China Medical Technologies 6-K 2007
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 August 2007
Commission File Number: 000-51440
CHINA MEDICAL TECHNOLOGIES, INC.
(Translation of registrants name into English)
No. 24 Yong Chang North Road
Beijing Economic-Technological Development Area
Peoples 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
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TABLE OF CONTENTS
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: August 29, 2007
China Medical Technologies Reports First Quarter Financial Results
Robust IVD Revenue Exceeded HIFU Revenue
FY2007 Annual Targets Under Review
Beijing, China, August 28, 2007China Medical Technologies, Inc. (the Company) (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products and high intensity focused ultrasound tumor therapy system, today announced its unaudited financial results for the first quarter ended June 30, 2007 (1Q FY2007). The Companys 2007 fiscal year ends on March 31, 2008.
1Q FY2007 Highlights
See Non-GAAP Measure Disclosures below, where the impact of certain items on reported results is discussed.
We are pleased to see the momentum of this quarters business growth mainly driven by in-vitro diagnostic business. The revenue from IVD businesses has exceeded the revenue for HIFU business for the first time, commented Mr. Xiaodong Wu, Chairman and CEO of the Company. Going forward, we expect the seasonality of our HIFU business to have less impact on our results of operations and we will continue to benefit from the recurring nature of our IVD businesses including our ECLIA reagent business and our FISH probe business. We have successfully launched our FISH products and received very positive responses from many leading hospitals in the PRC. We believe our FISH business, in addition to our ECLIA business will become another major driver for our future growth.
1Q FY2007 Financial Results
The Company reported net revenues of RMB151.5 million (US$19.9 million) for 1Q FY2007, representing a 66.6% increase from the corresponding period of FY2006.
The Companys revenues are currently generated from three product lines, ECLIA diagnostic systems, FISH diagnostic systems and HIFU tumor therapy systems. ECLIA system sales include the sales of ECLIA analyzers and reagent kits. FISH system sales include the sales of FISH equipment and probes.
ECLIA system sales for 1Q FY2007 were RMB79.1 million (US$10.4 million), representing a 84.7% increase from the corresponding period of FY2006. The strong year-over-year growth in the ECLIA system sales reflected the increasing utilization of ECLIA analyzers by hospitals which drove increasing demand for reagent kits.
FISH system sales for 1Q FY2007 were RMB14.4 million (US$1.9 million) upon the launch of our FISH systems in this quarter. The sales represented only sales of equipment where sales of probes are expected in September quarter.
HIFU tumor therapy system sales for 1Q FY2007 were RMB58.0 million (US$7.6 million), representing a 20.5% increase from the corresponding period of FY2006. The year-over-year growth in this sector was driven primarily by increases in unit sales and selling price. Due to seasonality, first fiscal quarter is typically the weakest quarter for HIFU sales in a fiscal year.
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.
Other interest expense of RMB1.6 million (US$0.2 million) for 1Q FY2007 was primarily due to notional interest in connection with the present value discounting of long term other payable of US$10 million for the final payment of FISH acquisition due in February 2009.
Amortization of convertible notes issuance cost of RMB2.0 million (US$0.3 million) for 1Q FY2007 was due to the US$150 million convertible notes issued in November 2006. The issuance cost is amortized over the term of the convertible notes which is five years.
Income tax expense was RMB7.9 million (US$1.0 million) for 1Q FY2007. One of the Companys PRC subsidiaries is entitled to an income tax concession at a rate of 10% which will expire in December 2007. The effective tax rate for 1Q FY2007 was 13.3%.
On March 16, 2007, the 10th Peoples Congress of China passed the China Unified Corporate Income Tax Law (the New Law), which will become effective on January 1, 2008. The New Law established a single unified 25% income tax rate for most companies with some preferential income tax rates including 15% income tax rate to be applicable to qualified hi-tech enterprises. The related
detailed implementation rules and regulations (the IRRs) on the definition of various terms and the interpretation and application of the provisions of the New Law are expected to be promulgated by the State Council within 2007. The Company currently believes that the IRRs will not impact its qualification as a hi-tech enterprise, and as such, believes the current tax rate of 15% will continue to apply. In the event the promulgation of the new IRRs results in a change such that the Company will no longer qualify as a hi-tech enterprise, it will be required to pay income tax in accordance with the IRRs starting on January 1, 2008.
Net income was RMB51.7 million (US$6.8 million) for 1Q FY2007, representing a 12.6% increase from the corresponding period of FY2006.
Adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) was RMB68.7 million (US$9.0 million) for 1Q FY2007, representing a 37.4% increase from the corresponding period of FY2006. The lower growth rate compared to net revenues was primarily due to convertible note expenses of RMB12.1 million (US$1.6 million).
