Hong Kong Highpower Technology (HPJ) Reports Third Quarter 2009 Financial Results

NEW YORK, NY and SHENZHEN, CHINA — (Marketwire) — 11/12/09 — Hong Kong Highpower Technology, Inc. (NYSE Amex: HPJ), a leading developer, manufacturer and marketer of nickel-metal hydride (Ni-MH) and lithium-ion (Li-ion) rechargeable batteries and related products, today announced financial results for the third quarter ended September 30, 2009.

Business Highlights

--  Earned net income of $0.18 per diluted share for third quarter 2009,
    an 800% increase year-over-year, and 157% increase sequentially;
--  Generated gross margins of 25% on net sales of $21.1 million for third
    quarter 2009, an 8% points increase year-over-year, and 5% points
    improvement sequentially;
--  Gross profit up 49% year-over-year and 70% sequentially;
--  Debt-to-capital ratio remained healthy consistent with prior quarter;
--  Inventory reduced 36% from the year-ago quarter greatly decreasing
    inventory carry exposure.

“Our business trends in the third quarter clearly show that the ill effects of the global recession on our business are fading,” said George Pan, Chairman and Chief Executive Officer of Hong Kong Highpower Technology. “We produced a substantial increase in both our net sales and gross profit over the second quarter, which demonstrates that we are poised to capture even greater rechargeable battery market share as the economy continues to strengthen due to our ongoing customer relationships and strong financial position.

“Recently, we also announced a significant new contract with Siemens Gigaset Communications to supply rechargeable batteries for cordless phones sold in Europe under the Gigaset brand. This contract represents a significant new ODM relationship for the Company.

“The Company’s lithium-ion battery products division, which was launched in 2008, continues to grow. At the end of the third quarter, average monthly production reached over 800,000 pieces, which is still well ahead of our initial expectations.

“As we head into the fourth quarter, we believe 2009 will be a much stronger year for us in terms of profitability and overall financial performance,” said Mr. Pan. “Our net income through the first nine months is already double of where it stood for the comparable time frame in 2008. This strong financial performance is mainly the result of the fading effects of global economic recession on Hong Kong Highpower Technology’s business and better raw material cost management.”

Third Quarter 2009 Financial Results

Net sales for the third quarter ended September 30, 2009 increased 2.8% to $21.1 million, compared to $20.5 million for the third quarter ended September 30, 2008. On a sequential basis, third quarter net sales increased by 36.3% compared to $15.4 million for the second quarter of 2009. The year-over-year increase was largely due to an increase in the number of battery units sold and was partially offset by a decrease in the average selling price of our battery units.

Gross profit for the third quarter ended September 30, 2009 increased 48.7% to $5.2 million, compared to $3.5 million for the third quarter ended September 30, 2008. On a sequential basis, third quarter gross profit increased 69.9%, compared to $3.1 million for the second quarter 2009. Gross margin was 24.8% for the third quarter ended September 30, 2009, compared to 17% for the third quarter ended September 30, 2008, and 19.9% for the second quarter 2009. The increase in our gross profit is primarily due to a decrease in the average per unit cost of goods sold during the three months ended September 30, 2009 as compared to same period in 2008.

Selling and distribution costs were $767,200 or 3.6% for the third quarter ended September 30, 2009, compared to $800,000 or 3.9% for the comparable period in 2008 and $580,000 or 3.8% for the second quarter 2009.

General and administrative expenses, including stock-based compensation, were $1.5 million or 7% of net sales for the third quarter ended September 30, 2009, compared to $1.9 million, or 9.4% of net sales for the third quarter 2008, and $1.0 million or 6.8% of net sales for the second quarter 2009.

During the three months ended September 30, 2009, the exchange rate of the Renminbi (“RMB”) to the U.S. Dollar (“USD”) only decreased approximately 0.03% from the level at the end of June 30, 2009. There were no obvious effects that resulted from the foreign current exchange rate.

The Company recorded a provision for income taxes of $529,200 for the third quarter ended September 30, 2009, compared with provisions for income taxes of $35,700 for the third quarter 2008 and $229,000 for the second quarter 2009.

Net income for the third quarter of 2009 was $2.4 million, or $0.18 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with third quarter 2008 net income of $289,400, or $0.02 per diluted share, based on 13.6 million weighted average shares outstanding, and second quarter 2009 net income of $969,000, or $0.07 per diluted share, based on 13.8 million weighted average shares outstanding.

Balance Sheet

At September 30, 2009, Hong Kong Highpower Technology had cash and cash equivalents and restricted cash totaling $11.7 million, total assets of $52 million, working capital of $6.5 million and stockholders’ equity of $20.5 million. Bank credit facilities totaled $23.2 million at September 30, 2009, of which $16.7 million was available as unused credit.

Conference Call and Webcast

Management of Hong Kong Highpower Technology will host a conference call today, Thursday, November 12, 2009 at 8:00 a.m. Pacific time/11:00 a.m. Eastern time to discuss third quarter 2009 financial results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 800-891-5765 from the U.S., or 702-696-4830 from outside the U.S. 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.haopengbattery.com or www.InvestorCalendar.com.

A telephone replay will be available for 48 hours following the conclusion of the call by dialing 800-642-1687 from the U.S., or 706-645-9291 from outside the U.S., and entering reservation code 40001543. A webcast replay will be available for one year.

About Hong Kong Highpower Technology, Inc.

