**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**





**WASHINGTON,
      D.C. 20549**





**FORM
      10-K/A**


**(Amendment
      No. 2)**





**ý****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934****FOR
                THE FISCAL YEAR ENDED DECEMBER 31, 2007****OR****o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934****FOR
                THE TRANSITION PERIOD FROM _______
                TO ___________**


**COMMISSION
      FILE NO. 000-52103**




**HONG
      KONG HIGHPOWER TECHNOLOGY, INC.**


(E *xact
      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, 518111**
              **People’s
                Republic of China**
            
            **N/A***(Address
                of principal executive offices)*
            
            *(Zip
                Code)*





*Registrant’s
      telephone number, including area code* : **(86)
      755-89686238**


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


None.




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


Common
      Stock, $.0001 par value




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o No ý




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 ý




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 ý No o









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. o




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 filero
            
            Accelerated
                fileroNon-accelerated filer 
                x
            
            Smaller
                reporting companyo




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).
                                          
                                                                                               
Yes o No ý




There
      were 20,478,090 shares outstanding of registrant’s common stock, par value
      $.0001 per share, as of April 11, 2008. The registrant’s common stock is not
      traded or listed on any exchange.




Documents
      Incorporated by Reference: None.








**EXPLANATORY
      NOTE**





Hong
      Kong
      Highpower Technology, Inc. (the “Company”) is filing this Amendment No. 2 on
      Form 10-K/A (“Amendment No. 2”) to amend its Annual Report on Form 10-K for the
      fiscal year ended December 31, 2007, originally filed with the Securities and
      Exchange Commission (the “SEC”) on April 11, 2008 (the “Original Filing”), and
      as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on June 16,
      2008
      (“Amendment No. 1, and collectively with the Original Filing, the “Original
      Filing as Amended”) is being filed to amend Items 6, 7 and 8 Part II to reflect
      amendments and changes to financial and other disclosures contained in the
      Original Filing as Amended.





The
      Company has restated its financial statements for the years ended December
      31,
      2007 and 2006 due to the reclassification of certain expenses in the Company’s
      statements of operations for the years ended December 31 2007 and 2006. The
      Company reclassified the line item entitled “fees and costs related to
      reorganization” from other income (expense) to an operating cost line item in
      the statement of operations for the years ended December 31, 2007 and 2006.
      The
      Company also reclassified accounting costs originally classified in fees and
      costs related to reorganization in 2007 to general and administrative expenses
      to more properly reflect their purpose. The Company also reclassified loss
      on
      exchange rate difference to a separate operating cost line item in the statement
      of operations, which had previously been included in general and administrative
      costs. These reclassifications had no effect on net income for the years ended
      December 31, 2007 or 2006. The Company also made minor corrections to certain
      line item amounts in cash flows from financing activities for the year ended
      December 31, 2007, which did not have an effect on net cash provided by
      financing activities in 2007. As a result of the foregoing revisions, the
      Company labeled the statements of operations for the years ended December 31,
      2007 and 2006 as “restated.”





This
      Amendment No. 2 amends only the items of the Original Filing as specified above
      and amends those items solely to reflect the changes described above, and all
      other portions of the Company’s Original Filing remain in effect and have not
      been amended to reflect events and developments since the original April 11,
      2008 filing date.  In
      accordance with Rule 12b-15 of the Exchange Act, this Amendment No. 2 on Form
      10-K/A sets forth the complete text of Items 6, 7 and 8 of Part II of the
      Registrant’s Form 10-K for the year ended December 31, 2007, as amended, and
      also includes new Rule 13a-14(a)/15d-14(a) and Rule 13a-14(b)/15d-14(b)
      certifications as Exhibits 31.1, 31.2, and 32.1.


1




**PART
      II**





**ITEM
      6. SELECTED CONSOLIDATED FINANCIAL DATA**





The
      following selected consolidated statement of operations data for the years
      ended
      December 31, 2007, 2006, 2005, 2004 and 2003 and the balance sheet data as
      of
      December 31, 2007, 2006, 2005, 2004 and 2003 are derived from the Company’s
      audited consolidated financial statements, except for data as of and for the
      year ended December 31, 2003. The following data is qualified in its entirety
      by
      and should be read in conjunction with “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” and our consolidated financial
      statements and related notes included elsewhere in this Form
      10-K/A.





**Consolidated
                Statements of Operations**
            
            **Year Ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**(restated)
            
            (restated)
            
            
            
            
            
            (unaudited)***(in thousands)***Net
                sales
            
            $
            73,262
            
            $
            44,376
            
            $
            25,010
            
            $
            10,956
            
            $
            3,599Cost
                of sales
            
            
            (63,791
            )
            
            (36,959
            )
            
            (20,757
            )
            
            (9,306
            )
            
            (3,290
            )Gross
                profit
            
            
            9,471
            
            
            7,417
            
            
            4,253
            
            
            1,651
            
            
            309Depreciation
            
            
            (121
            )
            
            (80
            )
            
            (46
            )
            
            (25
            )
            
            (10
            )Selling
                and distribution costs
            
            
            (2,096
            )
            
            (1,634
            )
            
            (857
            )
            
            (641
            )
            
            (61
            )General
                and administrative costs
            
            
            (3,461
            )
            
            (1,960
            )
            
            (854
            )
            
            (549
            )
            
            (181
            )Loss
                on exchange rate difference
            
            
            (855
            )
            
            (199
            )
            
            -
            
            
            -
            
            
            -Fees
                and costs related to reorganization
            
            
            (582
            )
            
            (75
            )
            
            -
            
            
            -
            
            
            -Income
                from operations
            
            
            2,357
            
            
            3,468
            
            
            2,496
            
            
            435
            
            
            57Other
                income
            
            
            149
            
            
            59
            
            
            58
            
            
            33
            
            
            -Interest
                expense
            
            
            (696
            )
            
            (254
            )
            
            (55
            )
            
            (10
            )
            
            -Income
                before taxes
            
            
            1,809
            
            
            3,273
            
            
            2,499
            
            
            458
            
            
            57Income
                taxes
            
            
            (145
            )
            
            (241
            )
            
            (188
            )
            
            17
            
            
            -Net
                income
            
            $
            1,664
            
            $
            3,032
            
            $
            2,311
            
            $
            475
            
            $
            57Net
                income per common share – basic and diluted
            
            $
            0.11
            
            $
            0.20
            
            $
            0.16
            
            $
            0.03
            
            $
            0.00Weighted
                average common shares outstanding – basic and diluted
            
            
            15,731,988
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328Dividends
                declared per common share
            
            $
            0.045
            
            
            -
            
            
            -
            
            
            -
            
            
            -




**Consolidated
                Balance Sheets**
            
            
            **As of December 31,****2007**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**(unaudited)***(in thousands)***Current
                Assets
            
            $
            40,167
            
            $
            28,573
            
            $
            12,851
            
            $
            6,322
            
            $
            1,910Total
                Assets
            
            
            48,920
            
            
            31,736
            
            
            14,585
            
            
            7,378
            
            
            2,317Current
                Liabilities
            
            
            37,366
            
            
            24,571
            
            
            10,728
            
            
            5,907
            
            
            2,056Total
                Liabilities
            
            
            37,366
            
            
            24,571
            
            
            10,728
            
            
            5,907
            
            
            2,140Total
                Stockholders’ Equity
            
            
            11,554
            
            
            7,165
            
            
            3,857
            
            
            1,472
            
            
            177




2


**Recapitalization**





The
      acquisition of HKHT by us pursuant to the Share Exchange Transaction was
      accounted for as a recapitalization by us. The recapitalization was, at the
      time
      of the Share Exchange, the merger of a private operating company (HKHT) into
      a
      non-operating public shell corporation (us) with nominal net assets and as
      such
      is treated as a capital recapitalization, rather than a business combination.
      As
      a result, the assets of the operating company are recorded at historical cost.
      The transaction is the equivalent to the issuance of stock by the private
      company for the net monetary assets of the shell corporation. The pre
      acquisition financial statements of HKHT are treated as the historical financial
      statements of the consolidated companies. The financial statements presented
      will reflect the change in capitalization for all periods presented, therefore
      the capital structure of the consolidated enterprise, being the capital
      structure of the legal parent, is different from that appearing in the financial
      statements of HKHT in earlier periods due to this recapitalization.




**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.
      Should one or more of these risks or uncertainties occur, or should underlying
      assumptions prove to be incorrect, actual results may vary materially and
      adversely from those anticipated, believed, estimated or otherwise indicated.
      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
      described below, pursuant to which we (i) became the 100% parent of Hong Kong
      Highpower Technology Company Limited , a Hong Kong Company (“HKHT”), and its
      wholly-owned subsidiary, Shenzhen Highpower Technology Co., Ltd. (“Shenzhen
      Highpower”), a company formed under the laws of the People’s Republic of China
      (“PRC” or “China”), (ii) assumed the operations of HKHT and its subsidiary and
      (iii) changed our name from SRKP 11, Inc. to Hong Kong Highpower Technology,
      Inc. HKHT was incorporated in Hong Kong in 2003, under the Companies Ordinance
      of Hong Kong.





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 2,836,364 shares of Common stock at $1.10
      per
      share. As a result, we received gross proceeds in the amount of $3.1 million.





Through
      Shenzhen Highpower, we manufacture Ni-MH rechargeable 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. 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.


3


**Recent
      Events**





***Share
      Exchange***





On
      October 20, 2007, we entered into a share exchange agreement (“Exchange
      Agreement”) with all of the shareholders of HKHT, pursuant to which we agreed to
      issue an aggregate of 14,798,328 shares of our common stock in exchange for
      all
      of the issued and outstanding securities of HKHT (the “Share Exchange”). Upon
      the closing of the Share Exchange on November 2, 2007, we issued an aggregate
      of
      14,798,328 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 shareholders agreed
      to cancel an aggregate of 2,556,602 shares of common stock such that there
      were
      2,843,398 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 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.





Immediately
      after the closing of the Share Exchange and Private Placement, we had 20,478,090
      outstanding shares of common stock. Upon the closing of the Share Exchange,
      the
      shareholders of HKHT and their designees owned approximately 72.3% of our issued
      and outstanding common stock, the pre-existing stockholders of the Company
      owned
      13.9% and investors in the Private Placement that closed concurrently with
      the
      Share Exchange, as described below, owned 13.8% of our outstanding common stock.





Pursuant
      to the terms of the Share Exchange, we agreed to register a total of 2,843,398
      shares of common stock held by our stockholders immediately prior to the Share
      Exchange. Of these 2,843,398 shares, 1,307,963 shares are covered by a resale
      registration statement filed in connection with the Private Placement (described
      below), originally filed with the Securities and Exchange Commission on November
      13, 2007, and 1,535,435 shares, which are held by affiliates of WestPark
      Capital, Inc. (“WestPark”), are to be included in a subsequent registration
      statement filed by us within ten days after the end of the six-month period
      that
      immediately follows the date on which we file the registration statement to
      register the shares issued in the Private Placement. WestPark acted as the
      placement agent in the Private Placement.





