date of this letter and afterwards on an annual basis.

3. immediately inform the Bank:

· of any change of the Customer’s directors or beneficial shareholders or amendment to its memorandum or articles of association or equivalent constitutional documents;

· of any substantial change to the general nature of the Customer’s existing business; or

· if it becomes, or is aware that any of its directors, shareholders, partners or managers becomes, a Related Person (as defined in paragraph 5 of section F of this letter).

4. submit supporting documents (including but not limited to pre-approval / permits / certificates obtained from local government authorities) as evidences for the short term money market loan used for capital injections.

The Customer agrees to maintain collateral for an aggregate of USD900,000.- and CNY73,486,000.- (or its equivalent in other currency(ies) as approved by the Bank) (the “Minimum Collateral”) pursuant to the security document(s) set out in paragraph(s) 2 of Section D of this letter. The Minimum Collateral must be in form and substance acceptable to the Bank at its sole discretion. The Customer agrees that the Bank may change the amount of the Minimum Collateral or the manner in which the Minimum Collateral is furnished at the Bank’s absolute discretion. The Customer undertakes to maintain the Minimum Collateral for so long as the Facilities under this letter remain outstanding.

Hong Kong Highpower Technology Company Limited Page 7 

F.OTHER TERMS AND CONDITIONS:

1. The Facilities are available at the sole discretion of the Bank. The Bank may at any time immediately terminate, cancel or suspend the Facilities or otherwise modify the Facilities without the consent of any party.

2. Notwithstanding any provisions stated in this letter, the Facilities are repayable on demand by the Bank. The Bank has the overriding right at any time to require immediate payment and/or cash collateralisation of all or any sums actually or contingently owing to it under the Facilities. This clause 2 does not apply to any factoring facility(ies).

3. The Bank’s Standard Terms and Conditions attached and/or referred to in this letter forms an integral part of this letter and the Customer agrees to observe and be bound by such Standard Terms and Conditions.

4. The terms and conditions set out or referred to in this letter supersede and replace those set out in our letter (if any) previously sent to the Customer(s).

5. Please note that section 83 of the Banking Ordinance imposes on the Bank certain limitations on advances to persons (including firms, partnerships and companies) related to its directors, employees with lending authority or controllers (each person so related shall be referred to as a “Related Person”). When acknowledging and accepting this facility letter, you should advise us if you are, or any of your directors, shareholders, partners or managers is, a Related Person within the meaning of the Banking Ordinance. If subsequent to your acceptance of this facility letter, you become, or are aware that any of your directors, shareholders, partners or managers is or becomes, a Related Person, you should immediately advise us in writing.

6. The Customer acknowledges the following:

(a) The Customer has received and read the Bank’s Notice to Customers and Other Individuals relating to the Personal Data (Privacy) Ordinance and the Code of Practice on Consumer Credit Data; and

(b) The Customer has, or will, notify each of its Relevant Individuals, the Bank may, in the course of providing banking services to the Customer, receive Customer information in respect of that Relevant Individual.

For the purpose of the above, a “Relevant Individual” is defined as being one of the following (but not limited to) Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, department heads, corporate officers (e.g. authorized signatories, company secretary etc.), directors, major shareholders, beneficial owners, and guarantors (where applicable).

Hong Kong Highpower Technology Company Limited Page 8 

7. All securities, agreements, obligations given or undertaken by the Customer shall continue to be valid and binding notwithstanding any change in the constitution of the Customer or the Bank, by amalgamation, consolidation, reconstruction or otherwise.

8. Where the Bank requires the provision of any guarantee or any security from an individual as a condition to the Facilities, the Customer consents and acknowledges that the Bank may provide the Customer’s information to any proposed or actual individual guarantor or other security provider (or their solicitors) in respect of the Facilities.

9. The Customer is not entitled to assign or transfer any of its rights and/or obligations in connection with the Facilities.

