Zongshen PEM Power Systems Inc. Announces Third Quarter 2007 Financial Results

    -   18,168 units sold in Q3'07 versus 5,896 in Q2'07

    -   Revenues increase to $5.2 million representing a 208% increase versus

    RICHMOND, BC, Nov. 28 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or
"the Company") (TSXV:ZPP), today announced its financial results for the three
and nine month periods ended September 30, 2007. All currency amounts referred
to in this news release are in Canadian dollars unless stated otherwise.
    The Company commenced production and sales of e-bikes in the first
quarter of 2007 and had no revenues in 2006. Accordingly, most financial
comparisons are on a consecutive quarter basis.
    For the three-month period ended September 30, 2007, the Company reported
revenues of $5.2 million versus nil in the corresponding quarter last year,
and $1.7 million during the second quarter of 2007. Volume sales during the
third quarter of 2007 totaled 18,168 units, an increase of 208% compared with
5,896 units in the second quarter of 2007.

    Q3 2007 Financial Highlights:

                                YTD 2007     Q3 2007     Q2 2007     Q1 2007
    Units Sold                    30,522      18,168       5,896       6,458
    Revenue                    8,653,450   5,163,964   1,673,979   1,815,507
    Net Income (loss)           (717,950)   (223,679)   (360,463)   (139,014)
    EPS                            (0.02)      (0.01)      (0.01)      (0.00)
    Weighted number of shares
     outstanding              41,291,443  41,681,730  39,757,114  39,736,730

    Results of Operations

    Net loss during the quarter decreased to $308,274 or $0.01 per share,
versus $360,453 or $0.01 during the second quarter of 2007. The loss during
the three-month period was inclusive of a $152,678 cost associated with
stock-based compensation and $189,739 in foreign exchange losses.
    The Company's adjusted operating income (Non-GAAP measure excluding the
impact of foreign exchange losses and stock based compensation) was $92,193
for the third quarter ended September 30, 2007.
    For the nine-month period ended September 30, 2007, revenues amounted to
$8.6 million versus nil during the same period in 2006. Net loss for the
period was $807,741 or $0.02 per share.
    At September 30, 2007, the Company had cash & cash equivalents amounting
to $7.4 million, compared to $2.3 million at December 31, 2007.
    During the third quarter, the Company successfully ramped up sales volume
to a record 18,168 units consisting of 14,806 Red Sea e-bikes and 3,362 small
gasoline operated bikes running on 35cc motors. Increased sales were achieved
through the addition of 35 new dealers in 13 provinces to the Company's
existing distribution network in China. As at September 30, 2007, ZPP e-bikes
were sold to a total of 109 dealers and 3 distributors across 23 Chinese
provinces. All products being sold were manufactured at ZPP's Wuxi plant,
where total capacity for the Company's Red Sea e-bikes is approximately
200,000 units per annum on a two-shift basis.
    The Company's growth plan includes the sales of e-bikes to international
markets. During the third quarter, $2.7 million or 52% of revenues were
generated from export sales to Nigeria. While the Company has been expecting
strong international demand for its e-bike products, the export sales in the
third quarter exceeded management's expectations.
    "The strong growth of unit sales in the third quarter is validates the
growing demand for e-bikes in China, the quality of our Red Sea product and
the power of the Zongshen brand," noted Yao Li, President and CEO of Zongshen
PEM Power Systems Inc. "We continue to grow our distribution footprint while
expanding our product line, as we ramp up Red Sea sales and plan the launch of
our premium brand Blue Sea e-bikes in the first quarter of 2008."
    On July 17, 2007, ZPP completed a non-brokered private placement of
9.0 million units at $0.57 per unit for gross proceeds of $5.1 million. Each
unit consists of one common share and one-half of one share purchase warrant,
with each whole warrant entitling the holder to acquire one additional common
share at an exercise price of $0.89 per common share for a period of 18
months. Net proceeds of the private placement were for funding the expansion
of production and sales of e-bikes.
    Subsequent to quarter-end, the Company entered into a memorandum of
understanding ("MOU") with Zongshen Industrial Group ("Zongshen Group")
pursuant to which Zongshen Group has agreed to conduct all alternative power
source business through ZPP, including all products and services related to
electric vehicles, fuel cells, solar power and wind power, and to not compete
with ZPP in such businesses. As part of the MOU, Zongshen Industrial Group has
agreed to introduce the Company and its products to its network of
distributors and dealers and provide certain services to ZPP including design,
engineering and production on a cost basis. ZPP will also have the right to
use the Zongshen brand in perpetuity with no license fees. In return, the
Company will grant Zongshen Group the right to participate in all future
equity financings, such that Zongshen Group shall able to maintain a minimum
25% interest in the ZPP on a fully diluted basis. The terms of the MOU are in
the process of being formalized into an agreement, which is expected to be
executed and announced by the end of the fiscal year.
    On November 14, 2007, the company completed a brokered private placement
through the issuance of 11.5 million common shares at $3.06 per share, for
gross proceeds of $35.2 million. Net proceeds will be used for the design,
development, manufacturing, marketing and distribution of the Company's higher
margin, premium brand Blue Sea e-bikes, which will be launched during the
first quarter of 2008. In addition, a portion of the proceeds will be
allocated for a trial of e-bike service stations with the balance reserved for
acquisitions in the e-bike and solar energy areas.


