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 November, 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: November 21, 2011

 

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Exhibit 99.1

China Medical Technologies Reports Second Fiscal Quarter Financial Results

Beijing, China, November 18, 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 second fiscal quarter ended September 30, 2011 (“2Q FY2011”) today.

2Q FY2011 and Six Months Ended September 30, 2011 Highlights

 

		For the Three Months Ended
		September 30, 2010				September 30, 2011				September 30, 2011
		RMB				RMB				US$				% change
		(in thousands except for per ADS information)
Net revenues			201,834				238,450				37,386				18.1	%
Net income (loss)			(2,936	)			33,343				5,228				n/a
Diluted earnings (loss) per ADS*			(0.11	)			1.26				0.20				n/a
Non-GAAP net income			65,401				89,557				14,042				36.9	%
Non-GAAP diluted earnings per ADS*			2.50				3.38				0.53				35.2	%
Adjusted EBITDA			116,314				151,351				23,730				30.1	%
		For the Three Months Ended
		June 30, 2011				September 30, 2011				September 30, 2011
		RMB				RMB				US$				% change
		(in thousands)
Net cash provided by operating activities			62,243				79,053				12,395				27.0	%
		For the Six Months Ended
		September 30, 2010				September 30, 2011				September 30, 2011
		RMB				RMB				US$				% change
		(in thousands except for per ADS information)
Net revenues			388,004				475,561				74,563				22.6	%
Net income			30,742				69,071				10,830				124.7	%
Diluted earnings per ADS*			1.18				2.61				0.41				121.2	%
Non-GAAP net income			122,412				180,009				28,224				47.1	%
Non-GAAP diluted earnings per ADS*			4.68				6.79				1.07				45.1	%
Adjusted EBITDA			221,466				305,640				47,921				38.0	%

 

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Outlook for the Third Fiscal Quarter Ending December 31, 2011

 

For the Three Months Ending December 31, 2011

Year over Year

RMB

US$

% change

(in millions except for per ADS information)

Target net revenues

245.0 – 250.0

38.4 – 39.2

9.4 – 11.6

%

Target non-GAAP net income

85.0 – 88.0

13.3 – 13.8

12.4 – 16.3

%

Target non-GAAP diluted earnings per ADS*

3.20 – 3.30

0.50 – 0.52

11.5 – 15.0

%

Outlook for the Full Fiscal Year Ending March 31, 2012

For the Fiscal Year Ending March 31, 2012

Year over Year

RMB

US$

% change

(in millions except for per ADS information)

Target net revenues

970.0 – 980.0

152.1 – 153.7

15.2 – 16.3

%

Target non-GAAP net income

335.0 – 340.0

52.5 – 53.3

22.7 – 24.5

%

Target non-GAAP diluted earnings per ADS*

12.40 – 12.60

1.94 – 1.98

19.3 – 21.3

%

The above targets are based on the Company’s current views on 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 to receive SFDA approval on our second PCR-based companion diagnostic assay on KRAS mutation for colorectal cancer targeted drug. We see huge potential on personalized medicine for cancer patients in China and will continue to develop this market segment.” commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.

2Q FY2011 Unaudited Financial Results

The Company reported net revenues of RMB238.5 million (US$37.4 million) for 2Q FY2011, representing an 18.1% increase from the corresponding period of FY2010.

The Company’s revenues are currently generated from two segments, molecular diagnostic systems and immunodiagnostic systems. The molecular diagnostic system segment mainly includes FISH products and SPR products while the immunodiagnostic system segment consists of ECLIA products.

Molecular diagnostic system sales for 2Q FY2011 were RMB164.0 million (US$25.7 million), representing a 38.5% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in usage of the Company’s FISH probes by hospitals as well as the significant increase in sales of SPR-based HPV-DNA chips to hospitals during 2Q FY2011.

Immunodiagnostic system sales for 2Q FY2011 were RMB74.5 million (US$11.7 million), representing a 10.8% decrease from the corresponding period of FY2010. The year-over-year decrease was primarily due to more stringent control over credit sales to distributors so as to mitigate the risk and magnitude of bad debts.

