China Health first quarter gross revenues increase 52% to $6.759 million

China Health Labs & Diagnostics Ltd. ("China Health" or the "Company") (TSXV:CHO; OTCQX:CHLBF) is pleased to announce the financial results for the first quarter ended March 31, 2011.

• In Q1 2011, the Company achieved its business and financial goals and made progress on its mission of becoming a leading provider of total lab solutions for medical diagnostics and food safety testing in China:
• Gross revenues grew by 52% to $6.759 million in Q1 2011 compared to Q1 2010;
• Profit grew by 283% to $1.224 million in Q1 2011 compared to Q1 2010;
• More than doubled sales of point of care technology ("POCT") solutions;
• Increased sales of food safety lab equipment; and,
• Prepared for the installation of 587 BK Clinlabs in Jilin Province, and subsequent to the end of Q1 2011, installed 200 BK Clinlab rural total lab solutions in Jilin Province, increasing the total installed BK Clinlabs to 410 locations in four Chinese provinces.

The Company has entered 2011 well positioned for further growth and with sufficient capital to expand its business for rural total lab solutions, POCT lab solutions and food safety lab solutions, including the 587 locations to be installed in Jilin Province.  The Company will need to access additional debt or equity funding if it enters into an agreement for a large number for total lab solutions or if it pursues suitable acquisition opportunities.

"Our investment in developing POCT technology and products lead to a strong first quarter with a new customer, the NERT (National Emergency Rescue Team), ordering 13 "Type A" POCT solutions, based on our track record of providing the POCT solutions to the Chinese military," said Wilson Yao, President and CEO of China Health, "We believe that in 2011 our growth will be driven by revenues and profits from the proprietary solutions we have developed. After the first quarter, we signed the contract to install 587 BK Clinlabs in Jilin and have already installed 200 and we are on schedule to install all 587 in 2011, compared to 126 BK Clinlabs installed in 2010."

Gross revenue for Q1 2011 increased by 52% to $6.759 million compared to the same period in 2010.  The growth in revenues was largely due to increased sales of the Company's proprietary POCT total lab solution for the Chinese military and NERT, which grew by 246% to $2.275 million to account for 33.7% of revenues in Q1 2011, compared to $0.657 million or 14.8% of revenues for the same period in 2010. Increased sales of testing equipment for food safety also contributed to the growth.

The Company expects that in 2011 revenue seasonality will be similar to previous years with the first quarter being the smallest due to the budgeting process of the Company's customers and Chinese New Year holidays, and fourth quarter revenue expected to be the largest due to deliveries of products and services that have been ordered during the year.  In 2010, revenues for the first quarter accounted for approximately 13% of total annual revenues of $33.751 million.

Gross margin increased by 183% to $3.894 million in Q1 2011 compared to the same period in 2010, due to the increase in revenues and the change in sales mix.  Gross margin as percentage of sales increased to 58% for Q1 2011 compared to 31% for Q1 2010 mainly due to the growth in sales of POCT total lab solutions, which generate higher margins than the Company's other products and solutions. The Company expects that gross margin as a percentage of sales for the full year of 2011 will be close to the same as in 2010 when it was 39.3%.

Administrative expenditures for Q1 2011 were $1.518 million compared to $0.771 million in Q1 2010, an increase of $0.747 million or 97%. The principal reason for the increase was a need for an increased amount of overhead including employees and facilities to support a growing customer base and sales, as well as additional costs to maintain listing of the Company on the TSX-V. Administrative expenses as a percentage of revenues increased to 22% for Q1 2011 in comparison to 17% for the comparative period in Q1 2010. Administrative expenses as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

Research and development expenditures for Q1 2011 were $0.328 million, an increase of $0.281 million or 598% compared with $0.047 in Q1 2010.  Research and development expense as a percentage of revenues increased to 5% for Q1 2011, compared to about 1% for Q1 2010. Research and development expense as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

In 2010, research and development focused on POCT products for the Chinese military and improving the automation in certain diagnostic equipment. In 2011, research and development is focused on developing a full range of POCT solutions and improving the Company's proprietary and patented lab management system. The Company is accelerating product development to maintain its competitive advantages in the sectors where it has developed unique proprietary solutions. Since the Company often collaborates with its customers to develop solutions, it is able to keep costs under control while developing products tailor made to customer needs.  In Q1 2011, the Company commenced research and development with the Chinese military pursuant to a three-year research and development agreement signed in late 2010 with the Chinese Military Medical Equipment Research Institute, based in Tianjin, and with the Chongqing Third Military Medical University, based in Chongqing.

