Growth Strategy

Zongshen PEM Power System ("ZPP") plans to leverage the resources of its major shareholder, Zongshen Industrial Group ("Zongshen Group"), to become a leading provider of alternate power systems and products, including electric vehicles, fuel cells and batteries and solar power products.

Zongshen Industrial 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. ZPP 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, providing a scalable platform for organic growth.

E-bike Business

The first products to be commercialized are electric bikes and motorcycles ("e-bike"). Extensive market research, which is ongoing, was conducted in 2006 and the e-bike division commenced production and sales in early 2007. With current annual capacity to produce 200,000 e-bikes, 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.

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 $200 to $500, are affordable alternatives compared to cars and motorcycles.

The Chinese market is currently served by an estimated 2,000 e-bike manufacturing a company, 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. With production capacity in excess of 2 million motorcycles and 4 million motorcycle engines and some 5,000 retail outlets in China, Zongshen Group has established itself as a leading brand for motorcycles in China and the region, attracting joint venture partners such as Harley Davidson and Italy's Piaggio. ZPP anticipates that it will be able to take advantage of the fragmented marketplace and target selective acquisitions with an ambition to further expand its product line and distribution network.

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 deliver 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 as well as enabling ZPP to enter the European and North American markets.

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 and earnings growth while further diversifying the Company's product offering. Target markets for licensing and acquisition include battery systems for fork lifts, solar power technologies and, as set out above, selected e-bike companies.