VANCOUVER, May 29, 2008 (Canada NewsWire via COMTEX) ----- Unit sales on track at 23,413

- Revenues increase 261 percent year-over-year to $6.5 million

- Gross margin more than doubles to record level at 10.2 percent

- ZPP reports positive net income amounting to $269,922 for the quarter

TSX Venture Exchange: ZPP

VANCOUVER, May 29 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or "the Company") (TSXV:ZPP), today announced its financial results for the three-month period ended March 31, 2008. All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise. The first quarter represents the seasonally weakest quarter due to the effect of the Chinese New Year and consumer purchasing patterns.

For the three-month period ended March 31, 2008 the Company reported revenues of $6.5 million versus $1.8 million in the corresponding quarter last year. Volume sales during the first quarter of 2008 totalled 23,413 units, an increase of 263 percent compared with 6,458 units in the first quarter of 2007. Net income during the quarter amounted to $269,922 or $0.00 per share, versus a net loss of $139,014 or $0.00 per share during the first quarter of 2007. Net income during the three-month period was inclusive of a $548,771 cost associated with stock-based compensation and $245,880 in foreign exchange gain. The Company expects to generate continued strong growth in net income for 2008, due to estimated sales of 260,000 e-bike units and increasing margins.

Selling expenses as a percentage of revenues during the quarter remained constant at 1.9 percent, while general and administrative expenses as a percentage of revenues decreased to 4.7 percent due to increased sales and economies of scale. Overall expenses as a percentage of revenues were lower due to the Company's ability to leverage the resources provided to it at cost by Zongshen Industrial Group per the 10-year Master Support Agreement signed in early 2008.

The Company's adjusted operating income (Non-GAAP measure excluding the impact of stock based compensation) increased to $219,021 for the first quarter ended March 31, 2008 versus an operating loss of $137,257 during the first quarter of 2007.

During the first quarter, ZPP received orders for 152,000 e-bike units for delivery in 2008. The order book currently represents 60 percent of the unit sales guidance of 260,000 units for 2008.

At March 31, 2008, the Company had cash and cash equivalents, short-term deposits and deposit with Zongshen Industrial Group amounting to $37.0 million, compared to $37.1 million at December 31, 2007.

During the first quarter, the Company successfully ramped up sales volume to 23,413 units consisting of 1,221 e-bikes, 10,277 35cc bikes and 11,915 complete knock down (CKD) e-bike kits. Increased sales were achieved through distribution to more than 1,100 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 basis.

The Company's growth plan includes the sales of e-bikes to international markets. During the first quarter, $3.6 million or 55 percent of revenues were generated from export sales.

"I am extremely pleased with ZPP's performance during our seasonally weakest period. Our order book continues to grow and demand for Zongshen e-bikes remains strong domestically and in our respective export markets," noted Zongshen Zuo, Chairman and CEO of Zongshen PEM Power Systems Inc. "The first quarter of 2008 marks an important event for the Company due to our success in reaching profitability as a result of improved margins. We look forward to reporting on further revenue and earnings growth as we expand our product line and increase unit sales in 2008, while adding production capacity for at least 600,000 e-bikes to service market demand in 2009 and beyond."

Background

During the first quarter of 2007, ZPP launched its e-bike business, comprising the manufacturing and sale of premium electric bicycles and electric motorcycles ("e-bikes") to the Chinese market and select export markets. While the focus is on electric vehicles, the Company also manufactures small gas bikes (less than 35 cc). In its first year of commercial production, ZPP sold 60,130 e-bike units in China, including more than 12,000 small gas bikes, and more than 50 percent export sales. In 2007, the e-bike business generated $16.1 million in revenues, compared to nil in 2006.

The Company is leveraging the resources of its major shareholder, the Zongshen Industrial Group to be a leading provider of alternative power system products. The Zongshen Industrial Group is a major manufacturer of gas motors and related products, and is one of China's largest gas motorcycle producers, with a leading brand for performance and quality.

Business Highlights for Q1'2008

Signs Master Support Agreement with Zongshen Industrial Group - In January 2008, the Company signed the Master Support Agreement pursuant to the MOU described above. (see press release dated January 7, 2008)

Launch of Blue Sea - In January 2008, the Company launched a new premium e-bike model called Blue Sea, including enhanced battery technology. In April 2008, the Company announced the amalgamation of Red Sea and Blue Sea into one e-bike line marketed under the Zongshen brand, due to the increasing convergence of the quality and margins of these two product lines. In addition, the Company announced sales orders of 152,000 units of e-bikes for delivery in 2008. (see press release dated April 21, 2008)

New e-bike Facility - In April 2008, ZPP commenced construction of an e-bike facility in Chongqing, China with initial capacity of 600,000 e-bike units per annum with a budget of $8 million. The facility is expected to be in production by March 2009, and can be expanded to 1.2 million e-bike units per annum for an investment of approximately $1.5 million. (see press release dated April 24, 2008)

Results of Operations

For the three-month period ended March 31, 2008, the Company reported revenues of $6.5 million versus $1.8 million in the corresponding quarter last year. Volume sales during the first quarter of 2008 totaled 23,413 units, an increase of 263 percent compared with 6,458 units in the first quarter of 2007.

First quarter e-bike sales is characterized by strong seasonality, representing less than 10 percent of sales revenues, due to the Chinese New Year holiday and the consumer buying patterns in the China e-bike market. In the first quarter of 2008, the Company received sales orders of 152,000 e-bike units, mostly for delivery in the period from May to December 2008, which is the peak period for e-bike sales in China. The 152,000 units ordered include 22,000 for export markets.

Net income during the first quarter of 2008 was $269,922 or $0.00 per share, versus a net loss of $139,014 or $0.00 per share during the first quarter of 2008. Net income in the first quarter included stock-based compensation expense of approximately $548,771 and a foreign exchange gain of $245,880. The Company's adjusted operating loss (a non-GAAP measure excluding the impact of stock-based compensation) was $219,021 for the first quarter ended March 31, 2008, compared to an adjusted operating loss of $137,257 during the same period in 2007.

Gross profit in the first quarter of 2008 increased to $664,387 or a record 10.2 percent of revenues compared to $78,456 or 4.3 percent of revenues during the corresponding quarter in 2007. Gross margin is expected to improve in 2008 due to increased capacity utilization and increased average selling price. The Company has been able to increase average selling price of its e-bikes due to improvements in styling and performance, while limiting cost increases due to the ability to leverage the human and technology resources, and buying power of the Zongshen Industrial Group.

At March 31, 2008, the Company had cash and cash equivalents, short-term deposits and deposit with Zongshen Industrial Group amounting to $37.0 million, compared to $37.1 million at December 31, 2007.

Outlook

As of March 31, 2008 the Company had sales orders for delivery of 152,000 e-bikes, including 130,000 from 1,100 certified distributors in China and 22,000 for export. Based on the current sales orders and expressions of interest from distributors, the Company is confident that it will meet or exceed the sales guidance of 260,000 e-bikes for 2008.

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 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.

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   The Company's 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 >> 

About Zongshen PEM Power Systems Inc.

Zongshen PEM Power Systems Inc. is a public company trading under the symbol ZPP on the TSX 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. Zongshen Industrial Group 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.

The statements made in this presentation 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.

SOURCE: Zongshen Pem Power Systems Inc.

Ali Mahdavi, Zongshen PEM Power Systems Inc., Vice President, Corporate
   Finance & Investor Relations, (416) 962-3300, 1-877-775-8734, amahdavi@zhongshenpem.com 

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   CNW Group. All rights reserved.