CMED China Medical Technologies ADS, Each Representing 10 Ordinary Shares (MM)

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FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of June, 2011

 

 

Commission File Number: 000-51440

 

 

CHINA MEDICAL TECHNOLOGIES, INC.

(Translation of registrant’s name into English)

 

 

No. 24 Yong Chang North Road

Beijing Economic-Technological Development Area

Beijing 100176

People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F   x             Form 40-F   ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):               

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):               

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes   ¨              No   x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- N/A

 

 

 

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CHINA MEDICAL TECHNOLOGIES, INC.

Form 6-K

TABLE OF CONTENTS

 

		Page
Signature			3
Exhibit 99.1 – Press Release			4

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: June 3, 2011

 

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Exhibit 99.1

  

China Medical Technologies Reports Fourth Fiscal Quarter and Full Fiscal Year Financial Results

Beijing, China, June 1, 2011 - China Medical Technologies, Inc. (the “Company”) (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic (“IVD”) company, announced its unaudited financial results for the fourth fiscal quarter (“4Q FY2010”) and the full fiscal year ended March 31, 2011 (“FY2010”) today.

4Q FY2010 Highlights

 

		For the Three Months Ended
		March 31, 2010				March 31, 2011				March 31, 2011
		RMB				RMB				US$				% change
		(in thousands except for per ADS information)
Net revenues			175,728				230,414				35,187				31.1	%
Net income			4,820				16,095				2,458				233.9	%
Diluted earnings per ADS*			0.19				0.61				0.09				221.1	%
Non-GAAP net income			51,476				75,002				11,454				45.7	%
Non-GAAP diluted earnings per ADS*			1.98				2.84				0.43				43.4	%
Adjusted EBITDA			99,591				140,244				21,417				40.8	%

FY2010 Highlights

 

		For the Year Ended
		March 31, 2010				March 31, 2011				March 31, 2011
		RMB				RMB				US$				% change
		(in thousands except for per ADS information)
Net revenues			723,071				842,366				128,639				16.5	%
Net income (loss)			(69,582	)			82,619				12,617				—
Diluted earnings (loss) per ADS*			(2.65	)			3.14				0.48				—
Non-GAAP net income			187,295				273,056				41,699				45.8	%
Non-GAAP diluted earnings per ADS*			7.13				10.39				1.59				45.7	%
Adjusted EBITDA			387,580				493,254				75,326				27.3	%

Outlook for first fiscal quarter ending June 30, 2011

 

•

Target net revenues are expected to range from RMB232.0 million (US$35.4 million) to RMB234.0 million (US$35.7 million), representing a year-over-year increase of 24.6% - 25.7%.

 

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Target non-GAAP net income is expected to range from RMB73.0 million (US$11.1 million) to RMB74.0 million (US$11.3 million), representing a year-over-year increase of 28.0% - 29.8%.

 

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Target non-GAAP diluted earnings per ADS* is expected to range from RMB2.75 (US$0.42) to RMB2.79 (US$0.43), representing a year-over-year increase of 26.1% - 28.0%.

Outlook for full fiscal year ending March 31, 2012

 

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Target net revenues are expected to range from RMB970.0 million (US$148.1 million) to RMB995.0 million (US$151.9 million), representing a year-over-year increase of 15.2% - 18.1%.

 

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Target non-GAAP net income is expected to range from RMB310.0 million (US$47.3 million) to RMB318.0 million (US$48.6 million), representing a year-over-year increase of 13.5% - 16.5%. The slightly lower growth rate in non-GAAP net income is primarily due to the full year impact of additional interest expense arising from new convertible notes issued in December 2010.

 

•

Target non-GAAP diluted earnings per ADS* is expected to range from RMB11.70 (US$1.79) to RMB12.00 (US$1.83), representing a year-over-year increase of 12.6% - 15.5%.

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

 

*	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.

“We are pleased with the quarterly results, in particular, the continued growth of our molecular diagnostic business during the seasonally weak quarter. We expect our FISH business and HPV-DNA chip business to drive our growth in the following quarters,” commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. “We will continue to expand our product offering in FISH probes and PCR assays as well as develop a new SPR analyzer through investment in research and development. We will leverage our established sales networks to introduce our new products to our hospital customers. In addition, we are working on several initiatives to support our sustainable growth including discussion with a leading independent laboratory testing service group in China for a potential collaboration to promote the use of molecular diagnostic tests to the group’s hospital customers.”

