Zongshen PEM Power Systems Inc. Announces Third Quarter 2010 Financial
Results

• Gas motorcycle business acquisition closed on July 2, 2010
• EBITDA of $3.4 million in the third quarter of 2010
• Electric motorcycle Toronto wins key Chinese industry award

VANCOUVER, Nov. 14 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or the "Company"), today announced its financial results for the three and nine-month periods ended September 30, 2010.  All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise.

As previously disclosed, at the beginning of the three month period ended September 30, 2010, on July 2, 2010, ZPP closed the acquisition (the "Acquisition") of one of China's leading two-wheeled gas motorcycle companies (the "Motorcycle Business") from Hong Kong VAS International Development Limited ("HKVAS"), an investment holding company that invests in tandem with, and is related to and controlled by the Company's strategic partner and largest shareholder, Zongshen Industrial Group Co., Ltd. ("ZIG"). 

The Acquisition has converted ZPP into a Company with a leading gas motorcycle business in China with a history of strong growth and positive cash flow and a platform for the growth of its electric motorcycle business. Accordingly, in the three month period ended September 30, 2010, ZPP generated earnings before interest, taxes, depreciation and amortization ("EBITDA") of $3.4 million, compared to EBITDA of negative $0.4 million in the same period of 2009.

Prior to the Acquisition the Company was operating an e-bike business and a gas bike business limited to 50 cc which had revenues of $20.9 million and a loss of $1.3 million for the year ended December 31, 2009. As of June 30, 2010, the Company employed approximately 230 people. Following the closing of the Acquisition of the Motorcycle Business on July 2, 2010, the Company has become one of the major two-wheeled motorcycle manufacturers in China with over 3,000 employees and expanded product offerings of up to 500cc gas motorcycles. In the year ended December 31, 2009 the Motorcycle Business had revenue of $276 million and net profit of approximately $17 million. 

For the three months ended September 30, 2010, ZPP had revenues of $56.3 million, an increase of $50.5 million over to the same period of 2009.   ZPP earned $293,000 in the third quarter of 2010 compared with a loss of $446,000 in the same period of 2009. Earnings per share for the third quarter in 2010 was nil compared to a loss of $0.01 per share in the same period of 2009. The newly acquired Motorcycle Business accounted for $53.0 million in revenues and $0.9 million net profit for the third quarter. The third quarter ended September 30, 2010 is the first period that ZPP's consolidated financial statements have included the Motorcycle Business.

ZPP had revenue of $63.8 million in the nine-month period ended September 30, 2010 compared with $18.9 million in the same period in prior year. Loss for the nine-month period ended September 30, 2010 was $1.5 million and loss per share was $0.02, compared with a loss of $1.2 million and loss per share of $0.02 for same period in the prior year. As the Acquisition was completed after the period ended June 30, 2010, no financial results from the acquired business for the first six months of 2010 were included in the Company's financial statements for the nine month period ended September 30, 2010. For the nine-month period ended September 30, 2010, the Motorcycle Business shipped approximately 350,000 gas motorcycles. The revenue (including CKD and SKD kits, parts, and engines and other sales) was $232.7 million while earnings was $12.7 million for the nine-month period. Prior to the Acquisition, the Motorcycle Business had revenues for the six-month period ended June 30, 2010 of $178.8 million and earnings of $9.8 million, that were not included in ZPP's revenues and earnings for the nine-month period ended September 30, 2010.

The Motorcycle Business was a private company before the Acquisition and only produced financial statements for the periods ended June 30 and December 31 in 2009. Comparative financial statements for the Motorcycle Business can be found in the Business Acquisition Report dated September 15, 2010, and filed on SEDAR. Comparative information for the quarter ended September 30 is not available.

Gross margins for the three month and nine month periods ended September 30, 2010 improved to 10.8 percent compared to 5.7 percent and 7.6 percent, respectively, for the same periods in the prior year, due to the higher margins in the acquired Motorcycle Business. ZPP is targeting the higher end of the China gas motorcycle market where there is less competition and better margins than in the e-bikes and small gas motorcycle market. As previously disclosed, ZPP is also developing a line of premium electric motorcycles that are expected to sell for higher prices and generate better margins than the e-bikes it has produced and sold in the past. 

Gas Motorcycle Business Update

Prior to the acquisition the Motorcycle Business experienced strong growth in the first 6 months of 2010 with unit sales increasing by 13.6 percent and profit more than doubling compared to the same period in 2009, fueled by strong consumer demand for gas motorcycles and an improved product mix. Unit sales slowed in the third quarter mostly due to uncertainties in the implementation of new emissions standards by the Chinese government, such that in the nine month period ended September 30, 2010, the Motorcycle Business had shipped approximately 350,000 gas motorcycles. 

The Chinese government is phasing in State Policy No. 3 ("G3"), a new emissions standard more stringent than the current State Policy No. 2 ("G2").  ZPP believes that the implementation of G3 will help the Company gain market share and improve margins since many of its competitors in China cannot produce G3 compliant engines, while ZPP has a reliable supply of G3 engines from Chongqing Zongshen Power Machinery Co., a public company listed on the Shenzhen Stock Exchange and controlled by ZIG. G3 bans the production of gas motorcycles that do not meet the new emission standards after July 1, 2010. However, the government has granted dealers and distributors an unofficial moratorium to sell G2 motorcycles until end of February 2011, which may be extended. The delay in implementation of G3 lead to discounting and increased production from many of ZPP's competitors which caused a decline in unit sales of the Motorcycle Business in the third quarter of 2010 compared to the same period on 2009. Any delay in the enforcement of the G3 could result in competitors continuing to produce G2 motorcycles, which would take away sales from G3 bikes since G2 motorcycles are lower cost to produce and can be sold at a significant discount.  While in the short term there will be excess G2 inventory in the China market and therefore downward pressure on margins and unit sales, the Company expects sales volume and margins to improve once G3 is enforced because of the continued strong demand for motorcycles and the exiting of competitors unable to produce G3 compliant gas motorcycles.