Gross margin was 64.9% for 2Q FY2011 which increased year-over-year from 55.2% for the corresponding period of FY2010. Non-GAAP gross margin was 84.8% for 2Q FY2011 which increased year-over-year from 79.7% for the corresponding period of FY2010. The year-over-year increase in gross margins was primarily due to more contribution from the sales of FISH probes and HPV-DNA chips which generated higher gross margin and a substantial reduction in the Company’s provision of free ECLIA analyzers and SPR analyzers. The reduction in the provision of free analyzers resulted from the above-mentioned more stringent control over credit sales to ECLIA distributors and the research and development of a new generation of SPR analyzer.

 

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Research and development expenses were RMB11.0 million (US$1.7 million) for 2Q FY2011, representing a 1.3% year-over-year increase. Non-GAAP research and development expenses were RMB10.4 million (US$1.6 million) for 2Q FY2011, representing a 6.9% year-over-year increase.

Sales and marketing expenses were RMB30.2 million (US$4.7 million) for 2Q FY2011, representing a 40.6% year-over-year increase. Non-GAAP sales and marketing expenses were RMB30.0 million (US$4.7 million) for 2Q FY2011, representing a 41.0% year-over-year increase. The year-over-year increases were primarily due to the increase in direct sales efforts for molecular diagnostic systems and sales incentives to direct sales personnel.

General and administrative expenses were RMB21.9 million (US$3.4 million) for 2Q FY2011, representing a 12.7% year-over-year decrease. The year-over-year decrease was primarily due to a decrease in stock compensation expense. Non-GAAP general and administrative expenses were RMB17.2 million (US$2.7 million) for 2Q FY2011, representing a 0.4% year-over-year decrease.

Interest expense on convertible notes was RMB32.7 million (US$5.1 million) for 2Q FY2011. Non-GAAP interest expense on convertible notes was RMB31.8 million (US$5.0 million) for 2Q FY2011. As of September 30, 2011, the Company had outstanding convertible notes of US$16.7 million in principal value which bore interest at 3.5% and matured in November 2011, and US$246.5 million and US$150.0 million in principal value of outstanding convertible notes which bear interest at 4% and 6.25% per annum, respectively, and will mature in August 2013 and December 2016, respectively.

Interest expense related to amortization of convertible notes issuance costs was RMB3.9 million (US$0.6 million) for 2Q FY2011.

Interest expense related to amortization of share lending costs was RMB2.3 million (US$0.4 million) for 2Q FY2011.

Other income was RMB1.2 million (US$0.2 million) for 2Q FY2011.

Income tax expense was RMB29.4 million (US$4.6 million) for 2Q FY2011. The consistently high effective tax rate was due to the fact that 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 accrues for withholding income tax on distributable earnings generated in China which the Company does not intend to permanently reinvest in China.

Net income was RMB33.3 million (US$5.2 million) for 2Q FY2011, compared to net loss of RMB2.9 million for the corresponding period of FY2010. Non-GAAP net income was RMB89.6 million (US$14.0 million) for 2Q FY2011, representing a 36.9% increase from the corresponding period of FY2010. The year-over-year increases were primarily due to the increase in molecular diagnostic system sales and other reasons mentioned above.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was RMB145.5 million (US$22.8 million) for 2Q FY2011, representing a 35.9% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in molecular diagnostic system sales.

Adjusted EBITDA was RMB151.4 million (US$23.7 million) for 2Q FY2011, representing a 30.1% increase from the corresponding period of FY2010. The year-over-year increase was primarily due to the increase in molecular diagnostic system sales.

 

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Stock compensation expense for 2Q FY2011 was RMB5.9 million (US$0.9 million), of which RMB0.4 million was allocated to cost of revenues, RMB0.6 million to research and development expenses, RMB0.2 million to sales and marketing expenses and RMB4.7 million to general and administrative expenses. The Company approved the grant of 4,500,000 restricted shares, equivalent to 450,000 ADSs, to directors, officers and certain employees on November 7, 2011. The restricted shares vest at the end of a two-year period.

Amortization of acquired intangible assets for 2Q FY2011 was RMB47.2 million (US$7.4 million) which was all allocated to cost of revenues.