Hong Kong Highpower Technology develops, manufactures and markets rechargeable nickel metal hydride (Ni-MH) and lithium-ion (Li-ion) batteries and related products for use in a variety of electronic devices. The majority of Hong Kong Highpower Technology’s products are distributed worldwide to markets in the United States, Europe, China, Hong Kong, Southeast Asia and Taiwan. For more information, visit www.haopengbattery.com.

To be added to the Company’s email distribution for future news releases, please send your request to HPJ@finprofiles.com. Company news can also be found at http://ir.haopengbattery.com/en/introduce028.html.

Media and Investor Inquiries:
Henry H. Ngan
Chief Financial Officer
+1-917-887-0614
ir@highpowerbatteries.net

Financial Profiles, Inc.
Tricia Ross
(310) 277-4711
HPJ@finprofiles.com

Forward-Looking Statement

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. 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 –

          HONG KONG HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES

              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                          (Stated in US Dollars)

                           Three months ended         Nine months ended
                              September 30,             September 30,
                        ------------------------  ------------------------
                               2009         2008         2009         2008
                         (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
                                  $            $            $            $

Net sales                21,056,149   20,473,472   47,811,438   57,326,510
Cost of sales           (15,835,110) (16,961,664) (37,120,495) (47,731,537)
                        -----------  -----------  -----------  -----------

Gross profit              5,221,039    3,511,808   10,690,943    9,594,973
Depreciation                (50,120)     (49,792)    (169,309)    (130,448)
Selling and
 distribution costs        (767,194)    (799,666)  (1,879,001)  (1,761,386)
General and
 administrative costs,
 including stock-based
 compensation            (1,464,392)  (1,915,367)  (3,613,654)  (4,256,468)
Loss on exchange rate
 difference                  (6,813)    (159,310)     (62,402)    (994,985)
                        -----------  -----------  -----------  -----------

Income from operations    2,932,520      587,673    4,966,577    2,451,686
Change in fair value of
 currency forwards           (7,483)           -     (117,106)      29,102
Change in fair value of
 warrants                         -     (204,750)           -     (276,000)
Other income                289,843      101,179      378,432      325,833
Interest expenses          (199,125)    (159,063)    (279,622)    (559,830)
Other expenses              (52,878)           -     (223,963)           -
                        -----------  -----------  -----------  -----------

Income before taxes       2,962,877      325,039    4,724,318    1,970,791
Income taxes               (529,201)     (35,683)    (919,020)    (266,861)
                        -----------  -----------  -----------  -----------

Net income for the
 period                   2,433,676      289,356    3,805,298    1,703,930

Other comprehensive
 income
  - Foreign currency
     translation gain       (99,446)     109,161      392,618      857,900
                        -----------  -----------  -----------  -----------

Comprehensive income      2,334,230      398,517    4,197,916    2,561,830
                        ===========  ===========  ===========  ===========

Earnings per share of
 common stock
  - Basic                      0.18         0.02         0.28         0.13
                        ===========  ===========  ===========  ===========

  - Diluted                    0.18         0.02         0.28         0.13
                        ===========  ===========  ===========  ===========

Weighted average number
 of common stock
  - Basic                13,562,597   13,562,596   13,621,466   13,088,737
                        ===========  ===========  ===========  ===========

  - Dilutive             13,612,097   13,615,096   13,673,966   13,108,644
                        ===========  ===========  ===========  ===========

          HONG KONG HIGHPOWER TECHNOLOGY, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED BALANCE SHEETS
                          (Stated in US Dollars)

                                                          As of
                                                ---------------------------
                                                September 30,  December 31,
                                                        2009          2008
                                                  (Unaudited)     (Audited)
                                                           $             $

ASSETS
    Current Assets:
      Cash and cash equivalents                     7,203,175     4,175,780
      Restricted cash                               4,552,798     4,845,478
      Accounts receivable                          11,260,286     8,765,593
      Notes receivable                                400,876       429,815
      Prepaid expenses and other receivables        4,191,720     1,732,709
      Deferred charges - Stock-based compensation           -       216,667
      Inventories                                  10,437,454    11,208,697
                                                ------------- -------------

    Total Current Assets                           38,046,309    31,374,739
    Deferred tax assets                               137,400       104,556
    Plant and equipment, net                        9,962,416     7,778,477
  Leasehold land, net                               3,002,530     3,050,510
  Intangible asset, net                               862,500       900,000
    Currency forward                                        -       116,157
                                                ------------- -------------

TOTAL ASSETS                                       52,011,155    43,324,439
                                                ============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
    Current Liabilities:
      Non-trading foreign currency derivatives
       liabilities                                      5,335       293,830
      Accounts payable                             15,152,492     8,306,123
      Other payables and accrued liabilities        9,067,162     3,139,275
      Income taxes payable                            812,688       476,330
      Bank borrowings                               6,495,909    14,829,228
                                                ------------- -------------

    Total Current Liabilities                      31,533,586    27,044,786
                                                ------------- -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Preferred stock
  Par value: US$0.0001
  Authorized: 10,000,000 shares
  Issued and outstanding: none

  Common stock
  Par value : US$0.0001
  Authorized: 100,000,000 shares
  Issued and outstanding: 2009 - 13,562,597
   shares (2008 - 13,562,596 shares)                    1,356         1,356
  Additional paid-in capital                        5,048,194     5,048,194
  Accumulated other comprehensive income            1,987,709     1,595,091
  Retained earnings                                13,440,310     9,635,012
                                                ------------- -------------

TOTAL STOCKHOLDERS' EQUITY                         20,477,569    16,279,653
                                                ------------- -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         52,011,155    43,324,439