10. As long as any sum remains owing under any Facility, if the Customer wishes to engage any person to provide transaction banking products and services including cash management services, trade services, trade finance, custodial services, fund administration and escrow services (“Services”), the Customer shall give the Bank or its Affiliate the right of first refusal to provide such Services, such right to be subject to terms and conditions to be agreed.

11. This letter shall be governed by and construed in accordance with the laws of Hong Kong SAR.

Please sign and return to us the enclosed copy of this letter together with the attached Standard Terms and Conditions to the Bank’s Credit Documentation Unit, Wholesale Banking Legal at 11th Floor, Standard Chartered Tower, 388 Kwun Tong Road, Kwun Tong, Kowloon within one month after the date of this letter, failing which this offer shall lapse.

If you have any queries, please feel free to contact any of the following persons:

Queries on	Name	Telephone No.
Banking arrangements	Mr. Adam Wong, Relationship Manager Local Enterprise Origination & Client Coverage, Wholesale Banking	2821-1490

Yours faithfully,

For and on behalf of

STANDARD CHARTERED BANK (HONG KONG) LIMITED

/s/ Peggy Yiu                                               

Peggy Yiu

Senior edit Documentation Manager

PY/DS

Encl.

Hong Kong Highpower Technology Company Limited Page 9 

We agree and accept all the terms and conditions set out above and the following additional terms and conditions each attached and/or referred to in this letter, which we have read and understood:

· Standard Terms

· General Trade Terms

· Terms and Conditions for Foreign Exchange Business

· Bank’s Notice on use and disclosure of personal data under the Personal Data (Privacy) Ordinance and Code of Practice on Consumer Credit Data

For and on behalf of

HONG KONG HIGHPOWER TECHNOLOGY COMPANY LIMITED

       /s/ Pan Dangyu                                               

EX-10.12

21/F, Tower 1& 2, The Gateway, Harbour City, Tsimshatsui, Kowloon, Hong Kong
Commercial Bank
Our reference: 174781/013111/vw Date: January 31, 2011
Hong Kong Highpower Technology Company Limited Room 4 Block 4 l3/F Tai Ping Industrial Centre 51A Ting Kok Road Tai Po N.T.

Dear Sirs,

Re:           Uncommitted Demand Credit Facility (the “Facility”) as detailed below

Pursuant to our previous discussion, we are pleased to propose the following terms and conditions for the above-mentioned Facility.

Borrower	:	Hong Kong Highpower Technology Company Limited
Lender	:	Citibank, N.A., Hong Kong Branch
Facility Type, Facility Amount and Description	:	Uncommitted, revolving short term credit facility up to an aggregate limit of USD3,000,000.00 issuance of letters of credit (“LC”) with or without title on goods and any related facilities, trust receipt loan and negotiation of export bills under LC acceptable to the Lender.
Purposes	:	To finance trade transactions
Tenor of Facility	:	1.     Import bills Import LC may be issued at sight and/or usance of up to 120 days.  Combined usance and loan period of anyone transaction under import facilities shall not exceed 120 days.

		2.     Export Bills For usance LC, the maximum tenor is up to 120 days.
Interest Rate / Fees	:	1.     Export and/or import bills (a)   Interest will be charged at a rate of 1.50% p.a. over the higher of (i) LIBOR and (ii) the Lender’s cost of fund. (b)   For LC Opening Commission: 0.125% flat (min. HKD400)
		2.     Others Other fees and commissions will be charged at our standard rates unless otherwise stipulated.
		(Interest rate and commissions mentioned above will be subject to fluctuation at our discretion.)
Cancellation and Repayment	:	The Lender reserves the overriding right to modify and/or cancel the Facility and the terms/conditions at anytime at its discretion. The Facility is repayable upon demand made by the Lender.
Waiver of Consequential Damages	:	In no event shall the Lender, its subsidiaries, affiliates, officers or directors be liable on any theory of liability for any special, indirect, consequential or punitive damages and the Borrower hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favour.
Expenses	:	All expenses, including but not limited to legal fees, insurance premium, valuation fee, documentation costs, out-of-pocket expenses and stamp duties, are for account of the Borrower. The Lender will debit any of the Borrower’s accounts with all such commissions, fees, charges, costs and expenses incurred by the Lender in connection with the Facility.
Conditions Precedent	:	Availability of the Facility shall be at the absolute discretion of the Lender and subject to our discretion and satisfaction of the following conditions precedent by the Borrower in form and substance satisfactory to us:
		1.     This Facility Letter has been duly signed by the Borrower.

