##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 20-F





(Mark One)



| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended March 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

OR



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Commission file number: 000-51440





CHINA MEDICAL
TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)





N/A

(Translation of Registrants name into
English)

Cayman Islands

(Jurisdiction of incorporation or organization)

No. 24 Yong Chang
North Road

Beijing Economic-Technological Development Area

Beijing 100176

Peoples Republic of China

(Address of principal executive offices)





Takyung (Sam) Tsang

Chief Financial Officer

No. 24 Yong Chang North Road

Beijing Economic-Technological Development Area

Beijing 100176

Peoples Republic of China

Telephone: (86) 10 6787 1166

Fax: (86) 10 6788 9588

Email: IR@chinameditech.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)





Securities
registered or to be registered pursuant to Section 12(b) of the Act:



|                                                                                            |  |                                                          
|------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------
|Title of Each Class                                                                         |  | Name of Each Exchange on Which
Registered                
|American Depositary Shares, each representing 10 ordinary shares, par value $0.10 per share |  | The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Securities registered or to be registered pursuant to Section 12(g) of the Act

Name of each exchange and Title of each class on which registered:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the
Act.

None

(Title of Class)





Indicate the number
of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report. 321,066,661 Ordinary Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ̈    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x                    Accelerated filer   ̈                    Non-accelerated filer   ̈

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:

U.S. GAAP  x                    International Financial Reporting Standards as issued by the International Accounting
Standards Board   ̈                    Other   ̈

If Other has been checked in response to the previous question,
indicate by check mark which financial statement item the registrant has elected to follow.    Item 17   ̈    Item 18   ̈

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes   ̈    No   ̈









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TABLE OF CONTENTS



|          |  |                                                                              |  |     
|--------- |  | ---------------------------------------------------------------------------- |  | ----
|          |  |                                                                              |  | Page
|PART I    |  |                                                                              |  |     
|          |  |                                                                             
|Item 1.   |  | Identity of Directors, Senior Management and Advisers                        |  | 4   
|          |  |                                                                             
|Item 2.   |  | Offer Statistics and Expected Timetable                                      |  | 4   
|          |  |                                                                             
|Item 3.   |  | Key Information                                                              |  | 4   
|          |  |                                                                             
|Item 4.   |  | Information on the Company                                                   |  | 31  
|          |  |                                                                             
|Item 4A.  |  | Unresolved Staff Comments                                                    |  | 45  
|          |  |                                                                             
|Item 5.   |  | Operating and Financial Review and Prospects                                 |  | 46  
|          |  |                                                                             
|Item 6.   |  | Directors, Senior Management and Employees                                   |  | 68  
|          |  |                                                                             
|Item 7.   |  | Major Shareholders and Related Party Transactions                            |  | 75  
|          |  |                                                                             
|Item 8.   |  | Financial Information                                                        |  | 76  
|          |  |                                                                             
|Item 9.   |  | The Offer and Listing                                                        |  | 78  
|          |  |                                                                             
|Item 10.  |  | Additional Information                                                       |  | 79  
|          |  |                                                                             
|Item 11.  |  | Quantitative and Qualitative Disclosures about Market Risk                   |  | 85  
|          |  |                                                                             
|Item 12.  |  | Description of Securities other than Equity Securities                       |  | 86  
|          |  |                                                                             
|PART II   |  |                                                                              |  |     
|          |  |                                                                             
|Item 13.  |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 87  
|          |  |                                                                             
|Item 14.  |  | Material Modifications to the Rights to Security Holders and Use of Proceeds |  | 87  
|          |  |                                                                             
|Item 15.  |  | Controls and Procedures                                                      |  | 88  
|          |  |                                                                             
|Item 16A. |  | Audit Committee Financial Expert                                             |  | 89  
|          |  |                                                                             
|Item 16B. |  | Code of Ethics                                                               |  | 89  
|          |  |                                                                             
|Item 16C. |  | Principal Accountant Fees and Services                                       |  | 89  
|          |  |                                                                             
|Item 16D. |  | Exemptions from the Listing Standards for Audit Committees                   |  | 90  
|          |  |                                                                             
|Item 16E. |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       |  | 90  
|          |  |                                                                             
|Item 16F. |  | Change in Registrants Certifying Accountant                                 |  | 90  
|          |  |                                                                             
|Item 16G. |  | Corporate Governance                                                         |  | 91  
|          |  |                                                                             
|PART III  |  |                                                                              |  |     
|          |  |                                                                             
|Item 17.  |  | Financial Statements                                                         |  | 92  
|          |  |                                                                             
|Item 18.  |  | Financial Statements                                                         |  | 92  
|          |  |                                                                             
|Item 19.  |  | Exhibits                                                                     |  | 92  



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INTRODUCTION

Unless otherwise indicated, references in this annual report on Form 20-F to:



| |  |  | ADRs are to the American depositary receipts, which, if issued, evidence our ADSs;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | ADSs are to our American depositary shares, each of which represents 10 ordinary shares;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Articles of association are to our memorandum and articles of association, as amended and restated from time to time;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | China and the PRC are to the Peoples Republic of China, excluding, for the purposes of this annual report on Form 20-F
only, Taiwan and the special administrative regions of Hong Kong and Macau;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | RMB and Renminbi are to the legal currency of China;
| | - |  | --------------------------------------------------------



| |  |  | shares and ordinary shares are to our ordinary shares, par value US$0.10 per share; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | US$ and U.S. dollars are to the legal currency of the United States.
| | - |  | ------------------------------------------------------------------------

Unless the context indicates otherwise, we, us, our company, our, China Medical
and CMED refer to China Medical Technologies, Inc., its predecessor and wholly owned subsidiary, YDME Beijing, and all other direct and indirect consolidated subsidiaries of China Medical Technologies, Inc.

In addition, unless otherwise indicated, references in this annual report on Form 20-F to:



| |  |  | BBE are to Beijing Bio-Ekon Biotechnology Co., Ltd.;
| | - |  | ------------------------------------------------------



| |  |  | Beijing Chengxuan are to Beijing Chengxuan Economic and Trade Co., Ltd.;
| | - |  | --------------------------------------------------------------------------



| |  |  | Beijing GP are to Beijing GP Medical Technologies Co., Ltd., one of our wholly owned subsidiaries in China;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Beijing Weixiao are to Beijing Weixiao Biological Technology Development Co., Ltd.;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Chengxuan are to Chengxuan International Ltd.; and
| | - |  | ----------------------------------------------------



| |  |  | YDME Beijing are to Beijing Yuande Bio-Medical Engineering Co., Ltd., our predecessor and wholly owned subsidiary in China.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

The following technical and industry specific terms used in this annual report on Form 20-F have the
meanings set forth below:



| |  |  | CCD camera means charge-couple-device camera equipped with a chip to control the brightness and brilliance of colors of the recorded
images;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DNA means deoxyribonucleic acid, a nucleic acid molecule that contains the genetic instructions for the development and functioning of all
known living organisms;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DNA chip means a molecular diagnostic biosensor chip used with SPR-based analysis system for the diagnosis of infectious diseases, cancers,
cardiovascular disorders and immune system disorders;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ECLIA analyzer means an IVD instrument capable of detecting minute levels of light triggered by combining reagents with body fluid samples
to produce quantitative diagnostic results;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ECLIA reagent kits means reagent kits designed to be used with the ECLIA analyzers to perform IVD tests;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | ECLIA system means an integrated luminescence immunoassay IVD system comprised of an analyzer and reagent kits for detecting and
quantifying a specific antigen or antibody in a blood or body fluid sample using an immunological reaction;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FISH imaging analyzer means an integrated system comprised of a fluorescent microscope, CCD camera and FISH imaging analysis software that
enable medical practitioners to visualize and locate DNA sequences in human cells for identifying chromosomal abnormalities using fluorescent in situ hybridization technology;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | FISH business means the business of manufacturing and selling FISH imaging analysis system and FISH probes that we acquired in March 2007;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FISH probes means a synthetic piece of DNA coupled with a fluorescent indicator, or tag, so that the chromosomes or genes that it binds to
can be directly visualized under a fluorescent microscope;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FISH products or FISH system means the FISH imaging analyzer and the FISH probes;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Fluorescent in situ hybridization technology or FISH technology means a molecular diagnostic technology that uses a
fluorescent-labeled probe to detect and localize the presence or absence of specific DNA sequences on chromosome;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | HIFU means high intensity focused ultrasound;
| | - |  | -----------------------------------------------



| |  |  | HIFU therapy system means an ultrasound-guided ablation system that is used for the non-invasive treatment of solid tumors;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | HIV means human immunodeficiency virus, a retrovirus that can lead to acquired immunodeficiency syndrome, a condition in humans in which
the immune system begins to fail, leading to life-threatening opportunistic infections;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | HPV means human papillomavirus, a common virus that infects the skin and mucous membranes of humans, causing various kinds of warts as well
as cervical cancer;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | HPV-DNA chip means a label-free DNA chip for the diagnosis of HPV infection and genotyping of HPV;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | In-vitro diagnostics or IVD means the detection and monitoring of diseases through laboratory evaluation and the analysis of
bodily fluids and tissues from patients;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IVD systems consists of the ECLIA analyzer, ECLIA reagent kits, FISH imaging analyzer and probes, SPR system and HPV-DNA chips;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Luminescence immunoassay IVD system means an advanced, light-based IVD system commonly used in the United States and Western Europe;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Probes means a piece of labeled DNA used to detect the presence of a complementary DNA sequence by molecular hybridization;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | Reagent means a substance used in a chemical reaction to detect, measure and produce other substances;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Reagent kits means commercially prepared reagent sets, with accessory devices, containing all major components necessary to perform IVD
tests;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPR means surface plasmon resonance, a leading biosensor technology in molecular biology used for the analysis of proteins, nucleic acids
and viruses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPR-based analysis system or SPR system means a label-free analysis system that utilizes SPR technology in various clinical
diagnostic applications, such as the detection of biomarkers related to infectious diseases, cancers, cardiovascular disorders and immune system disorders; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPR business means the business of manufacturing and selling SPR system and DNA chips, including the SPR-related assets that we acquired in
December 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

We completed the initial public offering of 7,360,000 ADSs, each representing 10 ordinary
shares in August 2005. On August 10, 2005, we listed our ADSs on the Nasdaq Global Select Market (then called the Nasdaq National Market) under the symbol CMED. On March 27, 2006, we completed a follow-on offering of 5,750,000
ADSs, which were sold by certain shareholders. On November 21, 2006, we completed an offering of US$150 million principal amount of 3.5% Convertible Senior Subordinated Notes due November 2011 to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended (the Securities Act).