Mr. Sam Tsang, Chief Financial Officer of the Company commented, “We issued new convertible notes in December 2010 to extend our debt maturity profile. We have been focusing to improve our leverage profile and have reduced our net debt to adjusted EBITDA ratio from 5.1 times to 3.3 times. However, we believe that we are still maintaining relatively high leverage, and the continued improvement in our leverage to the level of 2 times or below is our priority. We have been very cautious in making capital expenditures and did not consider new acquisition and will continue to do so. Meanwhile, we will maintain our investment in product research and development which will support our future growth. We will also continue to invest in our direct sales network to attract and retain tier one hospitals which are major consumers in China’s healthcare industry.”

4Q FY2010 Unaudited Financial Results

The Company reported net revenues of RMB230.4 million (US$35.2 million) for 4Q FY2010, representing a 31.1% increase from the corresponding period of FY2009.

The Company’s revenues are currently generated from two segments, molecular diagnostic systems and immunodiagnostic systems. The molecular diagnostic system segment includes FISH products and SPR products while the immunodiagnostic system segment consists of ECLIA products. The customers of the molecular diagnostic system segment, that is, Tier 1 hospitals in China, are being served by the Company’s direct sales personnel.

Molecular diagnostic system sales for 4Q FY2010 were RMB146.6 million (US$22.4 million), representing a 45.3% increase from the corresponding period of FY2009. The year-over-year increase was primarily due to the increase in usage of the Company’s FISH probes by existing and new hospital customers as well as the sales of SPR-based HPV-DNA chips of RMB11.9 million (US$1.8 million) to hospitals during 4Q FY2010.

Immunodiagnostic system sales for 4Q FY2010 were RMB83.8 million (US$12.8 million), representing a 12.0% increase from the corresponding period of FY2009. The year-over-year increase was primarily due to the increase in sales of the Company’s ECLIA reagent kits to existing and new distributors.

 

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Gross margin was 61.4% for 4Q FY2010 which decreased year-over-year from 64.9% for the corresponding period of FY2009. The year-over-year decrease was primarily due to the classification of amortization of SPR intangible assets from operating expenses to cost of revenues after the commencement of sales of HPV-DNA chips in 2Q FY2010 which offset the positive impact on more contribution from the sales of FISH probes which generate higher gross margin. Non-GAAP gross margin was 82.4% for 4Q FY2010 which increased year-over-year from 77.7% for the corresponding period of FY2009. The year-over-year increase in non-GAAP gross margin was primarily due to more contribution from the sales of FISH probes which generate higher gross margin.

Research and development expenses were RMB12.6 million (US$1.9 million) for 4Q FY2010, representing a 21.8% year-over-year increase. Non-GAAP research and development expenses were RMB11.4 million (US$1.7 million) for 4Q FY2010, representing a 28.0% year-over-year increase. The year-over-year increase was primarily due to product research and development for SPR analyzers and PCR assays.

Sales and marketing expenses were RMB24.0 million (US$3.7 million) for 4Q FY2010, representing a 43.9% year-over-year increase. Non-GAAP sales and marketing expenses were RMB23.8 million (US$3.6 million) for 4Q FY2010, representing a 42.7% year-over-year increase. The year-over-year increase was primarily due to an increase in direct sales efforts for molecular diagnostic systems.

General and administrative expenses were RMB25.4 million (US$3.9 million) for 4Q FY2010, representing a 5.1% year-over-year decrease. Non-GAAP general and administrative expenses were RMB18.4 million (US$2.8 million) for 4Q FY2010, representing a 5.0% year-over-year increase.

Interest expense on convertible notes was RMB34.6 million (US$5.3 million) for 4Q FY2010. Non-GAAP interest expense on convertible notes was RMB33.2 million (US$5.1 million) for 4Q FY2010. As of March 31, 2011, the Company’s outstanding convertible notes of US$22.7 million, US$248.0 million and US$150.0 million bear interest at 3.5%, 4% and 6.25% per annum, respectively, and will mature in November 2011, August 2013 and December 2016, respectively.

Interest expense related to amortization of convertible notes issuance costs was RMB4.2 million (US$0.6 million) for 4Q FY2010.

Interest expense related to amortization of share lending costs was RMB2.4 million (US$0.4 million) for 4Q FY2010.

Income tax expense was RMB28.1 million (US$4.3 million) for 4Q FY2010. The high effective tax rate was due to certain expenses of the Company such as stock compensation expense, amortization of acquired intangible assets and interest expense of convertible notes were not deductible for income tax purpose. In addition, the Company was required to accrue for withholding income tax on distributable earnings generated in China.