As of September 30, 2011, the Company’s cash and cash equivalents were RMB1,316.8 million (US$206.5 million). Net cash generated from operating activities for 2Q FY2011 was RMB79.1 million (US$12.4 million). Net cash used in investing activities for 2Q FY2011 was RMB0.6 million (US$0.1 million). There was no financing activity for 2Q FY2011.

As of September 30, 2011, the Company’s net accounts receivable balance was RMB638.5 million (US$100.1 million), representing an increase of 13.0% from the balance at June 30, 2011. The increase in net accounts receivable was primarily due to the increase in molecular diagnostic system sales to hospital customers which normally pay in 6 to 12 months and slower payments from certain distributors of immunodiagnostic systems.

The Company evaluates the collectability of its accounts receivable based on the aging of account balances, collection history, credit quality of the customer and current economic conditions that may affect a customer’s ability to pay. The Company has recognized an allowance for doubtful accounts in its consolidated financial statements. The allowance for doubtful accounts increased by RMB4.8 million (US$0.8 million) to RMB33.6 million (US$5.3 million) as of September 30, 2011 from RMB28.8 million as of June 30, 2011.

Six Months Ended September 30, 2011 Unaudited Financial Results

Revenues were RMB475.6 million (US$74.6 million) for the six months ended September 30, 2011, representing a 22.6% increase from the corresponding period of FY2010. The year-over-year increase in revenues was primarily due to the increase in molecular diagnostic system sales which was offset in part by the decrease in immunodiagnostic system sales.

Gross margin was 63.9% for the six months ended September 30, 2011 which increased year-over-year from 60.9% for the corresponding period of FY2010. Non-GAAP gross margin was 84.0% for the six months ended September 30, 2011 which increased year-over-year from 79.4% for the corresponding period of FY2010. The year-over-year increase in gross margins was primarily due to more contribution from the sales of FISH probes and HPV-DNA chips which generated higher gross margin and the substantial reduction in the Company’s provision of free ECLIA analyzers and SPR analyzers as noted above.

Research and development expenses were RMB21.8 million (US$3.4 million) for the six months ended September 30, 2011, representing a 1.2% year-over-year increase. Non-GAAP research and development expenses were RMB20.1 million (US$3.2 million) for the six months ended September 30, 2011, representing a 6.1% year-over-year increase.

Sales and marketing expenses were RMB53.4 million (US$8.4 million) for the six months ended September 30, 2011, representing a 34.5% year-over-year increase. Non-GAAP sales and marketing expenses were RMB53.0 million (US$8.3 million) for the six months ended September 30, 2011, representing a 34.3% year-over-year increase. The year-over-year increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems and sales incentives to direct sales personnel.

 

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General and administrative expenses were RMB44.5 million (US$7.0 million) for the six months ended September 30, 2011, representing an 11.4% year-over-year decrease. The year-over-year decrease was primarily due to a decrease in stock compensation expense. Non-GAAP general and administrative expenses were RMB33.5 million (US$5.3 million) for the six months ended September 30, 2011, representing a 0.5% year-over-year decrease.

Net income was RMB69.1 million (US$10.8 million) for the six months ended September 30, 2011, which improved significantly from RMB30.7 million for the corresponding period of FY2010. Non-GAAP net income was RMB180.0 million (US$28.2 million) for the six months ended September 30, 2011, representing a 47.1% increase from the corresponding period of FY2010.

EBITDA was RMB296.1 million (US$46.4 million) for the six months ended September 30, 2011, representing an 18.9% increase from the corresponding period of FY2010.

Adjusted EBITDA was RMB305.6 million (US$47.9 million) for the six months ended September 30, 2011, representing a 38.0% increase from the corresponding period of FY2010.

Stock compensation expense for the six months ended September 30, 2011 was RMB13.7 million (US$2.1 million), of which RMB0.6 million was allocated to cost of revenues, RMB1.7 million to research and development expenses, RMB0.4 million to sales and marketing expenses and RMB11.0 million to general and administrative expenses.

Amortization of acquired intangible assets for the six months ended September 30, 2011 was RMB94.8 million (US$14.9 million), which was all allocated to cost of revenues.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 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 Friday, September 30, 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 September 30, 2011 or at any other dates.

