Highpower International Reports Unaudited Second Quarter and First Half 2018 Financial Results

SAN DIEGO and SHENZHEN,China,Aug. 13,2018 -- Highpower International,Inc. (NASDAQ: HPJ) ("Highpower" or the "Company"),a developer,manufacturer,and marketer of lithium ion and nickel-metal hydride (Ni-MH) rechargeable batteries,battery management systems,and a provider of battery recycling,today announced its financial results for the second quarter ended June 30,2018.

Second Quarter 2018 Highlights (all results compared to prior year period)

Net sales for the second quarter of 2018 increased by 25.6% to $64.9 million from $51.7 million. Excluding the impact of Ganzhou Highpower Technology Co.,Ltd. ("GZ Highpower"),net sales increased 32.8% to $64.9 million from $48.9 million.

Lithium business net sales increased 31.1% to $48.5 million from $37.0 million.

Gross margin decreased to 17.4% of net sales compared to 23.3%. Excluding GZ Highpower,gross margin was 17.4% compared to 23.2%.

Net income attributable to the Company decreased 37.9% to net income of $2.7 million,or $0.17 per diluted share,compared to net income attributable to the Company of $4.4 million,or $0.28 per diluted share. Excluding GZ Highpower,net income attributable to the Company was $2.7 million compared to net income attributable to the Company of $4.2 million.

Mr. George Pan,Chairman and CEO of Highpower International,commented,"We are pleased to exceed our top-line guidance for the quarter,driven by growth in both our lithium and Ni-MH businesses. New and existing customers in the high-end consumer product,industrial application,and artificial intelligence product industries in particular grew our lithium business. In addition,our Ni-MH business benefited from increased demand generated by the trend of consumer electronics providers switching from one-time-use batteries to re-chargeable batteries.

"We will continue to drive our business forward in the second half of the year by producing higher quality and safer battery products and services to grow Top-line sales. At the same time,we will manage our prices,operations,and customer expectations to maintain a balance between growth and margins. We remain optimistic about the growth of our industry and our ability to be a leading provider of clean,safe,and efficient power solutions to meet society's needs," Mr. Pan concluded.

Second Quarter and First Half 2018 Financial Results

Net Sales

Net sales for the second quarter of 2018 increased 25.6% to $64.9 million from $51.7 million in the prior year period. The increase was driven by sales of the Company's lithium business,which grew 31.1%,or $11.5 million,during the quarter. In addition,sales in the Ni-MH business grew 39.3%,or $4.6 million,year over year. Excluding the impact of GZ Highpower,net sales increased 32.8% to $64.9 million from $48.9 million.

Net sales increased 22.6% to $114.7 million in the first half of 2018 compared to $93.6 million in the first half of 2017. Excluding the impact of GZ Highpower,net sales increased 28.9% to $114.7 million in the first half of 2018.

Gross Profit

Gross profit for the second quarter of 2018 decreased 6.3% to $11.3 million from $12.1 million in the prior year period due to high raw material prices. Gross margin for the second quarter of 2018 was 17.4% compared to 23.3% in the prior year period. Excluding GZ Highpower,gross margin was 17.4% compared to 23.2%.

Gross profit for the first half of 2018 decreased 14.2% to $18.9 million from $22.0 million in the prior year period. Gross margin was 16.5% and 23.5% for first half of 2018 and 2017,respectively. Excluding GZ Highpower,gross margin for the first half of 2018 was 16.5% compared to 23.2% in the prior year period.

Operating Expenses

Research and development (R&D) expenses for the second quarter of 2018 were $3.6 million compared to $2.1 million in the prior year period. As a percentage of net sales,R&D expenses increased to 5.5% from 4.1% in the prior year period due to the Company's continued investments in R&D.

Research and development expenses were $6.2 million,or 5.4% of net sales,for the first half of 2018 compared to $4.0 million,or 4.2% of net sales,for the first half of 2017.

Selling and distribution expenses for the second quarter of 2018 were $2.1 million compared to $1.7 million in the prior year period. As a percentage of net sales,selling and distribution expenses remained at 3.3% compared to the prior year period.

Selling and distribution expenses were $4.1 million,or 3.6% of net sales,for the first half of 2018 compared to $3.4 million,for the first half of 2017.

General and administrative expenses for the second quarter of 2018 were $3.9 million compared to $3.0 million in the prior year period. As a percentage of net sales,general and administrative expenses increased to 6.0% from 5.8% in the prior year period.

