China Medical Technologies Reports FY2009 First Fiscal Quarter Unaudited Financial Results

BEIJING, Sept. 1 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced

in-vitro diagnostic products, today announced its unaudited financial results for the first fiscal quarter ended June 30, 2009 ("1Q FY2009"). The Company’s 2009 fiscal year ends on March 31, 2010 ("FY2009").

1Q FY2009 Highlights

-- Revenues from continuing operations increased by 28.9% year-over-year

to RMB209.0 million (US$30.6 million).

-- Income from continuing operations decreased by 92.8% year-over-year to

RMB2.9 million (US$0.4 million).

-- Net income decreased by 96.0% year-over-year to RMB2.9 million (US$0.4

million).

-- Non-GAAP income from continuing operations, as defined below, decreased

by 7.7% year-over-year to RMB72.5 million (US$10.6 million).

-- Diluted earnings from continuing operations per ADS* was RMB0.11

(US$0.02).

-- Non-GAAP diluted earnings from continuing operations per ADS*, as

defined below, decreased by 7.7% year-over-year to RMB2.74 (US$0.40).

*One American Depositary Share ("ADS") = 10 ordinary shares

See "Non-GAAP Measure Disclosures" below, where the impact of certain items on reported results is discussed.

"While we remain confident in the fundamentals of the Company and its prospects in the longer term, we were recently affected on several fronts," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "Our ECLIA customers, mainly distributors, have reduced their inventory level during the past months in anticipation of a price reduction on our ECLIA reagent kits due to increasing market competition. We have reduced the selling price on our ECLIA reagent kits from September 2009 to maintain our competitiveness. Besides, we launched our SPR-based analysis system to our existing FISH hospital customers in April 2009 but the progress of the placement of our analysis system with hospitals was significantly affected because the attention of our senior management was significantly diverted to the internal investigation since April 2009. Nevertheless, we expect to deliver our analysis system to some hospitals in October 2009 and will commence the training for hospital personnel on the use of our analysis system for HPV testing. We expect to generate revenue from the sale of our HPV chips used with our analysis system in January 2010."

1Q FY2009 Unaudited Financial Results

The Company reported revenues from continuing operations of RMB209.0 million (US$30.6 million) for 1Q FY2009, representing a 28.9% increase from the corresponding period of FY2008.

The Company’s revenues from continuing operations are currently generated from two product lines, ECLIA diagnostic systems and FISH diagnostic systems.

ECLIA system sales for 1Q FY2009 were RMB110.5 million (US$16.2 million), representing a 1.1% decrease from the corresponding period of FY2008. The year-over-year decrease in the ECLIA system sales was primarily due to the attention of the Company’s senior management and certain sales personnel significantly diverted to the independent internal investigation and the decrease in inventory level of customers in anticipation of a price reduction on the ECLIA reagent kits.

FISH system sales for 1Q FY2009 were RMB98.5 million (US$14.4 million), representing a 95.6% increase from the corresponding period of FY2008. The strong year-over-year growth in the FISH system sales was primarily due to significant increase in sales of FISH probes to hospitals as a result of increase in new hospital customers and the increased usage of the Company’s FISH probes by existing hospital customers.

Gross margin increased to 74.7% for 1Q FY2009 as compared to 68.4% for the corresponding period of FY2008. The increase in gross margin was primarily due to the change in revenue mix where almost all revenues were from recurring sales of higher margin ECLIA reagent kits and FISH probes in 1Q FY2009.

Research and development expenses were RMB11.7 million (US$1.7 million) for 1Q FY2009, representing a 90.7% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits, FISH probes and SPR-based chips.

Sales and marketing expenses were RMB13.4 million (US$2.0 million) for 1Q FY2009, representing an 18.8% year-over-year increase. The increase was primarily due to the continued expansion of the direct sales force for FISH system sales and increased product promotional activities.

General and administrative expenses were RMB74.4 million (US$10.9 million) for 1Q FY2009, representing a significant year-over-year increase. The increase was primarily due to the costs of the independent internal investigation and amortization of acquired intangible assets in connection with the acquisition of the SPR technology in December 2008.