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Concurrently with the offering of 3.5% Convertible Senior Subordinated Notes due November 2011, we entered into a prepaid forward repurchase contract with an affiliate of Merrill Lynch &
Co. Pursuant to the forward repurchase contract, we repurchased contemporaneously with the sales of the convertible notes, an aggregate of US$30 million of ADSs, equivalent to 1,163,392 ADS at US$25.78 per ADS. We filed a registration statement on
Form F-3 (333-139777) to register the resale of the convertible notes and the ADSs issuable upon conversion of the convertible notes in January 2007 and the registration statement was declared effective by the SEC on January 26, 2007. On
August 15, 2008, we completed an offering of US$276 million principal amount of 4.0% Convertible Senior Notes due August 2013 pursuant to a registration statement on Form F-3 (333-152937) which was filed and became effective on August 11,
2008. Concurrently with the offering of 4.0% Convertible Senior Notes due August 2013, we entered into an ADS issuance and repurchase agreement with affiliates of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated, or
the Dealers. Pursuant to the ADS issuance and repurchase agreement, we issued 4,700,000 ADSs to the Dealers at a consideration of US$1.00 per ADS. The Dealers will be obligated to deliver to us an equal number of ADSs in the future. On the same day
we issued the ADSs to the Dealers, we prepaid a purchase price of US$1.00 per ADS for the 4,700,000 ADSs to be repurchased from the Dealers by us in the future.



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PART I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------



|A. | Selected Financial Data
|-- | -----------------------

The following selected consolidated statement of income data (other than ADS data) for the fiscal years ended March 31, 2007, 2008 and 2009 and the selected consolidated balance sheet data as of March 31, 2008 and 2009 have been
derived from our audited consolidated financial statements included elsewhere in this annual report on Form 20-F. The following selected consolidated balance sheet data as of March 31, 2005, 2006 and 2007 have been derived from our audited
consolidated financial statements, which are not included in this annual report on Form 20-F. The following selected consolidated statement of income data (other than ADS data) for the fiscal years ended March 31, 2005 and 2006 have been derived
from our unaudited consolidated financial statements. In December 2008, we sold the HIFU business to Chengxuan and discontinued the HIFU business. As a result, the HIFU business has been accounted for as a discontinued operation in accordance with
U.S. Generally Accepted Accounting Principles (U.S. GAAP) in our consolidated financial statements. As required by U.S. GAAP, we have reclassified the comparative operating results of the discontinued operation for the fiscal years ended
March 31, 2005, 2006, 2007 and 2008 as discontinued operations in our consolidated statements of income for the respective fiscal years. Our consolidated statements of income for the fiscal years ended March 31, 2005 and 2006 as reclassified are not
audited by our independent registered public accountants.

You should read this information together with the consolidated
financial statements and related notes and information under Item 5. Operating and Financial Review and Prospects included elsewhere in this annual report on Form 20-F. Our consolidated financial statements are prepared and presented in
accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.



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|                                                            |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|----------------------------------------------------------- |  | ----------------------------------------------------------------------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                            |  | Year ended March 31,                                                    |  
|                                                            |  | 2005                                                                    |   |  | 2006        |   |  | 2007        |   |  | 2008        |   |  | 2009        |   |  | 2009        |  
|                                                            |  | RMB                                                                     |   |  | RMB         |   |  | RMB         |   |  | RMB         |   |  | RMB         |   |  | US$         |  
|                                                            |  | (unaudited)                                                             |   |  | (unaudited) |   |  |             |   |  |             |   |  |             |   |  |             |  
|                                                            |  | (in thousands, except for number of shares, per share and per ADS data) |  
|Consolidated Statement of Income Data:                      |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Revenues                                                    |  | 40,272                                                                  |   |  | 124,889     |   |  | 215,550     |   |  | 547,421     |   |  | 829,950     |   |  | 121,464     |  
|Gross profit                                                |  | 25,232                                                                  |   |  | 87,244      |   |  | 157,800     |   |  | 301,984     |   |  | 597,379     |   |  | 87,427      |  
|Operating income                                            |  | 10,120                                                                  |   |  | 44,033      |   |  | 91,507      |   |  | 188,130     |   |  | 144,228     |   |  | 21,108      |  
|Other income (expense), net                                 |  | 192                                                                     |   |  | 20,098      |   |  | 24,217      |   |  | (23,565     | ) |  | (73,243     | ) |  | (10,719     | )
|Income from continuing operations before income taxes       |  | 10,312                                                                  |   |  | 64,131      |   |  | 115,724     |   |  | 164,565     |   |  | 70,985      |   |  | 10,389      |  
|Income tax expense                                          |  | (604                                                                    | ) |  | (4,490      | ) |  | (12,049     | ) |  | (51,999     | ) |  | (73,042     | ) |  | (10,690     | )
|Income (loss) from continuing operations                    |  | 9,708                                                                   |   |  | 59,641      |   |  | 103,675     |   |  | 112,566     |   |  | (2,057      | ) |  | (301        | )
|Income from and gain on sale of discontinued operation, net |  | 108,735                                                                 |   |  | 139,372     |   |  | 186,043     |   |  | 212,656     |   |  | 364,409     |   |  | 53,331      |  
|Net income                                                  |  | 118,443                                                                 |   |  | 199,013     |   |  | 289,718     |   |  | 325,222     |   |  | 362,352     |   |  | 53,030      |  
|Net income (loss) per shareBasic(1):                       |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Income (loss) from continuing operations                    |  | 0.05                                                                    |   |  | 0.24        |   |  | 0.39        |   |  | 0.43        |   |  | (0.01       | ) |  | (0.00       | )
|Income from and gain on sale of discontinued operation, net |  | 0.54                                                                    |   |  | 0.56        |   |  | 0.69        |   |  | 0.81        |   |  | 1.39        |   |  | 0.20        |  
|Total                                                       |  | 0.59                                                                    |   |  | 0.80        |   |  | 1.08        |   |  | 1.24        |   |  | 1.38        |   |  | 0.20        |  
|Net income (loss) per shareDiluted(1):                     |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Income (loss) from continuing operations                    |  | 0.05                                                                    |   |  | 0.24        |   |  | 0.38        |   |  | 0.43        |   |  | (0.01       | ) |  | (0.00       | )
|Income from and gain on sale of discontinued operation, net |  | 0.54                                                                    |   |  | 0.56        |   |  | 0.69        |   |  | 0.81        |   |  | 1.39        |   |  | 0.20        |  
|Total                                                       |  | 0.59                                                                    |   |  | 0.80        |   |  | 1.07        |   |  | 1.24        |   |  | 1.38        |   |  | 0.20        |  
|Net income (loss) per ADSBasic(2):                         |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Income (loss) from continuing operations                    |  | 0.49                                                                    |   |  | 2.42        |   |  | 3.85        |   |  | 4.29        |   |  | (0.08       | ) |  | (0.01       | )
|Income from and gain on sale of discontinued operation, net |  | 5.44                                                                    |   |  | 5.65        |   |  | 6.91        |   |  | 8.11        |   |  | 13.87       |   |  | 2.03        |  
|Total                                                       |  | 5.93                                                                    |   |  | 8.07        |   |  | 10.76       |   |  | 12.40       |   |  | 13.79       |   |  | 2.02        |  
|Net income (loss) per ADSDiluted(2):                       |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Income (loss) from continuing operations                    |  | 0.49                                                                    |   |  | 2.41        |   |  | 3.85        |   |  | 4.27        |   |  | (0.08       | ) |  | (0.01       | )
|Income from and gain on sale of discontinued operation, net |  | 5.44                                                                    |   |  | 5.64        |   |  | 6.90        |   |  | 8.07        |   |  | 13.87       |   |  | 2.03        |  
|Total                                                       |  | 5.93                                                                    |   |  | 8.05        |   |  | 10.75       |   |  | 12.34       |   |  | 13.79       |   |  | 2.02        |  
|Dividend paid per share                                     |  |                                                                        |   |  |            |   |  |            |   |  | 0.28        |   |  | 0.34        |   |  | 0.05        |  
|Dividend paid per ADS                                       |  |                                                                        |   |  |            |   |  |            |   |  | 2.80        |   |  | 3.42        |   |  | 0.50        |  
|Weighted average number of shares outstanding               |  |                                                                         |   |  |             |   |  |             |   |  |             |   |  |             |   |  |             |  
|Basic                                                       |  | 200,000,001                                                             |   |  | 246,878,001 |   |  | 269,232,171 |   |  | 262,218,999 |   |  | 262,776,289 |   |  | 262,776,289 |  
|Diluted                                                     |  | 200,018,001                                                             |   |  | 247,163,001 |   |  | 269,508,465 |   |  | 263,464,624 |   |  | 262,776,289 |   |  | 262,776,289 |  



