China Medical Technologies first-quarter fiscal 2010 revenues decrease 10.9% to RMB186.2 million

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the first fiscal quarter ended June 30, 2010 ("1Q FY2010").

1Q FY2010 Highlights -- Revenues decreased by 10.9% year-over-year to RMB186.2 million (US$27.5 million) but increased by 5.9% sequentially. -- Net income was RMB33.7 million (US$5.0 million). -- Non-GAAP net income, as defined below, decreased by 21.4% year-over- year to RMB57.0 million (US$8.4 million) but increased by 10.8% sequentially. -- EBITDA, as defined below, was RMB142.0 million (US$20.9 million). -- Adjusted EBITDA, as defined below, was RMB105.2 million (US$15.5 million). -- Diluted earnings per ADS* was RMB1.29 (US$0.19). -- Non-GAAP diluted earnings per ADS*, as defined below, decreased by 20.4% year-over-year to RMB2.18 (US$0.32) but increased by 10.1% sequentially. -- Net cash generated from operations was RMB69.8 million (US$10.3 million). -- Approximately RMB101.7 million (US$15.0 million) 3.5% convertible notes and RMB113.6 million (US$16.8 million) 4% convertible notes were purchased and cancelled by the Company. Approximately 285,000 ADSs* were returned to the Company under the share lending agreement in connection with the issuance of 4% convertible notes in August 2008. Outlook for 2Q FY2010 -- Target revenues are expected to be not less than RMB200.0 million (US$29.5 million), representing a year-over-year increase of not less than 20.4% and a quarter-over-quarter increase of not less than 7.4%. -- Target non-GAAP net income is expected to be not less than RMB65.0 million (US$9.6 million), representing a year-over-year increase of not less than 267.9% and a quarter-over-quarter increase of not less than 14.0%. -- Target non-GAAP diluted earnings per ADS is expected to be not less than RMB2.49 (US$0.37), representing a year-over-year increase of not less than 271.6% and a quarter-over-quarter increase of not less than 14.2%.

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

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

"We are pleased with the third consecutive sequential growth in our quarterly revenues. Following the recent receipt of SFDA approval for our SPR-based HPV-DNA chip and positive feedback from the trial use of our chip by our hospital customers, we believe that we will achieve accelerated sequential growth in the upcoming quarters," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.

1Q FY2010 Unaudited Financial Results

The Company reported revenues of RMB186.2 million (US$27.5 million) for 1Q FY2010, representing a 10.9% decrease from the corresponding period of FY2009 but a 5.9% increase from 4Q 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.

Molecular diagnostic system sales for 1Q FY2010 were RMB108.1 million (US$15.9 million), representing a 9.8% increase from the corresponding period of FY2009 and a 7.1% increase from 4Q FY2009. The year-over-year and sequential increase was primarily due to the increase in usage of the Company's FISH probes by existing and new hospital customers served by the Company's direct sales personnel.

Immunodiagnostic system sales for 1Q FY2010 were RMB78.1 million (US$11.5 million), representing a 29.3% decrease from the corresponding period of FY2009 and a 4.3% increase from 4Q FY2009. The year-over-year decrease was primarily due to the price reduction for ECLIA reagent kits since September 2009.

Gross margin was 67.0% for 1Q FY2010 which decreased year-over-year from 73.5% for the corresponding period of FY2009 but improved sequentially from 64.9% for 4Q FY2009. The year-over-year decrease in gross margin was primarily due to the impact of the price reduction for ECLIA reagent kits. The sequential increase in gross margin was primarily due to the price reduction for major raw materials used in the production of ECLIA reagent kits and more contribution from the sales of FISH probes which generate higher gross margin.

Research and development expenses were RMB10.6 million (US$1.6 million) for 1Q FY2010, representing a 9.2% year-over-year decrease but a 2.7% sequential increase. The year-over-year decrease was primarily due to lower stock compensation expenses.