With
      respect to the registration statement that we will file to cover the 1,535,435
      shares of common stock held by the WestPark affiliates, we agreed to use our
      reasonable best efforts to cause the registration statement to become effective
      within 150 days after the required filing date or the actual filing date,
      whichever is earlier, or 180 days after the required filing date or the actual
      filing date, whichever is earlier, if the registration statement is subject
      to a
      full review by the SEC. In addition, we agreed to use our reasonable best
      efforts to maintain the registration statement effective for a period of 24
      months at our expense. We also agreed to a penalty provision pursuant to which
      we will issue additional shares of our common stock to the WestPark affiliates
      if we fail to timely file and maintain the registration statement.





Immediately
      after the closing of the Share Exchange, we changed our corporate name from
      “SRKP 11, Inc.” to “Hong Kong Highpower Technology, Inc.” The shares of our
      common stock are not currently listed or quoted for trading on any national
      securities exchange or national quotation system. We have applied for the
      listing of our common stock on the American Stock Exchange.





***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 2,836,364 shares of common stock at $1.10
      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 begins to be listed or quoted on either the
      New
      York Stock Exchange, American Stock Exchange, NASDAQ Global Market, NASDAQ
      Capital Market or the OTC Bulletin Board, 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.





We
      agreed
      to file a registration statement covering the common stock sold in the Private
      Placement within thirty days of the closing of the Share Exchange pursuant
      to
      the subscription agreement with each investor. We filed the registration
      statement within that timeframe. We are required to use our reasonable best
      efforts to cause the registration statement to become effective within one
      hundred and 150 days after the closing or 180 days after the closing if the
      registration statement is subject to a full review by the SEC. We are also
      required to use our reasonable best efforts to maintain the registration
      statement effective for a period of 24 months at our expense.


4





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 and Estimates**





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.





***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.




5


***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.


6





**Results
      of Operations**





The
      following table sets forth the consolidated statements of operations of the
      Company for the years ended December 31, 2007, 2006 and 2005 (U.S.
      dollars):





**Year Ended December 31,****2007**
            
            **2006**
            
            **2005**(restated)
            
            (restated)***(in thousands)***Net
                sales
            
            $
            73,262
            
            $
            44,376
            
            $
            25,010Cost
                of sales
            
            
            (63,791
            )
            
            (36,959
            )
            
            (20,757
            )Gross
                profit
            
            
            9,471
            
            
            7,417
            
            
            4,253Depreciation
            
            
            (121
            )
            
            (80
            )
            
            (46
            )Selling
                and distribution costs
            
            
            (2,096
            )
            
            (1,634
            )
            
            (857
            )General
                and administrative costs
            
            
            (3,461
            )
            
            (1,960
            )
            
            (854
            )Loss
                on exchange rate difference
            
            
            (855
            )
            
            (199
            )
            
            -Fees
                and costs related to reorganization
            
            
            (582
            )
            
            (75
            )
            
            -Income
                from operations
            
            
            2,357
            
            
            3,468
            
            
            2,496Other
                income
            
            
            149
            
            
            59
            
            
            58Interest
                expense
            
            
            (696
            )
            
            (254
            )
            
            (55
            )Income
                before taxes
            
            
            1,809
            
            
            3,273
            
            
            2,499Income
                taxes
            
            
            (145
            )
            
            (241
            )
            
            (188
            )Net
                income
            
            $
            1,664
            
            $
            3,032
            
            $
            2,311Net
                income per common share – basic and diluted
            
            $
            0.11
            
            $
            0.20
            
            $
            0.16Weighted
                average common shares outstanding – basic and diluted
            
            
            15,731,988
            
            
            14,798,328
            
            
            14,798,328





**EBITDA**





In
      evaluating our business, we consider and use EBITDA, a financial measure not
      in
      accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), as
      a supplemental measure of our operating performance. We define EBITDA as net
      income (loss) before net interest expense, provision (benefit) for income taxes,
      and depreciation and amortization. We use EBITDA as a supplemental measure
      to
      review and assess our operating performance and to enhance comparability between
      periods. We also believe the use of EBITDA facilitates the use by investors
      of
      operating performance comparisons from period to period and company to company
      by backing out potential differences caused by variations in such items as
      the
      book amortization of intangible assets (affecting relative amortization
      expense), the age and book value of facilities and equipment (affecting relative
      depreciation expense), and capital structure (affecting relative interest
      expense). We also present EBITDA because we believe it is frequently used by
      securities analysts, investors and other interested parties as an alternate
      measure of financial performance. We reconcile EBITDA to net income (loss),
      the
      most comparable financial measure under U.S. GAAP.




7


We
      believe that EBITDA permits a comparative assessment of our operating
      performance, relative to our performance based on our U.S. GAAP results, while
      isolating the effects of interest, taxes, depreciation and amortization, which
      may vary from period to period without any correlation to underlying operating
      performance. We provide information relating to our EBITDA so that securities
      analysts, investors and other interested parties have the same data that we
      employ in assessing our overall operations. We believe that trends in our EBITDA
      are a valuable indicator of our operating performance and of our ability to
      produce operating cash flows to fund working capital needs, to service debt
      obligations and to fund capital expenditures.





The
      term
      EBITDA is not defined under U.S. GAAP, and is not a measure of operating income,
      operating performance or liquidity presented in accordance with U.S. GAAP.
      Our
      EBITDA has limitations as an analytical tool, and when assessing our operating
      performance, EBITDA
      should not be considered in isolation, or as a substitute for net income
      (loss) or other consolidated statement of operations data prepared in
      accordance with U.S. GAAP. Some of these limitations include, but are not
      limited to, the following:





·
            EBITDA
                (1) does not reflect our cash expenditures or future requirements for
                capital expenditures or contractual commitments; (2) does not reflect
                changes in, or cash requirements for, our working capital needs;
                (3) does not reflect the interest expense, or the cash requirements
                necessary to service interest or principal payments, on our debt;
                (4) does not reflect income taxes or the cash requirements for any
                tax payments; and (5) does not reflect all of the costs associated
                with operating our business;




·
            although
                depreciation and amortization are non-cash charges, the assets being
                depreciated and amortized often will have to be replaced in the future,
                andEBITDA
                does not reflect any cash requirements for such replacements;and




·
            other
                companies may calculate EBITDA differently than we do, limiting its
                usefulness as a comparative
                measure.




We
      compensate for these limitations by relying primarily on our U.S. GAAP results
      and using EBITDA
      only supplementally. EBITDA
      is
      calculated as follows for the periods presented:





***Years Ended December 31******2007***
            
            ***2006***
            
            ***2005****$*
            
            
            *$*
            
            
            *$*Net
                income
            
            
            1,663,690
            
            
            3,032,327
            
            
            2,311,031Interest
                expense
            
            
            696,132
            
            
            253,617
            
            
            54,971Income
                taxes
            
            
            145,458
            
            
            240,487
            
            
            187,634Depreciation
            
            
            560,073
            
            
            343,841
            
            
            182,307Amortization
            
            
            50,000
            
            
            -
            
            
            -EBITDA
            
            
            3,115,353
            
            
            3,870,272
            
            
            2,735,943




The
      decrease in EBITDA for the year ended December 31, 2007 as compared to the
      year ended December 31, 2006 was due in part to the increased costs of nickel
      in
      2007, which we could not immediately pass along to our customers in 2007 through
      higher battery prices due to fixed-priced contracts. EBITDA for the year ended
      December 31, 2007 as compared to the year ended December 31, 2006 was also
      negatively impacted by fees and costs related to the reorganization of
      $582,269 in 2007, as compared to $75,229 in 2006, and loss on exchange rate
      difference of $854,873 in 2007, as compared to $199,231 in 2006.




8


**Years
      ended December 31, 2007 and 2006**





Net
      sales
      for year the ended December 31, 2007 were $73.3 million compared to $44.4
      million for the year ended December 31, 2006, an increase of 65.1%. The increase
      in net sales for the year ended December 31, 2007 over the year ended December
      31, 2006 was due to a 31% increase in the average selling price of our battery
      units and a 26% increase in the number of battery units sold, including $160,170
      from the sale of battery seconds during the year ended December 31, 2007. The
      31% increase in the average selling price of our battery units was due to our
      agreement with our major customers in March 2007 to adjust the selling prices
      of
      our batteries in accordance with the market price of nickel. Prior to March
      2007, we fulfilled customer orders under fixed-price, long-term sales contracts
      under which the selling price of the batteries was determined according to
      nickel costs prior to the sharp increase in the cost of nickel which began
      at
      the end of 2006 and we were, therefore, unable to pass along the increased
      nickel costs on to our customers. However, after March 2007, we were able to
      adjust the sales price of our batteries based on the cost of nickel. The
      increase in the number of battery units sold in 2007 was primarily attributable
      to increased orders from our major customers, Energizer Battery Manufacturing,
      Inc. and Uniross Batteries (HK) Ltd.





Cost
      of
      sales consists of the cost of nickel and other materials. Costs of sales were
      $63.8 million for the year ended December 31, 2007 as compared to $37.0 million
      for the comparable period in 2006. As a percentage of net sales, cost of sales
      increased to 87.1% for the year ended December 31, 2007 compared to 83.3% for
      the comparable period in 2006. This was attributable to a 38% increase in the
      average per unit cost of goods sold during the year ended December 31, 2007
      as
      compared to the comparable period in 2006, which resulted from a 61% increase
      in
      the average cost of nickel during the year ended December 31, 2007 compared
      to
      the comparable period in 2006.





Gross
      profit for the year ended December 31, 2007 was $9.5 million, or 12.9% of net
      sales, compared to $7.4 million, or 16.7% of net sales, respectively, for the
      comparable period in 2006. 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 decrease
      in
      our gross profit margin for the year ended December 31, 2007 is primarily due
      to
      increases in the price of nickel which we did not pass along to our customers
      for a portion of 2007 due to our sales price commitments.





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 Lithium-ion
      (“Li-ion”) batteries as samples for potential customers 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 $2.1 million for the year ended December 31, 2007,
      compared to $1.6 million for the comparable period in 2006. The increase was
      due
      to the expansion of our market share, which increased 2% in terms of the
      worldwide market in volume and 1.5% in terms of worldwide market value in 2007
      over 2006. Our market share increased due to our increased promotion of our
      products and our expansion of our team of sales representatives.




General
      and administrative costs were $3.5 million, or 4.7% of net sales, for the year
      ended December 31, 2007, compared to $2.0 million, or 4.4% of net sales, for
      the
      comparable period in 2006. 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, which increased $380,000 for year ended December
      31,
      2007 over the comparable period in 2006 due to the expansion of our technician
      and marketing team to expand our market share. 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.