|(1) | If YDME Beijing and Beijing GP had not had any preferential tax rates or tax holidays, our basic and diluted earnings per share for the following periods would have
been reduced as follows:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                            |  |                                                                        |  |      |  |      |  |      |  |      |  |     
|------------------------------------------- |  | ---------------------------------------------------------------------- |  | ---- |  | ---- |  | ---- |  | ---- |  | ----
|                                            |  | Year ended March 31,                                                  
|                                            |  | 2005                                                                   |  | 2006 |  | 2007 |  | 2008 |  | 2009 |  | 2009
|                                            |  | RMB                                                                    |  | RMB  |  | RMB  |  | RMB  |  | RMB  |  | US$ 
|                                            |  | (in thousands, except for number of shares, per share and perADS data)
|Income from continuing operations per share |  |                                                                        |  |      |  |      |  |      |  |      |  |     
|Basic                                       |  | 0.00                                                                   |  | 0.01 |  | 0.02 |  | 0.19 |  | 0.41 |  | 0.06
|Diluted                                     |  | 0.00                                                                   |  | 0.01 |  | 0.02 |  | 0.19 |  | 0.41 |  | 0.06



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|                                                                                                   |  |                 |   |  |           |  |           |  |           |  |           |  |        
|-------------------------------------------------------------------------------------------------- |  | --------------- | - |  | --------- |  | --------- |  | --------- |  | --------- |  | -------
|(2)    Each ADS represents 10 ordinary shares.                                                    
|                                                                                                   |  | As of March 31,
|                                                                                                   |  | 2005            |   |  | 2006      |  | 2007      |  | 2008      |  | 2009      |  | 2009   
|                                                                                                   |  | RMB             |   |  | RMB       |  | RMB       |  | RMB       |  | RMB       |  | US$    
|                                                                                                   |  | (in thousands) 
|Consolidated Balance Sheet Data:                                                                   |  |                 |   |  |           |  |           |  |           |  |           |  |        
|Cash                                                                                               |  | 14,646          |   |  | 843,791   |  | 1,173,640 |  | 682,679   |  | 1,456,410 |  | 213,147
|Working capital(1)                                                                                 |  | (66,707         | ) |  | 906,875   |  | 764,090   |  | 671,990   |  | 1,043,911 |  | 152,777
|Goodwill and intangible assets                                                                     |  | 239,662         |   |  | 224,744   |  | 1,565,362 |  | 1,550,447 |  | 3,496,128 |  | 511,661
|Total assets                                                                                       |  | 457,768         |   |  | 1,375,841 |  | 3,192,228 |  | 2,931,804 |  | 5,783,176 |  | 846,372
|Amounts due to related parties (current and non-current)                                           |  | 102,714         |   |  |          |  |          |  |          |  |          |  |       
|Convertible notes                                                                                  |  |                |   |  |          |  | 1,158,480 |  | 1,051,800 |  | 2,910,815 |  | 426,000
|Payables and deferred credit related to FISH acquisition/SPR acquisition (current and non-current) |  |                |   |  |          |  | 530,598   |  | 65,793    |  | 707,205   |  | 103,500
|Total liabilities                                                                                  |  | 203,815         |   |  | 129,307   |  | 1,906,489 |  | 1,409,043 |  | 3,938,593 |  | 576,416
|Total shareholders equity                                                                         |  | 253,953         |   |  | 1,246,534 |  | 1,285,739 |  | 1,522,761 |  | 1,844,583 |  | 269,956



|(1) | Working capital is calculated using current assets minus current liabilities.
|--- | -----------------------------------------------------------------------------

Exchange Rate Information

This annual report on Form 20-F contains
translations of certain RMB amounts into U.S. dollar amounts at specified rates. Unless otherwise stated, the translations of RMB into U.S. dollars have been made at the noon buying rate in New York City for cable transfers of RMB as set forth in
the H.10 weekly statistical release of the Federal Reserve Bank of New York, or the noon buying rate, in effect on March 31, 2009, which was RMB6.8329 to US$1.00. We make no representation that the RMB or U.S. dollar amounts referred to in this
annual report on Form 20-F could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. See Item 3. Key InformationD. Risk FactorsRisks Related to Doing Business in
China Fluctuations in the value of the Renminbi may have a material adverse effect on your investment and Restrictions on currency exchange may limit our ability to receive and use our revenues effectively for
discussions of the effects of fluctuating exchange rates and currency control on the value of our ADSs. On September 25, 2009, the noon buying rate was RMB6.8273 to US$1.00.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.



|                                 |  |                                      |  |            |  |        |  |       
|-------------------------------- |  | ------------------------------------ |  | ---------- |  | ------ |  | ------
|                                 |  | RMB per U.S. Dollar Exchange Rate(1)
|Period                           |  | Period End                           |  | Average(2) |  | Low    |  | High  
|                                 |  | (RMB per US$1.00)                   
|2004                             |  | 8.2765                               |  | 8.2768     |  | 8.2771 |  | 8.2765
|2005                             |  | 8.0702                               |  | 8.1826     |  | 8.2765 |  | 8.0702
|2006                             |  | 7.8041                               |  | 7.9579     |  | 8.0702 |  | 7.8041
|2007                             |  | 7.2946                               |  | 7.6058     |  | 7.8127 |  | 7.2946
|2008                             |  | 6.8225                               |  | 6.9193     |  | 7.2946 |  | 6.7800
|2009 (through September 25)      |  | 6.8273                               |  | 6.8320     |  | 6.8470 |  | 6.8176
|March                            |  | 6.8329                               |  | 6.8360     |  | 6.8438 |  | 6.8240
|April                            |  | 6.8180                               |  | 6.8306     |  | 6.8361 |  | 6.8180
|May                              |  | 6.8278                               |  | 6.8235     |  | 6.8326 |  | 6.8176
|June                             |  | 6.8302                               |  | 6.8334     |  | 6.8371 |  | 6.8264
|July                             |  | 6.8319                               |  | 6.8317     |  | 6.8342 |  | 6.8300
|August                           |  | 6.8299                               |  | 6.8323     |  | 6.8358 |  | 6.8299
|September (through September 25) |  | 6.8273                               |  | 6.8278     |  | 6.8303 |  | 6.8247



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|(1) | For all periods prior to January 1, 2009, the exchange rate refers to the noon buying rate as reported by the Federal Reserve Bank of New York. For periods
beginning on or after January 1, 2009, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|B. | Capitalization and Indebtedness
|-- | -------------------------------

Not applicable.



|C. | Reasons for the Offer and Use of Proceeds
|-- | -----------------------------------------

Not applicable.



|D. | Risk Factors
|-- | ------------

Risks Related to Our
Business

We may not succeed in sustaining and expanding the market for our ECLIA business and our free arrangement
for ECLIA analyzer, whereby we will provide ECLIA analyzers to certain hospitals free of charge, may not be successful in generating additional recurring revenue from sales of our ECLIA reagent kits.

We began marketing and selling our ECLIA analyzers and reagent kits in September 2004. Our ECLIA system is referred to as a
closed system since our ECLIA analyzer can only be used with reagent kits manufactured by us and our reagent kits can only be used with our ECLIA analyzer. Gross profit derived from the ECLIA business was RMB157.8 million, RMB277.4
million and RMB366.2 million (US$53.6 million) for the fiscal years ended March 31, 2007, 2008 and 2009, respectively. In order to further expand the installed base of our ECLIA analyzers and derive additional recurring revenue from sales of
our reagent kits, we started to provide our ECLIA analyzers to hospitals with certain diagnostic volume free of charge to promote the sales of our ECLIA reagent kits in April 2008.

Going forward, the long-term success of our ECLIA business depends on several factors, including our ability to:



| |  |  | successfully promote product awareness of our ECLIA analyzers and reagent kits in China;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | develop new reagent kits to expand the applications of our ECLIA system;
| | - |  | ------------------------------------------------------------------------



| |  |  | increase the usage of reagent kits in hospitals;
| | - |  | ------------------------------------------------



| |  |  | continue to expand the installed base of our ECLIA analyzers and derive recurring revenue from sales of our reagent kits;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | competitively price our ECLIA reagent kits;
| | - |  | -------------------------------------------



| |  |  | select effective distributors; and
| | - |  | ----------------------------------



| |  |  | comply with new or changing regulatory requirements and obtain additional regulatory approvals or clearances for new reagent kits in a timely manner.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Luminescence immunoassay technology is a well established method of clinical diagnosis. As a result, our
ECLIA business is competing in a market in which there are already many established industry players. We cannot assure you that we will be able to successfully market or sell our ECLIA analyzers and reagent kits in the future. In addition, we cannot
assure you that our free arrangement for ECLIA analyzer would successfully



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expand the installed base of our ECLIA analyzers and increase recurring revenue from sales of reagent kits and that there would be no negative impact on our existing customer base or revenue
stream. We also cannot assure you that our ECLIA business, or any future enhancements to our ECLIA business, will generate adequate revenue to offset our investments and costs in acquiring, developing or marketing our ECLIA business. If there is
insufficient demand for our ECLIA analyzers and reagent kits, our business, financial condition and results of operations may be harmed. In addition, any announcement of new products, services or enhancements by us or our competitors may cause our
customers to cancel or postpone purchasing decisions for our existing products in anticipation of these new products, services or enhancements.