Interest expense of convertible notes was RMB35.4 million (US$5.2 million) for 1Q FY2009, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008. The Company’s outstanding convertible notes of US$150.0 million and US$276.0 million bear interest at 3.5% and 4.0% per annum, respectively and will mature in November 2011 and August 2013, respectively. Due to the adoption of the FASB Staff Position No APB14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP APB14-1") on April 1, 2009, the Company recorded additional non-cash interest expense of RMB7.6 million (US$1.1 million) for the US$150.0 million convertible notes in 1Q FY2009. The Company also made an adjustment related to these convertible notes for the corresponding period of FY2008 by increasing non-cash interest expense by RMB7.2 million to adopt FSP APB14-1 retrospectively in accordance with GAAP. This new guidance does not apply to the US$276.0 million convertible notes.

Interest expense of amortization of convertible notes issuance costs of RMB4.4 million (US$0.6 million) for 1Q FY2009, representing a significant year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.

Income tax expense was RMB16.9 million (US$2.5 million) for 1Q FY2009. The high effective tax rate was primarily due to certain expenses of the Company such as amortization of acquired intangible assets, stock compensation expense and interest expense of convertible notes were not deductible for income tax computation in the PRC and the accrual for withholding income tax on distributable earnings generated during the quarter in the PRC.

Income from continuing operations was RMB2.9 million (US$0.4 million) for 1Q FY2009, representing a 92.8% decrease from the corresponding period of FY2008.

Net income was RMB2.9 million (US$0.4 million) for 1Q FY2009, representing a 96.0% year-over-year decrease.

Non-GAAP income from continuing operations excluding stock compensation expense, amortization of acquired intangible assets and non-cash interest expense of convertible notes arising from the adoption of FSP APB14-1 was RMB72.5 million (US$10.6 million) for 1Q FY2009, representing a 7.7% decrease from the corresponding period of FY2008.

Stock compensation expense for 1Q FY2009 was RMB12.2 million (US$1.8 million), of which RMB2.1 million was allocated to research and development expenses and RMB10.1 million to general and administrative expenses.

Amortization of acquired intangible assets for 1Q FY2009 was RMB49.8 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.4 million to general and administrative expenses.

As of June 30, 2009, the Company’s cash balance was RMB1,547.5 million (US$226.6 million). Net operating cash flow for 1Q FY2009 was RMB94.3 million (US$13.8 million).

As of June 30, 2009, the Company’s net accounts receivable was RMB346.9 million (US$50.8 million), representing an increase of 1.1% from the balance at March 31, 2009.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8302 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Tuesday, June 30, 2009.

Outlook for 2Q FY2009

Due to the uncertainties relating to various aspects of the Company’s businesses, the Company is only able to provide the target revenues from continuing operations for the second fiscal quarter ending September 30, 2009 ("2Q FY2009"). The target revenues from continuing operations for 2Q FY2009 range from RMB165.0 million (US$24.2 million) to RMB180.0 million (US$26.4 million).

The above targets are based on the Company’s current views on the operating and marketing conditions, which are subject to change.

New Management Appointment

The nomination committee and the board of directors of the Company have approved the promotion of Mr. Charles Zhu to the position of Senior Vice President - Operations effective October 1, 2009. Mr. Zhu has been working as Vice President - Business Development of the Company since January 2005 and successfully helped the Company identify and acquire the FISH technology in early 2007. Mr. Zhu and our management team have built up the FISH business over the past two years, which has become a major growth driver of the Company and led the Company to enter the fast growing molecular diagnostic sector in the PRC.

Non-GAAP Measure Disclosures

To supplement its consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses non-GAAP measures of income from continuing operations and earnings from continuing operations per ADS, which are adjusted from the results based on GAAP to exclude the impact of stock compensation expense, amortization of acquired intangible assets and non-cash interest expense of convertible notes arising from the adoption of FSP APB14-1.

Non-GAAP financial measures are used by the Company in their financial and operating decision-making because management believes they reflect the Company’s ongoing business in a manner that allows meaningful period-to-period comparison. The Company’s management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. The Company’s management also believes the non-GAAP financial measures are useful for itself and investors because it makes more meaningful comparisons of the Company’s current results of operations to those of prior periods.

The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure, please see the financial statements included with this earnings announcement.

Conference Call

The Company’s management team will host a conference call at 8:00a.m. U.S. Eastern Time on September 1, 2009 (or 8:00p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.