Stock compensation expense for 1Q FY2007 was RMB1.4 million (US$0.2 million) which was allocated to research and development expenses (RMB0.1 million) and general and administrative expenses (RMB1.3 million).
Amortization of acquired intangible assets for 1Q FY2007 was RMB15.6 million (US$2.1 million) which was allocated to cost of revenues.
As of June 30, 2007, the Companys cash balance was RMB1.1 billion (US$150.5 million). Net operating cash flow for 1Q FY2007 was RMB73.3 million (US$9.6 million).
As of June 30, 2007, the Companys accounts receivable was RMB215.3 million (US$28.3 million), representing an increase of 6.7% from the balance at March 31, 2007. The accounts receivable turnover days improved to 129 days from 135 days in previous quarter.
For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB7.612 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, as of Friday, June 29, 2007.
Appointment and Resignation of Director
The Company announced that it has accepted Dr. Ruyu Dus resignation as a member of the Board of Directors, including his position as a member of the nomination committee of the Company, effective September 30, 2007. Dr. Du has been a member of the Board of Directors since June 2005. He got a serious illness recently and is receiving continuous treatment. Mr. Xiaodong Wu, the Companys Chairman and CEO, stated, We express our sincere gratitude to the contribution that Dr. Du has made to the Company and wish him to recover from the illness.
The Board of Directors has appointed Dr. Yuedong Li to the Board effective October 1, 2007. Dr. Li is currently the Chief Secretary of the China Hospital Association and the Deputy Director of Center of Organ Transplant at Beijing University. Dr. Li also holds various positions in a number of medical associations. He has over 30 years of experience in medical profession, clinical research and management of a number of healthcare organizations in the PRC. Mr. Wu stated, We welcome Dr. Li to join our board. Dr. Li is an outstanding surgeon and a successful leader in healthcare organizations. His expertise will be invaluable to the rapid development of the Company.
Outlook for FY2007
The Company is reassessing the current targets for FY2007 based on better than expected ECLIA reagent business and smooth progress of FISH business. The current targeted net revenues for FY2007 range from RMB830 million to RMB870 million. The current targeted adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2007 ranges from RMB390 million to RMB410 million. The current targeted adjusted diluted earnings per ADS excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2007 ranges from RMB14.15 to RMB14.80 assuming a diluted number of ADS of 31,000,000 and excluding interest for convertible notes and amortization of convertible notes issuance cost.
These targets are based on the Companys current views on the operating and market conditions which are subject to change.
The assessment and revision on these targets will be completed when the Company reports its 2Q FY2007 financial results in November 2007.
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 adjusted net income and adjusted earnings per share, which are adjusted from results based on GAAP to exclude the impact of stock compensation expense and amortization of acquired intangible assets. Non-GAAP financial measures are used by the Company in their financial and operating decision-making because management believes they reflect the Companys ongoing business in a manner that allows meaningful period-to-period comparison. The Companys management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Companys current operating performance and future prospects in the same manner as management does, if they so choose. The Companys management also believes the non-GAAP financial measures are useful for itself and investors because it makes more meaningful comparisons of the Companys current results of operations to those of prior periods.
The Companys management believes excluding the non-cash stock compensation expense from its non-GAAP financial measures is useful for itself and investors as such expense will not result in future cash payment and is otherwise unrelated to the Companys core operating results.
The Companys management believes excluding the non-cash amortization expense of acquired intangible assets resulting from acquisitions from its non-GAAP financial measures is useful for itself and investors because they enable a more meaningful comparison of the Companys performance between reporting periods. In addition, such amortization will not result in cash settlement in the future.
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 press release.
The Companys management team will host a conference call at 8:00 a.m. Eastern Time on August 28, 2007 (or 8:00 p.m. Beijing/Hong Kong time on August 28, 2007) to discuss the results following this earnings announcement.
The dial-in details for the live conference call are as follows:
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. Eastern Time on August 29, 2007.
The dial-in details for the replay are as follows:
About China Medical Technologies
China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostics products using Enhanced Chemiluminescence (ECLIA) technology and Fluorescent in situ Hybridization (FISH) technology, to detect and monitor various diseases and disorders, and system using High Intensity Focused Ultrasound (HIFU) for the treatment of solid cancers and benign tumors. For more information, please visit www.chinameditech.com.
Safe Harbor Statement
This press release contains forward-looking statements. These statements constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 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 Companys strategic operational plans, as well as outlook for FY2007, 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 Companys 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.
China Medical Technologies, Inc.
China Medical Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
China Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Income
China Medical Technologies, Inc.
Reconciliations of Non-GAAP Adjusted Net Income to GAAP Net Income