Here you go Penny:
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.