The dial-in details for the live conference call are as follows:

U.S. Toll Free Number 1-800-291-9234

International dial-in number 1-617-614-3923

Passcode CMEDCALL

A live webcast of the conference call will be available on http://ir.chinameditech.com .

A replay of this webcast will be available for one month on this website.

A telephone replay of the call will be available after the conclusion of the conference call through 10:00a.m. U.S. Eastern Time on September 2, 2009.

The dial-in details for the replay are as follows:

U.S. Toll Free Number 1-888-286-8010

International dial in numbers 1-617-801-6888

Passcode 92901366

About China Medical Technologies, Inc.

China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products using Enhanced Chemiluminescence (ECLIA) technology, Fluorescent in situ Hybridization (FISH) technology and Surface Plasmon Resonance (SPR) technology to detect and monitor various diseases and disorders. For more information, please visit http://www.chinameditech.com .

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release, the Company’s strategic operational plans, as well as our outlook for 2Q FY2009, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company’s filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

For more information, please contact:

Sam Tsang and Winnie Yam

Tel: +852-2511-9808

Email: IR@chinameditech.com

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

As of

March 31, March 31,

2009 2009 June 30, 2009

RMB RMB RMB US$

As As

previously adjusted (2)

reported

(in thousands)

Assets

Current assets

Cash and cash

equivalents 1,456,410 1,456,410 1,547,533 226,572

Trade accounts

receivable, net 343,037 343,037 346,854 50,782

Inventories 16,932 16,932 20,467 2,997

Prepayments and other

receivables 20,425 20,425 25,301 3,704

Due from a related

party 204,987 204,987 204,906 30,000

Total current assets 2,041,791 2,041,791 2,145,061 314,055

Property, plant and

equipment, net 169,422 169,422 166,791 24,420

Land use rights 7,239 7,239 7,192 1,053

Goodwill 8,654 8,654 8,654 1,267

Intangible assets,

net (1) 3,487,474 3,487,474 3,436,451 503,126

Convertible notes 68,596 65,816 61,409 8,991

issuance costs (2)

Total assets 5,783,176 5,780,396 5,825,558 852,912

Liabilities

Current liabilities

Trade accounts payable 27,863 27,863 29,933 4,382

Accrued liabilities and

other payables 999,083 999,083 1,023,296 149,820

Income taxes payable 77,112 77,112 68,168 9,980

Total current

liabilities 1,104,058 1,104,058 1,121,397 164,182

Convertible notes (2) 2,910,815 2,826,348 2,832,852 414,754

Deferred income taxes 29,898 29,898 36,329 5,319

Total liabilities 4,044,771 3,960,304 3,990,578 584,255

Shareholders’ equity

Ordinary shares US$0.1

par value: 500,000,000

authorized; 321,066,661

issued and outstanding

as of March 31, 2009

and June 30, 2009 257,738 257,738 257,738 37,735

Additional paid-in

capital (2) 544,178 709,949 722,106 105,723

Accumulated other

comprehensive loss (2) (51,946) (69,957) (70,173) (10,274)

Retained earnings (1)(2) 988,435 922,362 925,309 135,473

Total shareholders’

equity 1,738,405 1,820,092 1,834,980 268,657

Total liabilities and

shareholders’ equity 5,783,176 5,780,396 5,825,558 852,912

Notes:

(1) The Company has performed a preliminary purchase price allocation

after the completion of the SPR acquisition in December 2008. The

Company will finalize the purchase price allocation as soon as

practicable.

(2) As a result of the adoption of FSP APB14-1, the Company adjusted

relevant numbers in the unaudited condensed consolidated balance sheet

as of March 31, 2009 retrospectively in accordance with GAAP.