Net income was RMB16.1 million (US$2.5 million) for 4Q FY2010, which improved significantly from RMB4.8 million for the corresponding period of FY2009. Non-GAAP net income was RMB75.0 million (US$11.5 million) for 4Q FY2010, representing a 45.7% increase from the corresponding period of FY2009. The significant year-over-year increase was primarily due to the increase in both molecular diagnostic system sales and immunodiagnostic system sales.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was RMB133.3 million (US$20.4 million) for 4Q FY2010, representing an 18.0% increase from the corresponding period of FY2009. The year-over-year increase in EBITDA was primarily due to the increase in both molecular diagnostic system sales and immunodiagnostic system sales.

 

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Adjusted EBITDA was RMB140.2 million (US$21.4 million) for 4Q FY2010, representing a 40.8% increase from the corresponding period of FY2009. The reason for the increase is also due to increased sales in 4Q FY2010.

Stock compensation expense for 4Q FY2010 was RMB8.5 million (US$1.3 million), of which RMB0.1 million was allocated to cost of revenues, RMB1.2 million to research and development expenses, RMB0.2 million to sales and marketing expenses and RMB7.0 million to general and administrative expenses.

Amortization of acquired intangible assets for 4Q FY2010 was RMB48.2 million (US$7.4 million) which was all allocated to cost of revenues.

As of March 31, 2011, the Company’s cash and cash equivalents were RMB1,123.8 million (US$171.6 million). Net cash generated from operating activities for 4Q FY2010 was RMB37.3 million (US$5.7 million). Net cash generated from investing activities for 4Q FY2010 was RMB18.8 million (US$2.9 million). Net cash used in financing activities for 4Q FY2010 was RMB48.9 million (US$7.5 million).

As of March 31, 2011, the Company’s net accounts receivable was RMB481.1 million (US$73.5 million), representing an increase of 21.0% from the balance at December 31, 2010. The increase in net accounts receivable was primarily due to the increase in molecular diagnostic system sales to hospital customers.

FY2010 Unaudited Financial Results

Net revenues were RMB842.4 million (US$128.6 million) for FY2010, representing a 16.5% year-over-year increase. The year-over-year increase in revenues was primarily due to the increase in molecular diagnostic system sales.

Gross margin was 60.3% for FY2010 which decreased year-over-year from 67.1% for FY2009. The year-over-year decrease was primarily due to the classification of amortization of SPR intangible assets from operating expenses to cost of revenues after the commencement of sales of HPV-DNA chips in 2Q FY2010 which offset the positive impact on more contribution from the sales of FISH probes which generate higher gross margin. Non-GAAP gross margin was 80.3% for FY2010 which increased year-over-year from 79.6% for FY2009. The year-over-year increase in non-GAAP gross margin was primarily due to more contribution from the sales of FISH probes which generate higher gross margin.

Research and development expenses were RMB46.5 million (US$7.1 million) for FY2010, representing a 9.9% year-over-year increase. Non-GAAP research and development expenses were RMB41.5 million (US$6.3 million) for FY2010, representing a 15.5% year-over-year increase. The year-over-year increase was primarily due to product research and development for FISH probes, SPR analyzers and PCR assays.

Sales and marketing expenses were RMB88.2 million (US$13.5 million) for FY2010, representing a 37.7% year-over-year increase. Non-GAAP sales and marketing expenses were RMB87.5 million (US$13.4 million) for FY2010, representing a 36.6% year-over-year increase. The year-over-year increase was primarily due to an increase in direct sales efforts for molecular diagnostic systems.

General and administrative expenses were RMB96.6 million (US$14.7 million) for FY2010, representing a 33.3% year-over-year decrease. Non-GAAP general and administrative expenses were RMB65.4 million (US$10.0 million) for FY2010, representing a 40.8% year-over-year decrease. The year-over-year decrease was primarily because the Company incurred costs for the independent internal investigation in FY2009 which did not recur in FY2010.

 

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Net income was RMB82.6 million (US$12.6 million) for FY2010, which improved significantly from net loss of RMB69.6 million for FY2009. Non-GAAP net income was RMB273.1 million (US$41.7 million) for FY2010, representing a 45.8% year-over-year increase from FY2009.

EBITDA was RMB531.2 million (US$81.1 million) for FY2010, representing a 43.1% year-over-year increase from FY2009.

Adjusted EBITDA was RMB493.3 million (US$75.3 million) for FY2010, representing a 27.3% year-over-year increase from FY2009.