General and administrative expenses were $8.0 million,or 7.0% of net sales,for the first half of 2018 compared to $6.1 million,or 6.5% of net sales,for the first half of 2017. The increase was due to the increase of payroll related and amortization of share-based compensation.

Net Income

Net income attributable to the Company for the second quarter of 2018 was $2.7 million compared to $4.4 million in the prior period. Net income attributable to the Company per diluted share for the second quarter of 2018 was $0.17 compared to $0.28 in the prior year period. Excluding GZ Highpower,net income attributable to the Company was $2.7 million compared to $4.2 million in the prior year period.

For the second quarter of 2018,the Company's weighted average diluted shares outstanding used in computing diluted share was 15,629,413.

Net income attributable to the Company for the first half of 2018 decreased to $1.6 million from $7.0 million in the prior year period. Net income attributable to the Company per diluted share for the first half of 2018 decreased to $0.10 from $0.45 in the prior year period. Excluding GZ Highpower,net income attributable to the Company for the first half of 2018 was $1.6 million compared to $6.5 million in the prior year period.

For the first half of 2018 and 2017,619,771 and 15,304,773,respectively.

EBITDA

EBITDA for the second quarter of 2018 decreased 23.7% to $5.0 million from $6.5 million in the prior year period. EBITDA for the first half of 2018 decreased by 51.7% to $5.6 million from $11.5 million in the prior year period.

A table reconciling EBITDA to the appropriate GAAP measure is included with the Company's financial information below.

Balance Sheet Highlights

($ in millions,except per share data)

June 30,

December 31,

2018

2017

(Unaudited)

$

$

Cash

$7.3

$14.5

Total Current Assets

$187.6

$156.0

Total Assets

$255.0

$220.3

Total Current Liabilities

$186.8

$152.3

Total Liabilities

$186.8

$153.1

Total Equity

$68.2

$67.2

Total Liabilities and Equity

$255.0

$220.3

Book Value Per Share

$4.38

$4.33

Financial Outlook

For the third quarter of 2018,the Company expects net revenues to grow around 30% year over year. Gross margin is expected to be similar or better than that of the second quarter of 2018.

Conference Call Details

The Company will hold a conference call on August 13,2018 at 10:00 am Eastern Time or 10:00 pm Beijing Time to discuss the financial results. Participants may access the call by dialing the following numbers:

United States: 877-407-3108

International: 201-493-6797

To listen to the live webcast,please go to www.highpowertech.comand click on the conference call link,or go to https://78449.themediaframe.com/dataconf/productusers/hpj/mediaframe/26046/indexl.html. This webcast will be archived and accessible through the Company's website for approximately 30 days following the call.

About Highpower International,Inc.

Highpower International was founded in 2001 and produces high-quality Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries used in a wide range of applications such as electric buses,bikes,energy storage systems,power tools,medical equipment,digital and electronic devices,personal care products,and lighting,etc. Highpower's target customers are Fortune 500 companies and top 20 companies in each vertical segment. With advanced manufacturing facilities located in Shenzhen,Huizhou,and Ganzhou of China,Highpower is committed to clean technology,not only in the products it makes,but also in the processes of production. The majority of Highpower International's products are distributed to worldwide markets mainly in the United States,Europe,China and Southeast Asia.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP (generally accepted accounting principles) financial information with non-GAAP measures. EBITDA was derived by taking earnings before interest expense (net),taxes,depreciation and amortization. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP.The Company believes this non-GAAP measure is useful to investors as it provides a basis for evaluating the Company's operating results in the ordinary course of its operations. This non-GAAP measure is not based on any comprehensive set of accounting rules or principles.The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with,and not in lieu of,the corresponding GAAP measures. EBITDA is reconciled in the accompanying table to the most directly comparable measure as reported in accordance with GAAP.

Forward Looking Statements

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995that are not historical facts. These statementscan be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology. Such statements involve known and unknown risks,uncertainties and other factors that could cause the Company's actual results to differ materially from the results expressed or implied by such statements,including,without limitation,fluctuations in the cost of raw materials; our dependence on,or inability to attract additional,major customers for a significant portion of our net sales; our ability to increase manufacturing capabilities to satisfy orders from new customers; our ability to maintain increased margins; our dependence on the growth in demand for smart wearable devices and energy storage systems,and other digital products and the success of manufacturers of the end applications that use our battery products; our responsiveness to competitive market conditions; our ability to successfully manufacture our products in the time frame and amounts expected; the market acceptance of our battery solutions,including our lithium ion batteries; and our ability to continue R&D development to keep up with technological changes. For a discussion of these and other risks and uncertaintiessee "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's public filings with the SEC. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable,there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.

