Shenzen, China, Nov. 20 - China Water and Drinks Inc. (''China Water and Drinks'' or ''the Company''), a leading producer and distributor of bottled water in the People's Republic of China (''PRC''), yesterday announced record financial results for the third quarter ended on September 30, 2007.
Third Quarter 2007 Highlights
-- Revenue increased 79% year-over-year to a record $18.5 million
-- Gross profit increased 90% year-over-year to a record $6.6 million
-- Gross margin improved 190 basis points to a record 35.6%
-- Net income grew 80% to a record $5.8 million or $0.06 per fully diluted share
-- Acquired 66.7% of Shenyang Aixin Company Limited ("Aixin"), for $1.1 million in cash and 177,333 shares of common stock
-- Acquired 48.0% of Hutton Holdings Corporation ("Hutton") in exchange for $9.0 million and 2.1 million shares of common stock
Third Quarter 2007 Results
''During the quarter we continued to see record revenue and net income due to our newly acquired bottled water production plants as well as strong seasonal demand for our bottled water due to hot weather,'' said Mr. Xinghua Chen, CEO of China Water and Drinks. ''We expect to continue generating strong financial results as we aggressively expand our capacity and increase our market penetration throughout China by enhancing our own distribution network and increasing sales to beverage companies.''
Revenue for the third quarter of 2007 was $18.5 million, an increase of 79.5% from $10.3 million in the third quarter of 2006, driven by the increased demand for bottled water during the summer months and expanded production capacity. The Company's newly acquired bottled water production plants, Nanning Taoda Drink Company Limited (''Nanning'') and Aixin, acquired on June 15, 2007 and August 24, 2007, respectively, accounted for 25% of revenue during the quarter.
Gross profit was $6.6 million in the third quarter of 2007, up 89.8% from $3.5 million in the comparable period in 2006. Gross margin for the quarter was 35.6% up from 33.7% in the comparable period in 2006, due to the introduction of automatic PET bottle production lines which reduced average labor cost.
Operating expenses totaled $1.0 million in the third quarter of 2007, up from $0.2 million in the third quarter of 2006. The increase in operating expenses was primarily the result of higher general and administrative expenses due to the Company's expanded operations. Operating expenses were 5.2% of revenue in the third quarter of 2007, compared to
2.4% of revenue in the comparable period in 2006.
Income from operations in the third quarter of 2007 was $5.6 million, or 30.5% of revenue, up 74.8% from $3.2 million, or 31.3% of revenue, in the third quarter of 2006.
Net income in the third quarter of 2007 was $5.8 million, or $0.06 per diluted share, up 79.6% from $3.2 million, or $0.04 per diluted share, in the comparable period of 2006.
Nine Months Results
Revenues for the first nine months of 2007 increased 41.0% over the comparable period in 2006 to $37.2 million. Gross profit was $12.9 million, up 43.8% from the same period in 2006. Gross margin was 34.5%, up from 33.8% in the same period in 2006. Income from operations in the first nine months of 2007 was $11.3 million, up 40.4% over the comparable period in 2006. Operating margin was 30.2% relatively unchanged from the year ago period. Net income for the first nine months of 2007 was $11.4 million, or $0.23 per diluted share, up 48.5% from $8.0 million, or $0.17 per diluted share, in the first nine months of 2006.
Financial Condition
As of September 30, 2007, China Water and Drinks had cash and cash equivalents of $27.8 million, working capital of $31.6 million and $0.2 million in long-term debt. Shareholder's equity stood at $70.3 million, up from $9.1 million on December 31, 2006. The Company generated $16.9 million in cash flow from operations for the nine months ended September 30, 2007, compared to $2.6 million in the first nine months of 2006.
Business Outlook
The construction of the Company's new factory in Changchun City is nearing completion and is expected to begin production in the first half of 2008. The new factory is expected to have initial annual production capacity of 178.5 million bottles, or 130 million liters.
For full year of 2007, management has projected revenue of approximately $57.5 million, down from its previous guidance of $68.0 million. The Company reaffirms its guidance for net income of $19.0 million. For 2008, revenue is expected to be about $105.0 million; net income is expected to be approximately $30.0 million.
