Zongshen PEM Power Systems Inc. Announces Second Quarter 2008 Financial Results

    -   Revenues increase 321 percent year-over-year to $7.1 million
    -   Gross margin increases to record level at 16 percent
    -   Average selling price per unit increases to $310
    -   Earnings per share amounts to $0.01

    TSX Venture Exchange: ZPP

    VANCOUVER, Aug. 28 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or "the
Company") (TSXV:ZPP), today announced its financial results for the
three-month period ended June 30, 2008. All currency amounts referred to in
this news release are in Canadian dollars unless stated otherwise. The second
quarter represent the seasonally second weakest quarter of the year due to the
effect of consumer purchasing patterns.
    For the three-month period ended June 30, 2008 the Company reported
revenues of $7.1 million versus $1.7 million in the corresponding quarter last
year, representing a 321 percent growth rate. Volume sales during the second
quarter of 2008 totalled 22,715 units, compared with 5,896 units in the second
quarter of 2007. Net income during the quarter amounted to $673,777 or
$0.01 per share, versus a net loss of $360,453 or $0.01 per share during the
second quarter of 2007.
    Operating income (non GAAP measure), excluding the impact of stock based
compensation, amortization, interest income and foreign exchange gain amounted
to a record $463,964 during the second quarter.
    E-bike sales during the quarter were disappointing as it has taken longer
than anticipated to expand the Company's e-bike business. The Company has
identified issues related to its distribution channels and production and has
implemented a plan to correct them. Due to the lower power and shorter range,
e-bikes are mostly found in urban areas. In addition, new gas bikes are banned
in many cities in China. Part of the Company's distribution strategy is to
make use of Zongshen Industrial Group's gas bike distribution network in
China. While Zongshen Industrial Group has 5,000 distributors in China, many
of them are located in the rural areas and need more education on e-bikes to
generate high volume sales. In addition, ZPP and Zongshen Industrial Group are
working to convince some dealers to open dealerships in the respective urban
markets where they would attract and target the appropriate buyers. ZPP also
experienced delays in production of premium model e-bikes due to the lack of
supply of a key part for the power control system, which has now been resolved
through a new relationship. In addition to developing the Zongshen Industrial
Group distribution channel, the Company is developing pure e-bike distribution
channels that currently serve the large Chinese e-bike market and is
considering the acquisition of e-bike companies which have good distribution
    At June 30, 2008, the Company had cash and short-term deposits including
the short-term deposit with Zongshen Industrial Group totalled $38.9 million,
compared to $36.5 million at December 31, 2007.
    During the second quarter, the Company sold 22,715 units consisting of
1,185 e-bikes, 10,654 small gas bikes and 11,106 complete knock down (CKD)
small gas and electric bike kits. These sales were achieved through
distribution to more than 1,500 distributors and dealers. All products being
sold were manufactured at ZPP's Wuxi plant, where total capacity for the
Company's e-bikes is approximately 200,000 units per annum on a two-shift
    The Company's growth plan includes the sales to international markets.
During the second quarter, $4.1 million or 58 percent of revenues were
generated from export sales.
    "We continue to see strong demand and enthusiasm for our premium electric
bike product line from dealers and distributors," noted Zongshen Zuo, Chairman
and CEO of Zongshen PEM Power Systems Inc. "We have been successful in
achieving higher average selling prices and increasing gross margins. Our
focus for the remainder of 2008 will be to educate the consumer market in the
benefits of ZPP's premium e-bikes which I expect will represent a significant
portion of our revenues in 2009."
    During the second quarter, the Company commenced the construction of its
Chongqing production facility, which is expected to be operational in early
2009. The new production facility has been designed such that it will have an
initial annual production capacity for 600,000 bikes (phase 1) and expandable
to have four production lines with a total production capacity of 1.2 million
units (phase 2). The capital cost budget for phase 1 is $8 million and the
expansion for phase 2 will be an incremental $1.5 million. Since the land use
rights associated with the new plant are to be acquired from Zongshen
Industrial Group, a related party, the Company engaged an independent third
party to conduct a valuation. Subsequent to quarter end, ZPP received the
valuation report and it supports the purchase price of $1.8 million for the
land use right.
    ZPP will continue to leverage the resources of its major shareholder,
Zongshen Industrial Group, to become a leading provider of alternate power
systems and products, including low-emission and electric vehicles, fuel
cells, batteries and solar power products. ZPP's growth will continue to be
supported by its major shareholder, Zongshen Group, one of China's largest
manufacturers of automotive engines, industrial motors and vehicles. ZPP is
the platform through which Zongshen Group will undertake mass-market entry of
the alternate power systems and products. The Company is able to access and
lever off the resources of Zongshen Group, including its brand name, research
and development, product design and development, production, marketing and
distribution network.

    About Zongshen PEM Power Systems Inc.

    Zongshen PEM Power Systems Inc. is a public company trading under the
symbol ZPP on the TSX Venture Exchange. The Company is engaged in the
commercialization of alternative power systems including batteries, fuel cells
and solar power, for a variety of consumer and industrial applications. The
Company manufactures low-cost, high quality, environmentally friendly small
gas motorbikes, electric motorcycles, electric bicycles and other e-vehicles
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.

    About Zongshen Industrial Group

    Zongshen Industrial Group was founded in 1992, and now consists of 30
totally or majority owned subsidiaries including Chongqing Zongshen Power
Machinery Co., which is listed on the Shenzhen Stock Exchange. The Company
employs in excess of 13,000 employees with assets in excess of RMB 8.4 billion
yuan. Zongshen Industrial Group implements the development strategy of related
diversification within thermodynamic machinery industry. Its engine products
mainly include motorcycle engines, mini-car engines, speedboat engines, and
general purpose machinery. Its end products mainly include motorcycles,
speedboats and other power equipment. Zongshen Industrial Group now has an
annual production capacity of 2,000,000 motorcycles, 50,000 mini vans,
3,000,000 motorcycle engines, 5,000,000 general purpose engines, and 100,000
car engines. Zongshen Industrial Group has established a leading brand for
motorcycles in China attracting some of the world's largest motorcycle
manufacturers as joint venture partners.

    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 interim period ended June 30,
2008 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.

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, amahdavi@zongshenpem.com

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