SHENZHEN, China, Aug. 22 /Xinhua-PRNewswire-FirstCall/ -- China Water & Drinks, Inc. (OTC Bulletin Board: CWDK) ("China Water & Drinks" or "the Company"), a leading producer and distributor of bottled water in the People’s Republic of China ("PRC"), today announced record financial results for the second quarter ended June 30, 2007.
Second Quarter 2007 Highlights
-- Revenues increased 42% year-over-year to $12.5 million
-- Net income grew 49% to $3.9 million or $0.13 per fully diluted share
-- Acquired Nanning Taoda Drink Company Limited with annual capacity
for 160 million liters for $5.3 million in cash and 1,523,578 shares
of the Company’s common stock
-- Won agreement to be exclusive bottled water supplier to an
international beverage company in Changchun
Second Quarter 2007 Results
"We are very proud to have generated record revenue and net income this quarter. Seasonally, the second and third quarters are our strongest quarters due to increased demand during the hot summer months," said Mr. Xinghua Chen, CEO of China Water & 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."
For the second quarter of 2007, total revenue increased to $12.5 million, up 41.5% from $8.8 million in the second quarter of 2006. The increase in revenue was due to the increased demand for bottled water during the summer months and expanded production capacity.
Gross profit increased to $4.3 million for the second quarter of 2007, up 41.3% from $3.0 million in the same quarter a year ago. Gross margin for the quarter was 34.5% unchanged from gross margin in the second quarter of 2006.
Operating expenses were $382,044, down 5.3% from $403,464 in the second quarter of 2006. The decline in operating expenses is the result of lower administrative expenses achieved from implementing internal cost control measures and reduced selling expenses, offsetting increases in expenses as a result of being a U.S. publicly traded company. Operating expenses were 3.1% of revenues in the second quarter of 2007 compared to 3.8% of revenues in the same quarter a year ago.
Income from operations was $3.9 million in the second quarter of 2007, up 48.4% from $2.6 million in the same quarter last year. Operating margin was 31.4% compared to 30.0% in the same period of 2006.
Net income was $3.9 million in the second quarter of 2007, up 48.7% from $2.6 million in the second quarter of 2006. Fully diluted earnings per share were $0.13 in the second quarter of 2007 compared to $0.09 in the second quarter of 2006.
Six-Month Results
Revenues for the first half of 2007 were $18.7 million, up 16.2% from $16.1 million during the first half of 2006. Gross profit was $6.3 million, or 33.5% of revenues, up 14.8% from $5.5 million, or 33.9% of revenues, in the first half of 2006. Operating income was $5.6 million, or 30.0% of revenues, up 17.2% from $4.8 million, or 29.7% of revenue, in the first half of 2006. Net income for the first half of 2007 was $5.6 million, or $0.28 per diluted share, compared to net income of $4.8 million, or $0.24 per diluted share, in the same period a year ago.
Financial Condition
As of June 30, 2007, China Water and Drinks had cash and cash equivalents of $28.2 million, total liabilities of $22.7 million and working capital of $35.9 million. Shareholder’s equity stood at to $46.9 million, up from $9.1 million on December 31, 2006.
On May 31, 2007, the Company completed a private placement financing with certain accredited investors of 4,477,612 shares of its Series A Convertible Preferred Stock and warrants to purchase 22,388,061 shares of its common stock. As a result of this private placement, the Company raised $30.0 million in gross proceeds, resulting in $27 million in net proceeds after the deduction of offering expenses.
Business Outlook
"We intend to continue expanding our capacity and market penetration by building new facilities and through acquisitions. Our goal is to have capacity for 1.44 billion liters by the end of 2007 for a 120% increase in capacity from the end of 2006," commented Mr. Chen. "Demand for bottled water in China remains strong, driven by the middle class who are choosing a healthier lifestyle and the general need for quality drinkable water."
Subsequent Events
China Water & Drinks was the exclusive bottle water supplier at the 5th China Changchun Automobile Expo in Changchun, China held from July 13th through 22nd. The expo was attended by over 700,000 visitors and about 100 domestic and international auto companies such as Volkswagen, Audi and General Motors and China First Automobile Works (FAW) Group Corp.
On July 24, 2007, China Water & Drinks appointed Dr. Cheung Wai Bun as an independent director on the Company’s Board of Directors where he will serve as the Chairman of the audit committee.
Mr. Joseph Chan has been appointed China Water & Drinks new Chief Financial Officer effective August 20, 2007. Mr. Chan has over 14 years of professional financial experience in public and corporate accounting and has worked for both U.S. and Asian multi-national corporations. He has strong knowledge of the Sarbanes Oxley Act of 2002 and extensive experience in mergers and acquisitions and U.S. GAAP accounting. He is fluent in English, Cantonese and Mandarin. Mr. Chan is a US Certificated Public Accountant and has a master’s degree in accounting from Brigham Young University.
About China Water & Drinks, Inc.
China Water & Drinks, Inc. is a leading producer and distributor of bottled water in China. Through its production facilities in Guangzhou, Zhangjiang, Feixian, Nanning and Changchun, the Company produces and distributes bottled water to 11 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.
