Highpower International Reports Unaudited Second Quarter and First Half 2019 Financial Results

SAN DIEGO and SHENZHEN,China,Aug. 13,2019 -- 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 30,2019.

Second Quarter 2019 Highlights (all results compared to prior year period)

Net sales increased 16.8% to $75.8 million from $64.9 million.

Lithium business net sales increased 28.4% to $62.3 million from $48.5 million.

Gross margin increased to 24.2% of net sales compared to 17.4%.

Net income attributable to the Company was $4.7 million,or earnings of $0.3 per diluted share,compared to net income attributable to the Company of $2.7 million,or earnings of $0.17 per diluted share.

Mr. George Pan,Chairman and CEO of Highpower International,commented,"During the second quarter of 2019,net sales in our lithium ion battery and battery solution business continued to see strong growth. Our gross margin also improved compared to that of the same period of 2018 due to our continued efforts to optimize our product mix and improve our efficiency while raw material costs stayed at a relatively low level."

"At the same time,our top line began to feel pressure from the uncertain macro environment,including a general economic slowdown,an ongoing trade war,and increasingly fierce competition in the industry. We will continue to pursue efficiencies in our operations and ensure that we have the right talent,technology,and capacity. We will remain adaptable to market forces while focusing on our mission to provide clean,safe,and efficient power solutions to meet society's needs," concluded Mr. Pan.

Second Quarter and First Half 2019 Financial Results

NetSales

Net sales for the second quarter of 2019 increased 16.8% to $75.8 million from $64.9 million in the prior year period. The increase was driven by sales of the Company's lithium business,which grew 28.4%,or $13.8 million,during the quarter. Sales in the Ni-MH business decreased 17.5%,or $2.9 million,year over year.

Net sales increased 16.7% to $133.9 million in the first half of 2019 compared to $114.7 million in the first half of 2018. The increase in net sales was mainly due to the optimization of the Company's sales structure.

GrossProfit

Gross profit for the second quarter of 2019 increased 62.4% to $18.4 million from $11.3 million in the prior year period due. Gross margin for the second quarter of 2019 was 24.2% compared to 17.4% in the prior year period. This increase was attributable to the product mix and improvement in the Company's labor efficiency.

Gross profit for the first half of 2019 increased 64.4% to $31.0 million from $18.9 million in the prior year period. Gross margin was 23.2% and 16.5% for first half of 2019 and 2018,respectively.

Operating Expenses

Research and development (R&D) expenses for the second quarter of 2019 were $4.4 million compared to $3.6 million in the prior year period. As a percentage of net sales,R&D expenses increased to 5.8% from 5.5% in the prior year period due to the Company's continued investments in R&D.

Research and development expenses were $7.4 million,or 5.5% of net sales,for the first half of 2019 compared to $6.2 million,or 5.4% of net sales,for the first half of 2018.

Selling and distribution expensesfor the second quarter of 2019 were $3.3 million compared to $2.1 million in the prior year period. As a percentage of net sales,selling and distribution expenses increased to 4.3% from 3.3% in the prior year period.

Selling and distribution expenses were $6.1 million,or 4.5% of net sales,for the first half of 2019 compared to $4.1 million,or 3.6% of net sales,for the first half of 2018. The increase in expenses was mainly driven by marketing expenses to acquire more branded customers.

General and administrative expensesfor the second quarter of 2019 were $5.0 million compared to $3.9 million in the prior year period. As a percentage of net sales,general and administrative expenses increased to 6.6% from 6.0% in the prior year period.

General and administrative expenses were $9.9 million,or 7.4% of net sales,for the first half of 2019 compared to $8.0 million,or 7.0% of net sales,for the first half of 2018. The increase was due to increases in payroll and amortization of share-based compensation.

Net Income

Net income attributable to the Company for the second quarter of 2019 was $4.7 million compared to $2.7 million in the prior period. Net income attributable to the Company per diluted share for the second quarter of 2019 was $0.30 compared to $0.17 in the prior year period.

For the second quarter of 2019,the Company's weighted average diluted shares outstanding used in computing diluted share was 15,626,265.

Net income attributable to the Company for the first half of 2019 increased to $5.0 million from $1.6 million in the prior year period. Net income attributable to the Company per diluted share for the first half of 2019 increased to $0.32 from $0.10 in the prior year period.

For the first half of 2019 and 2018,615,590 and 15,619,771,respectively.

EBITDA

EBITDA for the second quarter of 2019 increased 48.1% to $7.4 million from $5.0 million in the prior year period. EBITDA for the first half of 2019 increased 82.7% to $10.1 million from $5.6 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)

June30,

December31,

2019

2018

(Unaudited)

$

$

Cash

18.1

24.9

Total Current Assets

178.9

215.0

Total Assets

269.1

288.1

Total Current Liabilities

178.5

210.8

Total Liabilities

186.9

210.8

TotalEquity

82.2

77.3

Total Liabilities and Equity

269.1

288.1

Book Value Per Share

5.28

4.97

Financial Outlook

For the third quarter of 2019,the Company expects net revenues to grow slightly year over year. Gross margin is expected to be similar or slightly lower than that of the second quarter of 2019.

