VANCOUVER, March 26 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or "the Company") (TSX:ZPP), today announced its financial results for the three and twelve-month periods ended December 31, 2009. All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise.
For the three-month period ended December 31, 2009 the Company reported revenues of $2.0 million versus $25.6 million in the corresponding quarter last year. Volume sales during the fourth quarter of 2009 amounted to 8,000 units, compared with 94,000 units in the fourth quarter of 2008. Gross profit amounted to $202,000 compared to $2.0 million during the same period in 2008. Net loss during the quarter amounted to $4,000, versus net income of $2.7 million during the fourth quarter of 2008.
At December 31, 2009, the Company had cash and cash equivalents, totalling $35.0 million, compared to $33.0 million at December 31, 2008.
For the twelve-month period ended December 31, 2009 revenues amounted to $20.9 million versus $62.9 million during the corresponding period in 2008. Volume sales during 2009 totaled 60,000 units, compared with 227,000 units during the same period in 2008. Operating loss amounted to $2.6 million during 2009 versus an operating income of $1.8 million last year. Net loss amounted to $1.3 million or a $0.02 loss per share on a basic and fully diluted basis, versus a net income of $4.5 million or $0.07 per share during the corresponding period in 2008. Net loss during the twelve-month period of 2009 was net of $273,000 in foreign exchange gains, $514,000 in interest income, and $561,000 in gain on disposal of subsidiary.
On December 31, 2009, the Company entered into a definitive equity purchase agreement (the "Equity Purchase Agreement") with Hong Kong VAS International Development Limited (the "Vendor"), an investment holding company that invests in tandem with, and is related to ZPP's strategic partner and largest shareholder, Zongshen Industrial Group Co., Ltd. ("ZIG") to acquire its two wheeled gas motorcycle business (the "Business", and the acquisition, the "Proposed Acquisition"). The Company is in receipt of conditional approval from the TSX.
The aggregate purchase price (the "Purchase Price") payable by ZPP to the Vendor under the Equity Purchase Agreement is six times the after tax net income of the Gas Motorcycle Business for the financial year ended December 31, 2009 (the "2009 Net Income"). The payment of the Purchase Price will be comprised of:
(a) a cash payment of four times 2009 Net Income, 37.5% of which shall be paid in RMB on closing, with the remaining 62.5% to be paid in RMB 18 months following closing, which shall be evidenced by a promissory note (the "Promissory Note") issued by ZPP to the Vendor on closing (collectively, the "Cash Consideration"); and
(b) an amount equal to two times 2009 Net Income to be paid to the Vendor on closing in common shares in the capital of ZPP ("Common Shares") at a deemed issue price of $1.00 per share (the "Share Consideration").
In addition, an amount equal to two times 2009 Net Income will also be issued in Common Shares at a deemed issue price of $1.00 per Common Share and delivered to an escrow agent on closing (the "Escrow Shares"), which Escrow Shares will be released in whole or in part pursuant to the terms of an earn-out agreement to be entered into on closing (the "Vendor Earn-Out").
Half of the Escrow Shares will be released from escrow to the Vendor if the after tax net income of the Gas Motorcycle Business for the financial year ending December 31, 2010 is at least 120% of 2009 Net Income. If however, the after tax net income of the Gas Motorcycle Business for the financial year ending December 31, 2011 (the "2011 Net Income") shall be less than 144% of 2009 Net Income, then any Escrow Shares previously released shall be forfeited and surrendered to the Company for cancellation. If the 2011 Net Income is at least 169% of 2009 Net Income, then all Escrow Shares to the extent not previously released will be released to the Vendor.
The Promissory Note will bear zero interest for a period of eighteen (18) months, shall bear interest at 10% per annum thereafter, and shall be secured by a pledge of 100% of the equity of Air Intake.
The parties have agreed on a fixed exchange rate of RMB6.3414:$1.00 for purposes of calculating the Share Consideration and the Vendor Earn-Out.
ZIG estimated that the Gas Motorcycle Business generated RMB1.8 billion ($283.8 million) in revenue and RMB100 million ($15.8 million) in net income for the year ended December 31, 2009. Based on that estimate, the Purchase Price will be approximately RMB600 million ($94.6 million), comprised of a Cash Consideration of RMB400 million and Share Consideration of 31,538,777 Common Shares. An additional 31,538,777 Escrow Shares will be issued on closing and may be released to the Vendor in accordance with the terms of the Vendor Earn-Out.
Completion of the Proposed Acquisition is subject to a number of conditions including the receipt of board, regulatory, TSX, shareholder and other governmental and third party approvals and consents, satisfactory due diligence by the Company, the completion of the audit of the Business for the financial year ended December 31, 2009, and the completion of a Valuation which supports the Purchase Price payable by the Company.
The Company has commenced its due diligence including a financial audit and valuation of the business, and expects to provide further updates on the status of the acquisition during the second quarter of 2010.
The Company will host a conference call on Monday, March 29, 2010 at 1:00 p.m., Eastern Time (ET) to further discuss the fourth quarter and year end 2009 financial and operational results.
Dial in information is as follows:
Dial in number: 1-888-401-4685 (North America) or
Taped Replay: 1-888-203-1112 (North America) or
Taped Replay Pass Code: 5199748 (Available until
April 12, 11:59 p.m. ET)
Live Webcast Link: http://viavid.net/dce.aspx?sid=000072B5
About Zongshen PEM Power Systems Inc.
Zongshen PEM Power Systems Inc. is a public company trading under the symbol ZPP on the Toronto Stock Exchange. The Company manufactures low-cost, high quality, environmentally friendly small gas motorcycles and electric motorcycles in China for the Chinese domestic and international markets. Zongshen PEM Power System's largest shareholder is Zongshen Industrial Group, one of China's largest manufacturers and distributors of motorcycles, engines, and power equipment.
Forward Looking Information
This release contains forward-looking statements, which may be identified by statements containing the words "will", "anticipate", "expect", "intend" and other similar expressions. These statements are based on certain factors and assumptions including foreign exchange rates, expected growth and sales, results of operations, performance, and business prospects and opportunities and effective income tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: our relationship with Zongshen Industrial Group; fluctuations in market demand for small gas motorbikes and e-bikes; changes in competitive pressures, including pricing pressures; timing and amount of capital expenditures; changes in financial and capital markets and corresponding effects on the company's investments; changes in currency and exchange rates; and the effects of government policy and regulations. Additional risks and uncertainties can be found in our MD&A for the year ended December 31, 2009 and in our other filings with the Canadian securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
SOURCE ZONGSHEN PEM POWER SYSTEMS INC.
For further information: For further information: Ali Mahdavi, Zongshen PEM Power Systems Inc., Vice President, Corporate Finance & Investor Relations, (416) 962-3300, 1-877-775-8734, firstname.lastname@example.org