9


We
      experienced losses on the exchange rate difference between the U.S. Dollar
      and
      the RMB of $855,000 and $199,000, respectively, in the years ended December
      31,
      2007 and 2006, an increase of 330%, due to the devaluation of the U.S. Dollar
      relative to the RMB over the respective periods. Beginning in 2008, to cope
      with
      devaluation of the U.S. Dollar relative to the RMB, we are engaging in currency
      hedging and adjusting the selling price of batteries to vary with the U.S.
      Dollar exchange rate relative to the RMB.





All
      costs
      associated with the reverse merger transaction, consisting primarily of
      consideration paid to the previous control parties of SRKP 11 and legal and
      investment banking fees and costs, were expensed as incurred as a cost of the
      recapitalization, and have been presented as an operating cost line item
      entitled “fees and costs related to reorganization” in the statement of
      operations. These costs were $582,000 and $75,000 for the years ended December
      31, 2007 and 2006, respectively (as restated).




Interest
      expense was $696,000 for the year ended December 31, 2007, as compared to
      $254,000 for the respective comparable period in 2006. The increase was
      primarily due to higher borrowing levels. We increased our borrowings by $9.46
      million in the year ended December 31, 2007 as compared to the year ended
      December 31, 2006. 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, 2007, we recorded a provision for income taxes
      of
      $145,000, as compared to $240,000 for the respective comparable period in 2006.
      The decrease in income taxes for the year ended December 31, 2007 as compared
      to
      the year ended December 30, 2006 was a result of a decrease in our net taxable
      income.




Net
      income for the year ended December 31, 2007 was $1.7 million, compared to a
      net
      income of $3.0 million for the comparable period in 2006.





**Years
      ended December 31, 2006 and 2005**





Net
      sales
      for the year ended December 31, 2006 were $44.4 million as compared to $25.0
      million for the year ended December 31, 2005, an increase of 78%. This increase
      was largely due to a 75.6% increase in the number of battery units sold,
      including an increase in the sales of battery seconds of $356,478. We believe
      that this increase in net sales is a sustainable trend because worldwide demand
      for Ni-MH batteries is growing at a rate of 15% per year, excluding the market
      for hybrid electrical vehicle (“HEV”) batteries, according to a report by
      Avicenne Forecasts dated June 2007. With Japanese battery factories increasingly
      shifting their production to HEV batteries, we will be able to increase our
      market share for the sale of Ni-MH batteries.





Cost
      of
      sales for the year ended December 31, 2006 was $37.0 million or 83.6% of net
      sales, as compared to $20.8 million for the year ended December 31, 2005 or
      83.0% of net sales. The increase in total dollars and as a percentage of net
      sales was attributable to higher costs associated with our products, principally
      due to the rising cost of nickel which began in late 2006.





Gross
      profit for the year ended December 31, 2006 was $7.4 million, or 16.7% of net
      sales, compared to $4.3 million, or 17.0% of net sales for the year ended
      December 31, 2005. The decrease in our gross profit margin for the year ended
      December 31, 2006 is primarily due to an increase in the price of nickel that
      we
      were unable to pass along to customers in the form of higher prices charged
      for
      our battery products. During 2006 when the cost of nickel began to rise, we
      were
      unable to raise our battery prices to account for the increase in the cost
      of
      nickel because we sold our batteries under fixed-price agreement under which
      the
      prices were determined prior to the increase in the cost of nickel.





Selling
      and distribution costs were $1.6 million for the year ended December 31, 2006,
      compared to $857,000 for the comparable period in 2005. The increase was due
      to
      the expansion of our market share, which increased 3% in terms of the worldwide
      market in volume and 2% in terms of worldwide market value in 2006 over 2005.
      Our market share increased due to our increased promotion of our products and
      our expansion of our team of sales representatives.


10


General
      and administrative costs were $2.0 million, or 4.4% of net sales, for the year
      ended December 31, 2006, as compared to $854,000 or 3.4% of net sales, for
      the
      year ended December 31, 2005. The increase as a percentage of net sales was
      primarily due to increased labor costs and research and development expenses.
      Labor and personnel costs increased $240,000 for the year ended December 31,
      2006 over the year ended December 31, 2005 due to the expansion of our workforce
      to expand production. Research and development expenses increased $320,000
      for
      the year ended December 31, 2006 over the year ended December 31, 2005 due
      to
      our increased commitment to advance our research and development
      activities.





We
      experienced losses on the exchange rate difference between the U.S. Dollar
      and
      the RMB of $199,000 and $0, respectively, in the years ended December 31, 2006
      and 2005, due to the devaluation of the U.S. Dollar relative to the RMB over
      the
      respective periods.





All
      costs
      associated with the reverse merger transaction, consisting primarily of
      consideration paid to the previous control parties of SRKP 11 and legal and
      investment banking fees and costs, were expensed as incurred as a cost of the
      recapitalization, and have been presented as an operating cost line item
      entitled “fees and costs related to reorganization” in the statement of
      operations. These costs were $75,000 and $0 for the years ended December 31,
      2006 and 2005, respectively.





Interest
      expense was $254,000 for the year ended December 31, 2006 compared to $55,000
      for the year ended December 31, 2005. This increase is primarily attributable
      to
      higher borrowing levels to maintain adequate inventory. We increased our
      borrowings by $4.99 million during the year ended December 31, 2006 as compared
      to the year ended December 31, 2005.




Other
      income from operations, which consists of bank interest income, exchange gains
      and losses and sundry income, was $59,000, for the year ended December 31,
      2006,
      as compared to $58,000 for the year ended December 31, 2005, an increase of
      0.01%. The increase was primarily due to an $8,000 increase in bank interest
      income and a $10,000 increase in sundry income, offset by a $17,000 decrease
      in
      net exchange gains.





During
      the year ended December 31, 2006, we recorded a provision for income taxes
      of
      $240,000 compared to $188,000 for the year ended December 31, 2005. The increase
      was the result of an increase in our net taxable income.





Net
      income for the year ended December 31, 2006 was $3.0 million, compared to net
      income of $2.3 million for the year ended December 31, 2005.





**Liquidity
      and Capital Resources**





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, 2007, we had in place general banking facilities with five financial
      institutions aggregating $24.17 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 some of our
      shareholders, including Dang Yu Pan, Wen Liang Li and Wen Wei Ma, 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, 2007, we
      had
      utilized approximately $15.41 million under such general credit facilities
      and
      had available unused credit facilities of $8.76 million.





On
      November 2, 2007, upon the closing of a private placement, 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 2,836,364 shares of Common Stock at $1.10
      per
      share. We agreed to file a registration statement covering the common stock
      sold
      in the Private Placement within 30 days of the closing of the Share Exchange
      pursuant to the subscription agreement with each investor. For its services
      in
      connection with the Share Exchange and as placement agent, the placement agent
      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.


11


For
      the
      year ended December 31, 2007, net cash used in operating activities was
      approximately $1.5 million, as compared to $2.1 million for the comparable
      period in 2006. The decrease in net cash used by operating activities is
      primarily attributable to a decrease in inventory levels. For the year ended
      December 31, 2006, net cash used in operating activities was $2.1 million as
      compared to net cash provided by operating activities of $852,000 for the year
      ended December 31, 2005. The increase in net cash used in operating activities
      is primarily attributable to an increase in inventory levels.





Net
      cash
      used in investing activities was $4.9 million for the year ended
      December 31, 2007 compared to $1.7 million for the comparable period in
      2006. The increase of cash used in investing activities was primarily
      attributable to the acquisition of land equity in HuiZhou, and deposits paid
      for
      the acquisition of equipment. Net cash used in investing activities was $1.7
      million in the year ended December 31, 2006 as compared to $839,000 for the
      year
      ended December 31, 2005. The increase in net cash used in investing activities
      is primarily attributable to the acquisition of plant and equipment.





Net
      cash
      provided by financing activities was $7.4 million for the year ended December
      31, 2007 as compared to $3.8 million for the comparable period in 2006. The
      increase in net cash provided by financing activities was attributable to an
      increase in bank borrowings of $9.46 million in 2007. Net cash provided by
      financing activities was approximately $3.8 million for the year ended December
      31, 2006 as compared to $149,000 for the year ended December 31, 2005. The
      increase in net cash provided by financing activities is primarily attributable
      to an increase in bank borrowings of $5 million for the year ended December
      31,
      2006.





For
      the
      years ended December 31, 2007, 2006 and 2005, our inventory turnover was 4.25,
      3.47 and 5.13 times, respectively. The average days outstanding of our accounts
      receivable at December 31, 2007 were 60 days, as compared to 53 days at December
      31, 2006. 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 $3.0 million.





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 $30,000 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.


12


**Guarantees
      of Bank Loans**





Dang
      Yu
      Pan, our Chairman and Chief Executive Officer, Wen Liang Li, our Vice President,
      Chief Technology Officer and director, and Wen Wei Ma, our Vice President of
      Manufacturing, each have 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, 2007 and the identity of the officer(s) who
      guaranteed each loan.




**Name
                of Bank**
            
            **Amount**
              **Granted**
            
            **Amount**
              **Outstanding**
              **Under Loan**
            
            **Guaranteed by Officers**DBS
                Bank (China) Limited
            
            $
            11.18
                million
            
            $
            5.03
                million
            
            
            Dang Yu Pan, Wen Liang Li,
              Wen Wei MaShenzhen
                Development Bank Co., Ltd
            
            $
            6.82
                million
            
            $
            5.17
                million
            
            
            Dang
                Yu PanShanghai
                Pudong Development Bank Co. Ltd.
            
            $
            3.9
                million
            
            $
            2.96
                million
            
            
            Dang
                Yu PanCitibank
                China Co., Ltd.
            
            $
            2.0
                million
            
            $
            0.68
                million
            
            
            Dang Yu Pan, Wen Liang Li,
              Wen Wei Ma





Pursuant
      to the Letter of Undertaking related to the loan from DBS Bank (China) Limited,
      Mr. Pan, Mr. Li and Mr. Ma agreed to enter into a guarantee contract with the
      bank to guarantee all the outstanding debts of our subsidiary, Shenzhen
      Highpower, whether such debts are payments, obligations or liabilities already
      existing or contingent.




Pursuant
      to the guarantee agreement related to the loan with Shenzhen Development Bank
      Co., Ltd., Mr. Pan guaranteed all of the principal, interest, compound interest
      and penalty interest of all debts incurred by our subsidiary, Shenzhen
      Highpower, as well as expenses incurred by realization of creditor’s rights,
      which include notification costs, fees of service, survey fees, lawyer’s fees,
      legal costs, travel expenses, evaluation costs, auctioneer’s fees, attachment
      fees and enforcement charges. The guarantee is irrevocable and remains in effect
      until two years after the expiration of the credit extended pursuant to the
      loan
      agreement.