    ZPP plans to leverage the resources of its major shareholder, Zongshen
Industrial Group, to become a leading provider of alternate power systems and
products, including 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 & development, production, marketing and distribution network.

    The Company has two major goals for 2008:
    -   Electric bike and motorcycle divisions to surpass 260,000 units in
        sales in 2008, generating strong revenue and earnings growth
    -   Acquisitions, Strategic Partnerships and R&D to diversify product
        offering with a focus on e-bikes, battery technology and solar power

    E-bike Business

    The e-bike division commenced production and sales in early 2007. With
current annual capacity to produce 200,000 e-bikes in Wuxi, China, and a
second facility going into production in 2008, the Company plans to
significantly grow sales to more than 260,000 units for fiscal 2008 versus a
total of over 50,000 units expected in 2007
    Since the beginning of fiscal 2007, the Company has successfully launched
e-bike products, with solid organic growth on domestic and export sales on a
quarter-by-quarter basis, making progress towards profitability in 2008. ZPP
expects to develop higher sales volume by expanding production capacity and
exploiting the existing sales network of the Zongshen Group.
    The Company's initial line of e-bikes, called "Red Sea" are positioned in
the top end of the market providing features and benefits similar to the best
quality of e-bikes currently offered in China. In the first quarter of 2008,
ZPP plans to launch a premium brand of e-bikes known as "Blue Sea" with
enhanced battery technology, design and operating system. The Company believes
that the Blue Sea e-bike products will offer a combination of features and
benefits such as smaller batteries that deliver more power and drive time
between charges, two wheel drive and more attractive styling, that will offer
significant added value to the consumer and position ZPP as the leading
provider of high-quality e-bikes. The Blue Sea products will include patented
battery technology and design that is expected to allow ZPP to charge a
premium price and generate improved margins.
    The e-bike market in China has grown dramatically over the past six
years, with studies estimating sales to exceed 21 million units in 2007, up
from 1.6 million in 2002, representing a 68% compound annual growth rate
(CAGR). The market drivers include the Chinese government's implementation of
a 5 year plan to radically decrease carbon based emissions, and the banning of
new sales of gas motorcycles in some cities in China. In addition, an
increasing percentage of the Chinese population are looking to upgrade their
modes of transportation and e-bikes, with prices that range from about C$200
to C$500, are affordable alternatives compared to cars and motorcycles.
    The Chinese market is currently served by an estimated 2,000 e-bike
manufacturing companies, the largest of which has an estimated 3% market
share. This highly fragmented market provides an opportunity for ZPP to
compete with better technology, leveraging the brand, production scale and
distribution of Zongshen Group.
    To meet market demand, the Company will continue to ramp up sales of Red
Sea e-bikes being produced in Wuxi, China to reach the plant's current 200,000
unit capacity. The Wuxi facility production capacity can be easily expanded to
300,000 units with a capital expenditure in the $250,000 range.
    ZPP will commence the production and sales of its Blue Sea e-bikes on an
outsourced manufacturing basis at Zongshen Group's facilities in Chongqing and
expects to have its own plant in place with a production capacity of 200,000
units per annum by the end of 2008, with room to expand up to over 300,000
units per annum.

    Acquisitions and Research & Development Projects

    ZPP plans to expand its offering of alternate power system products,
including battery, fuel cell and solar power products, through research and
development, licensing and acquisitions. R&D efforts will focus on the
continuous improvement of its e-bike battery power system and new
technologies, which are expected to drive significant future revenue growth
and generate earnings while further diversifying the Company's product
offering. Target markets for licensing and acquisition include battery systems
for fork lifts, solar power technologies and selected e-bike companies.

    About Zongshen PEM Power Systems Inc.

    Zongshen PEM Power Systems Inc. is a public company trading under the
symbol ZPP on the Toronto Venture Stock Exchange. The Company is engaged in
the commercialization of alternate 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
electric motorcycles, electric bicycles and other e-vehicles in China for the
domestic and international market. 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 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 units of motorcycles, 100,000 car
engines, 3,000,000 units of motorcycle engines, 5,000,000 units of general
purpose engines, and 200,000 units of mini-van 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.

    The statements made in this news release that are not historical facts
are forward-looking statements that represent management's beliefs and
assumptions based on currently available information. These statements may
relate to matters such as expected financial performance, business prospects,
technological developments, and development activities and like matters. These
statements involve risks and uncertainties, including but not limited to the
risk factors described in reporting documents filed by the Company. Actual
results could differ materially from those projected as a result of these
risks and should not be relied upon as a prediction of future events. The
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is
made, or to reflect the occurrence of unanticipated events.

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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