Safe Harbor Statement
FINANCIAL TABLES FOLLOW -
CHINA WATER & DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
30-Jun-07 31-Dec-06
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 28,179,611 $ 1,892,824
Accounts receivable, net of
allowance for doubtful
accounts 14,350,115 6,990,368
Inventories 6,356,631 5,259,717
Prepaid expenses and other
receivables 5,362,774 4,299,482
Amount due from directors 4,259,122 3,593,484
Total current assets 58,508,253 22,035,875
PROPERTY, PLANT & EQUIPMENT,
NET OF ACCUMULATED
DEPRECIATION
4,218,448 3,350,207
DEFERRED ASSETS 8,023 --
CONSTRUCTION PROGRESS 618 --
LAND USE RIGHT, NET OF
ACCUMULATED AMORTIZATION 70,738 93,866
OTHER ASSETS 585,053 638,054
GOODWILL 6,193,974 --
TOTAL ASSETS $ 69,585,107 $ 26,118,002
LIABILITIES AND
STOCKHOLDERS’ EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 3,988,953 $ 3,093,928
Customer deposits, accrued
expenses and other payables 1,898,724 3,967,447
Payable to ex-shareholders
of Pilpol (HK) Biological
Limited 5,032,522 --
Current portion of long term
debt 29,000 28,700
Deferred tax liabilities 2,721 --
Taxes payable 4,514,625 2,268,057
Note payable 25,750 25,750
Due to shareholders 7,090,177 50,000
Due to directors 0 7,432,971
Total current liabilities 22,582,472 16,866,853
LONG TERM DEBT, LESS
CURRENT PORTION 149,751 162,534
TOTAL LIABILITIES 22,732,223 17,029,387
Common stock; 70,000,000 shares
authorized; $0.001 par value;
70,000,000 and 10,1280,000 shares
issued and outstanding on June 30,
2007 and December 31, 2006 ,
respectively 70,000 10,128
Subscription payable 5,332,522 --
Additional paid-in capital 26,353,870 --
Retained earnings 14,331,649 8,785,290
Accumulated other comprehensive
income 760,365 293,197
TOTAL STOCKHOLDERS’ EQUITY 46,852,884 9,088,615
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY $ 69,585,107 $ 26,118,002
CHINA WATER & DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED)
Three months ended Six months ended June 30
30-Jun
2007 2006 2007 2006
REVENUE $12,498,646 $8,830,226 $18,715,377 $16,096,279
COST OF SALES 8,188,633 5,780,706 12,451,924 10,637,710
GROSS PROFIT 4,310,013 3,049,520 6,263,453 5,458,569
OPERATING EXPENSES
Selling and
distribution -- 756 -- 756
General and
administrative 371,521 401,526 647,153 672,687
Finance 10,523 1,182 10,523 2,770
INCOME FROM
OPERATIONS 3,927,969 2,646,056 5,605,777 4,782,356
OTHER INCOME 8,078 554 8,078 554
INCOME BEFORE
TAXATION 3,936,047 2,646,610 5,613,855 4,782,910
PROVISION FOR
TAXATION -- -- -- --
NET INCOME $3,936,047 $2,646,610 $5,613,855 $4,782,910
FOREIGN CURRENCY
TRANSLATION 506,804 210,215 467,168 344,241
COMPREHENSIVE
INCOME $4,442,851 $2,856,825 $6,081,023 $5,127,151
NET INCOME PER
SHARE:
BASIC AND DILUTED $0.13 $0.09 $0.28 $0.24
WEIGHTED AVERAGE
SHARES
OUTSTANDING BASIC
AND DILUTED 29,866,022 29,866,022 20,051,536 20,051,536
CHINA WATER & DRINKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
2007 2006
Cash flows from operating
activities
Net income for the period $5,613,855 $4,782,910
Adjustments to reconcile
net income to net
Cash (used in) provided by
operating activities:
Depreciation and
amortization 160,753 120,211
Changes in operating
assets and liabilities:
Accounts receivable (7,359,747) (723,037)
Inventory (1,096,914) (1,754,890)
Prepaid expenses and
other receivable (1,063,292) 50,117
Due from director 2,154,210 --
Accounts payable 895,025 136,967
Due to directors (7,432,971) 46,347
Customer deposits and
accrued expenses (2,068,723) (1,450,781)
Due to shareholders 380,842 --
Net assets by way of
acquisition (see note 9) 4,471,070 --
Other assets 506,625 465,272
Other taxes payable 2,246,568 920,704
Net cash (outflows)/
inflows from operating
activities (2,592,699) 2,593,820
Cash flows from investing
activities
Capital injection to
a subsidiary -- (50,028)
Deposit paid for acquisition
of subsidiary (300,000) --
Purchase of fixed assets (1,005,866) (643,397)
Net cash outflows used
in investing activities (1,305,866) (693,425)
Cash flows from financing
activities
Repayment of loan (12,483) (13,917)
Issuance of preferred stock 4,478 --
Sales of preferred stock 30,193,357 --
Net cash inflows/(outflows) by
financing activities 30,185,352 (13,917)
Net increase in cash and cash
equivalents $26,286,787 $1,886,478
Cash and cash equivalents
- beginning of period 1,892,824 1,371,118
Cash and cash equivalents
- end of period $28,179,611 $3,257,596