Going Private Transaction Update

Highpower announced in June 2019 that it has entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with HPJ Parent Limited,an entity owned by Mr. Dang Yu Pan,our CEO and Chairman of the Board,Mr. Wen Liang Li,a director of the Company,Mr. Wen Wei Ma,a stockholder of the Company,and Essence International Capital Limited,a company incorporated in Hong Kong (the "Buyer Group"),pursuant to which all of the outstanding shares,other than shares held by the Buyer Group and their affiliates or stockholders who have validly exercised their appraisal rights,will be converted into the right to receive $4.80 in cash without interest. The transaction is expected to close during the fourth quarter of 2019,pending approval by Highpower stockholders and satisfaction of certain other closing conditions.

No Conference Call

Given the pending merger agreement with HPJ Parent Limited,management will not be hosting a conference call to discuss its financial results for the second quarter and first half ended June 30,2019,and does not expect to do so for future quarters.

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 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 10 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 are reconciled in the tables below 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 1995 that are not historical facts. Such forward-looking statements include outlook on net revenues and gross margins,business and financial expectations and anticipated growth during 2019. These statements can 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; the occurrence of any event,change or other circumstances that could give rise to the termination of the Merger Agreement; the inability to consummate the Merger due to the failure to obtain stockholder approval of the Merger Agreement (including the affirmative vote of at least a majority of all outstanding shares unaffiliated with the Consortium) or the failure to satisfy other conditions to completion of the proposed transaction; risks related to the disruption of management's attention from the Company's ongoing business operations due to the proposed transaction; the effect of the announcement of the proposed transaction on the Company's relationships with its customers,suppliers and business generally; and the outcome of lawsuits that may be brought by certain purported stockholders seeking to rescind the Merger Agreement or enjoin the consummation of the transaction; inability to successfully expand our production capacity and improve production efficiency; 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; impact of trade relations between China and the U.S. and other countries where we sell our products; unexpected fluctuations in exchange rates and our ability to successfully manage hedging; our ability to continue R&D development to keep up with technological changes,and adverse changes in legal,regulatory and economic factors generally. For a discussion of these and other risks and uncertainties see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report for the year ended December 31,2018 on Form 10-K and other 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,

2019

2018

(Unaudited)

$

$

ASSETS

Current Assets:

Cash

18,092,242

24,916,484

Restricted cash

29,154,304

44,495,633

Accounts receivable,net

68,999,026

77,279,817

Amount due from a related party

146,119

477,663

Notes receivable

3,664,108

256,712

Advances to suppliers

463,891

2,292,843

Prepayments and other receivables

6,419,803

10,457,789

Inventories

51,980,426

54,790,461

Total Current Assets

178,919,919

214,967,402

Property,plant and equipment,net

65,089,990

56,523,177

Long-term prepayments

2,373,543

2,617,419

Land use right,net

2,406,173

2,445,751

Other assets

770,717

643,128

Deferred tax assets,net

935,443

865,370

Long-term investments

8,387,618

9,993,852

Right-of-use assets

10,213,704

-

TOTAL ASSETS

269,097,107

288,056,099

LIABILITIES AND EQUITY

LIABILITIES

Current Liabilities:

Accounts payable

64,413,566

66,486,690

Deferred government grants

680,915

464,206

Short-term loans

24,662,933

24,856,744

Non-financial institution borrowing

-

8,761,426

Notes payable

60,168,272

73,607,284

Foreign exchange derivative liabilities

932,378

521,509

Amount due to related parties

101,869

6,116,851

Other payables and accrued liabilities

21,818,077

25,860,703

Income taxes payable

3,394,112

4,124,719

Lease liabilities,current

2,334,110

-

Total Current Liabilities

178,506,232

210,800,132

Long-term payable

359,033

-

Lease liabilities,non current

8,040,487

-

TOTAL LIABILITIES

186,905,752

210,132

COMMITMENTS AND CONTINGENCIES

-

-

HIGHPOWER INTERNATIONAL,

2019

2018

(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: 100,15,567,953 shares issued

and outstanding at June 30,2019 and 15,559,658 at December 31,2018,

respectively)

1,557

1,556

Additional paid-in capital

14,257,469

13,863,282

Statutory and other reserves

8,012,052

8,052

Retained earnings

61,169,856

56,173,912

Accumulated other comprehensive loss

(1,249,579)

(794,835)

TOTAL EQUITY

82,191,355

77,255,967

TOTAL LIABILITIES AND EQUITY

269,099

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Stated in US Dollars)

Three months ended

June 30,

Six months ended

June 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net sales

75,807,093

64,923,960

133,920,573

114,707,413

Cost of sales

(57,436,018)

(53,614,034)

(102,888,969)

(95,831,160)

Gross profit

18,371,075

11,309,926

31,031,604

18,876,253

Research and development expenses

(4,380,399)

