China Medical Technologies Reports First Quarter Financi...(the weakest quarter for HIFU sales in af...)

Gross margin decreased to 62.0% for 1Q FY2007 as compared to 70.7% for the corresponding period of FY2006. The decrease in gross margin was due to the amortization of FISH intangible assets of RMB11.9 million (US$1.6 million) and FISH equipment sales which generated lower gross margin. The Company expects future FISH probe sales will generate recurring revenue and higher gross margin. The sales of FISH equipment is expected to drive up the use of FISH probes by hospitals. Excluding the impact of FISH amortization, gross margin would be 69.9%.

Research and development expenses were RMB9.8 million (US$1.3 million) for 1Q FY2007, representing a 66.8% year-over-year increase. The increase was due to expenses associated with the HIFU study organized by the Ministry of Health in the PRC, collaboration with research institutions and new product development.

Sales and marketing expenses were RMB5.8 million (US$0.8 million) for 1Q FY2007, representing a 38.3% year-over-year increase. The increase was primarily due to greater participation at exhibitions and more promotional events organized by the Company.

General and administrative expenses were RMB13.9 million (US$1.8 million) for 1Q FY2007, representing a 21.0% year-over-year increase. The increase was primarily due to increase in headcounts for expansion and stock compensation expense arising from recent stock grant in June 2007.

Interest income was RMB8.7 million (US$1.1 million) for 1Q FY2007, representing a 12.3% increase from the corresponding period of FY2006. The increase was primarily due to interest income generated from the net proceeds received from the issuance of convertible notes in November 2006.

Interest expense of convertible notes was RMB10.1 million (US$1.3 million) for 1Q FY2007 primarily due to interest incurred by the convertible notes issued in November 2006. The notes bear interest at 3.5% per annum.

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