 

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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 six months ended September 30, 2010 and 2011, respectively. The Company also presented non-GAAP information for the three months and six months ended September 30, 2010 and 2011. The non-GAAP measures are defined below:

 

•

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.

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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.

 

•

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.

 

•

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.

 

•

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.

 

•

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 as well as gain on repurchase of convertible notes.

 

•

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.

 

•

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

 

•

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

 

•

Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense as well as gain on repurchase of convertible notes.

 

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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 November 18, 2011 (or 9:00 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:

 

•

U.S. Toll Free Number 1-866-519-4004

 

•

International Dial-in Number 1-718-354-1231

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 November 19, 2011.

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

 

•

U.S. Toll Free Number 1-866-214-5335

 

•

International Dial-in Number 1-718-354-1232

Passcode: 22980262

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 third fiscal quarter ending December 31, 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

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
		June 30, 2011				September 30, 2011
		RMB				RMB				US$
		(in thousands)
Assets
Current assets
Cash and cash equivalents			1,239,458				1,316,837				206,466
Trade accounts receivable, net (1)			565,061				638,506				100,110
Inventories			20,315				20,406				3,199
Prepayments and other receivables			12,833				11,985				1,879
Total current assets			1,837,667				1,987,734				311,654
Property, plant and equipment, net			134,562				129,661				20,330
Land use rights			6,811				6,763				1,060
Goodwill			8,654				8,654				1,357
Intangible assets, net			2,891,353				2,810,152				440,601
Convertible notes issuance costs			51,148				46,713				7,324
Share lending costs			19,804				17,244				2,704
Total assets			4,949,999				5,006,921				785,030
Liabilities
Current liabilities
Trade accounts payable			51,575				53,385				8,370
Accrued liabilities and other payables			206,260				222,334				34,860
Convertible notes			107,136				106,622				16,717
Income taxes payable			91,939				110,749				17,364
Total current liabilities			456,910				493,090				77,311
Convertible notes			2,562,778				2,528,877				396,500
Deferred income taxes			98,985				106,155				16,644
Total liabilities			3,118,673				3,128,122				490,455
Shareholders’ equity
Ordinary shares US$0.1 par value: 500,000,000 authorized; 322,680,001 issued and outstanding as of June 30, 2011 and 324,080,001 issued and outstanding as of September 30, 2011			258,840				259,738				40,724
Additional paid-in capital			881,287				895,888				140,465
Treasury stock			(201,362	)			(201,362	)			(31,571	)
Accumulated other comprehensive loss			(78,120	)			(79,489	)			(12,463	)
Retained earnings			970,681				1,004,024				157,420
Total shareholders’ equity			1,831,326				1,878,799				294,575
Total liabilities and shareholders’ equity			4,949,999				5,006,921				785,030

Note:

 

		As of
		June 30, 2011				September 30, 2011
		RMB’000				RMB’000				US$’000
(1) Trade accounts receivable			593,814				672,154				105,386
Allowance for doubtful accounts			(28,753	)			(33,648	)			(5,276	)
Trade accounts receivable, net			565,061				638,506				100,110

 