CONTACT:

Highpower International,Inc.

Sunny Pan

Chief Financial Officer

Tel: +86-755-8968-6521

Email: ir@highpowertech.com

Yuanmei Ma

Investor Relations Manager

Tel: +1-909-214-2482

Email: yuanmei@highpowertech.com

ICR,Inc.

Rose Zu

Tel: +1-646-931-0303

Email: ir@highpowertech.com

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

June 30,

December 31,

2018

2017

(Unaudited)

$

$

ASSETS

Current Assets:

Cash

7,280,576

14,502,171

Restricted cash

30,159,389

25,953,946

Accounts receivable,net

61,440,575

58,252,999

Amount due from a related party

432,320

1,165,838

Notes receivable

1,611,947

2,606,517

Advances to suppliers

8,031,483

6,050,531

Prepayments and other receivables

9,401,564

4,268,527

Foreign exchange derivative assets

-

236,436

Inventories

69,200,672

42,946,644

Total Current Assets

187,558,526

155,983,609

Property,plant and equipment,net

48,135,151

46,520,776

Long-term prepayments

3,992,080

3,715,445

Land use rights,net

2,564,161

2,639,631

Other assets

747,186

748,431

Deferred tax assets,net

1,219,521

750,267

Long-term investments

10,790,882

9,906,379

TOTAL ASSETS

255,007,507

220,264,538

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities:

Accounts payable

80,534,723

60,368,012

Deferred government grant

758,059

309,638

Short-term loans

25,080,521

10,128,646

Non-financial institution borrowings

9,069,335

10,756,158

Notes payable

51,710,779

54,859,478

Foreign exchange derivative liabilities

689,790

-

Amount due to a related party

423,236

-

Other payables and accrued liabilities

15,338,570

12,243,345

Income taxes payable

3,225,973

3,609,391

Total Current Liabilities

186,830,986

152,274,668

Income taxes payable,noncurrent

-

777,685

TOTAL LIABILITIES

186,986

153,052,353

COMMITMENTS AND CONTINGENCIES

-

-

HIGHPOWER INTERNATIONAL,

2018

December 31,

2017

(Unaudited)

$

$

EQUITY

Stockholders' equity

Preferred stock

(Par value: $0.0001,Authorized: 10,000,000 shares,Issued and outstanding: none)

-

-

Common stock

(Par value: $0.0001,Authorized: 100,15,559,658 shares issued and

outstanding at June 30,2018 and 15,509,658 at December 31,2017,respectively)

1,556

1,551

Additional paid-in capital

13,410,368

12,709,756

Statutory and other reserves

6,549,815

6,815

Retained earnings

46,076,947

44,481,568

Accumulated other comprehensive income

2,137,835

3,469,495

TOTAL EQUITY

68,176,521

67,212,185

TOTAL LIABILITIES AND EQUITY

255,538

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Stated in US Dollars)

Three months ended June 30,

Six months ended June 30,

2018

2017

2018

2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net sales

64,923,960

51,699,930

114,707,413

93,566,778

Cost of sales

(53,614,034)

(39,628,164)

(95,831,160)

(71,560,178)

Gross profit

11,309,926

12,071,766

18,876,253

22,006,600

Research and development expenses

(3,592,760)

(2,286)

(6,154,597)

(3,951,216)

Selling and distribution expenses

(2,121,650)

(1,722,910)

(4,096,746)

(3,361,223)

General and administrative expenses

(3,910,188)

(3,016,401)

(8,024,998)

(6,074,963)

Foreign currency transaction gain (loss)

1,670,932

(514,624)

656,239

(828,502)

Total operating expenses

(7,666)

(7,391,221)

(17,620,102)

(14,215,904)

Income from operations

3,356,260

4,680,545

1,256,151

7,696

Changes in fair value of warrant liability

-

31,811

-

259

Changes in fair value of foreign exchange derivative assets

(liabilities)

(1,125,140)

-

(421,425)

-

Government grants

988,679

209,297

1,318,499

558,812

Other income

56,581

67,068

80,142

295,646

Equity in earnings (loss) of investees

160,070

(41,607)

