China Medical Technologies Reports Second Fiscal Quarter Financial Results

China Medical Technologies, Inc., a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its full unaudited financial results for the second fiscal quarter ended September 30, 2008 ("2Q FY2008"). The Company's 2008 fiscal year ends on March 31, 2009 ("FY2008").

China Medical Technologies, Inc., a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its full unaudited financial results for the second fiscal quarter ended September 30, 2008 ("2Q FY2008"). The Company's 2008 fiscal year ends on March 31, 2009 ("FY2008").

2Q FY2008 Highlights

    — Revenues increased by 35.2% year-over-year to RMB290.5 million
       (US$42.8 million).
    — Net income increased by 52.1% year-over-year to RMB117.7 million
       (US$17.3 million).
    — Non-GAAP adjusted net income, as defined below, increased by 46.8%
       year-over-year to RMB154.3 million (US$22.7 million).
    — Diluted earnings per ADS* increased by 43.4% year-over-year to RMB4.13
       (US$0.61).
    — Non-GAAP adjusted diluted earnings per ADS*, as defined below,
       increased by 38.1% year-over-year to RMB5.22 (US$0.77).

       * One American Depositary Share ("ADS") = 10 ordinary shares

We are pleased with the strong results in our second fiscal quarter," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "Our molecular diagnostic business, FISH, continues to drive the growth of the Company in generating recurring revenue and high gross margin. The recent acquisition of the HPV-DNA Biosensor Chip and SPR-based Analysis System expands our molecular diagnostic technology platforms and will create a new source of recurring revenues for us, beginning in the next financial year. After the sale of our HIFU business, we will become a pure advanced IVD player in China. As such, our resources will be invested solely in developing our advanced IVD businesses, especially molecular diagnostic businesses.

2Q FY2008 Financial Results

The Company reported revenues of RMB290.5 million (US$42.8 million) for 2Q FY2008, representing a 35.2% increase from the corresponding period of FY2007.

The Company's revenues are currently generated from three product lines, ECLIA diagnostic systems, FISH diagnostic systems and HIFU tumor therapy systems.

ECLIA system sales for 2Q FY2008 were RMB122.2 million (US$18.0 million), representing a 32.0% 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 Company's ECLIA analyzers by hospitals as well as the expanded installed base of the analyzers which resulted in increased sales of ECLIA reagent kits.

FISH system sales for 2Q FY2008 were RMB71.8 million (US$10.6 million), representing a significant increase for the corresponding period of FY2007. The strong year-over-year growth in the FISH system sales was primarily due to a significant increase in sales of FISH probes to hospitals directly. As of September 30, 2008, more than 300 large hospitals in China were using the Company's FISH probes.

HIFU tumor therapy system sales for 2Q FY2008 were RMB96.5 million (US$14.2 million), representing a 5.5% increase from the corresponding period of FY2007. The year-over-year growth in this sector was driven primarily by an increase in unit sales.

Gross margin increased to 73.2% for 2Q FY2008 from 61.5% for the corresponding period of FY2007. The increase in gross margin was primarily due to the change in revenue mix where a substantial portion of revenues was generated from recurring sales of higher margin ECLIA reagent kits and FISH probes.

Research and development expenses were RMB11.6 million (US$1.7 million) for 2Q FY2008, representing a 43.8% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits and FISH probes and an increase in stock compensation expense arising from a restricted stock grant in June 2008.

Sales and marketing expenses were RMB18.2 million (US$2.7 million) for 2Q FY2008, representing a significant year-over-year increase. The increase was primarily due to the expansion of the 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.

General and administrative expenses were RMB27.7 million (US$4.1 million) for 2Q FY2008, representing a 32.3% year-over-year increase. The increase was primarily due to the increased headcount associated with the expansion of the Company's operations and an increase in stock compensation expense arising from a restricted stock grant in June 2008.

Interest income was RMB10.3 million (US$1.5 million) for 2Q FY2008, representing a 32.3% increase from the corresponding period of FY2007. The increase was primarily due to interest earned on the net proceeds from the US$276 million convertible notes issued in August 2008.

Interest expense of convertible notes was RMB18.4 million (US$2.7 million) for 2Q FY2008, representing an 85.6% increase from the corresponding period of FY2007. The increase was primarily due to the US$276 million convertible notes issued in August 2008. The existing two convertible notes bear interest at 3.5% and 4.0% per annum, respectively.

Interest expense of amortization of convertible notes issuance cost was RMB3.2 million (US$0.5 million) for 2Q FY2008, representing a 60.9% increase from the corresponding period of FY2007. The increase was primarily due to the convertible notes issuance cost in connection with the US$276 million convertible notes issued in August 2008.

Other interest expense was RMB1.1 million (US$0.2 million) for 2Q FY2008 primarily due to the present value discounting of long term other payable of US$10.0 million for the final payment of the FISH acquisition due in March 2009.

Income tax expense was RMB24.9 million (US$3.7 million) for 2Q FY2008. The effective tax rate for 2Q FY2008 was 17.5%.

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 a 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 has submitted application for hi-tech enterprise qualification to 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 under which 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.

Net income was RMB117.7 million (US$17.3 million) for 2Q FY2008, representing a 52.1% increase from the corresponding period of FY2007.

Adjusted net income excluding stock compensation expense and amortization of acquired intangible assets (non-GAAP) was RMB154.3 million (US$22.7 million) for 2Q FY2008, representing a 46.8% increase from the corresponding period of FY2007.

Stock compensation expense for 2Q FY2008 was RMB14.1 million (US$2.1 million), which was allocated to research and development expenses (RMB2.4 million) and general and administrative expenses (RMB11.7 million).

Amortization of acquired intangible assets for 2Q FY2008 was RMB22.5 million (US$3.3 million), which was allocated to cost of revenues.

As of September 30, 2008, the Company's cash balance was RMB2,702.7 million (US$398.1 million).

As of September 30, 2008, the Company's accounts receivable was RMB325.6 million (US$48.0 million), representing an increase of 7.8% from the balance as of June 30, 2008. The accounts receivable turnover days remained the same at 110 days.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.7899 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 Tuesday, September 30, 2008.

Completion of the Acquisition of HPV-DNA Biosensor Chip and SPR-based Analysis System

For more information please visit http://www.chinameditech.com