Selling expenses for Q1 2011 were $0.462 million, an increase of $0.303 million or 191% from $0.159 million in Q1 2010.  Selling expense as a percentage of revenues increased to 7% for Q1 2011, compared to 4% for the same period last year.  The increase in selling expenses was due to expanding the rural lab solution sales and marketing teams to additional Chinese provinces and the food safety business to additional Chinese cities. Selling expenses as a percentage of revenues are expected to decrease in subsequent quarters due to higher expected revenues.

Share-based compensation for Q1 2011 was $0.188 million compared with $Nil for the Q1 2010. No options were granted by the Biochem Group prior to becoming a subsidiary of the Company and listing on the TSX Venture Exchange in October 2010, hence there was no stock based compensation in the comparative period.

Government subsidy income for Q1 2011 was $0.080 million compared with $0.030 million for Q1 2010. A substantial government subsidy is calculated based on one of the PRC subsidiaries' value-added taxes collected on sales.  Increase in government subsidy mainly arose due to increase in sales generated through this particular PRC subsidiary.

Current income taxes for Q1 2011 were $0.322 million compared with $0.057 million for Q1 2010.  The Company's PRC subsidiaries are subject to income taxes at a statutory tax rate of 25% in China.  Two of the Company's PRC subsidiaries have been granted preferential tax rates.  One subsidiary is subject to PRC income taxes at 1% of gross sales and another PRC subsidiary is qualified for income tax exemption during the first two years of profitable operations followed by a 50% tax reduction in the next three years for engaging in R&D activities in a particular economic zone.  The subsidiary received income tax exemptions in the year 2008 and 2009 with the years 2010 and 2011 being taxed at the 50% reduced tax rate.  The increase in income taxes is mainly due to an overall increase in income, an increase in non-tax deductible expenses such as share based compensation as well as expenditures incurred outside of the PRC to maintain the Canadian stock exchange listing.

Profit for the quarter ended March 31, 2011 increased by 283% to $1.224 million compared to the same period in 2010. Profit in the current period represents 18% of gross revenue, compared with 7% of gross revenue in Q1 2010. The increase in profit and profit margin was mainly due to the growth in sales of POCT total lab solutions, which generate higher margins than the Company's other products and solutions. The first quarter is historically the smallest for the Company's profits due to the seasonality of its customers' budgeting and purchasing, such that in 2010 Q1 accounted for 6% of the Company's annual net income.

Cash and short-term investments were $3.236 million as at March 31, 2011, compared with $5.6726 million as of December 31, 2010.  The Company's working capital as of March 31, 2011 was $17.165 million, compared with a $16.063 million working capital as of December 31, 2010.

The Company has sufficient working capital to fund the anticipated growth for 2011, including the installation of 587 BK Clinlab total lab solutions in Jilin Province.  However, the Company may need to access additional debt or equity funding if it enters into an agreement for a large number for total lab solutions or if it pursues suitable acquisition opportunities.

Outlook & Growth Strategy

The Company believes that it can continue its strong growth in revenues and profits and build on the leading position it has established in China providing total lab solutions for rural hospitals and clinics, POCT solutions for military and emergency services, and food safety lab solutions, based on the size and growth of the Chinese market for medical diagnostics and food safety, the government support for the market and the Company's proprietary products and services and customer relationships.

In 2011, China Health intends to expand its business by focusing its efforts on expanding its sales network to additional Chinese provinces and cities in the areas where it has proprietary products and limited competition. Going forward, China Health expects revenue growth from its total lab solutions business lines to continue to be stronger than growth from its traditional business with large urban hospitals, and to comprise a higher percentage of revenues.