Sales and marketing expenses were RMB18.3 million (US$2.7 million) for 1Q FY2010, representing a 68.0% year-over-year increase and a 9.4% sequential increase. The year-over-year and sequential increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems.

General and administrative expenses were RMB25.1 million (US$3.7 million) for 1Q FY2010, representing a 46.4% year-over-year decrease and a 6.0% sequential decrease. The year-over-year decrease was primarily due to no costs of independent internal investigation for 1Q FY2010.

Amortization of SPR intangible assets was RMB27.3 million (US$4.0 million) for 1Q FY2010. Due to the commencement of sales of HPV-DNA chips, the amortization of SPR intangible assets will be classified from operating expenses to cost of revenues starting from 2Q FY2010.

Interest expense on convertible notes was RMB32.5 million (US$4.8 million) for 1Q FY2010. As of June 30, 2010, the Company's outstanding convertible notes of US$135 million and US$248 million bear interest at 3.5% and 4% per annum, respectively, and will mature in November 2011 and August 2013, respectively.

Interest expense on amortization of convertible notes issuance costs was RMB4.0 million (US$0.6 million) for 1Q FY2010.

Due to the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or the financing effective on April 1, 2010, the Company recorded additional non-cash interest expense on amortization of share lending costs of RMB2.5 million (US$0.4 million) for the 4% convertible notes in 1Q FY2010. The Company also made adjustments related to these convertible notes for the corresponding periods of FY2009 by increasing non-cash interest expense on amortization of share lending costs by RMB2.6 million and RMB2.8 million for 4Q FY2009 and 1Q FY2009 respectively, to adopt this guidance retrospectively. There is no share lending arrangement for 3.5% convertible notes.

Other income was RMB43.3 million (US$6.4 million) for 1Q FY2010. The significant year-over-year and sequential increase was primarily due to the gain from the purchase of the Company's convertible notes on the open market.

Income tax expense was RMB18.7 million (US$2.8 million) for 1Q FY2010. The significant income tax expense was primarily because 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 is required to accrue for withholding income tax on distributable earnings generated in China during 1Q FY2010.

Net income was RMB33.7 million (US$5.0 million) for 1Q FY2010, representing a significant increase from the corresponding period of FY2009 and 4Q FY2009.

Non-GAAP net income was RMB57.0 million (US$8.4 million) for 1Q FY2010, representing a 21.4% decrease from the corresponding period of FY2009 but a 10.8% increase from 4Q FY2009.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") was RMB142.0 million (US$20.9 million) for 1Q FY2010, representing a 26.6% increase from the corresponding period of FY2009 and a 25.7% increase from 4Q FY2009.

Adjusted EBITDA which excludes stock compensation expense and gain on purchase of convertible notes was RMB105.2 million (US15.5 million) for 1Q FY2010, representing a 15.4% decrease from the corresponding period of FY2009 but a 5.6% increase from 4Q FY2009.

Stock compensation expense for 1Q FY2010 was RMB10.6 million (US$1.6 million), of which RMB0.1 million was allocated to cost of revenues, RMB1.4 million to research and development expenses, RMB0.1 million to sales and marketing expenses and RMB9.0 million to general and administrative expenses.

Amortization of acquired intangible assets for 1Q FY2010 was RMB49.7 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.3 million to operating expenses. Due to the commencement of sales of HPV-DNA chips, amortization of acquired intangible assets will all be allocated to cost of revenues starting from 2Q FY2010.

As of June 30, 2010, the Company's cash and cash equivalents was RMB742.3 million (US$109.5 million). Net cash generated from operating activities for 1Q FY2010 was RMB69.8 million (US$10.3 million).

As of June 30, 2010, the Company's net accounts receivable was RMB311.3 million (US$45.9 million), representing an increase of 2.6% from the balance at March 31, 2010.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.7815 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 Wednesday, June 30, 2010. 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 June 30, 2010 or at any other dates.