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 February 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
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
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CHINA MEDICAL TECHNOLOGIES, INC.
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: February 28, 2008
China Medical Technologies Reports Third Quarter Financial Results
FISH Becomes A Growth Driver
Beijing, China, February 28, 2008 - 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 and high intensity focused ultrasound tumor therapy system, today announced its unaudited financial results for the third quarter ended December 31, 2007 (3Q FY2007). The Companys 2007 fiscal year ends on March 31, 2008.
3Q FY2007 Highlights
*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 report another strong quarter, commented Mr. Xiaodong Wu, Chairman and CEO of the Company. Our FISH equipment sold to leading Chinese hospitals has generated recurring reagent revenue rapidly and we expect the FISH business to be another strong growth driver of the Company in addition to our ECLIA business. We completed the BBE acquisition in January 2008 and expect the new acquisition to be accretive starting from 4Q FY2007.
3Q FY2007 Financial Results
The Company reported net revenues of RMB265.1 million (US$36.3 million) for 3Q FY2007, representing a 64.2% 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 and FISH system sales include the sales of equipment and reagent kits.
ECLIA system sales for 3Q FY2007 were RMB96.7 million (US$13.3 million), representing a 74.4% 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 and the introduction of new reagents, both of which drove increasing demand for reagent kits.
FISH system sales for 3Q FY2007 were RMB52.8 million (US$7.2 million) after the launch of our FISH systems in 1Q FY2007.
HIFU tumor therapy system sales for 3Q FY2007 were RMB115.6 million (US$15.9 million), representing a 9.0% increase from the corresponding period of FY2006. The year-over-year growth in this sector was driven primarily by increases in unit sales.
Gross margin decreased to 63.2% for 3Q FY2007 as compared to 72.6% for the corresponding period of FY2006. The decrease in gross margin was due to the amortization of FISH intangible assets of RMB18.2 million (US$2.5 million) and FISH equipment sales, which generated lower gross margin. Future FISH reagent sales will generate recurring revenue and higher gross margin for the Company. Excluding the impact of FISH amortization, gross margin would have been 70.0%.
Research and development expenses were RMB11.6 million (US$1.6 million) for 3Q FY2007, representing a 24.9% year-over-year increase. The increase was primarily due to the development of new ECLIA reagents and FISH reagents.
Sales and marketing expenses were RMB8.5 million (US$1.2 million) for 3Q FY2007, representing a 99.7% year-over-year increase. The increase was primarily due to the establishment and expansion of direct sales force for FISH systems and relevant promotional activities.
General and administrative expenses were RMB24.2 million (US$3.3 million) for 3Q FY2007, representing a 78.4% year-over-year increase. The increase was primarily due to an increase in the number of employees to accommodate the Companys rapid growth, annual incremental adjustment of salary in June 2007 and stock compensation expense arising from an incentive stock grant in June 2007.
Interest income was RMB7.1 million (US$1.0 million) for 3Q FY2007, representing a 35.8% decrease from the corresponding period of FY2006. The decrease was primarily due to the payment for FISH acquisition and a decrease in interest rate for US dollar bank deposits.
Interest expense of convertible notes was RMB9.8 million (US$1.3 million) for 3Q FY2007. The notes bear interest at 3.5% per annum.
Interest expense of amortization of convertible notes issuance cost of RMB2.0 million (US$0.3 million) for 3Q FY2007 was due to the US$150 million convertible notes issued in November 2006. The issuance cost is amortized over the five year term of the convertible notes.
Other interest expense of RMB1.2 million (US$0.2 million) for 3Q FY2007 was due to the present value discounting of long term other payable of US$10 million for the final payment of FISH acquisition due in February 2009.
Income tax expense was RMB22.7 million (US$3.1 million) for 3Q FY2007. The effective tax rate for 3Q FY2007 was 18.9%.
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 by the State Council in December 2007. However, the application for hi-tech enterprise under the New Law is pending for the implementation by the relevant government authorities. Before the approval of 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. The transitional income tax rates increase gradually from 18% in 2008 to 25% in 2012.
Net income was RMB97.8 million (US$13.4 million) for 3Q FY2007, representing a 10.6% increase from the corresponding period of FY2006.
Adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) was RMB124.8 million (US$17.1 million) for 3Q FY2007, representing a 34.9% increase from the corresponding period of FY2006. The lower growth rate compared to net revenues was primarily due to convertible note expenses of RMB11.7 million (US$1.6 million), a decrease in interest income and an increase in effective income tax rate.
Stock compensation expense for 3Q FY2007 was RMB5.1 million (US$0.7 million), which was allocated to research and development expenses (RMB0.5 million) and general and administrative expenses (RMB4.6 million), respectively.
Amortization of acquired intangible assets for 3Q FY2007 was RMB21.9 million (US$3.0 million), which was allocated to cost of revenues.
As of December 31, 2007, the Companys cash balance was RMB950.3 million (US$130.3 million). Net operating cash flow for 3Q FY2007 was RMB109.7 million (US$15.0 million).
As of December 31, 2007, the Companys accounts receivable was RMB253.2 million (US$34.7 million), representing an increase of 11.4% from the balance at September 30, 2007. The accounts receivable turnover days improved to 115 days from 119 days in previous quarter.
For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB7.2946 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, December 31, 2007.
Outlook for FY2007
During 4Q FY2007, the Companys BBE acquisition has begun to contribute to the Companys revenues and the Companys FISH business, especially its recurring reagent business, has grown rapidly. However, China experienced a severe snow storm in southern provinces in January 2008, which delayed the delivery and installation of several HIFU systems of the Company. In addition, the Companys interest income has been affected by the substantial decrease in US dollar interest rate as well as the Companys income tax expense by the higher income tax rate due to the implementation of the New Law.
As the result of the above, the Company maintains the current targets for FY2007. The current targeted net revenues for FY2007 range from RMB860 million (US$117.9 million) to RMB885 million (US$121.3 million). The current targeted adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) for FY2007 ranges from RMB410 million (US$56.2 million) to RMB420 million (US$57.6 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 RMB14.80 (US$2.03) to RMB15.10 (US$2.07), assuming a diluted number of ADS of approximately 31 million 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.
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. 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 p.m. Eastern Time on February 28, 2008 (or 9:00 a.m. Beijing/Hong Kong time on February 29, 2008) 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 p.m. Eastern Time on February 29, 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 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