Pursuant
      to the guarantee agreement related to the loan with Shanghai Pudong Development
      Bank Co., Ltd., Mr. Pan guaranteed the principal, interests, damages,
      compensations, service charges and other fees arising out from the loan.
      Pursuant to the guarantee, Mr. Pan may not take certain actions without first
      obtaining the bank’s written consent, including: (a) selling, gifting, leasing,
      lending, transferring, mortgaging, pledging or otherwise disposing of, partially
      or fully, his substantial assets; (b) providing a guarantee for a third party,
      which materially and adversely influences his financial conditions or his
      capacity to perform its obligations under the guarantee; (c) declaring
      bankruptcy; or (d) executing any contract/agreement that substantially adversely
      influences his capacity to perform his obligations under the guarantee. Mr.
      Pan
      must also notify the bank upon the occurrence of certain events including (a)
      any event causing any of his representations or warranties to become untrue;
      (b)
      his involvement in an action or arbitration; (c) a change in his address or
      employment; or (d) a claim by other creditors for his bankruptcy. In the event
      of an enumerated event of default, the bank may declare accelerate repayment
      of
      the loan and require Mr. Pan to repay the loan in accordance with the guarantee
      or require our subsidiary, Shenzhen Highpower to supplement the security
      deposit. In addition, Mr. Pan will be liable for any damages to the bank in
      the
      event of the occurrence of an event of default.





Pursuant
      to the Letters of Guarantee related to the loan with Citibank China Co., Ltd.,
      each of the guarantors guaranteed to pay any or all of the outstanding debts,
      including principal, interest, charges, defaults interest, penalties, costs,
      expenditures, compensation, payments, and other expenses, due and payable by
      our
      subsidiary, Shenzhen Highpower. Each of the guarantors agreed not to claim,
      enforce or exercise any right of subrogation he may obtain under the guarantee.
      Additionally, each guarantor waived any right to act as a debtee or claim any
      rights to the assets of Shenzhen Highpower, or compete with the bank in the
      case
      of a bankruptcy or liquidation of Shenzhen Highpower. Each guarantor also agreed
      that should he fail to make a payment obligation under the guarantee when due
      and payable, the bank may set off such debts with any deposit or other assets
      held or controlled by the bank or with any amount owed by the bank to the
      guarantor. Pursuant to the guarantee, each of the guarantors agreed, unless
      otherwise agreed by the bank, so long as any debt remains unpaid to: (a) comply
      with all applicable laws and orders of any government authorities having
      jurisdiction; (b) pay all taxes and charges so as to not cause a lien, mortgage
      or any burden or rights on any of guarantor’s assets; (c) and sign any document
      reasonably requested by the bank. Also, the guarantors may not, without the
      bank’s prior written consent, undertake or guarantee any other obligation of any
      individual or entity or sell, lease or dispose of a material part of their
      assets. Each guarantor is jointly and severally liable for all debts with each
      other guarantor.


13


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





**Contractual
      Obligations**





This
      table summarizes our known contractual obligations and commercial commitments
      at
      December 31, 2007.









Payments due by periodTotal
            
            Less than 1 year
            
            1-3 years
            
            3-5 years
            
            More than
              5 yearsCredit
                Facilities
            
            $
            15,410,542
            
            $
            15,410,542
            
            
            -
            
            
            -
            
            
            -Purchase
                Obligations (1)
            
            $
            19,561,118
            
            $
            19,561,118
            
            
            -
            
            
            -
            
            
            -License
                Agreement
            
            $
            1,327,026
            
            $
            1,327,026
            
            
            -
            
            
            -
            
            
            -Capital
                commitment
            
            $
            146,647
            
            $
            146,647**Total**
            
            $
            36,445,333
            
            $
            36,445,333
            
            
            -
            
            
            -
            
            
            -






(1)
                Primarily
                    represents obligations to purchase specified quantities of raw
                    materials.




**Inflation
      and Seasonality**




Inflation
      and seasonality have not had a significant impact on our operations during
      the
      last two fiscal years.





**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.





**New
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosures about fair value measurements. SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Earlier
      application is encouraged, provided that the reporting entity has not yet issued
      financial statements for that fiscal year, including any financial statements
      for an interim period within that fiscal year. The provisions of this statement
      should be applied prospectively as of the beginning of the fiscal year in which
      this statement is initially applied, except in some circumstances where the
      statement shall be applied retrospectively. We are currently evaluating the
      effect, if any, of SFAS 157 on our financial statements. Management does not
      believe the adoption of SFAS 157 will have a material impact on the Company’s
      consolidated financial statements.




On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities — Including an Amendment of SFAS No.
      115” (“SFAS 159”). The fair value option established by SFAS 159 permits all
      entities to choose to measure eligible items at fair value at specified election
      dates. A business entity will report unrealized gains and losses on items for
      which the fair value option has been elected in earnings (or another performance
      indicator if the business entity does not report earnings) at each subsequent
      reporting date. The fair value option: (a) may be applied instrument by
      instrument, with a few exceptions, such as investments otherwise accounted
      for
      by the equity method; (b) is irrevocable (unless a new election date occurs);
      and (c) is applied only to entire instruments and not to portions of
      instruments. SFAS 159 is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. Early adoption is permitted
      as
      of the beginning of the previous fiscal year provided that the entity makes
      that
      choice in the first 120 days of that fiscal year and also elects to apply the
      provisions of SFAS 157. We have not chosen to early adopt this statement.
      Management does not believe the adoption of SFAS 159 will have a material impact
      on the Company’s consolidated financial statements.


14


In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      141(R), “Business Combinations” (“SFAS No. 141(R)”), which requires an acquirer
      to recognize in its financial statements as of the acquisition date (i) the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree, measured at their fair values on the acquisition
      date,
      and (ii) goodwill as the excess of the consideration transferred plus the fair
      value of any noncontrolling interest in the acquiree at the acquisition date
      over the fair values of the identifiable net assets acquired.
      Acquisition-related costs, which are the costs an acquirer incurs to effect
      a
      business combination, will be accounted for as expenses in the periods in which
      the costs are incurred and the services are received, except that costs to
      issue
      debt or equity securities will be recognized in accordance with other applicable
      GAAP. SFAS No. 141(R) makes significant amendments to other pronouncements
      and
      other authoritative guidance to provide additional guidance or to conform the
      guidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R)
      also provides guidance as to what information is to be disclosed to enable
      users
      of financial statements to evaluate the nature and financial effects of a
      business combination. SFAS No. 141(R) is effective for financial statements
      issued for fiscal years beginning on or after December 15, 2008. Early adoption
      is prohibited.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS No.
      160”), which revises the relevance, comparability, and transparency of the
      financial information that a reporting entity provides in its consolidated
      financial statements by establishing accounting and reporting standards that
      require (i) the ownership interests in subsidiaries held by parties other than
      the parent be clearly identified, labeled, and presented in the consolidated
      statement of financial position within equity, but separate from the parent’s
      equity, (ii) the amount of consolidated net income attributable to the parent
      and to the noncontrolling interest be clearly identified and presented on the
      face of the consolidated statement of income, (iii) changes in a parent’s
      ownership interest while the parent retains its controlling financial interest
      in its subsidiary be accounted for consistently as equity transactions, (iv)
      when a subsidiary is deconsolidated, any retained noncontrolling equity
      investment in the former subsidiary be initially measured at fair value, with
      the gain or loss on the deconsolidation of the subsidiary being measured using
      the fair value of any noncontrolling equity investment rather than the carrying
      amount of that retained investment, and (v) entities provide sufficient
      disclosures that clearly identify and distinguish between the interests of
      the
      parent and the interests of the noncontrolling owners. SFAS No. 160 amends
      FASB
      No. 128 to provide that the calculation of earnings per share amounts in the
      consolidated financial statements will continue to be based on the amounts
      attributable to the parent. SFAS No. 160 is effective for financial statements
      issued for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008. Early adoption is prohibited. SFAS
      No.
      160 shall be applied prospectively as of the beginning of the fiscal year in
      which it is initially applied, except for the presentation and disclosure
      requirements, which shall be applied retrospectively for all periods presented.
      The Company has not yet determined the effect on its consolidated financial
      statements, if any, upon adoption of SFAS No. 160.


15


**Change
      in Accountants**





On
      November 2, 2007, we dismissed AJ. Robbins, PC (“AJ. Robbins”) as our
      independent registered public accounting firm following the change in control
      of
      our company on the closing of the Share Exchange. We engaged AJ. Robbins to
      audit our financial statements for the year ended December 31, 2006. The
      decision to change accountants was approved and ratified by our Board of
      Directors. The report of AJ. Robbins on the financial statements of our company
      for the year ended December 31, 2006 did not contain any adverse opinion or
      disclaimer of opinion and was not qualified or modified as to uncertainty,
      audit
      scope, or accounting principle, except for an explanatory paragraph relative
      to
      our ability to continue as a going concern. Additionally, during the Company’s
      two most recent fiscal years and any subsequent interim period, there were
      no
      disagreements with AJ Robbins on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scope or
      procedure.





While
      AJ.
      Robbins was engaged by us, there were no disagreements with AJ. Robbins on
      any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure with respect to our company, which disagreements
      if
      not resolved to the satisfaction of AJ. Robbins would have caused it to make
      reference to the subject matter of the disagreements in connection with its
      report on our financial statements for the year ended December 31, 2006.





We
      engaged Dominic K.F. Chan & Co. as our independent registered public
      accounting firm as of November 2, 2007. Dominic K.F. Chan & Co. has served
      as HKHT’s independent registered certified public accountants since October
      2006.




**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




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


16


**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT** **SCHEDULES**





1.
            Financial
                Statements: See “Index to Consolidated Financial Statements” in Part II,
                Item 8 of this annual report on Form 10-K/A.





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/A.





**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 June 27, 2008.





**Hong Kong Highpower Technology, Inc.**(Registrant)Dated:
                June 27, 2008
            
            /s/
                Dang Yu PanBy:
                Dang Yu PanChief Executive Officer andChairman
                of the Board(Principal Executive Officer)




17


**HONG
      KONG HIGHPOWER TECHNOLOGY, INC.**


**CONSOLIDATED
      FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007, 2006 AND 2005**





PageReport
                of Independent Registered Public Accounting Firm
            
            
            F-2Financial
                Statements:Consolidated
                Balance Sheets as of December 31, 2007 and 2006
            
            
            F-3Consolidated
                Statements of Operations for the years ended December 31, 2007 (restated),
                2006 (restated), and 2005
            
            
            F-5Consolidated
                Statements of Stockholders' Equity for the years ended December 31,
                2007,
                2006 and 2005
            
            
            F-6Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006
                and
                2005
            
            
            F-7Notes
                to Consolidated Financial Statements
            
            
            F-8




F-1


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders of


Hong
      Kong
      Highpower Technology, Inc.