Stock compensation expense for FY2010 was RMB37.2 million (US$5.7 million), of which RMB0.4 million was allocated to cost of revenues, RMB4.9 million to research and development expenses, RMB0.7 million to sales and marketing expenses and RMB31.2 million to general and administrative expenses.

Amortization of acquired intangible assets for FY2010 was RMB196.0 million (US$29.9 million), of which RMB168.7 million was allocated to cost of revenues and RMB27.3 million to operating expenses.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.5483 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 Thursday, March 31, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on March 31, 2011 or at any other dates.

Product Development Plan

The Company plans to focus on the following product development activities with respect to its molecular diagnostic products:

FISH

 

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to develop more applications in the areas of prenatal diagnosis, cancer detection and companion diagnostics for cancer targeted drugs through internal research and development.

SPR

 

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to develop a new automated analyzer for hospitals and independent laboratories to conduct HPV tests using our DNA chips through internal research and development.

PCR

 

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to develop more assays in the area of companion diagnostics for cancer targeted drugs through internal research and development.

Update on Receivable from Chengxuan

As of March 31, 2011, the remaining amount of the receivable from Chengxuan, a company which is one of the Company’s major shareholders and is owned by Mr. Xiaodong Wu, was reduced from US$18 million to US$15 million. This receivable relates to the sale of the Company’s HIFU business to Chengxuan. Subsequently, Chengxuan paid US$8 million to the Company and indicated that the remaining balance of US$7 million together with interest thereon will be paid in full before June 30, 2011.

 

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Non-GAAP Measure Disclosures

The Company reported its operating results in accordance with U.S. generally accepted accounting principles (“GAAP”) for the three months and the year ended March 31, 2010 and 2011, respectively. The Company also presented non-GAAP information, which included EBITDA and adjusted EBITDA, for the three months and the year ended March 31, 2010 and 2011, respectively. The non-GAAP measures are defined below:

 

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Non-GAAP gross profit represents gross profit reported in accordance with GAAP, excluding the effects of stock compensation expense and amortization of acquired intangible assets.

 

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Non-GAAP gross margin represents non-GAAP gross profit divided by net revenues.

 

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Non-GAAP research and development expenses represent research and development expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

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Non-GAAP sales and marketing expenses represent sales and marketing expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

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Non-GAAP general and administrative expenses represent general and administrative expenses reported in accordance with GAAP, excluding the effects of stock compensation expense.

 

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Non-GAAP operating income represents operating income reported in accordance with GAAP, excluding the effects of stock compensation expense and amortization of acquired intangible assets.

 

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Non-GAAP interest expense on convertible notes represents interest expense on convertible notes reported in accordance with GAAP, excluding the effects of non-cash interest expense of convertible notes.

 

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Non-GAAP interest expense on amortization of share lending costs represents the exclusion of interest expense on amortization of share lending costs reported in accordance with GAAP, as this item is non-cash.

 

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Non-GAAP other income (expense), net represents other income and expense, net reported in accordance with GAAP, excluding the effects of gain on repurchase of convertible notes as well as high yield note offering expenses.

 

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Non-GAAP net income represents net income reported in accordance with GAAP, excluding the effects of stock compensation expense, amortization of acquired intangible assets, non-cash interest expense of convertible notes, interest expense for amortization of share lending costs, gain on repurchase of convertible notes as well as high yield note offering expenses.

 

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Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

 

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EBIT represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense and income tax expense.

 

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EBITDA represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense, income tax expense, depreciation and amortization.

 

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Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense, gain on repurchase of convertible notes as well as high yield note offering expenses.

 

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Non-GAAP financial measures are used by the Company in its 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 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 measures, please see the financial information included with this earnings announcement.

Conference Call

The Company’s senior management team will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on June 2, 2011 (or 8:00 p.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:

 

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U.S. Toll Free Number 1-800-215-2410

 

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International Dial-in Number 1-617-597-5410

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 10:00 a.m. U.S. Eastern Time on June 3, 2011.

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

 

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

 

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International Dial-in Number 1-617-801-6888

Passcode: 61583099

About China Medical Technologies, Inc.

China Medical Technologies, Inc. is a leading China-based advanced IVD company using molecular diagnostic technologies including Fluorescent in situ Hybridization (FISH) and Surface Plasmon Resonance (SPR) and an immunodiagnostic technology, Enhanced Chemiluminescence Immunoassay (ECLIA), to develop, manufacture and distribute diagnostic products used for the detection of various cancers, diseases and disorders as well as companion diagnostic tests for targeted cancer drugs. The Company generates all of its revenues in China through the sale of diagnostic consumables including FISH probes, SPR-based DNA chips and ECLIA reagent kits to hospitals which are recurring users of the consumables for their patients. The Company sells FISH probes and SPR chips to large hospitals through its direct sales personnel and ECLIA reagent kits to small and mid-size hospitals through distributors. For more information, please visit http://www.chinameditech.com .