		2.    Board Resolutions of the Borrower approving the Facility with the Lender and the execution of the relevant documents to which it is a party.
		3.     Sharing of Credit Data - Customer Consent duly confirmed by the Borrower.
		4.     Execution of the Lender’s standard documentation by the Borrower for facilities of this type including but not limited to Citibank General Customer Agreement (“GCA”).
		5.     Constitutional documents of the Borrower including but not limited to: ·  Memorandum and Articles of Association ·  Certificate of Incorporation ·  Business Registration Certificate
		6.     Any other documents as may be required by the Lender from time to time.
		7.     Execution and perfection of all Security as detailed below.
Security	:	Standby letters of credit issued by Citibank (China) Co., Ltd. Shenzhen Branch acceptable to the Lender for a sum of HKD23,400,000.00 in favor of Citibank, N.A., Hong Kong Branch to secure the credit facilities extended by the Lender to ,the Borrower.
Representation & Undertaking	:	Each of the Borrower undertakes and represents and warrants on each day until the day on which all facilities and deposits have been repaid in full and there are no obligations outstanding from any of them to the Lender and/or any of its affiliates, as follows:
		The execution, issue and/or delivery of this Facility Letter, any of the related agreements and documents and the entry into, and performance of, the terms and transactions under any of the same by the Borrower (including the investment in any securities or derivatives) do not, and will not, :

		·     violate in any respect any law, instrument, regulation, order, contract or agreement which affects or is binding on it or an of its assets; and ·     cause any limit (external or internal) on its borrowing, investment or any other power or of the powers of its board of directors (or other relevant corporate officers or management) to be exceeded;
		and it has complied and will comply with all applicable disclosures and reporting obligations.
Governing Law	:	This Facility Letter shall be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region and the parties hereby agree to submit to the non-exclusive jurisdiction of the courts of the Hong Kong Special Administrative Region.

The above credit facilities and terms and conditions may be modified or cancelled by us without prior notice and notwithstanding the specified maximum tenor, remains immediately repayable on demand by notice in writing from the Lender to the Borrower.

Pursuant to paragraph 23.9 of the Code of Banking Practice, the Borrower hereby consents to the Lender providing to any guarantor or security provider in respect of any loan or credit facilities extended to the Borrower:

(a) a copy of this Facility Letter and any financial information of the Borrower having been given to the Lender;

(b) a copy of any formal demand for overdue payment which is sent to the Borrowers; and

(c) from time to time on request by the guarantor or security provider, a copy of the latest statement of account provided to the Borrower (if any).

The Borrower undertakes to the Lender that it will immediately inform the Lender of any change of its directors or beneficial shareholders (where applicable), any payment default of or other material adverse changes affecting itself, its holding company, its and their subsidiaries and affiliates.  The availability of the Facility will be subject to the absence of these adverse changes and defaults.