We
      have
      audited the accompanying consolidated balance sheets of Hong Kong Highpower
      Technology Inc. (the “Company”) and its subsidiaries (collectively referred to
      as the “Group”) as of December 31, 2007 and 2006, and the related statements of
      operations, stockholders’ equity and cash flows for the years ended December 31,
      2007, 2006 and 2005. 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, 2007 and 2006, and the consolidated results
      of their operations and their cash flows for the years ended December 31, 2007,
      2006 and 2005, in conformity with accounting principles generally accepted
      in
      the United States of America.





/s/
      Dominic K.F. Chan & Co.





Dominic
      K.F. Chan & Co


Certified
      Public Accountants


Hong
      Kong


17
      March,
      2008


F-2


HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


(Stated
      in U.S. Dollars)





***At December 31,******2007***
            
            ***2006***$
            
            $**ASSETS**Current
                Assets :Cash
                and cash equivalents
            
            
            1,489,262
            
            
            488,070Restricted
                cash
            
            
            5,453,650
            
            
            1,010,580Accounts
                receivable
            
            
            15,906,175
            
            
            8,127,170Notes
                receivable
            
            
            386,482
            
            
            76,764Prepaid
                expenses and other receivables - Note 6
            
            
            2,501,796
            
            
            2,612,091Advance
                to related parties – Note 11
            
            
            -
            
            
            634,161Inventories–
                Note 7
            
            
            14,371,289
            
            
            15,623,791Prepaid
                lease payments
            
            
            58,570
            
            
            -Total
                Current Assets
            
            
            40,167,224
            
            
            28,572,627Deferred
                tax assets – Note 6
            
            
            28,277
            
            
            8,443Deposit
                paid for acquisition of machinery –Note 15
            
            
            1,115,123
            
            
            -Plant
                and equipment, net – Note 8
            
            
            3,789,382
            
            
            3,154,660Leasehold
                land – Note 9
            
            
            2,869,925
            
            
            -Intangible
                asset, net – Note 10
            
            
            950,000
            
            
            -**TOTAL
                ASSETS**
            
            
            48,919,931
            
            
            31,735,730**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****LIABILITIES**Current
                Liabilities :Accounts
                payable
            
            
            19,561,118
            
            
            17,327,402Other
                payables and accrued liabilities – Note 11
            
            
            2,320,956
            
            
            1,170,275Income
                taxes payable
            
            
            73,768
            
            
            122,710Bank
                borrowings – Note 13
            
            
            15,410,542
            
            
            5,950,626Total
                Current Liabilities
            
            
            37,366,384
            
            
            24,571,013




**COMMITMENTS
      AND CONTINGENCIES**–**Note 15**





(continued)


F-3


HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS (continued)


(Stated
      in U.S. Dollars)





***At December 31,******2007***
            
            ***2006***$
            
            
            $**STOCKHOLDERS’
                EQUITY**Preferred
                StockPar
                value: US$0.0001Authorized:
                10,000,000 sharesIssued
                and outstanding: none
            
            
            -
            
            
            -Common
                stockPar
                value : $0.0001Authorized:
                100,000,000 sharesIssued
                and outstanding: 2007 –20,478,090 shares (2006 –14,798,328
                shares)
            
            
            2,048
            
            
            1,480Additional
                paid-in capital
            
            
            2,765,102
            
            
            62,837Accumulated
                other comprehensive income
            
            
            1,157,872
            
            
            470,383Retained
                earnings
            
            
            7,628,525
            
            
            6,630,017**TOTAL
                STOCKHOLDERS’ EQUITY**
            
            
            11,553,547
            
            
            7,164,717**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            
            48,919,931
            
            
            31,735,730





See
      accompanying notes to consolidated financial statements.


F-4


HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF OPERATIONS


(Stated
      in U.S. Dollars)




***Year
                ended December 31,******2007***
            
            ***2006***
            
            ***2005***$
            
            $
            
            ***$***(restated –
              Note 1)
            
            (restated –
              Note 1)Net
                sales
            
            
            73,261,720
            
            
            44,375,682
            
            
            25,010,030Cost
                of sales
            
            
            (63,791,248
            )
            
            (36,958,529
            )
            
            (20,757,320
            )Gross
                profit
            
            
            9,470,472
            
            
            7,417,153
            
            
            4,252,710Depreciation
            
            
            (120,517
            )
            
            (80,213
            )
            
            (46,209
            )Selling
                and distribution costs
            
            
            (2,095,594
            )
            
            (1,634,366
            )
            
            (856,526
            )General
                and administrative costs
            
            
            (3,460,592
            )
            
            (1,960,271
            )
            
            (854,246
            )Loss
                on exchange rate difference
            
            
            (854,873
            )
            
            (199,231
            )
            
            -Fees
                and costs related to reorganization
            
            
            (582,269
            )
            
            (75,229
            )
            
            -Income
                from operations
            
            
            2,356,627
            
            
            3,467,843
            
            
            2,495,729Other
                income – Note 3
            
            
            148,653
            
            
            58,588
            
            
            57,907Interest
                expense – Note 4
            
            
            (696,132
            )
            
            (253,617
            )
            
            (54,971
            )Income
                before taxes
            
            
            1,809,148
            
            
            3,272,814
            
            
            2,498,665Income
                taxes – Note 6
            
            
            (145,458
            )
            
            (240,487
            )
            
            (187,634
            )Net
                income
            
            
            1,663,690
            
            
            3,032,327
            
            
            2,311,031Net
                Income per share- Basic
                and diluted
            
            
            0.11
            
            
            0.20
            
            
            0.16Weighted
                average common shares outstanding-
                Basic and diluted
            
            
            15,731,988
            
            
            14,798,328
            
            
            14,798,328





See
      accompanying notes to consolidated financial statements


F-5


HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY


(Stated
      in U.S. Dollars)





***Accumulated******Additional***
            
            ***other******Common stock***
            
            ***paid-in***
            
            ***comprehensive***
            
            ***Retained******Shares***
            
            ***Amount***
            
            ***capital***
            
            ***income***
            
            ***earnings***
            
            ***Total***$
            
            $
            
            $
            
            $
            
            ***$***Balance,
                January 1, 2005
            
            
            14,798,328
            
            
            1,480
            
            
            62,837
            
            
            43
            
            
            1,286,659
            
            
            1,351,019Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,311,031
            
            
            2,311,031Foreign
                  currency translationadjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            195,010
            
            
            -
            
            
            195,010Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,506,041Balance,
                December 31, 2005
            
            
            14,798,328
            
            
            1,480
            
            
            62,837
            
            
            195,053
            
            
            3,597,690
            
            
            3,857,060Comprehensive
                incomeNet
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,032,327
            
            
            3,032,327Foreign
                  currency translationadjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            275,330
            
            
            -
            
            
            275,330Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            3,307,657Balance,
                December 31, 2006
            
            
            14,798,328
            
            
            1,480
            
            
            62,837
            
            
            470,383
            
            
            6,630,017
            
            
            7,164,717Shares
                Issued in connection with reverse merger
            
            
            2,834,398
            
            
            284
            
            
            (35,451
            )
            
            -
            
            
            -
            
            
            (35,167
            )Shares
                issued in private placement, net of offering cost of $382,000
            
            
            2,836,364
            
            
            284
            
            
            2,737,716
            
            
            -
            
            
            -
            
            
            2,738,000Comprehensive
                incomeNet
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,663,690
            
            
            1,663,690Foreign
                  currency translationadjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            687,489
            
            
            -
            
            
            687,489Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            2,351,179Dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (665,182
            )
            
            (665,182
            )Balance,
                December 31, 2007
            
            
            20,478,090
            
            
            2,048
            
            
            2,765,102
            
            
            1,157,872
            
            
            7,628,525
            
            
            11,553,547





See
      accompanying notes to consolidated financial statements


F-6


HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC.  AND
      SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Stated
      in U.S. Dollars)





***Year ended December 31,******2007***
            
            ***2006***
            
            ***2005***$
            
            $
            
            ***$*****Cash
                flows from operating activities**Net
                income
            
            
            1,663,690
            
            
            3,032,327
            
            
            2,311,031Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities :Bad
                debts written off
            
            
            3,649
            
            
            22,878
            
            
            9,645Depreciation
            
            
            560,073
            
            
            343,841
            
            
            182,307Amortization
                of intangible asset
            
            
            50,000
            
            
            -
            
            
            -Loss
                on disposal of plant and equipment
            
            
            20,046
            
            
            32,844
            
            
            5,261Changes
                in operating assets and liabilities :(Increase)
                decrease in -Accounts
                receivable
            
            
            (7,018,013
            )
            
            (3,155,007
            )
            
            (1,778,398
            )Notes
                receivable
            
            
            (309,829
            )
            
            620,101
            
            
            (511,456
            )Prepaid
                expenses and other receivables
            
            
            305,785
            
            
            (1,826,594
            )
            
            (313,424
            )Inventories
            
            
            2,183,344
            
            
            (9,556,898
            )
            
            (3,148,845
            )Increase
                (decrease) in -Accounts
                payable
            
            
            1,082,433
            
            
            8,387,286
            
            
            3,814,931Other
                payables and accrued liabilities
            
            
            78,974
            
            
            (32,771
            )
            
            154,267Income
                taxes payable
            
            
            (74,825
            )
            
            27
            
            
            126,803Net
                cash provided by (used in) operating activities
            
            
            (1,454,673
            )
            
            (2,132,020
            )
            
            852,122**Cash
                flows from investing activities**Acquisition
                of plant and equipment
            
            
            (1,030,725
            )
            
            (1,733,167
            )
            
            (849,768
            )Acquisition
                of land
            
            
            (2,832,348
            )
            
            -
            
            
            -Proceeds
                from disposal of plant and equipment
            
            
            32,976
            
            
            13,747
            
            
            11,186Deposit
                paid for acquisition of machinery
            
            
            (1,115,123
            )
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            (4,945,220
            )
            
            (1,719,420
            )
            
            (838,582
            )**Cash
                flows from financing activities**Proceeds
                from issuance of common stock
            
            
            2,738,000
            
            
            -
            
            
            -Proceeds
                from new short-term bank loans
            
            
            2,374,241
            
            
            879,630
            
            
            977,681Repayment
                of short-term bank loans
            
            
            (923,316
            )
            
            (973,876
            )
            
            (274,973
            )Proceeds
                from (repayment of) other loans
            
            
            4,173,106
            
            
            -
            
            
            (85,547
            )Net
                advancement of other bank borrowings
            
            
            3,155,109
            
            
            4,955,996
            
            
            -Increase
                in restricted cash
            
            
            (4,234,327
            )
            
            (991,050
            )
            
            -Repayment
                from (advance to)
            
            
            726,169
            
            
            (38,495
            )
            
            (468,151
            )Dividend
                paid
            
            
            (665,182
            )
            
            -
            
            
            -Net
                cash provided by financing activities
            
            
            7,343,800
            
            
            3,832,205
            
            
            149,010Net
                increase (decrease) in cash and cash equivalents
            
            
            943,907
            
            
            (19,235
            )
            
            162,550Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            57,285
            
            
            40,279
            
            
            5,968Cash
                and cash equivalents - beginning of year
            
            
            488,070
            
            
            467,026
            
            
            298,508Cash
                and cash equivalents - end of year
            
            
            1,489,262
            
            
            488,070
            
            
            467,026




See
      accompanying notes to consolidated financial statements.


