Highpower International, Inc. Reports Second Quarter 2013 Financial Results

SAN FRANCISCO, CA and SHENZHEN, CHINA--(Marketwired - Aug 13, 2013) - Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer and marketer of nickel-metal hydride (Ni-MH) and lithium rechargeable batteries and battery solutions, today announced financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 Highlights

• Net sales increased 6.1% year-over-year to $31.2 million

• Sustained growth in lithium battery segment -- lithium battery net sales up 32.9% in the second quarter of 2013 over the second quarter of 2012; total lithium battery pieces sold increased 29.0%; and a 32.2% increase in volume per ampere hour

• Gross margin of 18.4%

• Net income of $0.1 million attributable to Highpower International, or $0.01 per diluted share

Management Commentary
"Our lithium battery business continues to deliver excellent results. This was the strongest quarter ever for our lithium battery business," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Though our Ni-MH battery sales declined slightly for the quarter, we believe we are faring much better than some of our competitors. That said, our Ni-MH battery segment remains a sustainable business line with strong and valuable relationships.

"We are very excited about our new automated facility in Huizhou coming online later this year. It will help us address the increased demand for our lithium batteries, as we are currently operating at full capacity for this product line. With the addition of this automated facility, we believe that we are well positioned to attract larger customers and capitalize on the growing global demand for rechargeable batteries."

"We continue to make up-front investments that are required to prepare us for accelerated growth in our lithium battery business," said Mr. Henry Sun, Chief Financial Officer of Highpower International. "Our investments in manufacturing, research and development, sales, and marketing have all increased in anticipation of growth and have impacted our current profitability. However, we remain focused on continued profitability in the second half of 2013."

Second Quarter 2013 Financial Results

Net sales for the second quarter ended June 30, 2013 totaled $31.2 million, a year-over-year increase of 6.1% compared with $29.4 million for the second quarter ended June 30, 2012. The increase in sales for the second quarter was driven by increased demand for our lithium batteries from new and existing customers. Our sales total were, however, partially offset by a decrease in sales from our Ni-MH battery segment.

Second quarter 2013 gross profit decreased to $5.7 million, as compared with $6.0 million for the second quarter of 2012. Gross profit margin was 18.4% for the second quarter of 2013, as compared with 20.5% for the second quarter of 2012. The year-over-year decrease in gross profit margin for the second quarter of 2013 was primarily attributable to increases in labor costs, primarily for our lithium battery segment, as we serviced the increased volume from our existing facilities, which are operating at full capacity.

R&D spending was $1.4 million for the second quarter of 2013, as compared with $1.2 million for the comparable period in 2012, reflecting the expansion of our workforce to expand our research and development and management functions.

Selling and distribution expenses were $1.4 million for the second quarter of 2013, as compared with $1.3 million for the comparable period in 2012. The year-over-year increase in selling and distribution expenses was due to the expansion of our sales force and marketing activities, participation in industry trade shows, and international travel to promote and sell our products globally.

General and administrative expenses were $2.6 million for the second quarter of 2013, as compared with $2.3 million for the second quarter of 2012. The increase was mainly due to the expansion of our workforce in various functions to support our growth.

Net income attributable to the company for the second quarter of 2013 was $109,289, or $0.01 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with second quarter 2012 net income attributable to the company of $503,714 or $0.04 per diluted share, based on 13.6 million weighted average shares outstanding.

Balance Sheet

As of June 30, 2013, Highpower International had cash, cash equivalents and restricted cash totaling $27.3 million, total assets of $121.2 million, and stockholders' equity of $31.8 million. Bank credit facilities totaled $69.0 million at June 30, 2013, of which $36.2 million was utilized and $32.8 million was available as unused credit.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2013 and our continued shift toward mobile power sources, higher-value energy storage systems and transportation products, we are reaffirming our full-year 2013 revenue guidance to be 15% to 20% higher than our 2012 revenue levels. We also reaffirm our expectation that we will be profitable for the full year in 2013.

Conference Call and Webcast

The Company will host a conference call today at 7:00 a.m. Pacific time/10:00 a.m. Eastern time to discuss these results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 877-941-9205 from the U.S. or 480-629-9771 from outside the U.S. and referencing the reservation code 4635068. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at www.highpowertech.com or www.InvestorCalendar.com.