By accepting and acknowledging this Facility Letter, the Borrower hereby (i) declares and confirms that all the data, information provided herein and all the documents submitted or to be submitted to the Lender are/shall be complete, true and accurate; (ii) consents to and authorises the Lender to disclose to or verify and/or exchange with its head office and other branches, subsidiaries, representative offices, agents and affiliates or with any person who has acquired or is considering an acquisition of any exposure (directly or indirectly) to payments payable by the Borrower under this Facility Letter or with any person who is or is considering evaluating, managing or administering (including acting as agent or trustee of any such scheme which manages or administers) any such exposure, any data, information and documents in relation to the Borrower whether provided by the Borrower at the Lender’s request or collected in the course of dealings between them and the Lender (including but not limited to any personal data, information and documents relating to the Borrower, any facilities, this Facility Letter or any other agreements or transactions or dealings between the Borrower and the Lender and the Borrower’s accounts, financial condition, business and affairs); (iii) acknowledge and agree that the Lender may from time to time outsource some of its services, operational and processing procedures relating to the foregoing to any third party service providers (including debt collection agents) selected by the Lender, whether situate in Hong Kong or elsewhere outside Hong Kong (and to whom it may disclose confidential information whether relating to the Facility or any Borrower or Guarantor or Security Provider); (iv) confirms that the Borrower have read and understood the terms and conditions of the GCA (in particular, Clause 25 thereof) and agrees that the Lender can from time to time make credit enquiry on the Borrower with any credit reference agency and submit the relevant data in connection with the Borrower and the Facility to such credit reference agency for the purpose of accessing to such enquiry and processing, evaluating and/or approving the Borrower’s application for the facilities; and (v) confirms and procures on a continuing basis for as long as any part of the Facility remains outstanding and for as long as the Lender has any obligation to provide the Facility, that all information including the constitutional documents and any certificate of incumbency and good standing as submitted by them or on their behalf (including through their respective registered agent (each a “Registered Agent”), as the case may be,) to the Lender and as the case may be, to each Registered Agent, are accurate, true, complete and up-to-date and we further undertake to inform you in writing within 30 days after any such information ceasing to be so, and to then also provide to the Lender the accurate and up-to-date information.

We are very pleased to be given this opportunity to assist you with this financing.  Please indicate your acceptance of the Facility by signing and returning to us the enclosed duplicate of this Facility Letter within one month after the date of this Facility Letter, after which date this offer will elapse.

If you have any question regarding the above, please do not hesitate to contact your Citibank Account Officer, Ms. Edith Fok, at 2957-7210.

Yours faithfully,

For and on behalf of

Citibank, N.A., Hong Kong Branch

    /s/ Andy Wong                                                          

Andy Wong

Head of Sales Division

Commercial Bank

Agreed and accepted for and on behalf of

Hong Kong Highpower Technology Company Limited

   /s/ Pan Dangyu                                                                       

Authorized Signature(s)

EX-10.13

IMPORTANT NOTICE:

THIS LETTER SETS OUT THE TERMS AND CONDITIONS UPON WHICH OUR BANK WOULD PROVIDE BANKING FACILITIES TO YOU. YOU ARE ADVISED TO READ AND UNDERSTAND SUCH TERMS AND CONDITIONS BEFORE ACCEPTING THIS LETTER, OR IF IT DEEMS NECESSARY, SEEK FOR INDEPENDENT LEGAL ADVICE.

Our Ref: 100110U00163701-HS                                                                                                     Date:  21 December 2010

To: Hong Kong Highpower Technology Company Limited

We are pleased to offer to you the following facilities:

Facility Type	:	USD Term Loan
Facility Amount	:	To the extent of USD11,500,000.00
Lender	:	Wing Lung Bank Limited
Final Maturity	:	1 year from the First Drawdown Date
Purpose	:	(1) To facilitate general working capital (2) To facilitate the procurement of raw materials
Interest Rate	:	1.1% per annum above LIBOR “LIBOR” means, in relation to any relevant sum and any relevany period: The rate shown on the Thomas Reuters Monitor Screen as being the rate per annum at which Dollar deposits are offered for a period equal or comparable to such period at or about 11:00 a.m. (London time) on the second London Business Day before the first day of such period; for this purpose “Thomson Reuters Monitor Screen” means the display designated as page “LIBOR-01” on the Thomson Reuters Monitor Money Rates Services system or such other page as may replace page “LIBOR-01” on that system for the purpose of displaying the appropriate rates for Dollar deposits as the Agent may specify after consultation with the Borrower.