We may not succeed in sustaining and expanding the market for our FISH probes and our limited operation experience with FISH probes makes evaluating our FISH business and its prospects difficult.

We only introduced our FISH business to the market in June 2007. We develop and manufacture FISH probes internally.
Our FISH probes can be used with the FISH imaging analyzers purchased directly from the manufacturers or sold by us. Gross profit derived from the FISH business was RMB24.6 million and RMB231.2 million (US$33.8 million) for the fiscal years ended
March 31, 2008 and 2009, respectively. The success of our FISH business depends on several factors, including our ability to:



| |  |  | successfully promote product awareness of the FISH probes in China;
| | - |  | -------------------------------------------------------------------



| |  |  | expand our direct sales force targeting large hospitals;
| | - |  | --------------------------------------------------------



| |  |  | successfully expand the installed base of the FISH imaging analyzers and derive increasing recurring revenue from sales of our FISH probes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competitively price our FISH probes;
| | - |  | ------------------------------------



| |  |  | develop new FISH probes to expand the applications of our FISH business for diagnosis of new diseases and disorders; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | comply with new or changing regulatory requirements and obtain additional regulatory approvals or clearances for new FISH probes in a timely manner.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

FISH is an established technology for clinical diagnosis of genetic syndromes in the prenatal and postnatal
settings and diagnosis of cancers in Western countries. As a result, our FISH probes are competing in the Chinese market in which there are international players with extensive experience. The adoption rate of the FISH imaging analyzers and probes
in China is low and we cannot assure you that we will be able to successfully market or sell our FISH probes despite our cost advantage and our distribution experience in China. We also cannot assure you that our FISH probes, or any future
enhancements to our FISH probes, will generate adequate revenue to offset our investments and costs in acquiring, developing or marketing our FISH probes. If there is insufficient demand for our FISH probes, our business, financial condition and
results of operations may be materially and adversely affected. In addition, any announcement of price change, new products, services or enhancements by our competitors may cause our customers to cancel or postpone purchasing decisions for our FISH
probes.

In addition, our limited operating history with the FISH probes may not provide a meaningful basis for you to
evaluate our business, financial performance and prospects in our FISH business. We may not have sufficient experience to address the risks frequently encountered by early-stage companies or companies exploring in new industries, and as a result we
may not be able to:



| |  |  | maintain profitability;
| | - |  | -----------------------



| |  |  | continue to effectively commercialize our FISH probes;
| | - |  | ------------------------------------------------------



| |  |  | acquire and retain customers;
| | - |  | -----------------------------



| |  |  | attract, train, motivate and retain qualified personnel;
| | - |  | --------------------------------------------------------



| |  |  | keep up with evolving industry standards and market developments;
| | - |  | -----------------------------------------------------------------



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| |  |  | increase the market awareness of our FISH probes;
| | - |  | -------------------------------------------------



| |  |  | respond to competitive market conditions;
| | - |  | -----------------------------------------



| |  |  | maintain adequate control of our expenses;
| | - |  | ------------------------------------------



| |  |  | manage our relationships with our suppliers, distributors and direct-selling hospitals; or
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | protect our proprietary technologies.
| | - |  | -------------------------------------

If we are unsuccessful in addressing any of these risks, our business may be materially and adversely affected.

We may not succeed in developing a market for our SPR system and HPV-DNA chips.

We acquired our SPR technology and related assets in December 2008 and only began to introduce our SPR systems and HPV-DNA chips to certain existing hospital customers in April 2009. Since then, the
progress of the placement of our SPR systems with hospitals was significantly affected because the attention of our senior management was significantly diverted to the internal investigation started in April 2009. As a result, we do not expect to
start delivery of our SPR systems to our customers until October 2009 and do not expect to generate revenue from the sale of HPV-DNA chips until January 2010. Our SPR system is referred to as a closed system since our SPR system can only
be used with DNA chips manufactured by us and our DNA chips can only be used with our SPR system. In order to expand the installed base of our SPR systems and derive recurring revenue from sales of our DNA chips, we plan to provide our SPR systems
free of charge to large hospitals to promote the sales of our DNA chips.

The success of our SPR business depends on several
factors, including our ability to:



| |  |  | devote sufficient management attention and resources to the promotion and development of our SPR business;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | successfully promote product awareness of our SPR system and DNA chips in China;
| | - |  | --------------------------------------------------------------------------------



| |  |  | develop new DNA chips to expand the applications of our SPR system;
| | - |  | -------------------------------------------------------------------



| |  |  | continue to expand the installed base of our SPR systems and derive recurring revenue from sales of our DNA chips;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | competitively price our DNA chips; and
| | - |  | --------------------------------------



| |  |  | comply with new or changing regulatory requirements and obtain additional regulatory approvals or clearances for new DNA chips in a timely manner.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

We are the first company in China to manufacture SPR system and HPV-DNA chips for clinical diagnosis and we
cannot assure you that we will be able to successfully market or sell our DNA chips despite our cost advantage and our distribution experience in China. In addition, we cannot assure you that our free arrangement for SPR system would successfully
expand the installed base of our SPR system and increase recurring revenue from sales of DNA chips and that there would be no negative impact on our existing customer base or revenue stream. We also cannot assure you that our HPV-DNA chips, or any
new DNA chips that we may develop in the future, will generate adequate revenue to offset our investments and costs in acquiring, developing and marketing our SPR system and DNA chips. If there is insufficient demand for our DNA chips, our business,
financial condition and results of operations may be adversely affected. In addition, any announcement of price change, new products, services or enhancements by our competitors may cause our customers to cancel or postpone purchasing decisions for
our products.

If we are unsuccessful in addressing any of these risks, our business may be materially and adversely affected.



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We derive substantially all of our revenues from sales of our ECLIA reagent kits and
FISH probes. A reduction in, or a failure to increase, the revenues of our ECLIA reagent kits and FISH probes would cause our revenues to decline and could materially harm our business.

We derive substantially all of our revenues from sales of our ECLIA reagent kits and FISH probes. Sales of our ECLIA reagent kits and FISH
probes accounted for 67%, 70% and 98% of our total revenues for the fiscal years ended March 31, 2007, 2008 and 2009, respectively. We expect sales of our ECLIA reagent kits and FISH probes to continue to comprise substantially all of our
revenues until we start to generate substantial revenue from our SPR business, which we do not expect to occur in 2009, and will continue to comprise a substantial portion of our revenues thereafter. Therefore, a reduction in, or our failure to
increase, revenues from sales of our ECLIA reagent kits and FISH probes, could materially harm our business, results of operations and prospects.

Our ECLIA customers, mainly distributors, have reduced their inventory level in recent months in anticipation of price reduction on our ECLIA reagent kits due to increasing market competition and we
reduced the selling price of our ECLIA reagent kits in September 2009 in order to maintain our competitiveness. The reduction in orders for our ECLIA reagent kits and their selling prices have negatively affected our revenues from ECLIA business and
such negative impact may continue. While we have adopted, and will continue to adopt, measures to increase the sales of our ECLIA reagent kits, we cannot assure you that these measures will be effective or that our revenues from sales of ECLIA
reagent kits will not decline further. While we have not experienced similar reduction in orders and prices of our FISH probes, such reduction could occur at any time in the future, which would cause our revenues from the FISH business to decline.
If we fail to successfully address the decline in the sales of our ECLIA reagent kits or experience decline in the sales of our FISH probes, our revenues may decline significantly and our business and operating results may be materially and
adversely affected.

Current global economic slowdown and crisis in the global financial market have negatively
impacted, and may continue to negatively impact, our business, financial condition and results of operations.

The
current global economic slowdown and turmoil in the global financial markets have resulted in a general credit crunch, an increased level of commercial and consumer delinquencies, lack of consumer confidence and increased market volatility, which
have negatively impacted our business. We are unable to predict how long the economic downturn will last. A continuing economic downturn may continue to adversely affect our business in a number of ways, including:



| |  |  | Greater difficulty in collecting accounts receivable. Many of the end-users of our products are state- owned or controlled hospitals; any
changes in such governments policies concerning the authorization or funding of payments for capital expenditures could lengthen the cash collection cycle of our distributors, which may thereby cause our liquidity to deteriorate if our
distributors are unable to pay us on time. Additionally, sales made to our distributors or other customers whose financial resources may be subject to rapid decline, could expose us to losing sales, delaying revenue recognition or accepting greater
collection risks due to credit quality issues.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Greater difficulty in obtaining purchased goods and services. We expect that many of our suppliers will face the same or more challenging
circumstances as we face in the current economic downturn, which could result in an adverse effect on our cash flows and liquidity. Some suppliers or vendors could choose to provide supplies or services to us on more stringent payment terms than
those currently in place, such as by requiring advance payment or payment upon delivery of such supplies or services. Additionally, some suppliers might experience a worsening financial condition causing them to either withdraw from the market or be
unable to meet our expected timing for the receipt of goods ordered from them, either of which condition could adversely affect our ability to serve our customers and lengthen the cycle time for transforming customer orders into cash receipts.
Additionally, if it is necessary to seek alternative sources of supply, the effects on our costs, cycle time for cash collections, and customer satisfaction with us are uncertain.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restructuring and impairment charges. If we are unable to generate the level of revenues, profits, and cash flow contemplated by our business
plan, management will be forced to take further action to focus
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | our business activities and align our cost structure with anticipated revenues. These actions, if necessary, could result in restructuring charges and/or asset impairment charges being recognized
in the fiscal year ending March 31, 2010 and beyond.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may need to pay significant amount of
compensation in connection with the sale of the HIFU business to Chengxuan in December 2008 and may get into lawsuits or arbitration proceedings with Chengxuan if Chengxuan makes a claim against us again and we cannot resolve the dispute through
amicable means, which could negatively impact our business, financial condition and results of operations.