ZPP still has some G2 inventory to sell before the end of February 2011, but all ZPP's production since July 1, 2010 has been all G3 compliant. In the third quarter ZPP introduced 4 new motorcycles and 4 significantly redesigned motorcycles in the 110-150 cc range which are the most commonly purchased motorcycle sizes in China.  

E-bikes/E-motorcycle Update

Shipments of complete e-bikes for the three and nine month period ended September 30, 2010 were 1,600 units and 5,600 units respectively compared with 700 and 3,000 units for the same periods in prior year. Sales were $380,000 and $1,066,000 for the three and nine month periods ended September 30, 2010 respectively which is an increase from the comparable periods in 2009 where sales was $118,000 and $670,000. Shipments of complete e-bikes increased as result of sales and marketing activities in China and increasing sales volume to export markets. The e-bike market is large but fragmented and continues to be low margin business dominated by small manufacturers. 

The Company is continuing to advance the development and introduction of high-end premium electric motorcycles, which it believes will garner higher prices and margins due to the lack of competition and consumer demand in China for a better product.  In mid-September, ZPP introduced China's first electric motorcycle called Toronto which won the 2010 China International Motorcycle Trade Exhibition ("CIMA") 2010 Innovation Award. Toronto is positioned as a replacement for 110-120 cc gas motorcycle has been well received by dealers. The Company is still at its early stages of rolling out electric motorcycles, and by the end of October 2010, ZPP had sold 44 units of Toronto at an average price more than 50 percent higher than the average e-bike price in China.

"The third quarter started off with the closing of the gas motorcycle business acquisition, which transforms ZPP into a major domestic Chinese motorcycle manufacturer. Now ZPP has an established manufacturing base, distribution and brand in China, the world's largest market for gas and electric motorcycles. Our Company is now well positioned to leverage its gas motorcycle assets to become the leader in providing electric motorcycles in China and selected export markets," said Zuo Zongshen, Chairman and CEO of ZPP. "The slow implementation of G3 emission standards hurt our business in the third quarter, but once implemented, G3 will fuel the next stage of growth for our gas motorcycle business. Many of our competitors do not have the ability to produce low emission G3 compliant motorcycles and will need to make a major investment in manufacturing and technology to comply. Now there are about 120 gas motorcycle manufacturers in China. We expect a significant consolidation in the Chinese market over the next five years and ZPP as a top ten player in China, is well positioned to gain market share by attrition and acquisition. In the electric motorcycle market, we have chosen not to pursue market share in low margin, high volume e-bike market and instead are working to lead the emerging market for premium electric products in China. In this quarter, we also introduced China's first electric motorcycle and are proud to have been awarded the 2010 CIMA Innovation Award which not only confirms our technological leadership in electric motorcycles but also is a recognition that we are on the right path in our pursuit of zero emissions vehicles."

ZPP will host a conference call to discuss the third quarter results and answer questions.  Please see details below:

Earnings Conference Call Details

Date:	Monday, November 15, 2010
Time:	10:00 a.m. Eastern Standard Time (EST)
Dial in number:	1-888-503-8171 (North America) or
	1-719-325-2170 (International)
Taped Replay:	1-877-870-5176 (North America) or
	1-858-384-5517 (International)
Taped Replay Pass Code:	4816934

Live Webcast Link: http://viavid.net/dce.aspx?sid=00007D8E

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 gas motorcycles, 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 engines and power equipment.

Non-GAAP Performance Measure
The Company discloses that EBITDA is not a recognized measure under the Canadian generally accepted accounting principles ("GAAP") and should not be considered more meaningful than measures determined under GAAP. Readers should be cautioned that this non-GAAP measure should not be construed as an alternative to other measures of financial performance as determined in accordance with GAAP and may not be directly comparative to measures for other companies where similar terminology is used. The methods of computation of this non-GAAP measure can be found in the Company's interim Management's Discussion and Analysis for the three and nine-month period ended September 30, 2010 as November 15, 2010 filed on SEDAR.

Forward-looking Information
This Press Release contains "forward-looking information" that is based on ZPP's expectations, estimates and projections as of the dates which those statements were made. This forward-looking information includes, among other things, statements with respect to the Company's expectation of the Chinese government policies, future sales volume, margins and performance of the Company's gas motorcycle business and future prices and margins of the Company's electric motorcycles in China. There can be no assurance that such statements will prove accurate. Such statements are necessarily based on a number of estimates and assumptions that are subject to numerous risks and uncertainties that could cause actual results and future events to differ materially from those anticipated or projected. ZPP disclaims any intention or obligation to revise or update such statements.  The following factors, among others, could cause actual results or developments to differ materially from the results or developments expressed or implied by forward-looking statements: uncertainties associated with the policies of the Chinese government, in particular, the moratorium granted by the Chinese government to dealers and distributors to sell G2 motorcycles; uncertainties associated with the sales volume and margins for the Company's gas motorcycles; uncertainties related to the market supply and demand of electric motorcycles; risks associated with the fluctuations in cost of operating the Company's gas and electric motorcycle businesses; uncertainties associated with the current and future operating parameters of the Company's gas and electric motorcycle businesses; and risks associated with the Company's development and maintenance of its proprietary technologies.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the release.

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