Handling fee	:	Non-refundable handling charge of 0.15% flat on the total Facility amount payable to the Lender within 7 working days after the signing of the facility letter.
Business Day	:	A day (excluding Saturday and Sunday) on which banks are open for business in Hong Kong, the PRC and, if on that day a payment is to be made under this Facility Letter, in New York City.
Security	:	Security Deed over deposit in RMB (or equivalent amount in USD or HKD) with an amount no less than 105% of drawdown amount pledged by Hong Kong Highpower Technology Company Limited.
Availability Period	:	Subject to fulfillment of Conditions Precedent and 3 business days’ prior written notice, the Term Loan Facility shall be available for drawdown 3 months from the date of the facility letter.
Drawdown	:	Multiple drawings during the Availability Period are allowed. Each drawing shall be in a minimum amount of USD2,000,000.00 and integral multiple of USD50,000.00 and may be made subject to not less that 3 business day’s prior written notice to the Lender during the Availability Period.
Default Interest:	:	The Lender reserves the right to charge default interest (as well as after judgment) 7% above contract rate, subject to fluctuations. Apart from the default interest, the Bank reserves the right to levy administration fees as determined by the Bank from time to time for any late payment.
Top up	:	If the Loan to Value (“LTV”) is higher than 98%, the Applicant shall promptly and in any case by not later than 3 business days after the date of notification from the Bank, restore the value of the fixed deposit or repay the facility and maintain LTV back to 95%
Repayment:	::	Any principal amount outstanding under the Term Loan Facility shall be repaid in one lump sum on Final Maturity.
Cancellation:	:	Subject to 7 business days’ prior notice in writing, cancellation is allowed without fee if the amount cancelled is not replaced by financing from external sources. Otherwise a fee of 0.25% flat on the cancelled amount will be levied. Amount cancelled cannot be reinstated.

-2-

Overriding Right	:	The Facilities are repayable on demand by the Lender. The Lender has the overriding right at any time to require immediate payment and/or cash collateralization of all or any sums actually or contingently owing to it under the Facilities.
Conditions Precedent:	:	The Facilities will be available for usage upon and subject to the followings: (1) All legal documentation in relation to the Facilities executed in a form satisfactory to the Lender; (2) Copies, certified as true and complete copies of the Borrowers’ respective business registration certificate and certificate of incorporation, memorandum and articles, identification documents of authorized persons and other relevant documents in identifying the ultimate beneficiary; (3) Such other documents relating to any of the matters contemplated herein as may be deemed usual and necessary by the Lender
Event of Default	:	Any failure by the Borrower to payor repay within 2 banking days when due or demand any sum payable under this Facility. (1) non-payment (2) failure to comply with any other obligations subject to agreed remedy periods if capable of remedy (3) misrepresentation (4) cross default (5) insolvency and analogous events (6) failure to maintain ownership of the Borrower (7) unlawfulness (8) repudiation (9) material adverse change
Cost and Expenses:	:	All out-of-pocket expenses incurred in connection with the Facilities, including but not limited to, legal, printing, publicity, communication and signing expenses incurred by the Lender in the negotiation and execution of the Facilities will be borne by the Borrowers. The Borrowers shall pay such expenses within 5 business days of demand by the Lender.
Taxes:	:	All payments have to be made free and clear of any present and future taxes, levies or withholdings of whatsoever nature. In the event that taxes, levies or deductions are withheld, the Borrowers will be required to gross up payments such that the Lender will receive the same amount as if no such tax, levy or deduction were levied.

-3-

.

Governing Law: : The Facilities shall be governed by the Laws of Hong Kong SAR.

Please confirm your acceptance of the terms and conditions by signing and returning to us the attached copy of this Letter within 60 days from the date of this letter. Otherwise, this offer will automatically lapse.