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 mobile devices, computer tablets, electric bikes, energy storage systems, power tools, medical equipment, digital and electronic devices, personal care products, and lighting, etc. With over 3,000 employees and advanced manufacturing facilities located in Shenzhen and Huizhou 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

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. 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, and include discussions of strategy, and statements about industry trends and the Company's future performance, operations and products. 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 and involve risks and uncertainties, including, without limitation, the current economic downturn and uncertainty in the European economy adversely affecting demand for our products; 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; changes in the laws of the PRC that affect our operations; our ability to complete construction of and to begin manufacturing operations at our new manufacturing facilities on time; our ability to control operating expenses and costs related to the construction of our new manufacturing facilities; the devaluation of the U.S. Dollar relative to the Renminbi; our dependence on the growth in demand for portable electronic devices 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 products, including our lithium products; our ability to successfully develop products for and penetrate the electric transportation market; our ability to continue R&D development to keep up with technological changes; our exposure to product liability, safety, and defect claims; rising labor costs, volatile metal prices, and inflation; changes in foreign, political, social, business and economic conditions that affect our production capabilities or demand for our products; and various other matters, many of which are beyond our control. 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 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.

- financial tables to follow -

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Stated in US Dollars except Number of Shares)
			Three months ended June 30,						Six months ended June 30,
			2013			2012			2013			2012
			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
			$			$			$			$
Net sales			31,177,616			29,377,682			55,576,988			49,980,465
Cost of sales			(25,443,157	)		(23,369,258	)		(45,079,349	)		(40,299,782	)
Gross profit			5,734,459			6,008,424			10,497,639			9,680,683
Research and development expenses			(1,350,997	)		(1,233,585	)		(2,453,465	)		(2,117,931	)
Selling and distribution expenses			(1,392,576	)		(1,282,499	)		(2,787,978	)		(2,481,399	)
General and administrative expenses, including stock-based compensation			(2,612,855	)		(2,263,983	)		(5,418,246	)		(4,278,468	)
Income (loss) on exchange rate difference			(180,010	)		153,360			(219,957	)		122,030
Gain (loss) of derivative instruments			112,335			(304,147	)		222,283			32,956
Total operation expenses			(5,424,103	)		(4,930,854	)		(10,657,363	)		(8,722,812	)
Income (loss) from operations			310,356			1,077,570			(159,724	)		957,871
Other income			281,236			61,185			497,385			228,218
Interest expenses			(365,146	)		(301,123	)		(701,412	)		(313,441	)
Income (loss) before taxes			226,446			837,632			(363,751	)		872,648
Income taxes expenses			(159,110	)		(362,941	)		(207,329	)		(416,266	)
Net income (loss)			67,336			474,691			(571,080	)		456,382
Less: net loss attributable to non-controlling interest			(41,953	)		(29,023	)		(71,489	)		(50,517	)
Net income (loss) attributable to the Company			109,289			503,714			(499,591	)		506,899
Comprehensive income (loss)
Net income (loss)			67,336			474,691			(571,080	)		456,382
Foreign currency translation gain (loss)			526,996			(300,800	)		298,942			(155,895	)
Comprehensive income (loss)			594,332			173,891			(272,138	)		300,487
Less: comprehensive loss attributable to non-controlling interest			(31,257	)		(46,997	)		(65,475	)		(68,449	)
Comprehensive income (loss) attributable to the Company			625,589			220,888			(206,663	)		368,936
Earnings (loss) per share of common stock attributable to the Company
	- Basic and diluted		0.01			0.04			(0.04	)		0.04
Weighted average number of common stock outstanding
	- Basic and diluted		13,582,106			13,582,106			13,582,106			13,582,106

HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars except Number of Shares)
			June 30,		December 31,
			2013		2012
			(Unaudited)
			$		$
ASSETS
	Current Assets:
	Cash and cash equivalents		2,666,806		6,627,334
	Restricted cash		24,594,567		27,695,569
	Accounts receivable, net		25,556,158		25,323,899
	Notes receivable		564,427		392,242
	Prepayments		4,633,723		3,223,795
	Other receivables		800,984		802,907
	Inventories		18,797,421		16,719,807
	Total Current Assets		77,614,086		80,785,553
	Property, plant and equipment, net		37,466,258		33,462,369
	Land use right, net		4,411,408		4,423,348
	Intangible asset, net		675,000		700,000
	Deferred tax assets		907,594		762,954
	Foreign currency derivatives assets		133,225		255,508
TOTAL ASSETS			121,207,571		120,389,732
LIABILITIES AND EQUITY
LIABILITIES
	Current Liabilities:
	Accounts payable		27,012,982		27,509,195
	Deferred revenue		666,613		661,178
	Short-term loan		27,636,005		20,478,604
	Notes payable		20,079,201		26,397,200
	Other payables and accrued liabilities		6,260,815		4,485,918
	Income taxes payable		959,696		1,180,469
	Current portion of long-term loan		1,941,590		1,925,762
	Total Current Liabilities		84,556,902		82,638,326
	Long-term loan		4,853,977		5,777,286
TOTAL LIABILITIES			89,410,879		88,415,612
COMMITMENTS AND CONTINGENCIES			-		-

HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Stated in US Dollars except Number of Shares)
			June 30,		December 31,
			2013		2012
			(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: 100,000,000 shares, 13,582,106
	shares issued and outstanding at June 30,2013 and December 31, 2012)		1,358		1,358
	Additional paid-in capital		5,547,463		6,035,230
	Statutory and other reserves		2,790,484		2,790,484
	Retained earnings		16,791,993		17,291,584
	Accumulated other comprehensive income		5,342,792		5,049,864
	Total equity for the Company's stockholders		30,474,090		31,168,520
	Non-controlling interest		1,322,602		805,600
TOTAL EQUITY			31,796,692		31,974,120
TOTAL LIABILITIES AND EQUITY			121,207,571		120,389,732

HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
			Six months ended June 30,
			2013			2012
			(Unaudited)			(Unaudited)
			$			$
Cash flows from operating activities
Net income (loss)			(571,080	)		456,382
Adjustments to reconcile net loss to net cash provided by operating activities
	Depreciation and amortization		1,182,314			999,544
	Allowance for doubtful accounts		(3,965	)		282,127
	Loss on disposal of property, plant and equipment		102,926			56,703
	Income on derivative instruments		123,333			31,278
	Deferred income tax		(137,726	)		106,644
	Share based payment		94,710			93,164
Changes in operating assets and liabilities
	Accounts receivable		(41,371	)		(4,971,615	)
	Notes receivable		(167,535	)		(1,227,504	)
	Prepayments		(1,372,932	)		591,874
	Other receivable		8,451			240,454
	Inventories		(1,924,454	)		(2,907,198	)
	Accounts payable		1,414,867			5,680,116
	Deferred revenue		-			652,157
	Other payables and accrued liabilities		1,725,062			1,481,165
	Income taxes payable		(228,533	)		69,855
Net cash flows provided by operating activities			204,067			1,635,146
Cash flows from investing activities
	Acquisition of plant and equipment		(7,335,376	)		(8,484,171	)
	Acquisition of land use right		-			(1,326,010	)
Net cash flows used in investing activities			(7,335,376	)		(9,810,181	)
Cash flows from financing activities
	Proceeds from short-term bank loans		15,581,691			5,871,646
	Repayment of short-term bank loans		(8,515,280	)		(1,196,676	)
	Proceeds from long-term bank loans		-			7,914,523
	Repayment of long-term bank loans		(962,603	)		-
	Proceeds from notes payable		20,038,103			19,682,410
	Repayment of notes payable		(26,517,924	)		(16,633,527	)
	Repayment of letter of credit		-			(2,880,000	)
	Proceeds from non-controlling interest		-			949,743
	Increase (decrease) in restricted cash		3,280,806			(5,387,117	)
Net cash flows provided by financing activities			2,904,793			8,321,002
Effect of foreign currency translation on cash and cash equivalents			265,988			(201,599	)
Net decrease in cash and cash equivalents			(3,960,528	)		(55,632	)
Cash and cash equivalents - beginning of period			6,627,334			5,175,623
Cash and cash equivalents - end of period			2,666,806			5,119,991
Supplemental disclosures for cash flow information :
Cash paid for :
	Income taxes		573,588			239,767
	Interest expenses		701,412			590,399
Non-cash transactions
	Accounts payable for construction in progress		1,649,807			1,501,464