F-7




HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)




**1.**
            **Organization
                and Basis of Presentation**





SRKP
      11,
      Inc. (“SRKP 11”) was incorporated in the State of Delaware on January 3, 2006 to
      locate a suitable acquisition candidate to acquire.





On
      October 20, 2007, SRKP 11 entered into a share exchange agreement (the “Exchange
      Agreement”) with Hong Kong Highpower Technology Company Limited (“HKHTC”), which
      was incorporated in Hong Kong on July 4, 2003 under the Hong Kong Companies
      Ordinance. HKHTC was organized principally to engage in the manufacturing and
      trading of nickel metal hydride rechargeable batteries.





As
      used
      herein, the “Company” refers to SRKP 11 and its wholly-owned subsidiaries, HKHTC
      and Shenzhen Highpower Technology Co., Ltd., unless the context indicates
      otherwise.





Pursuant
      to the Exchange Agreement, SRKP 11 agreed to issue shares of its common stock
      in
      exchange for all of the issued and outstanding securities of HKHTC. On November
      2, 2007, upon the closing of the Exchange Agreement, HKHTC had a total of
      500,000 shares of common stock issued and outstanding , and SRKP 11 issued
      an
      aggregate of 14,798,328 shares of its common stock to the shareholders of HKHTC
      in exchange for all of the issued and outstanding securities of HKHTC on the
      basis of 29,596656 shares of SRKP 11 for each share of HKHTC. The 14,798,328
      shares of common stock issued to the shareholders of HKHTC in conjunction with
      this transaction have been presented as outstanding for all periods presented.
      In addition, immediately prior to the closing of the Exchange Agreement, SRKP
      11
      and certain of its stockholders agreed to cancel an aggregate of 2,556,602
      shares of outstanding common stock, as a result of which there were 2,843,398
      shares of common stock outstanding immediately prior to the share exchange
      transaction.





On
      November 2, 2007, concurrently with the close of the Exchange Agreement, the
      Company received gross proceeds of $3,120,000 in a private placement transaction
      (the “Private Placement”). Pursuant to subscription agreements entered into with
      the investors, the Company sold an aggregate of 2,836,364 shares of common
      stock
      at $1.10 per share. The investors in the Private Placement also entered into
      lock-up agreements pursuant to which they agreed not to sell their shares until
      90 days after the Company’s common stock is listed or quoted on either the New
      York Stock Exchange, American Stock Exchange, NASDAQ Global Market, NASDAQ
      Capital Market or the OTC Bulletin Board, when one-tenth of their shares are
      released from the lock-up agreement, after which their shares will automatically
      be released from the lock-up agreement on a monthly basis pro rata over a
      nine-month period. After commissions and expenses, the Company received net
      proceeds of approximately $2,738,000 from the Private
      Placement.


F-8





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**1.**
            **Organization
                and Basis of Presentation
                (continued)**





Immediately
      after the closing of the Exchange Agreement and Private Placement, the Company
      had 20,478,090 shares of common stock issued and outstanding. Upon the closing
      of the Exchange Agreement, the shareholders of HKHTC and their designees owned
      approximately 72.3% of the Company’s issued and outstanding common stock, the
      pre-existing shareholders of the Company owned approximately 13.9% of the
      Company’s issued and outstanding common stock, and the investors in the Private
      Placement owned 13.8% of the Company’s issued and outstanding common stock.
      Therefore, although HKHTC became the Company’s wholly-owned subsidiary, the
      transaction was accounted for as a recapitalization in the form of a reverse
      merger of HKHTC, whereby HKHTC was deemed to be the accounting acquirer and
      was
      deemed to have retroactively adopted the capital structure of SRKP 11. Since
      the
      transaction was accounted for as a reverse merger, the accompanying consolidated
      financial statements reflect the historical consolidated financial statements
      of
      HKHTC for all periods presented, and do not include the historical financial
      statements of SRKP 11. All costs associated with the reverse merger transaction,
      consisting primarily of consideration paid to the previous control parties
      of
      SRKP 11 and legal and investment banking fees and costs, were expensed as
      incurred as a cost of the recapitalization, and have been presented as an
      operating cost line item entitled “fees and costs related to reorganization” in
      the statement of operations.





The
      Company reclassified the line item entitled “fees and costs related to
      reorganization” from other income (expense) to an operating cost line item in
      the statement of operations for the years ended December 31, 2007 and 2006.
      The
      Company also reclassified $136,997 of accounting costs originally classified
      in
      fees and costs related to reorganization in 2007 to general and administrative
      expenses to more properly reflect their purpose. The Company also reclassified
      loss on exchange rate difference to a separate operating cost line item in
      the
      statement of operations, which had previously been included in general and
      administrative costs. These reclassifications had no effect on net income for
      the years ended December 31, 2007 or 2006. The Company also made minor
      corrections to certain line item amounts in cash flows from financing activities
      for the year ended December 31, 2007, which did not have an effect on net cash
      provided by financing activities in 2007. As a result of the foregoing
      revisions, the Company has labeled the statements of operations for the years
      ended December 31, 2007 and 2006 as “restated.”





In
      December 2005, HKHTC underwent a group reorganization (the “Reorganization”),
      which was approved by authorized institutions, pursuant to which it acquired
      all
      of the outstanding common stock of Shenzhen Highpower Technology Co., Ltd.
      (“SZ
      Highpower”) from its then existing stockholders, Pan Dangyu, Li Kai Man, Li
      Wenliang and Ma Wenwei (the “Stockholders”). SZ Highpower was incorporated on
      October 8, 2002 in the People’s Republic of China.





The
      above-mentioned Stockholders were the common stockholders for both HKHTC and
      SZ
      Highpower. The acquisition was financed by a short-term loan bearing interest
      of
      $75,229 (equivalent to HK$584,000), which was charged to operations. The
      transaction was accounted for as a corporate reorganization of entities under
      common control.





As
      a
      result of the Reorganization in 2005, SZ Highpower became the wholly-owned
      subsidiary of HKHTC and became its main operating business.





**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.




F-9





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**2.**
            **Summary
                of significant accounting policies
                (continued)**





Consolidation





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





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.




Comparative
      amounts





Certain
      comparative amounts have been reclassified to conform to the current period’s
      presentation. These reclassifications had no effect on reported total assets,
      liabilities, stockholders’ equity or net income.





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.


F-10





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**2.**
            **Summary
                of significant accounting policies
                (continued)**





Concentrations
      of credit risk (continued)





In
      2007,
      the Company had two major customers, one representing 24% of sales and the
      other
      17% of sales; accounts receivable from these customers at December 31, 2007
      was
      $8,300,000. There were no customers representing 10% or more in sales in 2006.
      One customer represented 12.5% of sales in 2005 and $1,900,000 of accounts
      receivable at December 31, 2005.





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, 2007, 2006 and 2005, the Company experienced bad
      debts of $27,664, $22,878 and $9,645, 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, 2007, 2006 and 2005,
      the
      Company did not make any allowance for slow-moving or defective inventories.
      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 $160,000 in 2007, $99,000 in 2006 and $73,000 in 2005. Generally,
      waste materials on hand at the end of a year are nominal.


F-11





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. 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:





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.





Intangible
      Assets and Long-Lived Assets





SFAS
      No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), 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 SFAS
      No. 144, “Accounting for the Impairment of Long-Lived Assets”
(“SFAS 144”).  SFAS 144 establishes the accounting for impairment of
      long-lived tangible and intangible assets other than goodwill and for the
      disposal of a business.  Pursuant to SFAS 144, 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 2005, 2006 or 2007.


F-12





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**2.**
            **Summary
                of significant accounting policies
                (continued)**





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 $68,169, $96,045 and $117,191 for the years
      ended December 31, 2007, 2006 and 2005, respectively, and are included in
      selling and distribution costs.





Income
      taxes





The
      Company uses 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. The
      Company has also adopted FIN 48, “Accounting for Uncertainty in Income Taxes -
      an interpretation of FASB Statement No. 109”.





Comprehensive
      income





The
      Company has adopted SFAS No. 130, “Reporting 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-13





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. 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.





2007
            
            2006
            
            2005Year
                end RMB : US$ exchange rate
            
            
            7.332
            
            
            7.804
            
            
            8.070Average
                yearly RMB : US$ exchange rate
            
            
            7.581
            
            
            7.958
            
            
            8.183





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. The Company did not have any hedging
      activities during the reporting periods.


F-14





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**2.**
            **Summary
                of significant accounting policies
                (continued)**





Earnings
      per share





The
      Company reports earnings per share in accordance with 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. As the Company did not have any common stock equivalents
      during such years, basic and diluted earnings per share were the same for all
      periods presented.





Recent
      accounting pronouncements





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value,
      establishes a framework for measuring fair value, and expands disclosures about
      fair value measurements. SFAS 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. Earlier application is encouraged, provided that the
      reporting entity has not yet issued financial statements for that fiscal year,
      including any financial statements for an interim period within that fiscal
      year. The provisions of this statement should be applied prospectively as of
      the
      beginning of the fiscal year in which this statement is initially applied,
      except in some circumstances where the statement shall be applied
      retrospectively. The Company is currently evaluating the effect, if any, of
      SFAS
      157 on its financial statements. Management does not believe the adoption of
      SFAS 157 will have a material impact on the Company’s consolidated financial
      statements.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities — Including an Amendment of
      SFAS No. 115” (“SFAS 159”). The fair value option established by SFAS 159
      permits all entities to choose to measure eligible items at fair value at
      specified election dates. A business entity will report unrealized gains and
      losses on items for which the fair value option has been elected in earnings
      (or
      another performance indicator if the business entity does not report earnings)
      at each subsequent reporting date. The fair value option: (a) may be applied
      instrument by instrument, with a few exceptions, such as investments otherwise
      accounted for by the equity method; (b) is irrevocable (unless a new election
      date occurs); and (c) is applied only to entire instruments and not to portions
      of instruments. SFAS 159 is effective as of the beginning of an entity’s first
      fiscal year that begins after November 15, 2007. Early adoption is permitted
      as
      of the beginning of the previous fiscal year provided that the entity makes
      that
      choice in the first 120 days of that fiscal year and also elects to apply the
      provisions of SFAS 157. The Company has not chosen to adopt this statement
      early. Management does not believe the adoption of SFAS 159 will have a material
      impact on the Company’s consolidated financial statements.