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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
		September 30, 2010												September 30, 2011
		GAAP RMB				Adjustments RMB				Non-GAAP RMB				GAAP RMB				Adjustments RMB				Non-GAAP RMB
		(in thousands except for per ADS information)
Net revenues (1)			201,834				—				201,834				238,450				—				238,450
Cost of revenues (2)			(90,477	)			49,539				(40,938	)			(83,713	)			47,523				(36,190	)
Gross profit			111,357				49,539				160,896				154,737				47,523				202,260
Operating expenses
Research and development (3)			(10,877	)			1,145				(9,732	)			(11,014	)			607				(10,407	)
Sales and marketing (3)			(21,473	)			204				(21,269	)			(30,183	)			191				(29,992	)
General and administrative (3)			(25,048	)			7,772				(17,276	)			(21,877	)			4,673				(17,204	)
Total operating expenses			(57,398	)			9,121				(48,277	)			(63,074	)			5,471				(57,603	)
Operating income			53,959				58,660				112,619				91,663				52,994				144,657
Interest income			5,119				—				5,119				8,820				—				8,820
Interest expense – convertible notes (4)			(32,019	)			7,221				(24,798	)			(32,699	)			908				(31,791	)
Interest expense – amortization of convertible notes issuance costs			(3,906	)			—				(3,906	)			(3,943	)			—				(3,943	)
Interest expense – amortization of share lending costs (5)			(2,456	)			2,456				—				(2,312	)			2,312				—
Other income (expense), net			(1,802	)			—				(1,802	)			1,193				—				1,193
Income before income tax			18,895				68,337				87,232				62,722				56,214				118,936
Income tax expense			(21,831	)			—				(21,831	)			(29,379	)			—				(29,379	)
Net income (loss)			(2,936	)			68,337				65,401				33,343				56,214				89,557
Earnings (loss) per ADS
- basic (6)			(0.11	)			2.61				2.50				1.26				2.12				3.38
- diluted (6)			(0.11	)			2.61				2.50				1.26				2.12				3.38
Weighted average number of ADS
- basic (6)			26,117,308				—				26,117,308				26,495,308				—				26,495,308
- diluted (6)			26,117,308				—				26,117,308				26,513,672				—				26,513,672

 

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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
		September 30, 2011
		GAAP US$				Adjustments US$				Non-GAAP US$
		(in thousands except for per ADS information)
Net revenues (1)			37,386				—				37,386
Cost of revenues (2)			(13,125	)			7,451				(5,674	)
Gross profit			24,261				7,451				31,712
Operating expenses
Research and development (3)			(1,727	)			95				(1,632	)
Sales and marketing (3)			(4,732	)			30				(4,702	)
General and administrative (3)			(3,430	)			733				(2,697	)
Total operating expenses			(9,889	)			858				(9,031	)
Operating income			14,372				8,309				22,681
Interest income			1,383				—				1,383
Interest expense – convertible notes (4)			(5,127	)			143				(4,984	)
Interest expense – amortization of convertible notes issuance costs			(619	)			—				(619	)
Interest expense – amortization of share lending costs (5)			(362	)			362				—
Other income (expense), net			187				—				187
Income before income tax			9,834				8,814				18,648
Income tax expense			(4,606	)			—				(4,606	)
Net income			5,228				8,814				14,042
Earnings per ADS
- basic (6)			0.20				0.33				0.53
- diluted (6)			0.20				0.33				0.53
Weighted average number of ADS
- basic (6)			26,495,308				—				26,495,308
- diluted (6)			26,513,672				—				26,513,672

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 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 Friday, September 30, 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 September 30, 2011 or at any other dates.

 

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Notes:

 

		For the Three Months Ended
		September 30, 2010				September 30, 2011
		RMB’000				RMB’000				US$’000
(1) Net revenues
- Molecular diagnostic systems			118,347				163,941				25,704
- Immunodiagnostic systems			83,487				74,509				11,682
			201,834				238,450				37,386
Molecular diagnostic systems
- HPV-DNA chips			3,802				16,319				2,559

 

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

 

		For the Three Months Ended
		September 30, 2010				September 30, 2011
		RMB’000				RMB’000				US$’000
Stock compensation expense			117				373				58
Amortization of acquired intangible assets			49,422				47,150				7,393
			49,539				47,523				7,451

 

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

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

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

(6)

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.

 