In December
2008, we completed the sale of the HIFU business to Chengxuan International Ltd., or Chengxuan, which is a major shareholder of us and beneficially owned by Mr. Xiaodong Wu, our founder, the chairman of our board of directors and our chief
executive officer. In June 2009, we received a letter from Chengxuan in connection with a notice issued by the State Food and Drug Administration, or the SFDA, in April 2009. The notice from the SFDA required the submission of new clinical trial
data for the renewal application of the registration certificate for the HIFU therapy system for the further evaluation of the renewal application and did not permit the sale of the HIFU therapy system starting from April 2009 until the approval of
the renewal application. In August 2009, we received another letter from Chengxuan which updated their ongoing discussion with the SFDA about the requirements for the new clinical trial data for the HIFU therapy system, Chengxuans loss of
revenues due to the unexpected prohibition on selling the HIFU therapy system since April 2009 and their indication of seeking maximum compensation of approximately US$15.5 million from us. We have established a special committee comprising two
independent directors to evaluate and handle the related matters with Chengxuan and the special committee has engaged legal counsel to advise on Chengxuans request for compensation. We recently received another letter from Chengxuan which
withdrew their claim of compensation from us. We are not sure if Chengxuan will make a claim of compensation again. If we fail to reach an agreement with Chengxuan for any claim they may make against us in the future, we may get into lawsuits or
arbitration proceedings with Chengxuan which could be lengthy and costly and the result of any lawsuit or arbitration will be unpredictable and could negatively impact our business. Any compensation that we may need to pay Chengxuan in the future
will negatively impact our results of operations and financial condition.

The discontinuation of the HIFU business and
the acquisition of the SPR business make it difficult to evaluate our business as it is currently operated

In December
2008, we completed the sale of the HIFU business to Chengxuan and ceased the HIFU business. As a result, the HIFU business has been accounted for as a discontinued operation in accordance with U.S. GAAP in our financial statements. Also in December
2008, we acquired the SPR technology and related assets, but we do not expect to generate revenue from our SPR business until January 2010. Accordingly, our business as currently conducted is significantly different from our business conducted
before December 2008 and our business will continue to evolve as the contribution from our SPR business increases. As such, it may be difficult for you to evaluate our business as it is currently accounted for and operated based on our historical
financial information.

If we fail to protect our intellectual property rights, our competitors may take advantage of
our proprietary technology and know-how and compete directly against us.

Our success depends, in part, on our ability
to protect our proprietary technologies. In China, we own eight invention patents and 10 utility patents relating to our ECLIA system. We have filed patent applications relating to our SPR technologies in China. Invention patents are granted for
invention or discovery of any new and useful process or article of manufacture, or any new and useful improvement thereof. Utility patents are granted for invention of a new and practical structure or form, or a combination of both, for an article
of manufacture.

We applied for three ECLIA technology patents in the United States of which we have been granted one. We have
also filed patent applications relating to our FISH technology and SPR technologies in the United States.



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Due to the different regulatory bodies and varying requirements in the United States, we
cannot assure you that we will be able to obtain patent protection for all or any aspects of our ECLIA, FISH and SPR technology in the United States. The process of seeking patent protection can be lengthy and expensive, and we cannot assure you
that our patent applications will result in patents being issued or that our existing or future issued patents will be sufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may be
challenged, invalidated or circumvented in the future. We cannot assure you that our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, do not have, and will
not develop, products that compete directly with our products despite our intellectual property rights.

We also rely on trade
secrets, proprietary know-how and other non-patentable technology, which we seek to protect through non-disclosure agreements with employees. We cannot assure you that these non-disclosure agreements will not be breached, that we will have adequate
remedies for any breach, or that our trade secrets, proprietary know-how and other non-patentable technology will not otherwise become known to, or be independently developed by, our competitors.

Implementation and enforcement of PRC intellectual property-related laws have historically been deficient and ineffective, and are hampered
by corruption and local protectionism. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Policing unauthorized use of proprietary technology is
difficult and expensive, and we might need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. The experience and capabilities of PRC
courts in handling intellectual property litigation varies, and outcomes are unpredictable. Further, such litigation may require significant expenditure of cash and management efforts and could adversely affect our business, financial condition and
results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may adversely affect our business, prospects and reputation.

We may be exposed to intellectual property infringement and other claims by third parties, which, if successful, could cause us to pay
significant damage awards and incur other costs.

Our success also depends in large part on our ability to use and
develop our technology and know-how without infringing the intellectual property rights of third parties. As litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual
property infringement claims. The validity and scope of claims relating to medical device technology patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. The defense and prosecution of
intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be costly and time consuming, with unpredictable outcomes, and may significantly divert the efforts and resources of our technical and
management personnel. Courts in some jurisdictions in China are inexperienced in these types of cases, and may be influenced by local protectionism. An adverse determination in any such litigation or proceedings to which we may become a party could
subject us to significant liability, including damage awards, to third parties, require us to seek licenses from third parties, to pay ongoing royalties, or to redesign our products or subject us to injunctions preventing the manufacture and sale of
our products. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation.

Unauthorized use of our brand name by third parties, and the expenses incurred in developing and preserving the value of our brand
name, may adversely affect our business.

Our brand name is critical to our success. Unauthorized use of our brand name
by third parties may adversely affect our business and reputation, including the perceived quality and reliability of our products. We rely on trademark law, company brand name protection policies and agreements with our employees, customers,
business partners and others to protect the value of our brand name. Despite our precautions, we cannot assure



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you that those procedures provide effective prevention for unauthorized third-party use of our brand name. Enforceability, scope and validity of protection of trademarks in the PRC are uncertain
and still evolving, and we may not be successful in prosecuting unauthorized third-party use. Future litigation could also result in substantial costs and diversion of our resources, and could adversely affect our business, financial condition and
results of operations.

Our business strategy to grow through acquisitions of new products or technologies may result in
integration costs, failures and dilution to existing stockholders.

An important business strategy of ours is to
acquire and commercialize medical technologies and products with significant market potential. We continue to seek attractive opportunities to acquire new products or technologies, particularly those that could assist us in advancing our current
products, technologies and market penetration, or in expanding our product offerings or technologies. If we decide to acquire another company or its assets in order to obtain its products or technologies, we would face a number of risks including
consummating the acquisition on unfavorable terms and not obtaining adequate financing, which may adversely affect our ability to develop new products and services and to compete in our rapidly changing marketplace. These acquisitions could also
require that our management develop expertise in new areas, manage new business relationships and trade models, and attract new customers. Successful management and integration of acquisitions are subject to a number of risks, including difficulties
in assimilating acquired operations and managing remote operations, potential loss of key employees, diversion of managements attention from existing business operations, assumption of contingent liabilities and incurrence of potentially
significant write-offs, which may adversely affect our business or results of operations. In addition, if we consummate such an acquisition through an exchange of our securities, our existing stockholders could suffer dilution.

Rapid growth and a rapidly changing operating environment may strain our limited resources.

Our growth strategy includes our efforts to build our brand, develop new products, increase the installed base of our ECLIA systems by
targeting small to medium-sized hospitals and accelerate market acceptance of our FISH probes, SPR system and HPV-DNA chips in large hospitals. This growth strategy requires significant capital resources, and we may not generate an adequate return
on our investment. Our growth may involve the acquisition of new technologies, businesses, products or services, the creation of strategic alliances in areas in which we do not currently operate or the expansion of our distributor network and direct
sales force. This could require our management to develop expertise in new areas, manage new business relationships and attract new types of customers. We may also experience difficulties integrating these acquired businesses, products or services
into our existing businesses and operations. The success of our growth strategy also depends in part on our ability to utilize our financial, operational and management resources and to attract, train, motivate and manage an increasing number of
employees. The success of our growth strategy depends on a number of internal and external factors, such as:



| |  |  | the growth of the market for medical devices and supplies in China;
| | - |  | -------------------------------------------------------------------



| |  |  | increase customer awareness and acceptance of our products;
| | - |  | -----------------------------------------------------------



| |  |  | continued enhancement of our research and development capabilities;
| | - |  | -------------------------------------------------------------------



| |  |  | development of new ECLIA reagent kits, FISH probes and DNA chips to expand the applications of our ECLIA analyzers, FISH imaging analyzers and SPR
systems; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competition from other companies that offer IVD products in China.
| | - |  | ------------------------------------------------------------------

Many of these factors are beyond our control and we may not be able to implement our growth strategy successfully or manage our expansion
effectively.



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We have a major shareholder that could exert substantial influence over our business,
and its interests may not be aligned with the interests of our other shareholders.