 

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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 “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the quotations from management in this press release, as well as its outlook for the first fiscal quarter ending June 30, 2011 and full fiscal year ending March 31, 2012, 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.

Contacts

Sam Tsang and Winnie Yam

Tel: 852-2511-9808

Email: IR@chinameditech.com

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

 

		As of
		December 31, 2010				March 31, 2011
		RMB				RMB				US$
		(in thousands)
Assets
Current assets
Cash and cash equivalents			1,119,384				1,123,818				171,620
Trade accounts receivable, net			397,739				481,096				73,469
Inventories			16,640				19,273				2,943
Prepayments and other receivables			10,521				18,952				2,894
Due from a related party			118,800				98,225				15,000
Total current assets			1,663,084				1,741,364				265,926
Property, plant and equipment, net			144,251				139,448				21,295
Land use rights			6,906				6,859				1,047
Goodwill			8,654				8,654				1,322
Intangible assets, net			3,042,474				2,973,358				454,066
Convertible notes issuance costs			60,163				55,817				8,524
Share lending costs			25,133				22,562				3,445
Total assets			4,950,665				4,948,062				755,625
Liabilities
Current liabilities
Trade accounts payable			44,477				44,502				6,796
Accrued liabilities and other payables			174,978				191,120				29,186
Convertible notes			186,763				146,081				22,308
Income taxes payable			63,859				77,954				11,904
Total current liabilities			470,077				459,657				70,194
Convertible notes			2,626,800				2,606,223				398,000
Deferred income taxes			84,936				91,596				13,988
Total liabilities			3,181,813				3,157,476				482,182
Shareholders’ equity
Ordinary shares US$0.1 par value: 500,000,000 authorized; 322,680,001 issued and outstanding as of December 31, 2010 and March 31, 2011			258,840				258,840				39,528
Additional paid-in capital			869,439				875,448				133,691
Treasury stock			(201,362	)			(201,362	)			(30,750	)
Accumulated other comprehensive loss			(76,923	)			(77,293	)			(11,804	)
Retained earnings			918,858				934,953				142,778
Total shareholders’ equity			1,768,852				1,790,586				273,443
Total liabilities and shareholders’ equity			4,950,665				4,948,062				755,625

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

 

		For the Three Months Ended												For the Three Months Ended
		March 31, 2010												March 31, 2011
		GAAP RMB				Adjustments RMB				Non-GAAP RMB				GAAP RMB				Adjustments RMB				Non-GAAP RMB
		As adjusted (9)
		(in thousands except for per ADS information)
Net revenues (1)			175,728				—				175,728				230,414				—				230,414
Cost of revenues (2)			(61,624	)			22,423				(39,201	)			(88,948	)			48,295				(40,653	)
Gross profit			114,104				22,423				136,527				141,466				48,295				189,761
Operating expenses
Research and development (3)			(10,352	)			1,440				(8,912	)			(12,612	)			1,208				(11,404	)
Sales and marketing (3)			(16,695	)			—				(16,695	)			(24,017	)			192				(23,825	)
General and administrative (3)			(26,743	)			9,252				(17,491	)			(25,381	)			7,009				(18,372	)
Amortization of SPR intangible assets (4)			(27,343	)			27,343				—				—				—				—
Total operating expenses			(81,133	)			38,035				(43,098	)			(62,010	)			8,409				(53,601	)
Operating income			32,971				60,458				93,429				79,456				56,704				136,160
Interest income			4,155				—				4,155				5,779				—				5,779
Interest expense – convertible notes (5)			(34,831	)			7,618				(27,213	)			(34,612	)			1,387				(33,225	)
Interest expense – amortization of convertible notes issuance costs			(4,263	)			—				(4,263	)			(4,150	)			—				(4,150	)
Interest expense – amortization of share lending costs (6)			(2,644	)			2,644				—				(2,386	)			2,386				—
Other income (expense), net (7)			24,638				(24,064	)			574				144				(1,570	)			(1,426	)
Income before income tax			20,026				46,656				66,682				44,231				58,907				103,138
Income tax expense			(15,206	)			—				(15,206	)			(28,136	)			—				(28,136	)
Net income			4,820				46,656				51,476				16,095				58,907				75,002
Earnings per ADS
- basic (8)			0.19				1.79				1.98				0.61				2.25				2.86
- diluted (8)			0.19				1.79				1.98				0.61				2.23				2.84
Weighted average number of ADS
- basic (8)			25,993,349				—				25,993,349				26,184,308				—				26,184,308
- diluted (8)			26,050,599				—				26,050,599				26,448,663				—				26,448,663