''Demand for bottled water in China remains very strong, due to the emerging middle class in China and the public's increasing attention on high quality and safe drinking water,'' commented Mr. Chen. ''We intend to continue expanding our capacity and market penetration by building new facilities and through acquisitions. We will also continue our new product development efforts, which are expected to generate higher margins.''
Recent Events
On August 24, 2007, the Company acquired 66.7% of the equity of Aixin through its wholly owned subsidiary Pilpol (HK) Biligical Limited for an amount of cash equal to $1,060,000 and 177,333 shares of the Company's common stock The shares of common stock are to be issued on the 30th day after the effective date of the registration statement to be filed by the Company in connection with its June 2007 $30 million private placement. Aixin became a consolidated subsidiary of the Company on August 24, 2007 and the results of Aixin's operations on and after August 24, 2007 were consolidated into the financial results of the Company. As of November 20, 2007, no shares of the Company's common stock had been issued to Aixin's shareholders.
On August 31, 2007, the Company purchased an aggregate of 11,000,000 shares of common stock, $0.001 par value of Hutton and 5,000,000 shares of preferred stock of Hutton. As a result, the Company owns 48% of the equity in Hutton and Hutton has become an affiliate company of China Water and Drinks. The financial results of Hutton have been consolidated in the Company's financial statements by the equity method.
On November 14, 2007, the Board of Directors of the Company appointed Mr. Wen Ding Hu as interim Chief Financial Officer, who will fill the vacancy created by Mr. Joseph Chan's resignation. Mr. Hu has 28 years of experience in bookkeeping, accounting, financial management and accounting audit, and has served as the financial director of four of the Company's subsidiaries since June 2005.
About China Water and Drinks, Inc.
China Water and Drinks, Inc. is a leading producer and distributor of bottled water in China. Through its production facilities in Guangzhou, Zhanjiang, Feixian, Changchun, Nanning and Shenyang, the Company produces and distributes bottled water to eleven provinces in China. The Company markets its own product under the brand 'Darcunk', supplies purified water to both local and international beverage brands such as Coca-Cola and Uni-President and provides private label bottled water for companies such as Sands Casino, Macau.
CHINA WATER AND DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept 30, 2007 December 31, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $27,803,489 $1,892,824
Accounts receivable, net of
allowance for doubtful
accounts 12,719,771 6,990,368
Inventories 7,512,748 5,259,717
Prepaid expenses and other
receivables 8,970,414 4,299,482
Amount due from directors -- 3,593,484
Total current assets 57,006,422 22,035,875
PLANT AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION 4,765,245 3,350,207
CONSTRUCTION PROGRESS 394,781 --
LAND USE RIGHT, NET OF
ACCUMULATED AMORTIZATION 448,327 93,866
OTHER ASSETS 585,134 638,054
INVESTMENT IN AFFILIATE 25,549,342 --
GOODWILL 7,631,568 --
TOTAL ASSETS $96,380,819 $26,118,002
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $4,214,357 $3,093,928
Customer deposits, accrued expenses
and other payables 5,953,433 3,967,447
Current portion of long term debt 29,578 28,700
Short term loan 266,042 --
Taxes payable 6,340,063 2,268,057
Note payable -- 25,750
Due to shareholders 1,165,148 50,000
Due to directors 7,432,971 7,432,971
Total current liabilities 25,401,592 16,866,853
LONG TERM DEBT, LESS CURRENT PORTION 140,182 162,534
TOTAL LIABILITIES 25,541,774 17,029,387
MINORITY INTERESTS 537,919 --
STOCKHOLDERS' EQUITY
Preferred stock; 5,000,000 shares
authorized; $0.001 par value; 0
shares issued and outstanding on
September 30, 2007 and December 31,
2006, respectively -- --
Common stock; 150,000,000 shares
authorized; $0.001 par value;
94,521,393 and 10,128,000