Currently, Chengxuan, which is
beneficially owned by Mr. Xiaodong Wu, our founder, the chairman of our board of directors and our chief executive officer, and its affiliated entities beneficially own approximately 23% of our outstanding ordinary shares. Chengxuan could exert
substantial influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions. The interests of Chengxuan may differ from the interests of our other shareholders. In addition,
the concentration of ownership in Chengxuan may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might
reduce the price of our ADSs. These actions may be taken even if they are opposed by our other shareholders. In cases where the interests of our significant shareholders are aligned and they vote together, these shareholders will also have the power
to prevent or cause a change in control. In addition, Chengxuan could divert business opportunities from us to themselves or others.

If we grant additional share options, restricted shares or other share-based compensation in the future, our operating results could be materially adversely affected.

We adopted a stock option plan in 2005. As of the date of this annual report, we have granted options to purchase 1,550,000 of our ordinary
shares and 5,480,000 restricted shares under our 2005 stock option plan, as amended and restated. We account for share-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, or SFAS No. 123R, which requires a company to measure the fair value of share options and other share-based compensation based on the fair value of equity-classified awards on the date of the grant, with the related compensation
expense recognized generally over the period in which the recipient is required to provide service in exchange for the equity award. If we grant additional options, restricted shares or other equity incentives to our employees in the future, we
could incur significant compensation expenses which could materially reduce our net income, and your investment in our ADSs could be significantly diluted.

We are highly dependent on senior management and key research and development personnel.

We are highly dependent on our senior management to manage our businesses and operations and our key research and development personnel for the development of new technologies and applications and the
enhancement of our existing products. In particular, we rely substantially on our chairman and chief executive officer, Mr. Xiaodong Wu, to manage our operations. We also depend on our key research personnel. In addition, we also rely on
customer service personnel for the installation and support of our products and on marketing and sales personnel, engineers and other personnel with technical and industry knowledge to market, sell, install and service our products. We do not
maintain key man life insurance on any of our senior management or key personnel. The loss of any of our senior management or key personnel could have a material adverse effect on our business and operations. Competition for senior management and
research and development personnel is intense, and the pool of suitable candidates is limited. We may be unable to locate a suitable replacement for any senior management or key research and development personnel that we lose. In addition, if any
member of our senior management or key research and development personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals and staff members of our company.
Although each of our senior management and key research and development personnel has signed a confidentiality and non-competition agreement in connection with his employment with us, we cannot assure you that we will be able to successfully enforce
these provisions in the event of a dispute between us and any member of our senior management or key research and development personnel.

We compete for qualified personnel with other medical technology companies, medical device and supplies manufacturers, universities and research institutions. Intense competition for these personnel could
cause our compensation costs to increase significantly, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on the continued service of



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these individuals and our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business
and financial goals.

Allegations of irregularities or improper conduct of our management, whether true or false, may
cause us to undertake internal investigations and may cause government agencies to initiate investigations against us and could have a material adverse effect on our business, prospects and reputation and negatively impact our financial condition
and results of operations.

Our audit committee received an anonymous letter, in which allegations of irregularities
and improper conduct were made against our senior management in connection with our acquisitions of the FISH business and the SPR technology and related assets, our disposal of the HIFU business, our revenues as well as our relationships with stock
analysts. Our audit committee, consisting of three independent directors, initiated an independent internal investigation into the allegations and engaged an independent law firm as well as independent forensic accountants to assist the audit
committee to carry out the independent internal investigation in April 2009. The investigation covered not only the entire senior management team but also employees from various key departments of all of our operating subsidiaries. Our senior
management and other relevant employees fully cooperated with the independent law firm and forensic accountants in the course of the investigation. The independent law firm and forensic accountants have substantially completed their investigative
work and have reported to the audit committee that the investigation has not identified evidence to support the allegations made in the anonymous letter. Our senior management team and certain management personnel were required to devote significant
time and effort to assist with the investigation and therefore had less time to spend on our operations, which we believe had contributed to the decline in our sales and the promotion of our SPR system during the course of the investigation. The
costs of the independent internal investigation have also increased our general and administrative expenses substantially for the quarter ended June 30, 2009 and the quarter ended September 30, 2009. We cannot assure you that similar
allegations of irregularities or improper conduct of our management will not occur in the future. If such allegations are made, we may need to undertake similar internal investigations. In addition, the allegations we have received and any future
allegations of similar nature may cause government agencies that have supervisory power or regulatory authority over us to initiate investigations against us. Any of these investigations could be costly and time-consuming and may divert significant
amount of our management attention and resources. Therefore, any allegation of irregularity or improper conduct of our management, whether true or false, could have a material adverse effect on our business, prospects and reputation and negatively
impact our financial condition and results of operations.

We need to expand our existing sales force and distribution
network to maintain and grow our business and revenues. If we fail to expand and maintain an effective sales force or successfully develop our relationship with distributors, our business, prospects and brand may be materially and adversely
affected.

We currently market and sell substantially all of our ECLIA products to third-party distributors, while our
FISH probes, SPR system and HPV-DNA chips are promoted, marketed or sold solely through our own direct sales force. As part of our growth plan, we intend to increase the number of distributors we utilize to distribute our ECLIA products and
strengthen and grow our direct sales force targeting large hospitals to sell our FISH probes, SPR system and HPV-DNA chips. We have limited experience in managing a large sales force and distributor network. We cannot assure you that we will be able
to maintain an effective sales force or successfully maintain our relationships with third-party distributors. If we fail to do any one of those, our sales could fail to grow or could even decline, and our ability to grow our business could be
adversely affected. The expansion of our sales force and distribution network is also likely to require a significant investment of financial resources and management efforts, and the benefits, if any, which we gain from such expansion may not be
sufficient to generate an adequate return on our investment.



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If we fail to effectively manage our distribution network, our business, prospects and
brand may be materially affected by actions taken by our distributors.

We have a limited ability to manage the
activities of our third-party distributors, who are independent from us. Our distributors could take one or more of the following actions, any of which could have a material adverse effect on our business, prospects and brand:



| |  |  | sell products that compete with our products in breach of their non-competition agreements with us;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | fail to adequately promote our products;
| | - |  | ----------------------------------------



| |  |  | fail to provide proper service to our end-users; or
| | - |  | ---------------------------------------------------



| |  |  | violate the anti-corruption laws that apply to us in China or elsewhere.
| | - |  | ------------------------------------------------------------------------

Failure to adequately manage our distribution network or the non-compliance of our distributors with their obligations under distribution
agreements with us could harm our corporate image among end users of our products and disrupt our sales, resulting in a failure to meet our sales goals. The PRC government has increased its anti-bribery efforts in the healthcare sector to reduce
improper payments received by hospital administrators and doctors in connection with the purchase of pharmaceutical products and medical devices. To our knowledge, none of our distributors engages in corrupt practices. However, our distributors may
violate these laws or otherwise engage in illegal practices with respect to their sales or marketing of our products.

A
significant interruption in supply could prevent or limit our ability to provide our products to customers on a timely basis.

We purchase all our materials and major components from third-party suppliers and assemble our products in-house. Currently, we do not have any material long-term supply contracts with our suppliers. We, however, have not experienced any
significant interruption of supplies in the past. Our purchases are made on a purchase order basis. If the supply of certain materials, components or services is interrupted, our own manufacturing process would be delayed. We may be unable to secure
alternative sources of supply in a timely and cost-effective manner. We purchase the components of our ECLIA analyzer, FISH imaging analyzer and SPR system from various domestic and international suppliers. The raw materials for our ECLIA reagent
kits, FISH probes and HPV-DNA chips are also supplied by various domestic and international vendors. The failure of any of these suppliers to provide materials to us, particularly if we are unable to obtain materials and major components from
alternative sources on a timely basis or on commercially reasonable terms, could impair our ability to manufacture our products or increase our costs. We also plan to further increase the production and sales of our products in the future. If we are
unable to obtain required materials and components that meet our production standards in sufficient quantities or at acceptable cost, we will be unable to increase our production and sales as planned. Failure to obtain adequate supplies of
materials, components or services in a timely and cost-effective manner could delay our delivery to our customers. This delay could harm our reputation, cause us to lose sales, and force us to use more expensive sources of supply, which could
significantly increase our production costs and harm our operating results. Any of these occurrences could have a material adverse effect on our business, financial condition and results of operations.

Our costs could substantially increase if we experience a significant number of warranty claims.

We generally provide 12-month product warranties against technical defects of our ECLIA analyzer, FISH imaging analyzer and SPR system. Our
product warranty requires us to repair defects arising from product design and production process and if necessary, replace defective components. Historically, we have received a limited number of warranty claims for our ECLIA analyzer. The costs
associated with our warranty claims have historically been relatively low. Thus, we generally do not accrue any liability for potential warranty claims at the time of sales, but rather at the time claims are actually made. As we only began selling
the FISH imaging analyzer in June 2007, we currently only have a short period of historical data on the warranty claims for this



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product. The fluorescent microscope, CCD camera and imaging analysis software that are integrated into our FISH imaging analyzer are warranted by our component suppliers. As we have not delivered
any SPR system yet, we currently have no historical data on the warranty claims for this product.

If we experience an
increase in warranty claims or if our repair and replacement costs associated with warranty claims increase significantly, we will begin to incur liabilities for potential warranty claims at the time of sale of our products. An increase in the
frequency of warranty claims or amount of warranty costs may harm our reputation and could have a material adverse effect on our financial condition and results of operations.

Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic events.

Substantially all of our manufacturing and research and development facilities are located in locations in or within proximity to Beijing,
China. We do not maintain back-up facilities, so we depend on our manufacturing and other facilities for the continued operation of our business. Natural disasters or other catastrophic events, including power interruptions, water shortages, storms,
fires, earthquakes, terrorist attacks and wars could disrupt our operations. We might suffer losses as a result of business interruptions and our operations and financial results might be materially and adversely affected. Moreover, any such event
could delay our research and development programs.