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

Convenience Translation for Reference Only

 

		For the Three Months Ended
		March 31, 2011
		GAAP US$				Adjustments US$				Non-GAAP US$
		(in thousands except for per ADS information)
Net revenues (1)			35,187				—				35,187
Cost of revenues (2)			(13,583	)			7,375				(6,208	)
Gross profit			21,604				7,375				28,979
Operating expenses
Research and development (3)			(1,926	)			185				(1,741	)
Sales and marketing (3)			(3,668	)			30				(3,638	)
General and administrative (3)			(3,876	)			1,070				(2,806	)
Amortization of SPR intangible assets (4)			—				—				—
Total operating expenses			(9,470	)			1,285				(8,185	)
Operating income			12,134				8,660				20,794
Interest income			883				—				883
Interest expense – convertible notes (5)			(5,286	)			212				(5,074	)
Interest expense – amortization of convertible notes issuance costs			(634	)			—				(634	)
Interest expense – amortization of share lending costs (6)			(364	)			364				—
Other income (expense), net (7)			22				(240	)			(218	)
Income before income tax			6,755				8,996				15,751
Income tax expense			(4,297	)			—				(4,297	)
Net income			2,458				8,996				11,454
Earnings per ADS
- basic (8)			0.09				0.35				0.44
- diluted (8)			0.09				0.34				0.43
Weighted average number of ADS
- basic (8)			26,184,308				—				26,184,308
- diluted (8)			26,448,663				—				26,448,663

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.5483 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 Thursday, March 31, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on March 31, 2011 or at any other dates.

 

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Notes:

 

				For the Three Months Ended
				March 31, 2010				March 31, 2011
				RMB’000				RMB’000				US$’000
(1)		Net revenues
		- Molecular diagnostic systems			100,897				146,635				22,393
		- Immunodiagnostic systems			74,831				83,779				12,794
					175,728				230,414				35,187
		Molecular diagnostic systems
		- HPV-DNA chips			—				11,922				1,821

 

(2)	Non-GAAP numbers exclude stock compensation expense and amortization of acquired intangible assets.

 

		For the Three Months Ended
		March 31, 2010				March 31, 2011
		RMB’000				RMB’000				US$’000
Stock compensation expense			—				110				17
Amortization of acquired intangible assets			22,423				48,185				7,358
			22,423				48,295				7,375

 

(3)	Non-GAAP numbers exclude stock compensation expense.

(4)	Non-GAAP numbers exclude amortization of acquired intangible assets.

(5)	Non-GAAP numbers exclude non-cash interest expense of convertible notes.

(6)	Non-GAAP numbers exclude interest expense for amortization of share lending costs.

(7)	Non-GAAP numbers exclude gain on repurchase of convertible notes.

 

For the Three Months Ended

March 31, 2010

March 31, 2011

RMB’000

RMB’000

US$’000

Gain on repurchase of convertible notes

24,064

1,570

240

 

(8)

Interest expense and amortization in connection with convertible notes were not added back in computing GAAP diluted earnings per ADS because they were anti-dilutive. Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

(9)

As a result of the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing, effective on April 1, 2010, the Company adjusted relevant numbers in the unaudited condensed consolidated statements of income for the three months ended March 31, 2010 retrospectively in accordance with GAAP.

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

 