F-15





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**2.**
            **Summary
                of significant accounting policies
                (continued)**





Recent
      accounting pronouncements (continued)





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”
(“SFAS 141(R)”), which requires an acquirer to measure the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      the
      acquiree at their fair values on the acquisition date, with goodwill being
      the
      excess value over the net identifiable assets acquired. Acquisition-related
      costs, which are the costs an acquirer incurs to effect a business combination,
      will be accounted for as expenses in the periods in which the costs are incurred
      and the services are received, except that the costs to issue debt or equity
      securities will be recognized in accordance with other GAAP. SFAS 141(R) is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008. Early adoption is prohibited.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements” (“SFAS 160”), which clarifies that a
      noncontrolling interest in a subsidiary should be reported as equity in the
      consolidated financial statements. The calculation of earnings per share will
      continue to be based on income amounts attributable to the parent. SFAS 160
      is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008. Early adoption is prohibited. Management does not
      anticipate that the adoption of SFAS 160 will have a material impact on the
      Company’s consolidated financial statements.





**3.**
            **Other
                income**





***Years ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            
            **$**
            
            
            ***$***Bank
                interest income
            
            
            75,546
            
            
            11,626
            
            
            3,625Net
                exchange gains
            
            
            -
            
            
            -
            
            
            15,989Sundry
                income
            
            
            73,107
            
            
            46,962
            
            
            37,293148,653
            
            
            58,588
            
            
            57,907




**4.**
            **Interest
                expense**





***Years ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            ***$***Interest
                on trade related bank loans
            
            
            547,573
            
            
            208,269
            
            
            26,610Interest
                on short-term bank loans
            
            
            135,369
            
            
            45,348
            
            
            25,795Interest
                on other loans
            
            
            13,190
            
            
            -
            
            
            2,566696,132
            
            
            253,617
            
            
            54,971




F-16





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**5.**
            **Income
                taxes**





The
      components of income before income taxes are:





***Years ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            ***$***United
                States
            
            
            (490,234
            )
            
            -
            
            
            -Hong
                Kong
            
            
            689,749
            
            
            (76,601
            )
            
            (3,122
            )People’s
                Republic of China
            
            
            1,609,633
            
            
            3,349,415
            
            
            2,501,7871,809,148
            
            
            3,272,814
            
            
            2,498,665





The
      components of the provision for income taxes are:





***Years ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            ***$***PRC
                income taxCurrent
                year
            
            
            173,735
            
            
            241,313
            
            
            178,378Deferred
                taxes
            
            
            (28,277
            )
            
            (826
            )
            
            9,256145,458
            
            
            240,487
            
            
            187,634





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, 2007, 2006 and 2005,
      respectively.


***Years ended December 31,******2007***
              
              ***2006***
              
              ***2005*****$**
              
              **$**
              
              ***$***Income
                  before taxes
              
              
              1,809,148
              
              
              3,272,814
              
              
              2,498,665Provision
                  for income taxes at applicable income tax rate
              
              
              271,372
              
              
              490,922
              
              
              374,799Income
                  not subject to tax
              
              
              (84,614
              )
              
              (2,522
              )
              
              -Non-deductible
                  expenses for income tax purposes
              
              
              229
              
              
              11,490
              
              
              468Tax
                  exemption of PRC subsidiary
              
              
              (133,885
              )
              
              (243,835
              )
              
              (178,378
              )Tax
                  rate differential
              
              
              94,865
              
              
              825
              
              
              (9,255
              )Others
              
              
              (2,509
              )
              
              (16,393
              )
              
              -145,458
              
              
              240,487
              
              
              187,634




F-17





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**5.**
            **Income
                taxes (continued)**





The
      major
      components of deferred tax recognized in the consolidated balance sheets as
      of
      December 31, 2007 and 2006 are as follows:





***At December 31******2007***
            
            ***2006*****$**
            
            **$**Temporary
                difference on:Recognition
                of expenses
            
            
            (24,527
            )
            
            (8,443
            )Accelerated
                tax depreciation on intangible assets
            
            
            (3,750
            )
            
            -Deferred
                tax assets, net
            
            
            (28,277
            )
            
            (8,443
            )Recognized
                in the balance sheet:Net
                deferred tax assets
            
            
            (28,277
            )
            
            (8,443
            )





In
      accordance with the relevant tax laws and regulations of PRC, the corporation
      income tax rate is 15%. However, in accordance with the relevant taxation laws
      in the PRC, from the time that the Company has its first profitable tax year,
      it
      is exempt from corporate income tax for its first two years and is then entitled
      to a 50% tax reduction for the succeeding three years. The Company’s first
      profitable tax year was 2003. SZ Highpower will be levied at the 15% tax rate
      in
      2008. The pro forma effect of this exemption is as follows:





***Years ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            ***$***Statutory
                income tax rate
            
            
            15
            %
            
            15
            %
            
            15
            %Exempted
                income tax rate
            
            
            7.5
            %
            
            7.5
            %
            
            7.5
            %Income
                tax exemption
            
            
            133,885
            
            
            243,835
            
            
            178,378Tax
                effect derived from exemption(per
                share)
            
            $
            0.01
            
            $
            0.02
            
            $
            0.01




F-18





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)




**5.**
            **Income
                taxes (continued)**





Accounting
      for Uncertainty in Income Taxes





The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN
      48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with SFAS No. 109, “Accounting for Income Taxes,” 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.
      FIN
      48 also provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosure and
      transition.





Based
      on
      the Company’s evaluation, the Company has concluded that there are no
      significant uncertain tax positions requiring recognition in its financial
      statements. The evaluation was performed for the tax years ended December 31,
      2004, 2005, 2006 and 2007, the tax years which remain subject to examination
      by
      major tax jurisdictions (PRC) as of December 31, 2007.





The
      Company may from time to time be assessed interest or penalties by major tax
      jurisdictions. In the event it receives an assessment for interest and/or
      penalties, it will be classified in the financial statements as tax
      expense.





**6.**
            **Prepaid
                expenses and other
                receivables**




***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Purchase
                deposits paid
            
            
            264,138
            
            
            935,417Advance
                to staff
            
            
            74,502
            
            
            21,540Other
                deposits and prepayments
            
            
            147,503
            
            
            130,870Value-added
                tax prepayment
            
            
            1,103,063
            
            
            1,220,524Other
                receivables
            
            
            912,590
            
            
            303,7402,501,796
            
            
            2,612,091




**7.**
            **Inventories**





***At December 31******2007***
            
            ***2006*****$**
            
            **$**Raw
                materials
            
            
            4,507,255
            
            
            5,040,028Work
                in progress
            
            
            1,694,997
            
            
            1,415,942Finished
                goods
            
            
            8,101,083
            
            
            9,096,003Consumables
            
            
            49,197
            
            
            52,122Packing
                materials
            
            
            18,757
            
            
            19,69614,371,289
            
            
            15,623,791




F-19




HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)




**8.**
            **Plant
                and equipment**





***At December 31,******2007***
            
            ***2006*****$**
            
            **$***Cost*Furniture,
                fixtures and office equipment
            
            
            643,196
            
            
            510,853Leasehold
                improvement
            
            
            146,622
            
            
            137,761Machinery
                and equipment
            
            
            3,940,847
            
            
            2,938,971Motor
                vehicles
            
            
            344,088
            
            
            250,6555,074,753
            
            
            3,838,240*Accumulated
                depreciation*Furniture,
                fixtures and office equipment
            
            
            211,342
            
            
            92,092Leasehold
                improvement
            
            
            100,864
            
            
            25,888Machinery
                and equipment
            
            
            834,206
            
            
            475,767Motor
                vehicles
            
            
            138,959
            
            
            89,8331,285,371
            
            
            683,580*Net*Furniture,
                fixtures and office equipment
            
            
            431,854
            
            
            418,761Leasehold
                improvement
            
            
            45,758
            
            
            111,873Machinery
                and equipment
            
            
            3,106,641
            
            
            2,463,204Motor
                vehicles
            
            
            205,129
            
            
            160,8223,789,382
            
            
            3,154,660




The
      components of depreciation charged are:





***Years ended December 31,******2007***
            
            ***2006*****$**
            
            **$**Included
                in factory overheads
            
            
            439,556
            
            
            263,628Included
                in operating expenses
            
            
            120,517
            
            
            80,213560,073
            
            
            343,841




F-20





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**9.**
            **Leasehold
                land**





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Cost
            
            
            2,928,495
            
            
            -*Accumulated
                amortization*
            
            
            -
            
            
            -*Net*
            
            
            2,928,495
            
            
            -Analyzed
                for reporting purposes as:Current
                asset
            
            
            58,570
            
            
            -Non-current
                asset
            
            
            2,869,925
            
            
            -2,928,495
            
            
            -





As
      at
      December 31, 2007, the carrying amount of leasehold lands pledged as security
      for the Group’s banking facilities amounted to $2,928,495.





**10.**
            **Intangible
                asset –***Consumer
                battery license*





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Cost*Consumer
                battery license*
            
            
            1,000,000
            
            
            -Accumulated
                amortization
            
            
            50,000
            
            
            -*Net*
            
            
            950,000
            
            
            -




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




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.


F-21





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**10.**
              **Intangible
                  asset (continued)**





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 distribution 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 2007, the Company
      recorded a total of approximately $327,026 as royalty expense, which was
      included in selling and distribution costs in the statement of operations. 
Accordingly, during the year ended December 31, 2007, 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, 2007, with the related
      debit recorded as an intangible asset entitled consumer battery license
      agreement. At December 2007 and 2006, accrued royalty fees payable were
      $1,327,026 and $112,580, respectively (see Note 11).





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 distribution costs during
      the
      years ended December 31, 2007, 2006 and 2005 were $50,000, $Nil and $Nil,
      respectively.





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




**Years
                ending December 31**
            
            ***$***2008
            
            
            50,0002009
            
            
            50,0002010
            
            
            50,0002011
            
            
            50,0002012
            
            
            50,0002013
                and thereafter
            
            
            700,000




F-22





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)




**11.**
            **Other
                payables and accrued
                liabilities**





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Accrued
                expenses
            
            
            765,760
            
            
            622,010Accrued
                staff welfare
            
            
            90,316
            
            
            111,749Royalty
                fee
            
            
            1,327,026
            
            
            112,580Sales
                deposits received
            
            
            136,295
            
            
            86,182Other
                payables
            
            
            1,559
            
            
            237,7542,320,956
            
            
            1,170,275




**12.**
            **Advance
                to related parties**





Advance
      to related parties for working capital are as follows:





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Advance
                to shareholders
            
            
            -
            
            
            634,161





The
      above
      advances are interest-free, unsecured and have no fixed repayment
      terms.


