Asia Water Technology Ltd. (Asia Water), a Singapore based provider of water purification and wastewater treatment, has reported revenues of RMB384.4 million for the year-end of 2008, down 21%, compared with the revenues of RMB486.4 million in the previous year-end. It has also reported a loss of RMB20.1 million for the year-end of 2008, down 137.6%, compared with the profit of RMB53.3 million in the previous year-end.

Overall

Group’s overall gross profit margin has decreased by 10.1%, from 25.4% in FY2007 to 15.3% in FY2008, due mainly to lower gross profit margin from the Wastewater segment and Water Purification Treatment segment, which decreased 36.3% and 8.6% respectively. This is partially offset by a 20.3% increase in gross profit margin from the Consultancy and Others segment.

Water Purification Treatment

Gross profit margin from the Water Purification Treatment segment has decreased from 19.8% in FY2007 to 11.2% in FY2008, due mainly to rising raw materials, utilities, transportation and staff costs resulting from inflationary pressure in the People’s Republic of China (PRC) during the year. Continued intensified competition in the traditional power plant Water Purification Treatment industry has also contributed to the reduction in gross profit margin.

Wastewater Treatment

Gross profit margin from the Wastewater Treatment segment decreased from 42.5% in FY2007 to 6.2% in FY2008, mainly as a result of higher contributions from the civil engineering part of the Group’s EPC work on the Huangshi Kaidi project in 2HY2008 (which typically yields significantly lower gross profit margin compared to the equipment design and installation part of the EPC contract).

Consultancy and Others

Gross profit margin from the Consultancy and Others segment has increased from 62.8% in FY2007 to 83.1% in FY2008, due mainly to the undertaking of a management and operations project which yields a higher gross profit margin.

Net Other Income

Net other income of RMB7.7 million in FY2008 (FY2007: RMB4.8 million) consists mainly of (i) income earned from installation of water meters and repairs and maintenance work undertaken by the Group’s subsidiaries, mainly Tianmen Kaidi and Bengbu Xinya, (ii) compensation income received from the government, and (iii) after-sales income derived by Wuhan Kaidi Water Services.

Selling and Distribution Expenses & Administrative Expenses

Selling and distribution expenses remained relatively unchanged.

Administrative expenses remained relatively unchanged. This is due mainly to (i) increase in net foreign exchange gain of RMB4.2 million recognised and (ii) write-back of RMB6.3 million of specific doubtful debts provided in prior years after the collection of the receivables in FY2008, partially offset by (i) increased in contributions from newly setup subsidiaries and subsidiaries, which commenced operations in 2HY2008, and (ii) increase in stock options expenses of RMB2.9 million.

Depreciation expense increased from RMB2.2 million in FY2007 to RMB3.9 million in FY2008, due mainly to increase in depreciation expense recorded in connection with the acquisition of an office building subsequent to 4th Qtr 2007. Amortization expense increased from RMB6.2 million in FY2007 to RMB12.2 million in FY2008, due largely to higher amortization expenses recorded as more water treatment infrastructures turn operational in FY2008. Refer to Note I below on the recognition of intangible assets.

Financial Expenses / Income

Financial expenses increased from RMB25.8 million in FY2007 to RMB66.4 million in FY2008, due mainly to:

Financial expenses recognised in connection with the draw down of Series 1 Bonds of $30 million on December 13, 2007, including the related amortized interest expense (which is non-cash in nature), early redemption premium and Series 2 Bonds cancellation fee;

An increase in average short-term borrowings balance during the year to facilitate working capital requirements;

Draw down of project loan during the year; and

An increase in PRC lending rates during the year.