shares issued and outstanding on
September 30, 2007 and December 31,
2006, respectively 94,521 10,128
Subscription payable 6,750,922 --
Additional paid-in capital 42,760,490 --
Retained earnings 19,912,884 8,785,290
Accumulated other comprehensive
income 782,309 293,197
TOTAL STOCKHOLDERS' EQUITY 70,301,126 9,088,615
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $96,380,819 $26,118,002
CHINA WATER AND DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine months ended September 30
2007 2006
REVENUE $37,235,316 $26,415,520
COST OF SALES (24,370,167) (17,477,819)
GROSS PROFIT 12,856,149 8,937,701
OPERATING EXPENSES
Selling and distribution (5,933) (48,274)
General and administrative (1,588,476) (872,385)
Finance (17,222) (3,109)
INCOME FROM OPERATIONS 11,253,518 8,013,933
OTHER INCOME 60,290 2,174
INCOME BEFORE TAXATION 11,313,808 8,016,107
PROVISION FOR TAXATION -- --
INCOME AFTER TAXATION 11,313,808 8,016,107
Profit from affiliate 122,678 --
INCOME AFTER PROFIT FROM
AFFILIATE 11,436,486 8,016,107
Minority interests (15,695) --
INCOME AFTER MINORITY
INTERESTS 11,420,791 8,016,107
OTHER COMPREHENSIVE
INCOME
Gain on foreign exchange
translation 489,112 --
COMPREHENSIVE INCOME $11,909,903 $8,016,107
NET INCOME PER SHARE:
BASIC $0.24 $0.17
DILUTED $0.23 $0.17
WEIGHTED
AVERAGE SHARES
OUTSTANDING
BASIC 48,456,389 48,456,389
DILUTED 50,695,195 48,456,389
CHINA WATER AND DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three months ended September 30
2007 2006
REVENUE $18,519,939 $10,319,241
COST OF SALES (11,918,243) (6,840,109)
GROSS PROFIT 6,601,696 3,479,132
OPERATING EXPENSES
Selling and distribution (5,933) (47,518)
General and administrative (941,323) (199,698)
Finance (6,709) (339)
INCOME FROM OPERATIONS 5,647,731 3,231,577
OTHER INCOME 52,212 1,620
INCOME BEFORE TAXATION 5,699,943 3,233,197
PROVISION FOR TAXATION -- --
INCOME AFTER TAXATION 5,699,943 3,233,197
Profit from affiliate 122,678 --
INCOME AFTER PROFIT FROM
AFFILIATE 5,822,621 3,233,197
Minority interests (15,695) --
INCOME AFTER MINORITY
INTERESTS 5,806,926 3,233,197
OTHER COMPREHENSIVE
INCOME
Gain on foreign exchange
translation 289,509 --
COMPREHENSIVE INCOME $6,096,435 $3,233,197
NET INCOME PER SHARE:
BASIC $0.06 $0.04
DILUTED $0.06 $0.04
WEIGHTED AVERAGE SHARES
OUTSTANDING
BASIC 90,673,416 90,673,416
DILUTED 92,912,222 90,673,416
CHINA WATER AND DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended Sept 30,
2007 2006
Cash flows from operating activities
Net income for the
period $11,909,903 $4,782,910
Adjustments to
reconcile net income
to net
Cash (used in) provided
by operating activities:
Depreciation and amortization 441,704 120,211
Note payable (25,750)
Gain on foreign exchange translation (489,112) --
Minority interest 553,614 --
Net income from minority interests. (15,695) --
Equity in net income of affiliate 122,678 --
Changes in operating assets and
liabilities:
Accounts receivable (5,729,403) (723,037)
Inventory (2,253,031) (1,754,890)
Prepaid expenses and other
Receivable (4,670,932) 50,117
Due from director 3,593,484 --
Accounts payable 1,120,429 136,967
Due to directors 1,165,148 46,347
Customer deposits and accrued
expenses 1,985,986 (1,450,781)
Due to shareholders (50,000) --
Net assets from acquisition 5,113,557 --
Other assets 53,001 465,272
Other taxes payable 4,072,006 920,704
Net cash inflows from operating
activities 16,897,587 2,593,820
Cash flows from investing activities
Capital injection to a subsidiary -- (50,028)
Investment in subsidiaries (15,392,522) --
Purchase of fixed assets (2,605,984) (643,397)
Net cash outflows used in investing
activities (17,998,506) (693,425)
Cash flows from financing activities
Receipt from Short term loan 266,042 (13,917)
Repayment of Current portion of long
term debt (21,474) --
Issuance of common stock 26,767,016 --
Net cash inflows/(outflows) by
financing activities 27,011,584 (13,917)
Net increase in cash and cash
equivalents $25,910,665 $1,886,478
Cash and cash equivalents - beginning
of period 1,892,824 1,371,118
Cash and cash equivalents - end of
period $27,803,489 $3,257,596