If we are unable to successfully operate and manage our
manufacturing operations, we may experience a decrease in revenues and gross margin.

As we ramp up our manufacturing
operations to accommodate our planned growth, we may encounter difficulties associated with increasing production scale, including shortages of qualified personnel to operate our equipment, assemble our products or manage manufacturing operations,
as well as shortages of key raw materials or components for our products. In addition, we may also experience difficulties in producing sufficient quantities of products or in achieving desired product quality. If we are unable to successfully
operate and manage our manufacturing operations to meet our needs, we may not be able to provide our customers with the quantity or quality of products they require in a timely manner. This could cause us to lose customers and result in reduced
revenues and gross margin.

Fluctuations in our quarterly operating results could cause our ADS price to decline.

Our revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from
quarter to quarter depending upon numerous factors. Factors that may affect the fluctuation of our quarterly operating results include changes in pricing policies by us or our competitors, the length of our sales cycle, the timing and market
acceptance of new product introductions and product enhancements by us or our competitors, customer order deferrals in anticipation of new or enhanced products offered by us or our competitors, the loss of key sales personnel or distributors, the
commencement of any internal investigation, changes in government policies or regulations and a downturn in general economic conditions in China. Many of these factors are beyond our control, and you should not rely on our results of operations for
prior quarters as an indication of our results in any future period. As our revenues vary significantly from quarter to quarter, our business is difficult to predict and manage, and our quarterly results could fall below investor expectations, which
could cause our ADS price to decline.

We are subject to product liability exposure and have limited insurance coverage.

Our products are medical devices and we are exposed to potential product liability claims in the event that the use of
our products causes or is alleged to have caused personal injuries or other adverse effects. A successful product liability claim against us could require us to pay substantial damages. Product liability claims against us, whether or not successful,
are costly and time-consuming to defend. Also, in the event that our products prove to be defective, we may be required to recall or redesign such products. We do not have any product liability insurance to cover potential product liability arising
from the use of our products. In addition, as the insurance



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industry in China is still in an early stage of development, product liability insurance available in China offers limited coverage compared to coverage offered in many other countries. To date,
we have not been subject to any product liability claim, but we cannot assure you that such claim will not be brought against us in the future. A product liability claim, with or without merit, could result in significant adverse publicity against
us, and could have a material adverse effect on the marketability of our products and our reputation, which in turn, could have a material adverse effect on our business, financial condition and results of operations. In addition, we do not have any
business interruption insurance coverage for our operations. Any business disruption or natural disaster could result in substantial costs and diversion of resources.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We may require additional cash resources in the future due to:



| |  |  | changed business conditions or other future developments;
| | - |  | ---------------------------------------------------------



| |  |  | the receipt of, and the time and expenses required to obtain and maintain, regulatory clearances and approvals;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | the resources we devote to developing, marketing and producing our products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | our ability to identify and our desire or need to pursue acquisitions or other investments; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the extent to which our products generate market acceptance and demand.
| | - |  | -----------------------------------------------------------------------

We cannot assure you that our revenues will be sufficient to meet our operational needs and capital requirements in the future. In addition,
we cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Our future capital needs and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility.
The sale of additional equity or equity-linked securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing
covenants that would restrict our operations or our ability to pay dividends to our shareholders. In the past, we have not encountered difficulties in obtaining financing.

If a poll is not demanded at our shareholder meeting, voting will be by show of hands and shares will not be proportionately
represented. Shareholder resolutions may be passed without the presence of the majority of our shareholders in person or by proxy.

Voting at any of our shareholder meetings is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of our board of directors or by any shareholder present in person or by
proxy. If a poll is demanded, each shareholder present in person or by proxy will have one vote for each ordinary share registered in his name. If a poll is not demanded, voting will be by show of hands and each shareholder present in person or by
proxy will have one vote regardless of the number of shares registered in his name. In the absence of a poll, shares will therefore not be proportionately represented. In addition, the quorum required for our shareholder meetings consists of
shareholders who hold at least one-third of our ordinary shares being present at a meeting in person or by proxy. Therefore, subject to the requisite majorities, shareholder resolutions may be passed at our shareholder meetings without the presence
of the majority of our shareholders in person or by proxy.

Our earnings could be adversely affected if we recognize
impairment losses on goodwill and other intangible assets relating to our acquisitions of the ECLIA, FISH and SPR technologies and BBE business.

As a result of our acquisitions of the ECLIA, FISH and SPR technologies and BBE business in August 2004, March 2007, December 2008 and January 2008, respectively, we have recorded goodwill and other
intangible assets. Our intangible assets, other than goodwill, are amortized over their respective estimated useful lives, and are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible
asset may not be recoverable. Goodwill is tested for impairment by us annually as of



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year end or more frequently if an event or a circumstance indicates that goodwill might be impaired. Examples of such events or circumstances include, but are not limited to, a significant
adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. See Item 5. Operating and Financial Review and ProspectsCritical Accounting Policies. In the future, we could recognize
impairment losses on goodwill and other intangible assets and that impairment could result in a charge to our reported results of operations.

Risks Related to Our Industry

New product development in the medical device and supply industry is both
costly and labor-intensive and has a very low rate of successful commercialization.

Our success will depend in part on
our ability to enhance our existing products and technologies and to develop and acquire new products or technologies. The development process for medical technology is complex and uncertain, as well as time-consuming and costly. Product development
requires the accurate assessment of technological and market trends as well as precise technological execution. We cannot assure you that:



| |  |  | our product or technology development will be successfully completed;
| | - |  | ---------------------------------------------------------------------



| |  |  | necessary regulatory clearances or approvals will be granted by the SFDA or other regulatory bodies for the commercialization and marketing of any new
products or technologies as required on a timely basis or at all; or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any product or technology we develop can be commercialized or will achieve market acceptance.
| | - |  | ---------------------------------------------------------------------------------------------

Also, we may be unable to locate suitable products or technologies to acquire or acquire such products or technologies on commercially
reasonable terms. Failure to develop, acquire, obtain necessary regulatory clearances or approvals for the commercialization of new products and technologies, or successfully commercialize or market potential new products or technologies could have
a material adverse effect on our business, financial condition, results of operations or prospects.

In order to
manufacture and market our products, we are required to obtain various authorizations from governmental regulatory authorities in China and other countries. If we fail to obtain clearances or approvals in a timely fashion, our business may be
significantly affected.

The sale and marketing of our medical device products are subject to regulation in China and
other countries where we plan to expand our product distribution. We are required to obtain registrations with the SFDA and the regulators administering the approval in countries where we plan to export. The process for obtaining regulatory
clearances or approvals can be lengthy and expensive, and the results are unpredictable. In addition, the relevant regulatory authorities may introduce additional requirements or procedures that have the effect of delaying or prolonging the
regulatory clearance or approval for our existing or new products. If we are unable to obtain clearances or approvals needed to market existing or new products, or obtain such clearances or approvals in a timely fashion, our business could be
significantly disrupted, and sales and profitability could be materially and adversely affected.

We need the SFDA approval
for our ECLIA analyzer before we may sell this product. The SFDA approval we have obtained for our ECLIA analyzer will expire in July 2012, and we will need to renew this approval once it expires. We are also required to obtain a production permit
from the provincial level food and drug administration before commencing the manufacture of our products. Our production permit for the manufacture of our ECLIA analyzer and reagent kits will expire in July 2010 and we will need to renew the
production permit once it expires. Our production permit for the manufacture of our FISH probes, SPR system and DNA chips will expire in May 2011 and we will need to renew the production permit once it expires. Renewing our registration certificates
and production permit entails submission of various information and the review of that submission by the applicable regulatory authorities. We do not foresee any significant difficulties in obtaining such renewal. But if we fail to obtain such
renewal in a timely fashion, our business may be adversely affected. See Item 4. Information on the CompanyB. Business OverviewRegulation.



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In April 2007, the SFDA announced a new regulation that became effective on June 1,
2007. Reagent kits used for IVD testing are divided into three different categories, Class I, Class II and Class III, depending on the degree of risk associated with each reagent kit. Our ECLIA reagent kits, FISH probes and DNA chips are classified
as Class III and they therefore are subject to all regulatory control governing Class III category. We are required to obtain a registration certificate for each reagent kit prior to selling that reagent kit for clinical use. A reagent kit that is
used for research purpose only, however, is exempt from registration and/or approval. A reagent kit intended for research use only must comply with the labeling requirements that present the statement: For research use only. Not for use in
diagnostic procedures on the package. Of the 75 ECLIA reagent kits and 37 FISH probes that we market, 62 ECLIA reagent kits and 14 FISH probes are covered by registration certificates. Of the 13 ECLIA reagent kits and 23 FISH probes we
currently sell for research use only, we have submitted registration applications for all of them. We expect to start selling our HPV-DNA chips for research purpose soon and we are in the process of applying for the registration certificate for our
HPV-DNA chips. We intend to apply for registration certificates for all of our ECLIA reagent kits, FISH probes and DNA chips, but we may not succeed in obtaining registration certificates for all these ECLIA reagent kits, FISH probes and DNA chips
or for any ECLIA reagent kits, FISH probes or DNA chips that we develop in the future. Before receiving the necessary registration certificate, these ECLIA reagent kits, FISH probes and DNA chips can be sold for research only. Thus, this may delay
or limit growth in sales of our ECLIA reagent kits, FISH probes and DNA chips. See Item 4. Information on the CompanyB. Business OverviewRegulation.

