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China Medical Technologies Reports FY2009 First Fiscal Quarter Unaudited Financial Results
Date:9/1/2009

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.


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SOURCE China Medical Technologies, Inc.
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