316,320

105,325

Gain on dilution in equity method investee

-

491,325

-

491,325

Interest expenses

(312,814)

(380,531)

(554,666)

(983,848)

Income before taxes

3,123,636

5,057,908

1,995,021

8,258,215

Income taxes expenses

(409,321)

(595,708)

(399,642)

(1,183,473)

Net income

2,714,315

4,462,200

1,595,379

7,742

Less: net income attributable to non-controlling interest

-

90,963

-

167,856

Net income attributable to the Company

2,371,237

1,379

6,886

Comprehensive income

Net income

2,742

Foreign currency translation (loss) gain

(4,168,216)

1,508,714

(1,331,660)

1,484,713

Comprehensive (loss) income

(1,453,901)

5,970,914

263,719

8,455

Less: comprehensive income attributable to non-controlling

interest

-

98,795

-

178,346

Comprehensive (loss) income attributable to the Company

(1,872,119

263,381,109

Earnings per share of common stock attributable to the

Company

- Basic

0.17

0.29

0.10

0.45

- Diluted

0.17

0.28

0.10

0.45

Weighted average number of common stock outstanding

- Basic

15,556,361

15,317,101

15,533,139

15,218,820

- Diluted

15,413

15,479,357

15,771

15,773

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

Six Months Ended June 30,

2018

2017

(Unaudited)

(Unaudited)

$

$

Cash flows from operating activities

Net income

1,742

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

3,003,872

2,429,982

(Reversal) allowance for doubtful accounts

(472,799)

17,994

Loss on disposal of property,plant and equipment

159,458

25,218

Deferred tax

(498,878)

263,673

Changes in fair value of foreign exchange derivative assets (liabilities)

955,790

-

Equity in earnings of investees

(316,320)

(105,325)

Gain on dilution in equity method investee

-

(491,325)

Share based compensation

488,117

44,815

Changes in fair value of warrant liability

-

(259)

Changes in operating assets and liabilities:

Accounts receivable

(3,877,577)

4,390,991

Notes receivable

986,591

(1,366)

Advances to suppliers

(2,883)

-

Prepayments and other receivables

(4,921,059)

(3,799,960)

Amount due from a related party

740,408

5,178,499

Amount due to a related party

-

(1,480,335)

Inventories

(27,915,901)

(9,161)

Accounts payable

21,683,401

(494,812)

Deferred government grant

469,895

109,892

Other payables and accrued liabilities

3,578,815

(2,145,295)

Income taxes payable

(1,140,753)

(227,668)

Net cash flows (used in) provided by operating activities

(7,636,444)

138,300

Cash flows from investing activities

Acquisitions of property,plant and equipment

(5,681,723)

(5,199,130)

Payment for long-term investment

(328,927)

-

Net cash flows used in investing activities

(6,010,650)

(5,130)

Cash flows from financing activities

Proceeds from short-term loans

15,664,587

2,916,017

Repayments of short-term loans

-

(2,841,696)

Proceeds from non-financial institution borrowings

-

10,959

Repayments of non-financial institution borrowings

(1,318)

(2,648)

Proceeds from notes payable

53,584,205

40,861,835

Repayments of notes payable

(55,920,682)

(31,049,819)

Proceeds from exercise of employee options

-

623,806

Net cash flows provided by financing activities

11,761,792

18,379,454

Effect of foreign currency translation on cash and restricted cash

(1,130,850)

1,387,318

Net (decrease) increase in cash and restricted cash

(3,152)

14,705,942

Cash and restricted cash - beginning of period

40,456,117

20,538,033

Cash and restricted cash - end of period

37,439,965

35,975

Supplemental disclosures for cash flow information:

Cash paid for:

Income taxes

2,039,273

1,147,467

Interest expenses

1,002,653

948,831

Non-cash transactions

Shares issued for legal case settlement

212,500

-

Offset of deferred income related to government grant and property,plant and

equipment

-

85,571

Reconciliation of Net Income (loss) to EBITDA

Three months ended June 30,

Six months ended June 30,

2018

2017

2018

2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net income attributable to the Company

2,886

Interest expenses

312,814

380,531

554,666

983,848

Income taxes expenses

409,321

595,708

399,642

1,473

Depreciation and Amortization

1,528,644

1,155,648

3,982

EBITDA

4,965,094

6,503,124

5,553,559

11,504,189

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