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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 Six Months Ended												For the Six Months Ended
		September 30, 2010												September 30, 2011
		GAAP				Adjustments				Non-GAAP				GAAP				Adjustments				Non-GAAP
		RMB				RMB				RMB				RMB				RMB				RMB
		(in thousands except for per ADS information)
Net revenues (1)			388,004				—				388,004				475,561				—				475,561
Cost of revenues (2)			(151,831	)			72,005				(79,826	)			(171,593	)			95,443				(76,150	)
Gross profit			236,173				72,005				308,178				303,968				95,443				399,411
Operating expenses
Research and development (3)			(21,509	)			2,563				(18,946	)			(21,766	)			1,655				(20,111	)
Sales and marketing (3)			(39,739	)			295				(39,444	)			(53,446	)			456				(52,990	)
General and administrative (3)			(50,197	)			16,803				(33,394	)			(44,490	)			10,943				(33,547	)
Amortization of SPR intangible assets (4)			(27,329	)			27,329				—				—				—				—
Total operating expenses			(138,774	)			46,990				(91,784	)			(119,702	)			13,054				(106,648	)
Operating income			97,399				118,995				216,394				184,266				108,497				292,763
Interest income			9,716				—				9,716				16,156				—				16,156
Interest expense – convertible notes (5)			(64,524	)			15,137				(49,387	)			(66,046	)			1,898				(64,148	)
Interest expense – amortization of convertible notes issuance costs			(7,918	)			—				(7,918	)			(7,950	)			—				(7,950	)
Interest expense – amortization of share lending costs (6)			(4,931	)			4,931				—				(4,655	)			4,655				—
Other income (expense), net (7)			41,493				(47,393	)			(5,900	)			5,987				(4,112	)			1,875
Income before income tax			71,235				91,670				162,905				127,758				110,938				238,696
Income tax expense			(40,493	)			—				(40,493	)			(58,687	)			—				(58,687	)
Net income			30,742				91,670				122,412				69,071				110,938				180,009
Earnings per ADS
- basic (8)			1.18				3.52				4.70				2.62				4.20				6.82
- diluted (8)			1.18				3.50				4.68				2.61				4.18				6.79
Weighted average number of ADS
- basic (8)			26,061,946				—				26,061,946				26,398,319				—				26,398,319
- diluted (8)			26,147,246				—				26,147,246				26,499,427				—				26,499,427

 

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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 Six Months Ended
		September 30, 2011
		GAAP				Adjustments				Non-GAAP
		US$				US$				US$
		(in thousands except for per ADS information)
Net revenues (1)			74,563				—				74,563
Cost of revenues (2)			(26,904	)			14,964				(11,940	)
Gross profit			47,659				14,964				62,623
Operating expenses
Research and development (3)			(3,413	)			260				(3,153	)
Sales and marketing (3)			(8,380	)			72				(8,308	)
General and administrative (3)			(6,976	)			1,716				(5,260	)
Amortization of SPR intangible assets (4)			—				—				—
Total operating expenses			(18,769	)			2,048				(16,721	)
Operating income			28,890				17,012				45,902
Interest income			2,533				—				2,533
Interest expense – convertible notes (5)			(10,355	)			297				(10,058	)
Interest expense – amortization of convertible notes issuance costs			(1,246	)			—				(1,246	)
Interest expense – amortization of share lending costs (6)			(730	)			730				—
Other income (expense), net (7)			939				(645	)			294
Income before income tax			20,031				17,394				37,425
Income tax expense			(9,201	)			—				(9,201	)
Net income			10,830				17,394				28,224
Earnings per ADS
- basic (8)			0.41				0.66				1.07
- diluted (8)			0.41				0.66				1.07
Weighted average number of ADS
- basic (8)			26,398,319				—				26,398,319
- diluted (8)			26,499,427				—				26,499,427

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.3780 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 Friday, September 30, 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 September 30, 2011 or at any other dates.

 

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Notes:

 

		For the Six Months Ended
		September 30, 2010				September 30, 2011
		RMB’000				RMB’000				US$’000
(1) Net revenues
- Molecular diagnostic systems			226,439				320,085				50,186
- Immunodiagnostic systems			161,565				155,476				24,377
			388,004				475,561				74,563
Molecular diagnostic systems
- HPV-DNA chips			3,820				30,369				4,762

 

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

 

		For the Six Months Ended
		September 30, 2010				September 30, 2011
		RMB’000				RMB’000				US$’000
Stock compensation expense			169				616				96
Amortization of acquired intangible assets			71,836				94,827				14,868
			72,005				95,443				14,964

 

(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 Six Months Ended

September 30, 2010

September 30, 2011

RMB’000

RMB’000

US$’000

Gain on repurchase of convertible notes

47,393

4,112

645

 

(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.

