China Medical Technologies 6-K 2010
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, 2010
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
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-N/A
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 17, 2010
China Medical Technologies Reports First Fiscal Quarter Financial Results
Beijing, China, August 16, 2010 - China Medical Technologies, Inc. (the Company) (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic (IVD) company, today announced its unaudited financial results for the first fiscal quarter ended June 30, 2010 (1Q FY2010).
1Q FY2010 Highlights
Outlook for 2Q FY2010
The above targets are based on the Companys current views on the operating and market conditions, which are subject to change.
See Non-GAAP Measure Disclosures below, where the impact of certain items on reported results is discussed.
We are pleased with the third consecutive sequential growth in our quarterly revenues. Following the recent receipt of SFDA approval for our SPR-based HPV-DNA chip and positive feedback from the trial use of our chip by our hospital customers, we believe that we will achieve accelerated sequential growth in the upcoming quarters, commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.
1Q FY2010 Unaudited Financial Results
The Company reported revenues of RMB186.2 million (US$27.5 million) for 1Q FY2010, representing a 10.9% decrease from the corresponding period of FY2009 but a 5.9% increase from 4Q FY2009.
The Companys revenues are currently generated from two segments, molecular diagnostic systems and immunodiagnostic systems. The molecular diagnostic system segment includes FISH products and SPR products while the immunodiagnostic system segment consists of ECLIA products.
Molecular diagnostic system sales for 1Q FY2010 were RMB108.1 million (US$15.9 million), representing a 9.8% increase from the corresponding period of FY2009 and a 7.1% increase from 4Q FY2009. The year-over-year and sequential increase was primarily due to the increase in usage of the Companys FISH probes by existing and new hospital customers served by the Companys direct sales personnel.
Immunodiagnostic system sales for 1Q FY2010 were RMB78.1 million (US$11.5 million), representing a 29.3% decrease from the corresponding period of FY2009 and a 4.3% increase from 4Q FY2009. The year-over-year decrease was primarily due to the price reduction for ECLIA reagent kits since September 2009.
Gross margin was 67.0% for 1Q FY2010 which decreased year-over-year from 73.5% for the corresponding period of FY2009 but improved sequentially from 64.9% for 4Q FY2009. The year-over-year decrease in gross margin was primarily due to the impact of the price reduction for ECLIA reagent kits. The sequential increase in gross margin was primarily due to the price reduction for major raw materials used in the production of ECLIA reagent kits and more contribution from the sales of FISH probes which generate higher gross margin.
Research and development expenses were RMB10.6 million (US$1.6 million) for 1Q FY2010, representing a 9.2% year-over-year decrease but a 2.7% sequential increase. The year-over-year decrease was primarily due to lower stock compensation expenses.
Sales and marketing expenses were RMB18.3 million (US$2.7 million) for 1Q FY2010, representing a 68.0% year-over-year increase and a 9.4% sequential increase. The year-over-year and sequential increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems.
General and administrative expenses were RMB25.1 million (US$3.7 million) for 1Q FY2010, representing a 46.4% year-over-year decrease and a 6.0% sequential decrease. The year-over-year decrease was primarily due to no costs of independent internal investigation for 1Q FY2010.
Amortization of SPR intangible assets was RMB27.3 million (US$4.0 million) for 1Q FY2010. Due to the commencement of sales of HPV-DNA chips, the amortization of SPR intangible assets will be classified from operating expenses to cost of revenues starting from 2Q FY2010.
Interest expense on convertible notes was RMB32.5 million (US$4.8 million) for 1Q FY2010. As of June 30, 2010, the Companys outstanding convertible notes of US$135 million and US$248 million bear interest at 3.5% and 4% per annum, respectively, and will mature in November 2011 and August 2013, respectively.
Interest expense on amortization of convertible notes issuance costs was RMB4.0 million (US$0.6 million) for 1Q FY2010.
Due to the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or the financing effective on April 1, 2010, the Company recorded additional non-cash interest expense on amortization of share lending costs of RMB2.5 million (US$0.4 million) for the 4% convertible notes in 1Q FY2010. The Company also made adjustments related to these convertible notes for the corresponding periods of FY2009 by increasing non-cash interest expense on amortization of share lending costs by RMB2.6 million and RMB2.8 million for 4Q FY2009 and 1Q FY2009 respectively, to adopt this guidance retrospectively. There is no share lending arrangement for 3.5% convertible notes.
Other income was RMB43.3 million (US$6.4 million) for 1Q FY2010. The significant year-over-year and sequential increase was primarily due to the gain from the purchase of the Companys convertible notes on the open market.
Income tax expense was RMB18.7 million (US$2.8 million) for 1Q FY2010. The significant income tax expense was primarily because 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 is required to accrue for withholding income tax on distributable earnings generated in China during 1Q FY2010.
Net income was RMB33.7 million (US$5.0 million) for 1Q FY2010, representing a significant increase from the corresponding period of FY2009 and 4Q FY2009.
Non-GAAP net income was RMB57.0 million (US$8.4 million) for 1Q FY2010, representing a 21.4% decrease from the corresponding period of FY2009 but a 10.8% increase from 4Q FY2009.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was RMB142.0 million (US$20.9 million) for 1Q FY2010, representing a 26.6% increase from the corresponding period of FY2009 and a 25.7% increase from 4Q FY2009.
Adjusted EBITDA which excludes stock compensation expense and gain on purchase of convertible notes was RMB105.2 million (US15.5 million) for 1Q FY2010, representing a 15.4% decrease from the corresponding period of FY2009 but a 5.6% increase from 4Q FY2009.
Stock compensation expense for 1Q FY2010 was RMB10.6 million (US$1.6 million), of which RMB0.1 million was allocated to cost of revenues, RMB1.4 million to research and development expenses, RMB0.1 million to sales and marketing expenses and RMB9.0 million to general and administrative expenses.
Amortization of acquired intangible assets for 1Q FY2010 was RMB49.7 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.3 million to operating expenses. Due to the commencement of sales of HPV-DNA chips, amortization of acquired intangible assets will all be allocated to cost of revenues starting from 2Q FY2010.
As of June 30, 2010, the Companys cash and cash equivalents was RMB742.3 million (US$109.5 million). Net cash generated from operating activities for 1Q FY2010 was RMB69.8 million (US$10.3 million).
As of June 30, 2010, the Companys net accounts receivable was RMB311.3 million (US$45.9 million), representing an increase of 2.6% from the balance at March 31, 2010.
For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.7815 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 Wednesday, June 30, 2010. 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 June 30, 2010 or at any other dates.
Non-GAAP Measure Disclosures
The Company provides gross profit, operating income, net income, earnings per ADS, EBITDA and adjusted EBITDA on a Non-GAAP basis to enable investors to better assess the Companys operating performance. The Non-GAAP measures described by the Company are reconciled to the corresponding GAAP measures in the exhibit below titled Reconciliations of GAAP measures to Non-GAAP measures.
The Company reported for 1Q FY2010 and provided guidance for 2Q FY2010 net income and diluted earnings per ADS on a Non-GAAP basis. Each of the terms used by the Company is defined as follows:
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 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.
The Companys senior management team will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on August 16, 2010 (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. U.S. Eastern Time on August 17, 2010.
The dial-in details for the replay are as follows:
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 force and ECLIA reagent kits to small and mid-size hospitals through distributors. 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, as well as its outlook for 2Q FY2010, 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.
Sam Tsang and Winnie Yam
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 GAAP measures to Non-GAAP measures