08:00 EST Friday, November 14, 2008

    <<    -   Unit sales reach a record 87,355 units    -   Revenues increase 360 percent year-over-year to $23.8 million    -   Earnings per share amounts to a record $0.03    -   Strong balance sheet with $41.2 million in cash and other deposits    TSX: ZPP    >>

VANCOUVER, Nov. 14 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or "the Company") (TSX:ZPP), today announced its financial results for the three-month period ended September 30, 2008. All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise.

For the three-month period ended September 30, 2008 the Company reported record revenues of $23.8 million versus $5.2 million in the corresponding quarter last year, representing a 360 percent growth rate. Volume sales during the third quarter of 2008 totalled 87,355 units, compared with 18,168 units in the third quarter of 2007. Gross profit improved to $2.6 million or 11.1 percent of sales compared to $350,702 or 6.8 percent of sales during the same period in 2007. However gross margin as a percentage of sales declined on a consecutive quarter basis due to an increase in the sales of lower priced and lower margin small gas bikes during the third quarter versus the second quarter of 2008. Operating income amounted to $1.6 million during the third quarter of 2008 versus an operating loss of $60,485 last year. Net income during the quarter amounted to a record $1.9 million or $0.03 per share, versus a net loss of $308,274 or $0.01 per share during the third quarter of 2007. Net income during the three-month period was inclusive of a $268,720 gain associated with stock-based compensation, $618,533 in foreign exchange gains, and $468,088 in interest income generated on the Company's strong cash balance.

At September 30, 2008, the Company had cash and short-term deposits including the short-term deposit with Zongshen Industrial Group totalled $41.2 million, compared to $37.1 million at December 31, 2007.

During the third quarter, $11.3 million or 48 percent of revenues were generated from export sales.

Volume sales during the quarter reached a record 87,355 units, resulting in year to date unit sales of 133,483 units. The Company will preannounce its total unit sales for the full year in shortly after the end of the fourth quarter and remains confident in achieving total volume sales of 260,000 units in 2008.

During the third quarter, the product mix sold consisted of 2,951 e-bikes, 23,270 small gas bikes, and 31,859 and 29,275 complete knock down (CKD) and semi knock down (SKD) small gas and electric bike kits, respectively. During the third quarter, e-bike unit sales represented 36.9 percent of the product mix, while in sales dollars, this product segment represented 34.9 percent of total revenues. These sales were achieved through distribution to more than 1500 distributors and dealers.

"I am pleased with our sales and marketing efforts during the quarter resulting in increased volume sales for all of ZPP's products including small gas and electric bikes," noted Zongshen Zuo, Chairman and CEO of Zongshen PEM Power Systems Inc. "We remain confident and committed in achieving our unit sales target of 260,000 for 2008."

For the nine-month period ended September 30, 2008 the Company increased revenues by 331 percent to $37.3 million versus $8.6 million during the corresponding quarter in 2007. Volume sales during the nine-month period totaled 133,483 units, compared with 30,522 units during the same period in 2007. Operating income amounted to $1.2 million during the first nine months versus an operating loss of $542,253 last year. Net income during the period amounted to a record $2.9 million or $0.05 and $0.04 per share on a basic and fully diluted basis respectively, versus a net loss of $807,741 or $0.02 per share during the corresponding period in 2007.

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). Due to the negative impact of the exchange rate, the capital cost budget for phase 1 has increased by approximately $1.0 million, to $9 million and the expansion for phase 2 has increased by approximately $100,000 to $1.6 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 approximately $2.0 million for the land use right, representing an approximate 30 percent discount to a $2.9 million valuation. The Company has approved the purchase price of which the payment is expected to be made upon the receipt of all government, regulatory, third party and other approvals for the land use right transaction and the completion of the transfer of the land use rights from ZIG. Currently the construction of the new manufacturing facility is well underway and scheduled to be complete by the end of the first quarter of 2009.

Subsequent to quarter-end, on October 15, 2008, at the request of the Company, ZPP's former auditor, Chang Lee LLP resigned as auditor of the Company, and PricewaterhouseCoopers LLP was approved by the Board of Directors as successor auditor to replace Chang Lee LLP.

ZPP will continue to leverage the resources of its major shareholder, Zongshen Industrial Group, to become a leading provider of alternative 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 alternative 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.

Management reaffirms its previously stated unit sales guidance of 260,000 low emission small gas and electric bikes for 2008.