(3,592,760)

(7,367,108)

(6,597)

Selling and distribution expenses

(3,570)

(2,121,650)

(6,072,432)

(4,096,746)

General and administrative expenses

(5,027,418)

(3,910,188)

(9,850,907)

(8,024,998)

Foreign currency transaction gain (loss)

1,623

1,670,932

(37,272)

656,239

Total operating expenses

(11,473,764)

(7,953,666)

(23,327,719)

(17,620,102)

Income from operations

6,897,311

3,356,260

7,703,885

1,256,151

Changes in fair value of foreign exchange derivatives

(996,012)

(1,125,140)

(608,912)

(421,425)

Government grants

729,204

988,679

950,639

1,318,499

Other income

15,550

56,581

82,248

80,142

Equity in (loss) earnings of investees

(1,177,639)

160,070

(1,595,843)

316,320

Interest expenses,net

(38,675)

(312,814)

(509,098)

(554,666)

Income before taxes

5,429,739

3,123,636

6,022,919

1,995,021

Income taxes expenses

(741,516)

(409,321)

(1,026,975)

(399,642)

Net income

4,688,223

2,714,315

4,944

1,379

Comprehensive income

Net income

4,379

Foreign currency translation loss

(2,160,506)

(4,216)

(454,744)

(1,331,660)

Comprehensive income (loss)

2,527,717

(1,453,901)

4,541,200

263,719

Earnings per share of common stock

- Basic

0.30

0.17

0.32

0.10

- Diluted

0.30

0.17

0.32

0.10

Weighted average number of common stock outstanding

- Basic

15,953

15,556,361

15,220

15,533,139

- Diluted

15,265

15,629,413

15,590

15,771

HIGHPOWER INTERNATIONAL,INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars)

Six Months Ended June 30,

2019

2018

(Unaudited)

(Unaudited)

$

$

Cash flows from operating activities

Net income

4,379

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

activities:

Depreciation and amortization

3,616,314

3,003,872

Bad debt expense

93,576

(472,799)

Loss on disposal of property,plant and equipment

94,147

159,458

Impairment of plant and equipment

75,783

-

Deferred taxes

(73,794)

(498,878)

Changes in fair value of foreign exchange derivatives

608,912

955,790

Equity in loss (earnings) of investees

1,843

(316,320)

Share based compensation

394,188

488,117

Changes in operating assets and liabilities:

Accounts receivable

8,198,062

(3,877,577)

Notes receivable

(3,459,522)

986,591

Advances to suppliers

1,848,529

(2,883)

Prepayments and other receivables

4,064,320

(4,921,059)

Amount due from a related party

334,879

740,408

Amount due to related parties

(138,767)

-

Inventories

2,668,278

(27,915,901)

Accounts payable

(7,588,132)

21,683,401

Deferred government grants

221,572

469,895

Other payables and accrued liabilities

(3,379,969)

3,578,815

Income taxespayable

(727,876)

(1,140,753)

Net cash flows provided by (used in) operating activities

13,442,287

(7,636,444)

Cash flows from investing activities

Acquisitions of plant and equipment

(6,700,225)

(5,681,723)

Payment for long-term investment

(310,201)

(328,927)

Net cash flows used in investing activities

(7,010,426)

(6,650)

Cash flows from financing activities

Proceeds from short-term bank loans

14,485

15,587

Repayments of short-term bank loans

(14,882,292)

-

Proceeds from a related party

2,954,297

-

Repayment of loan from a related party

(8,589,619)

-

Repayments of non-financial institution borrowing

(8,862,891)

(1,566,318)

Proceeds from notes payable

58,314,662

53,584,205

Repayments of notes payable

(71,701,335)

(55,682)

Payment of derivative instruments

(190,062)

-

Net cash flows (used in) provided by financing activities

(28,185,755)

11,792

Effect of foreign currency translation on cash

(411,677)

(1,130,850)

Net decrease in cash and restricted cash

(22,165,571)

(3,016,152)

Cash and restricted cash- beginning of year

69,412,117

40,456,117

Cash and restricted cash- end of year

47,246,546

37,439,965

Supplemental disclosures for cash flow information:

Cash paid for:

Income taxes

1,960,545

2,039,273

Interest expenses

1,561

1,002,653

Non-cash investing and financing activities:

Shares issued for legal case settlement

-

212,500

Purchase of plant and equipment financed by accounts payable

5,715,931

-

Reconciliation of cash and restricted cash:

Cash

18,242

7,280,576

Restricted cash

29,304

30,159,389

Total cash and restricted cash shown in the condensed consolidated statements of

cash flows

47,965

Reconciliation of Net Income to EBITDA

Three months ended

June 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

$

$

$

$

Net income

4,379

Interest expenses,net

38,675

312,814

509,098

554,666

Income taxes expenses

741,516

409,321

1,975

399,642

Depreciation and Amortization

1,886,874

1,528,644

3,872

EBITDA

7,355,288

4,965,094

10,148,331

5,553,559

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