 

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China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

 

		For the Three Months Ended
		June 30, 2011				September 30, 2011
		RMB				RMB				US$
		(in thousands)
Cash flow from operating activities:
Net income			35,728				33,343				5,228
Adjustments to reconcile net income to net cash provided by operating activities:
Exchange loss (gain)			1,180				(1,193	)			(187	)
Depreciation and amortization of property, plant and equipment			5,501				5,501				862
Amortization of intangible assets			47,677				47,150				7,393
Non-cash interest expense on convertible notes			990				908				143
Amortization of convertible notes issuance costs			4,007				3,943				619
Amortization of share lending costs			2,343				2,312				362
Stock compensation expense			7,826				5,844				916
Land use rights expense			48				48				8
Loss on disposal of property, plant and equipment			41				4				1
Deferred income taxes			7,389				7,170				1,124
Gain on repurchase of convertible notes			(4,112	)			—				—
Provision for allowance for doubtful accounts			2,367				4,895				767
Changes in operating assets and liabilities:
Trade accounts receivable			(86,332	)			(78,340	)			(12,283	)
Prepayments and other receivables			1,846				749				117
Inventories			(1,042	)			(91	)			(14	)
Accounts payable			7,073				1,810				284
Accrued liabilities and other payables			15,728				26,190				4,106
Income taxes payable			13,985				18,810				2,949
Net cash provided by operating activities			62,243				79,053				12,395
Cash flow from investing activities:
Purchase of property, plant and equipment			(656	)			(604	)			(95	)
Proceeds from sale of HIFU business			97,358				—				—
Net cash provided by (used in) investing activities			96,702				(604	)			(95	)
Cash flow from financing activities:
Payment for repurchase of convertible notes			(41,621	)			—				—
Net cash used in financing activities			(41,621	)			—				—
Effect of foreign currency exchange rate change on cash and cash equivalents			(1,684	)			(1,070	)			(167	)
Net increase in cash and cash equivalents			115,640				77,379				12,133
Cash and cash equivalents at beginning of period			1,123,818				1,239,458				194,333
Cash and cash equivalents at end of period			1,239,458				1,316,837				206,466

 

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China Medical Technologies, Inc.

EBITDA and Adjusted EBITDA Measures

 

		For the Three Months Ended
		September 30, 2010				September 30, 2011
		RMB				RMB				US$
		(in thousands)
Net income (loss)			(2,936	)			33,343				5,228
Adjustments:
Interest income			(5,119	)			(8,820	)			(1,383	)
Interest expense – convertible notes			32,019				32,699				5,127
Interest expense – amortization of convertible notes issuance costs			3,906				3,943				619
Interest expense – amortization of share lending costs			2,456				2,312				362
Income tax expense			21,831				29,379				4,606
EBIT (1)			52,157				92,856				14,559
Adjustments:
Depreciation			5,497				5,501				862
Amortization			49,422				47,150				7,393
EBITDA (2)			107,076				145,507				22,814
EBITDA (2)			107,076				145,507				22,814
Adjustments:
Stock compensation expense			9,238				5,844				916
Adjusted EBITDA (3)			116,314				151,351				23,730
		For the Six Months Ended
		September 30, 2010				September 30, 2011
		RMB				RMB				US$
		(in thousands)
Net income			30,742				69,071				10,830
Adjustments:
Interest income			(9,716	)			(16,156	)			(2,533	)
Interest expense – convertible notes			64,524				66,046				10,355
Interest expense – amortization of convertible notes issuance costs			7,918				7,950				1,246
Interest expense – amortization of share lending costs			4,931				4,655				730
Income tax expense			40,493				58,687				9,201
EBIT (1)			138,892				190,253				29,829
Adjustments:
Depreciation			10,972				11,002				1,725
Amortization			99,165				94,827				14,868
EBITDA (2)			249,029				296,082				46,422
EBITDA (2)			249,029				296,082				46,422
Adjustments:
Stock compensation expense			19,830				13,670				2,144
Gain on repurchase of convertible notes			(47,393	)			(4,112	)			(645	)
Adjusted EBITDA (3)			221,466				305,640				47,921

Notes:

 

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

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

(3)	Adjusted EBITDA represents EBITDA excluding the effects of stock compensation expense and gain on repurchase of convertible notes.

 

20