		For the Year Ended												For the Year Ended
		March 31, 2010												March 31, 2011
		GAAP RMB As adjusted (9)				Adjustments RMB				Non-GAAP RMB				GAAP RMB				Adjustments RMB				Non-GAAP RMB
		(in thousands except for per ADS information)
Net revenues (1)			723,071				—				723,071				842,366				—				842,366
Cost of revenues (2)			(237,550	)			89,720				(147,830	)			(334,682	)			169,086				(165,596	)
Gross profit			485,521				89,720				575,241				507,684				169,086				676,770
Operating expenses
Research and development (3)			(42,293	)			6,335				(35,958	)			(46,469	)			4,946				(41,523	)
Sales and marketing (3)			(64,055	)			—				(64,055	)			(88,182	)			672				(87,510	)
General and administrative (3)			(144,671	)			34,102				(110,569	)			(96,567	)			31,151				(65,416	)
Amortization of SPR intangible assets (4)			(109,395	)			109,395				—				(27,329	)			27,329				—
Total operating expenses			(360,414	)			149,832				(210,582	)			(258,547	)			64,098				(194,449	)
Operating income			125,107				239,552				364,659				249,137				233,184				482,321
Interest income			13,456				—				13,456				20,882				—				20,882
Interest expense – convertible notes (5)			(141,123	)			30,477				(110,646	)			(131,918	)			22,628				(109,290	)
Interest expense – amortization of convertible notes issuance costs			(17,402	)			—				(17,402	)			(16,009	)			—				(16,009	)
Interest expense – amortization of share lending costs (6)			(10,912	)			10,912				—				(9,731	)			9,731				—
Other income (expense), net (7)			24,848				(24,064	)			784				64,086				(75,106	)			(11,020	)
Income (loss) before income tax			(6,026	)			256,877				250,851				176,447				190,437				366,884
Income tax expense			(63,556	)			—				(63,556	)			(93,828	)			—				(93,828	)
Net income (loss)			(69,582	)			256,877				187,295				82,619				190,437				273,056
Earnings (loss) per ADS
- basic (8)			(2.65	)			9.78				7.13				3.16				7.30				10.46
- diluted (8)			(2.65	)			9.78				7.13				3.14				7.25				10.39
Weighted average number of ADS
- basic (8)			26,254,639				—				26,254,639				26,114,768				—				26,114,768
- diluted (8)			26,254,639				—				26,254,639				26,280,000				—				26,280,000

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income and

Reconciliations of GAAP Measures to Non-GAAP Measures

Convenience Translation for Reference only

 

		For the Year Ended
		March 31, 2011
		GAAP US$				Adjustments US$				Non-GAAP US$
		(in thousands except for per ADS information)
Net revenues (1)			128,639				—				128,639
Cost of revenues (2)			(51,110	)			25,822				(25,288	)
Gross profit			77,529				25,822				103,351
Operating expenses
Research and development (3)			(7,096	)			755				(6,341	)
Sales and marketing (3)			(13,466	)			103				(13,363	)
General and administrative (3)			(14,747	)			4,757				(9,990	)
Amortization of SPR intangible assets (4)			(4,173	)			4,173				—
Total operating expenses			(39,482	)			9,788				(29,694	)
Operating income			38,047				35,610				73,657
Interest income			3,189				—				3,189
Interest expense – convertible notes (5)			(20,145	)			3,455				(16,690	)
Interest expense – amortization of convertible notes issuance costs			(2,445	)			—				(2,445	)
Interest expense – amortization of share lending costs (6)			(1,486	)			1,486				—
Other income (expense), net (7)			9,786				(11,469	)			(1,683	)
Income before income tax			26,946				29,082				56,028
Income tax expense			(14,329	)			—				(14,329	)
Net income			12,617				29,082				41,699
Earnings per ADS
- basic (8)			0.48				1.12				1.60
- diluted (8)			0.48				1.11				1.59
Weighted average number of ADS
- basic (8)			26,114,768				—				26,114,768
- diluted (8)			26,280,000				—				26,280,000

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.5483 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 Thursday, March 31, 2011. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other rate on March 31, 2011 or at any other dates.

 

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Notes:

 

				For the Year Ended
				March 31, 2010				March 31, 2011
				RMB’000				RMB’000				US$’000
(1)		Net revenues
		- Molecular diagnostic systems			384,762				508,162				77,602
		- Immunodiagnostic systems			338,309				334,204				51,037
					723,071				842,366				128,639
		Molecular diagnostic systems
		- HPV-DNA chips			—				24,928				3,807

 

(2)	Non-GAAP numbers exclude stock compensation expense and amortization of acquired intangible assets.

 

		For the Year Ended
		March 31, 2010				March 31, 2011
		RMB’000				RMB’000				US$’000
Stock compensation expense			—				385				59
Amortization of acquired intangible assets			89,720				168,701				25,763
			89,720				169,086				25,822

 

(3)	Non-GAAP numbers exclude stock compensation expense.

(4)	Non-GAAP numbers exclude amortization of acquired intangible assets.

(5)	Non-GAAP numbers exclude non-cash interest expense of convertible notes.

(6)	Non-GAAP numbers exclude interest expense for amortization of share lending costs.

(7)	Non-GAAP numbers exclude gain on repurchase of convertible notes as well as high yield note offering expenses.

