China Medical Technologies 6-K 2008
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 2008
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 5, 2008
China Medical Technologies Reports First Quarter Financial Results
Beijing, China, August 4, 2008China 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, 2008 (1Q FY2008). The Companys 2008 fiscal year ends on March 31, 2009 (FY2008).
1Q FY2008 Highlights
See Non-GAAP Measure Disclosures below, where the impact of certain items on reported results is discussed.
We are pleased with the change in the Companys major source of revenues from selling medical equipment to selling diagnostic reagents which was achieved by the strong growth of our diagnostic reagent businesses, commented Mr. Xiaodong Wu, Chairman and CEO of the Company. More than 95% of our revenues from ECLIA and FISH operations this quarter came from sales of ECLIA and FISH reagents which generated higher gross margin and were recurring in nature. We expect our diagnostic reagent businesses to continue their growth momentum in upcoming quarters.
1Q FY2008 Financial Results
The Company reported revenues of RMB226.8 million (US$33.1 million) for 1Q FY2008, representing a 49.7% increase from the corresponding period of FY2007.
The Companys revenues are currently generated from three product lines, ECLIA diagnostic systems, FISH diagnostic systems and HIFU tumor therapy systems. ECLIA and FISH system sales include the sales of equipment and reagent kits.
ECLIA system sales for 1Q FY2008 were RMB111.7 million (US$16.3 million), representing a 41.3% increase from the corresponding period of FY2007. The strong year-over-year growth in the ECLIA system sales was primarily due to the increasing utilization of the Companys ECLIA analyzers by hospitals as well as the expanded installed base of the analyzers which resulted in increased sales of ECLIA reagents.
FISH system sales for 1Q FY2008 were RMB50.3 million (US$7.3 million), representing a significant increase from the corresponding period of FY2007. The strong year-over year growth in the FISH system sales especially sales of FISH reagents was primarily due to a significant increase in FISH users. The Company commenced sales of the FISH systems in June 2007 and as of June 30, 2008, over 200 large hospitals in China were using the Companys FISH reagents.
HIFU tumor therapy system sales for 1Q FY2008 were RMB64.7 million (US$9.4 million), representing an 11.6% increase from the corresponding period of FY2007. The year-over-year growth was driven primarily by increases in unit sales.
Gross margin increased to 69.1% for 1Q FY2008 as compared to 57.5% for the corresponding period of FY2007. The increase in gross margin was primarily due to the change in revenue mix where a higher portion of revenues was generated from recurring sales of higher margin ECLIA reagents and FISH reagents.
Research and development expenses were RMB10.5 million (US$1.5 million) for 1Q FY2008, representing a 7.7% year-over-year increase. The increase was primarily due to the development of new ECLIA reagents and FISH reagents.
Sales and marketing expenses were RMB12.7 million (US$1.9 million) for 1Q FY2008, representing a significant year-over-year increase. The increase was primarily due to the expansion of direct sales force for FISH system sales, increased product promotional activities as well as the cost of the ECLIA analyzers given free of charge to customers under the Companys reagent rental arrangement.
General and administrative expenses were RMB26.2 million (US$3.8 million) for 1Q FY2008, representing an 87.9% year-over-year increase. The increase was primarily due to the increased headcount associated with the expansion of the Companys operations and an increase in stock compensation expense arising from a restricted stock grant in June 2008.
Interest income was RMB4.0 million (US$0.6 million) for 1Q FY2008, representing a 54.0% decrease from the corresponding period of FY2007. The decrease was primarily due to lower cash balance resulting from the payments for FISH and other acquisitions and a decrease in interest rate for US dollar bank deposits.
Interest expense of convertible notes was RMB9.1 million (US$1.3 million) for 1Q FY2008. The notes bear interest at 3.5% per annum.
Interest expense of amortization of convertible notes issuance cost was RMB1.9 million (US$0.3 million) for 1Q FY2008.
Other interest expense of RMB1.1 million (US$0.2 million) for 1Q FY2008 was primarily due to the present value discounting of other payable of US$10 million for the final payment of FISH acquisition due in March 2009.
Income tax expense was RMB18.8 million (US$2.7 million) for 1Q FY2008. The effective tax rate for 1Q FY2008 was 19.0%.
The China Unified Corporate Income Tax Law (the New Law) became 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 on the definition of various terms and the interpretation and application of the provisions of the New Law were promulgated in December 2007, April 2008 and July 2008. The Company is waiting for the formal acceptance of application for hi-tech enterprise qualification by the relevant government authorities. Before the approval for the qualification to be a hi-tech enterprise, the Company is required to pay income tax in accordance with the transitional income tax arrangement where the income tax rate is 18% in 2008 and 20% in 2009. The Company believes that it meets the criteria of hi-tech enterprise under the New Law and will be ready to make the application when the government authorities commence the process.
Net income was RMB80.3 million (US$11.7 million) for 1Q FY2008, representing a 79.1% increase from the corresponding period of FY2007.
Adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) was RMB110.7 million (US$16.1 million) for 1Q FY2008, representing a 61.2% increase from the corresponding period of FY2007.
Stock compensation expense for 1Q FY2008 was RMB7.7 million (US$1.1 million), which was allocated to research and development expenses (RMB1.3 million) and general and administrative expenses (RMB6.4 million), respectively.
Amortization of acquired intangible assets for 1Q FY2008 was RMB22.7 million (US$3.3 million), which was allocated to cost of revenues.
As of June 30, 2008, the Companys cash balance was RMB780.9 million (US$113.9 million). Net cash provided by operating activities for 1Q FY2008 was RMB115.8 million (US$16.9 million).
As of June 30, 2008, the Companys accounts receivable was RMB302.1 million (US$44.0 million), representing an increase of 4.3% from the balance as of March 31, 2008. The accounts receivable turnover days decreased to 110 days from 114 days in previous quarter.
For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8591 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 Monday, June 30, 2008.
Outlook for FY2008
As the June quarter is the first quarter of FY2008, the Company maintains the current annual targets for FY2008. The current targeted net revenues for FY2008 range from RMB1,190 million (US$173.5 million) to RMB1,230 million (US$179.3 million). The current targeted adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2008 ranges from RMB585 million (US$85.3 million) to RMB605 million (US$88.2 million). The current targeted adjusted diluted earnings per share excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2008 ranges from RMB20.10 (US$2.93) to RMB20.73 (US$3.02) assuming a diluted number of ADS of about 31.5 million and excluding interest for convertible notes and amortization of convertible notes issuance cost.
The targets are based on the Companys current views on the operating and marketing conditions which are subject to change.
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 ADS, which are adjusted from results based on GAAP to exclude the impact of stock compensation expense and amortization of acquired intangible assets. 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 4, 2008 (or 8:00 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:
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 5, 2008.
The dial-in details for the replay are as follows:
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 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 FY2008, 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.
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