Yours faithfully

For Wing Lung Bank Limited

/s/ [illegible signature]                                                                                  

Authorised Signatures

Confirmed by:

For and on behalf of

HONG KONG HIGHPOWER TECHNOLOGY COMPANY LIMITED

/s/ Pan Dangyu                                                                                                                                         

Borrower & Surety:  Hong Kong Highpower Technology Company Limited

Date:

-4-

CERTIFIED EXTRACT OF BOARD RESOLUTIONS

Hong Kong Highpower Technology Company Limited (“Company”)

We certify that the following is a true extract of the resolutions of the Directors of the Company duly passed in accordance with the Company’s Articles of Association on _________________, which resolutions have not been amended, varied, rescinded or revoked and are in full force and effect:

IT WAS RESOLVED that:

1. It is in the commercial interest and corporate benefit of the Company to enter into and accept the provisions of the facility letter (“Facility Letter”) of Wing lung Bank Limited (“Bank”) dated 21 December 2010, together with the Bank’s Terms and Conditions for Facilities (as amended by the Bank from time to time) (collectively the “Documents”).

2. The entry into, borrowing under, incurring and performance by the Company of its obligations under, and the transactions contemplated by, the Documents are authorised.

3. Any     One     of the authorized representatives (“Authorized Representatives”) whose specimen signatures appear below are authorised for and on behalf of and so as to bind the Company to sign the Facility letter, to deliver the signed Facility letter to the Bank, to make any request to utilise any of the facilities under the Facility Letter, and to sign and deliver all other documents, notices and communications required or permitted to be given by or on behalf of the Company under or for the purposes of the Documents or the transactions contemplated thereby.

Authorized Representatives:

Name (in block letters) / Title	Specimen Signature
Pan Dangyu	/s/ Pan Dangyu

4. Any     One     of the Authorized Representatives is/are authorised, in the name and on behalf of the Company and from time to time, to do any and all other things and to sign and deliver any and all documents which such Authorized Representative(s) consider(s) necessary or desirable in connection with finalizing, giving effect to and completing the Documents or the transactions contemplated thereby. If required, the Common Seal of the Company may be affixed onto any documents and any such Authorized Representative(s) may sign such documents.

5. These resolutions be communicated to the Bank and will remain in effect until an amending resolution has been sent to and acted on by the Bank. These resolutions will be binding notwithstanding any change in the Company’s constitution. A copy of any resolution of the Directors of the Company, if certified by a Director of the Company, may be accepted and acted on by the Bank without any enquiry.

Certified by:

/s/ Pan Dangyu                                                                

Name in block letters:

Director

Date:

EX-10.14

EX-10.14(A)

   v218098_ex10-14a -- Converted by SECPublisher 2.1.1.8, created by BCL Technologies Inc., for SEC Filing
   

EX-10.14(B)

   v218098_ex10-14b -- Converted by SECPublisher 2.1.1.8, created by BCL Technologies Inc., for SEC Filing
   

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Permitting Highpower International, Inc. to Use and Attach our Audit Report in

any filings required by the SEC

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-157443) and the Registration Statement on Form S-3 (File No. 333-168473) of Highpower International, Inc. of our report dated March 31, 2010 with respect to the consolidated financial statements as of December 31, 2010 and for the three years in the period ended December 31, 2010 of Highpower International, Inc., included in this Annual Report on form 10-K for the year ended December 31, 2010.

/s/ Dominic K. F. Chan & Co.

Dominic K. F. Chan & Co.

Certified Public Accountants

Hong Kong, April 12, 2011

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Dang Yu Pan, certify that:

1. I have reviewed this annual report on Form 10-K of Highpower International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 12, 2011
/s/	Dang YuPan
By:	Dang Yu Pan
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Henry Sun, certify that:

1. I have reviewed this annual report on Form 10-K of Highpower International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 12, 2011

/s/ Henry Sun

Henry Sun

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of Highpower International, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dang Yu Pan

Dang Yu Pan

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

April 12, 2011

/s/ Henry Sun

Henry Sun

Chief Financial Officer

(Principal Financial and Accounting Officer)

April 12, 2011