 

		For the Year Ended
		March 31, 2010				March 31, 2011
		RMB’000				RMB’000				US$’000
Gain on repurchase of convertible notes			24,064				80,342				12,269
High yield note offering expenses			—				(5,236	)			(800	)
			24,064				75,106				11,469

 

(8)

Interest expense and amortization in connection with convertible notes were not added back in computing GAAP diluted earnings per ADS because they were anti-dilutive. Non-GAAP earnings per ADS represents non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.

(9)

As a result of the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing, effective on April 1, 2010, the Company adjusted relevant numbers in the unaudited condensed consolidated statements of income for the year ended March 31, 2010 retrospectively in accordance with GAAP.

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

		For the Three Months Ended
		March 31, 2010				March 31, 2011
		RMB				RMB				US$
		(in thousands)
Net cash provided by operating activities			59,758				37,339				5,702
Net cash provided by (used in) investing activities			(609	)			18,789				2,869
Net cash used in financing activities			(73,596	)			(48,921	)			(7,471	)
Effect of foreign currency exchange rate change on cash and cash equivalents			13				(2,773	)			(423	)
Net increase (decrease) in cash and cash equivalents			(14,434	)			4,434				677
Cash and cash equivalents:
At beginning of period			829,887				1,119,384				170,943
At end of period			815,453				1,123,818				171,620
		For the Year Ended
		March 31, 2010				March 31, 2011
		RMB				RMB				US$
		(in thousands)
Net cash provided by operating activities			279,877				224,176				34,234
Net cash provided by (used in) investing activities			(715,522	)			94,169				14,381
Net cash used in financing activities			(205,061	)			(3,000	)			(458	)
Effect of foreign currency exchange rate change on cash and cash equivalents			(251	)			(6,980	)			(1,066	)
Net increase (decrease) in cash and cash equivalents			(640,957	)			308,365				47,091
Cash and cash equivalents:
At beginning of period			1,456,410				815,453				124,529
At end of period			815,453				1,123,818				171,620

 

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China Medical Technologies, Inc.

EBITDA and Adjusted EBITDA Measures

 

		For the Three Months Ended
		March 31, 2010				March 31, 2011
		RMB				RMB				US$
		As adjusted (1)
		(in thousands)
Net income			4,820				16,095				2,458
Adjustments:
Interest income			(4,155	)			(5,779	)			(883	)
Interest expense – convertible notes			34,831				34,612				5,286
Interest expense – amortization of convertible notes issuance costs			4,263				4,150				634
Interest expense – amortization of share lending costs			2,644				2,386				364
Income tax expense			15,206				28,136				4,297
EBIT (2)			57,609				79,600				12,156
Adjustments:
Depreciation			5,588				5,510				842
Amortization			49,766				48,185				7,358
EBITDA (3)			112,963				133,295				20,356
EBITDA (3)			112,963				133,295				20,356
Adjustments:
Stock compensation expense			10,692				8,519				1,301
Gain on repurchase of convertible notes			(24,064	)			(1,570	)			(240	)
Adjusted EBITDA (4)			99,591				140,244				21,417
		For the Year Ended
		March 31, 2010				March 31, 2011
		RMB				RMB				US$
		As adjusted (1)
		(in thousands)
Net income (loss)			(69,582	)			82,619				12,617
Adjustments:
Interest income			(13,456	)			(20,882	)			(3,189	)
Interest expense – convertible notes			141,123				131,918				20,145
Interest expense – amortization of convertible notes issuance costs			17,402				16,009				2,445
Interest expense – amortization of share lending costs			10,912				9,731				1,486
Income tax expense			63,556				93,828				14,329
EBIT (2)			149,955				313,223				47,833
Adjustments:
Depreciation			22,137				21,953				3,352
Amortization			199,115				196,030				29,936
EBITDA (3)			371,207				531,206				81,121
EBITDA (3)			371,207				531,206				81,121
Adjustments:
Stock compensation expense			40,437				37,154				5,674
Gain on repurchase of convertible notes			(24,064	)			(80,342	)			(12,269	)
High yield note offering expenses			—				5,236				800
Adjusted EBITDA (4)			387,580				493,254				75,326

 

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Notes:

 

(1)

As a result of the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing effective on April 1, 2010, the Company adjusted relevant numbers in the unaudited condensed consolidated statements of income for the three months and the year ended March 31, 2010 retrospectively in accordance with GAAP.

(2)	EBIT represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense and income tax expense.

(3)	EBITDA represents net income reported in accordance with GAAP, excluding the effects of interest income, interest expense, income tax expense, depreciation and amortization.

(4)	Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense, gain on repurchase of convertible notes as well as high yield note offering expenses.

 

21