China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income

For the Three Months Ended

June 30, June 30,

2008 2008 June 30, 2009

RMB RMB RMB US$

As previously As adjusted

reported (5)

(in thousands except for per ADS information)

Revenues, net (1) 162,052 162,052 208,957 30,593

Cost of revenues (51,270) (51,270) (52,872) (7,741)

Gross profit 110,782 110,782 156,085 22,852

Operating expenses:

Research and

development (6,138) (6,138) (11,703) (1,713)

Sales and marketing (11,285) (11,285) (13,411) (1,964)

General and

administrative (3) (24,780) (24,780) (74,366) (10,888)

Total operating

expenses (42,203) (42,203) (99,480) (14,565)

Operating income 68,579 68,579 56,605 8,287

Other income -- -- 300 44

Interest income 3,997 3,997 2,773 406

Interest expense -

convertible notes (5) (9,132) (16,285) (35,432) (5,187)

Interest expense -

amortization of

convertible notes

issuance costs (5) (1,851) (1,585) (4,380) (641)

Interest expense - other (1,145) (1,145) -- --

Income before income tax 60,448 53,561 19,866 2,909

Income tax expense (12,561) (12,561) (16,919) (2,478)

Income from continuing

operations 47,887 41,000 2,947 431

Income from discontinued

operation (2) 32,377 32,377 -- --

Net income 80,264 73,377 2,947 431

Earnings from continuing

operations per ADS

- basic 1.82 1.56 0.11 0.02

- diluted (4) 1.81 1.55 0.11 0.02

Earnings from discontinued

operation per ADS

- basic 1.23 1.23 N/A N/A

- diluted (4) 1.22 1.22 N/A N/A

Weighted average number

of ADS

- basic 26,242,974 26,242,974 26,324,842 26,324,842

- diluted (4) 26,461,885 26,461,885 26,438,076 26,438,076

Notes:

(1) Revenues RMB’000 RMB’000 RMB’000 US$’000

- ECLIA 111,718 111,718 110,491 16,177

- FISH 50,334 50,334 98,466 14,416

162,052 162,052 208,957 30,593

(2) Income from

discontinued

operation RMB’000 RMB’000 RMB’000 US$’000

- Revenue from HIFU

business 64,707 64,707 -- --

- Income from HIFU

business 32,377 32,377 -- --

(3) The Company has performed a preliminary purchase price allocation

after the completion of the SPR acquisition in December 2008. The

Company will finalize the purchase price allocation as soon as

practicable.

(4) In computing diluted earnings from continuing operations per ADS,

interest expense and amortization in connection with convertible notes

were not added back in computing diluted earnings from continuing

operations per ADS because they were anti-dilutive.

(5) As a result of the adoption of FSP APB14-1, the Company adjusted

relevant numbers in the unaudited condensed consolidated statement of

income for the three months ended June 30, 2008 retrospectively in

accordance with GAAP.

China Medical Technologies, Inc.

Reconciliations of Non-GAAP Income from Continuing Operations to GAAP

Income from Continuing Operations

For the Three Months Ended

June 30, June 30,

2008 2008 June 30, 2009

RMB RMB RMB US$

As As adjusted

previously (3)

reported

(in thousands except for per ADS information)

GAAP income from

continuing operations 47,887 41,000 2,947 431

Adjustments:

Stock compensation expense 7,694 7,694 12,157 1,780

Amortization of acquired

intangible assets (1) 22,732 22,732 49,807 7,292

Non-cash interest expense

of convertible notes

arising from the adoption

of APB14-1 (3) -- 7,153 7,620 1,116

Non-GAAP income from

continuing operations 78,313 78,579 72,531 10,619

GAAP earnings from

continuing operations

per ADS

- basic 1.82 1.56 0.11 0.02

- diluted 1.81 1.55 0.11 0.02

Non-GAAP earnings from

continuing operations

per ADS

- basic 2.98 2.99 2.76 0.40

- diluted (2) 2.96 2.97 2.74 0.40

Weighted average number

of ADS

- basic 26,242,974 26,242,974 26,324,842 26,324,842

- diluted (2) 26,461,885 26,461,885 26,438,076 26,438,076

Notes:

(1) The Company has performed a preliminary purchase price allocation

after the completion of the SPR acquisition in December 2008. The

Company will finalize the purchase price allocation as soon as

practicable.

(2) In computing diluted non-GAAP earnings from continuing operations per

ADS, interest expense and amortization in connection with convertible

notes were not added back in computing diluted non-GAAP earnings from

continuing operations per ADS because they were anti-dilutive.

(3) As a result of the adoption of FSP APB14-1, the Company adjusted

relevant numbers in the reconciliation of non-GAAP income from

continuing operations to GAAP income from continuing operations for

the three months ended June 30, 2008 retrospectively in accordance

with GAAP.