Huahu is a China-based manufacturer of battery energy storage systems marketed under the Wowtiger brand.

The companies expect to officially form Huahu International New Energy Technology Company Limited, a Hong Kong joint venture company, within less than 30 days. The joint venture will combine Huahu's established energy storage products and technology with Highway Holdings' global manufacturing capabilities, European operating presence and international commercial relationships.

Highway Holdings will own 57% of the joint venture company, with Huahu owning the remaining 43%. The venture will be jointly managed by the two parties. The venture will market and distribute Huahu's Wowtiger-branded energy storage products in designated international markets. The initial commercial focus will include Germany, Italy, the United States and designated South American markets. It will also evaluate additional markets and semi-knocked-down kit ("SKD") manufacturing opportunities for Highway Holdings as the business develops.

The transaction gives Highway Holdings access to international battery energy storage systems (BESS) with the potential to generate revenue from product sales, distribution, SKD manufacturing and related services. It also creates opportunities to increase utilization across Highway Holdings' existing manufacturing operations and diversify the Company beyond its traditional OEM business.

International Growth Platform

Huahu has developed an international customer base, initially serving commercial customers in Africa and Southeast Asia. Its fast growing market presence has also generated interest from prospective European customers seeking more technically demanding energy storage solutions.

The joint venture will use Highway Holdings' European contacts and operations to support these opportunities through technical project management, customer service, warranty support, marketing and distribution. It also will pursue SKD manufacturing of Huahu products where commercially appropriate.

Highway Holdings believes its established European presence, manufacturing experience and reputation for dependable service will strengthen the Wowtiger brand's position in mature markets where technical support, product availability and reliable warranty coverage are important purchasing considerations.

The venture will also pursue opportunities in the United States and designated South American markets. In the United States, one of the world's largest potential energy storage markets, Highway Holdings intends to leverage its existing relationships and international operating experience to develop a distribution and marketing presence with manufacturing capability where appropriate. The Company may also evaluate financing alternatives to support larger international projects.

Transaction Terms

The Huahu International New Energy Technology Company Limited joint venture is expected to receive initial contributions valued at approximately $3.5 million, consisting of approximately $2.0 million in cash from Highway Holdings; and approximately $1.5 million in products and technology transferred by Huahu.  The joint venture will receive exclusive rights to market and distribute those products in Germany, Italy, the United States and designated South American markets, and intends to manufacture Huahu products through an SKD model. The transaction also includes performance-based equity incentives intended to align the parties' long-term interests and encourage Huahu to direct additional manufacturing business to Highway Holdings. These incentives include: Up to 400,000 restricted Highway Holdings shares, 200,000 issuable upon the formation of the joint venture and another 200,000 upon the joint venture's achievement of specified milestones in Europe.

Any shares issued to Huahu under these arrangements will be subject to a two-year transfer restriction and applicable performance conditions, corporate approvals and securities-law requirements.

Potential Expansion of Highway Holdings' Core Manufacturing Business

Huahu purchases a variety of metal and plastic parts for the production of its products. The transaction is expected to transfer such purchases to Highway Holdings' existing component-manufacturing factories. The business Huahu directs to Highway Holdings could provide meaningful and recurring production volume for the Company's factories. The Company believes this additional volume has the potential to provide full capacity utilization, increase revenue and strengthen the earnings profile of Highway Holdings' core OEM operations, bringing product manufacturing to Highway Holdings and at the same time also reviving its OEM business to a sustainable level.

Highway Holdings and Huahu will also collaborate on production improvements and the research and development of existing and next-generation energy storage products. This cooperation is expected to combine Huahu's product expertise with Highway Holdings' manufacturing capabilities, creating opportunities to improve product performance, production efficiency and speed to market.