F-23





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**13.**
            **Bank
                borrowings**





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Secured:Repayable
                within one yearShort
                term bank loans
            
            
            2,454,838
            
            
            896,964Other
                trade related bank loans
            
            
            12,955,704
            
            
            5,053,66215,410,542
            
            
            5,950,626





As
      of
      December 31, 2007 the Company’s banking facilities are comprised of the
      following:





**Amount****Facilities
                granted**
            
            **Granted**
            
            **Utilized**
            
            **Unused****$**
            
            **$**
            
            ***$***Short
                term bank loans
            
            
            4,170,000
            
            
            2,454,838
            
            
            1,715,162Other
                trade related loan facilities including:-
                Accounts payable financing
            
            
            14,000,000
            
            
            7,928,535
            
            
            6,071,465-
                Accounts receivable financing
            
            
            6,000,000
            
            
            5,027,169
            
            
            972,83124,170,000
            
            
            15,410,542
            
            
            8,759,458





As
      of
      December 31, 2007, the above bank borrowings were secured by the
      following:





(a)
            charge
                over bank deposits of $5,453,620 which is included in restricted
                cash on
                the Balance sheet;





(b)
            corporate
                guarantee executed by a third party and Shenzhen Science and Technology
                Bureau;





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





(d)
            the
                legal charge over leasehold land with carrying amount $2,928,495
                (see Note
                9); and





(e)
            other
                financial covenant.





The
      bank
      borrowings require one of the Company’s subsidiaries to maintain a minimum net
      worth of $10,910,330. The Company was in compliance with this requirement at
      December 31, 2007.





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, 2007 ranged from
      5.508% to 6.804%.





The
      interest rates of short term bank loans were at 6.804% per annum at December
      31,
      2007.


F-24





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**14.**
            **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 $148,193, $91,353 and $Nil for the years ended December 31,
      2007, 2006 and 2005, respectively.





**15.**
            **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 2008
      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, 2007 are as
      follows:





**Year
                ending December 31**
            
            ***$***2008
            
            
            612,1562009
            
            
            780,1362010
            
            
            428,5472011
            
            
            204,9522,025,791





Rental
      expense for the years ended 2007, 2006 and 2005 were $429,450, $367,582 and
      $262,819, respectively.





Capital
      commitments




The
      Company has the following capital commitments for the purchase of machinery
      as
      of December 31, 2007:




**$**Contracted
                value
            
            
            1,261,770Less:
                deposit paid
            
            
            (1,115,123
            )Capital
                commitment
            
            
            146,647




F-25





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**15.**
            **Commitments
                and contingencies
                (continued)**





Contingencies





From
      time
      to time, the Company sells bills receivable (letters of credits) to banks. 
At the time of the sale, all rights and privileges of holding the receivables
      are transferred to the banks.  The Company removes the asset from its books
      and records a corresponding expense for the amount of the discount.  The
      Company remains contingently liable on the amount outstanding in the event
      the
      correspondent bank, the bill issuer defaults on the letters of credit which
      is
      remote.





***At December 31,******2007***
            
            ***2006*****$**
            
            **$**Bills
                discounted
            
            
            106,378
            
            
            1,323,442





**16.**  **Related
      party transactions**





Apart
      from the transactions as disclosed in Notes 12 and 13, the Company entered
      into
      the following transactions with its related party during the years ended
      December 31, 2007, 2006 and 2005:








***Year ended December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            **$**Management
                fee paid to Canhold International Limited
            
            
            21,134
            
            
            15,302
            
            
            12,138




Mr.
      Li
      Kai Man is the director of both the Company’s subsidiary, HKHTC, and Canhold
      International Limited.





**17.**
            **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 SFAS No. 131, “Disclosures about Segments of an Enterprise and
      Related Information”.




F-26





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**17.**
            **Segment
                information (continued)**





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,******2007***
            
            ***2006***
            
            ***2005******Net
                revenue***
            
            **$**
            
            **$**
            
            ***$***Hong
                Kong and China
            
            
            28,919,384
            
            
            29,009,277
            
            
            17,126,358Asia
            
            
            5,965,339
            
            
            3,294,838
            
            
            3,198,143Europe
            
            
            25,318,608
            
            
            7,288,751
            
            
            2,807,580North
                America
            
            
            12,851,807
            
            
            4,511,914
            
            
            1,877,949South
                America
            
            
            206,582
            
            
            270,902
            
            
            -73,261,720
            
            
            44,375,682
            
            
            25,010,030





***At
                December 31,******2007***
            
            ***2006***
            
            ***2005******Accounts
                receivable***
            
            **$**
            
            **$**
            
            ***$***Hong
                Kong and China
            
            
            4,258,010
            
            
            5,545,244
            
            
            3,913,344Asia
            
            
            1,023,284
            
            
            262,743
            
            
            119,359Europe
            
            
            6,761,615
            
            
            1,857,294
            
            
            525,633North
                America
            
            
            3,863,266
            
            
            461,889
            
            
            212,31515,906,175
            
            
            8,127,170
            
            
            4,770,651




**18.**   **Dividends**





The
      directors have declared and the Company has paid the following dividends in
      respect of the years ended December 31, 2007, 2006 and 2005:





***At December 31,******2007***
            
            ***2006***
            
            ***2005*****$**
            
            **$**
            
            ***$******Dividends***Interim
                dividend declared and paid on September 30, 2007 of approximately$
                0.045 per share:
            
            
            665,182
            
            
            -
            
            
            -




F-27





HONG
      KONG
      HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(Stated
      in U.S. Dollars)





**19.**
            **Quarterly
                Results of Operations
                (unaudited)**





The
      following table sets forth unaudited quarterly results of operations for the
      years ended December 31, 2007 and 2006.  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 EndedMarch 31,
            
            June 30,
            
            September 30,
            
            December 31,
            
            December 31,2007
            
            2007
            
            2007
            
            2007
            
            2007$
            
            $
            
            $
            
            $
            
            $Net
                revenue
            
            
            11,539,505
            
            
            20,466,844
            
            
            19,879,829
            
            
            21,375,542
            
            
            73,261,720Gross
                profit
            
            
            1,056,415
            
            
            2,847,274
            
            
            2,610,045
            
            
            2,956,738
            
            
            9,470,472Net
                income (loss)
            
            
            (502,663
            )
            
            1,174,090
            
            
            838,119
            
            
            154,144
            
            
            1,663,690Net
                income (loss) per common shareBasic
                and diluted
            
            
            (0.03
            )
            
            0.08
            
            
            0.06
            
            
            0.01
            
            
            0.11Weighted
                average common shares outstandingBasic
                and diluted
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328
            
            
            18,502,521
            
            
            15,731,988





Three Months Ended
            
            Year EndedMarch 31,
            
            June 30,
            
            September 30,
            
            December 31
            
            December 31,2006
            
            2006
            
            2006
            
            2006
            
            2006$
            
            $
            
            $
            
            $
            
            $Net
                revenue
            
            
            7,612,812
            
            
            10,026,403
            
            
            13,571,303
            
            
            13,165,164
            
            
            44,375,682Gross
                profit
            
            
            1,539,541
            
            
            1,909,390
            
            
            1,615,066
            
            
            2,353,156
            
            
            7,417,153Net
                income
            
            
            808,562
            
            
            930,832
            
            
            392,134
            
            
            900,799
            
            
            3,032,327Net
                income per common shareBasic
                and diluted
            
            
            0.05
            
            
            0.06
            
            
            0.03
            
            
            0.06
            
            
            0.20Weighted
                average common shares outstandingBasic
                and diluted
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328
            
            
            14,798,328





F-28





**EXHIBIT
      INDEX**





Exhibit
              Number
            
            Description2.1
            
            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).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.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
            
            Credit
                Facility dated August 17, 2007 by and between DBS Bank (China) Limited
                Company Shenzhen Branch and Shenzhen Highpower Technology Co., Ltd.
                (translated to English). (incorporated by reference from Exhibit
                10.5 to
                the Current Report on Form 8-K filed with the Securities and Exchange
                Commission on November 5, 2007).10.4(a)
            
            Letter
                of Undertaking executed by Dan Yu Pan, Wen Liang Li and Wen Wei Ma
                on
                behalf of Shenzhen Highpower Technology Company Limited to and in
                favor of
                DBS Bank (China) Limited Shenzhen Branch (translated to English)
                (incorporated by reference from Exhibit 10.4(a) to Amendment No.
                1 to the
                Registration Statement on Form S-1/A filed with the Securities and
                Exchange Commission on January 28, 2008).10.5
            
            Commercial
                Acceptance Bill Discount Quotation Agreement dated as of June 18,
                2007 by
                and between Shenzhen Development Bank Shenzhen Ai Guo Road Branch
                and
                Shenzhen Highpower Technology Co., Ltd. (translated to English)
                (incorporated by reference from Exhibit 10.6 to the Current Report
                on Form
                8-K filed with the Securities and Exchange Commission on November
                5,
                2007).10.5(a)
            
            Guaranty
                Contract for Maximum Credit Line dated as of June 18, 2007 by and
                between
                Dang Yu Pan and Shenzhen Development Bank Shenzhen Ai Guo Road Branch
                (translated to English) (incorporated by reference from Exhibit 10.5(a)
                to
                Amendment No. 1 to the Registration Statement on Form S-1/A filed
                with the
                Securities and Exchange Commission on January 28,
                2008).










10.6
            
            Facility
                Quotation Agreement dated as of September 18, 2007 by and between
                Shanghai
                Pudong Development Bank Shenzhen Long Hua Branch and Shenzhen Highpower
                Technology Co., Ltd. (translated to English) (incorporated by reference
                from Exhibit 10.7 to the Current Report on Form 8-K filed with the
                Securities and Exchange Commission on November 5,
                2007).10.6(a)
            
            Contract
                for Guarantee of Maximum Line of Credit dated as of September 18,
                2007 by
                and between Dang Yu Pan and Shanghai Pudong Development Bank Shenzhen
                Branch (translated to English) (incorporated by reference from Exhibit
                10.6(a) to Amendment No. 1 to the Registration Statement on Form
                S-1/A
                filed with the Securities and Exchange Commission on January 28,
                2008).10.7+
            
            Non-Undertaking
                Short-Term Revolving Financing Agreement dated as of October 11,
                2007 by
                and between Citibank China Co., Ltd. (“Lender”) and Shenzhen Highpower
                Technology Col, Ltd. and corresponding Letters of Guarantee between
                Lender
                and Dang Yu Pan, Wen Wei Ma and Wen Liang Li (translated to
                English).16.1
            
            Letter
                from AJ. Robbins, PC to the Securities and Exchange Commission dated
                November 2, 2007. (incorporated by reference to Exhibit 16.1 to the
                Current Report on Form 8-K filed with the Securities and Exchange
                Commission on November 5, 2007).21.1
            
            List
                of Subsidiaries (incorporated by reference from Exhibit 21.1 to the
                Current Report on Form 8-K filed with the Securities and Exchange
                Commission on November 5, 2007).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.





+
            Previously
                filed.





*
            The
                Registrant has applied with the Secretary of the Securities and Exchange
                Commission for confidential treatment of certain information pursuant
                to
                Rule 24b-2 of the Securities Exchange Act of 1934.  The Registrant
                has filed separately with its application a copy of the exhibit including
                all confidential portions, which may be made available for public
                inspection pending the Commission’s review of the application in
                accordance with Rule 24b-2.





**
                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.