Competition in the markets in which we operate is expected to increase in the future.

Our ECLIA system competes with IVD systems and reagent kits offered in the China market by many established international companies,
including Abbott Diagnostics, Siemens Healthcare, Beckman Coulter, PerkinElmer, Johnson & Johnson and Roche Group. There are also a number of China-based manufacturers who also offer luminescence immunoassay systems.

Our FISH probes compete with probes offered by Abbott Diagnostics. We are not aware of any China-based manufacturers who offer FISH probes
in China.

Our SPR system and HPV-DNA chips compete with HPV test products offered by Qiagen, Hologic and certain China-based
manufacturers. We are not aware of any China-based manufacturers who offer both an SPR system and HPV-DNA chips in China.

Certain of our existing and potential competitors have significantly greater financial, research and development, sales and marketing, personnel resources and other resources than we do. Competition will intensify as other companies enter
our markets. Competing companies may succeed in developing products that are more effective or less costly than those that we may offer, and these companies may also be more successful in marketing their products. Competing companies may also
introduce competitive pricing measures that adversely affect our sales levels and margins. If we do not adequately address our competitive challenges, we could lose sales and market share and fail to grow our business as planned, which would have a
material adverse effect on our financial condition, results of operations and future growth.

In addition, we believe that
corrupt practices in the healthcare industry in China still occur. In order to increase sales, certain manufacturers or distributors of medical devices may pay kickbacks to hospital personnel who make procurement decisions. We prohibit our employees
from engaging in such practices and, to our knowledge, none of our distributors engages in such practices. However, as competition intensifies in the medical device and supplies industry in China, we may lose sales, customers or contracts to
competitors to the extent we or our distributors refuse to engage in such practices.



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The IVD industry is characterized by constant technological change, and if we fail to
respond effectively to technological changes, we could lose our competitive advantage.

The IVD industry in which we
currently compete are characterized by:



| |  |  | changing technologies;
| | - |  | ----------------------



| |  |  | frequent new product introductions and enhancements;
| | - |  | ----------------------------------------------------



| |  |  | changing customer needs; and
| | - |  | ----------------------------



| |  |  | product obsolescence.
| | - |  | ---------------------

To develop new products and designs, we must develop or acquire and use leading technologies in a cost-effective and timely manner and continue to expand our technical and design expertise. Failure to do
so could cause us to lose our competitive position and may cause a material adverse effect on our revenues in the future.

Risks Related to
Doing Business in China

Adverse changes in political, economic and other policies of the Chinese government could
have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

Substantially all of our business operations are conducted in China, and all of our sales are made in China. Accordingly, our business,
financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:



| |  |  | the extent of government involvement;
| | - |  | -------------------------------------



| |  |  | the level of development;
| | - |  | -------------------------



| |  |  | the growth rate;
| | - |  | ----------------



| |  |  | the control of foreign exchange;
| | - |  | --------------------------------



| |  |  | the allocation of resources;
| | - |  | ----------------------------



| |  |  | an evolving regulatory system; and
| | - |  | ----------------------------------



| |  |  | lack of sufficient transparency in the regulatory process.
| | - |  | ----------------------------------------------------------

While the Chinese economy has experienced significant growth in the past 20 years, growth has been uneven, both geographically and among
various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative
effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese
government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial
portion of the productive assets in China is still owned by the Chinese government. The continued control of these assets and other aspects of the national economy by the Chinese government could materially and adversely affect our business. The
Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to
particular industries or companies. Efforts by the Chinese government to slow the pace of growth of the Chinese economy could result in decreased capital expenditure by hospitals, which in turn could reduce demand for our products.



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Moreover, the political relationship between the United States, Europe, or other Asian
nations and China is subject to sudden fluctuation and periodic tension. Changes in political conditions in China and changes in the state of foreign relations are difficult to predict and could adversely affect our operations or cause our services
to become less attractive. This could lead to a decline in our profitability.

Any adverse change in the economic conditions
or government policies in China could have a material adverse effect on overall economic growth and the level of healthcare investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently
have a material adverse effect on our businesses.

Future changes in laws, regulations or enforcement policies in China
could adversely affect our business.

Laws, regulations or enforcement policies in China, including those regulating
medical devices and supplies, are evolving and subject to future change. For example, under a regulation enacted by the SFDA in September 2002 and was renewed in April 2007, reagent kits are required to be registered with the SFDA and are subject to
regulatory controls. As of August 31, 2009, we have obtained the SFDA registrations for 62 ECLIA reagent kits and 14 FISH probes we sell. We are in the process of obtaining the required registrations for the 13 ECLIA reagent kits and 23 FISH
probes that are currently sold with research labels. Moreover, in October 2004, the SFDA imposed certain good manufacturing practice, or GMP, requirements for ECLIA reagent kits. As a result, all manufacturers of ECLIA reagent kits were obligated to
meet GMP standards by January 1, 2006. We are currently in compliance with such GMP requirements and obtained GMP certification for our ECLIA reagent kits in November 2005. The GMP certification is valid until October 2010. In 2007, the SFDA imposed
certain quality control system assessment requirements for certain reagent products, covering our FISH probes and HPV-DNA chips. We met such requirements for FISH probes and HPV-DNA chips, respectively in September 2009.

Future changes in laws, regulations or administrative interpretations, or stricter enforcement policies by the Chinese government, could
impose more stringent requirements on us, including fines or other penalties. Changes in applicable laws and regulations may also increase our operating costs. Compliance with such requirements could impose substantial additional costs or otherwise
have a material adverse effect on our business, financial condition and results of operations. These changes may relax some requirements, which could be beneficial to our competitors or could lower market entry barriers and increase competition.
Further, regulatory agencies in China may periodically, and sometimes abruptly, change their enforcement practice. Therefore, prior enforcement activity, or lack of enforcement activity, is not necessarily predictive of future actions. Any
enforcement actions against us could have a material and adverse effect on us and the market price of our ADSs. In addition, any litigation or governmental investigation or enforcement proceedings in China may be protracted and may result in
substantial cost and diversion of resources and management attention, negative publicity, damage to our reputation and decline in the price of our ADSs.

We may not be able to cause our subsidiaries to distribute sufficient amount of dividends to us to satisfy our cash needs.

We are a holding company and have historically relied on proceeds from equity and debt financings as well as dividends paid by our wholly
owned operating subsidiaries, YDME Beijing, Beijing GP, and BBE, for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. In
the event equity and debt financings are not available in amounts or on terms acceptable to us, we may need to cause our wholly owned subsidiaries to pay dividends to us for our cash needs. The payment of dividends in China is subject to
limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. YDME Beijing, Beijing GP and BBE are also required to set aside
at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until the reserves reach 50% of the subsidiaries own registered capital. These reserves are not distributable as cash



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dividends. In addition, if these three PRC operating subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or
make other distributions to us. Therefore, we may not be able to receive sufficient amount of dividends from our subsidiaries to satisfy our cash needs, and if such situation arises, we will not have the funds necessary to pay dividends and other
cash distributions to our shareholders, to service our debt or pay our operating expenses. See If we receive dividends from our operating subsidiaries located in the PRC, such dividends may be subject to PRC withholding tax.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

We receive all of our revenues in Renminbi, which currently is not a freely convertible currency. A portion of our
revenues may be converted into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our ordinary shares. Under Chinas existing foreign exchange regulations,
YDME Beijing, Beijing GP and BBE are able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements. However, we cannot assure you
that the PRC government will not take future measures to restrict access to foreign currencies for current account transactions.

All our PRC subsidiaries ability to obtain foreign exchange is subject to significant foreign exchange controls and, in the case of amounts under the capital account, requires the approval of and/or registration with PRC government
authorities, including the SAFE. In particular, if any of these subsidiaries borrow foreign currency loans from us or other foreign lenders, they must do so within approved limits that satisfy their approval documentation and PRC debt to equity
ratio requirements. Further, such loans must be registered with the SAFE. If we finance any of these subsidiaries by means of additional capital contributions, the amount of these capital contributions must first be approved by the relevant
government approval authority. These limitations could affect the ability of these subsidiaries to obtain foreign exchange through debt or equity financing.

Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in Chinas political and economic conditions. The conversion of
Renminbi into foreign currencies, including U.S. dollars, has historically been set by the Peoples Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the
new policy, the Renminbi is permitted to fluctuate within a band against a basket of certain foreign currencies, determined by the Peoples Bank of China, against which it can rise or fall by as much as 0.3% each day. This change in policy
resulted in an approximately 21% appreciation in the value of the Renminbi against the U.S. dollar between July 21, 2005 and September 25, 2009. Since the adoption of this new policy, the value of Renminbi against the U.S. dollar has
fluctuated on a daily basis within narrow ranges, but overall has further strengthened against the U.S. dollar. There remains significant international pressure on the PRC government to further liberalize its currency policy, which could result in a
further and more significant appreciation in the value of the Renminbi against the U.S. dollar. As we import certain materials and supplies for ECLIA reagent kits and FISH probes from the United States and some European countries, fluctuations in
the value of the Renminbi against the currencies of those countries may increase the cost of our ECLIA reagent kits and FISH probes. For example, to the extent that we need to convert U.S. dollars we received from our initial public offering, our
3.5% Convertible Senior Subordinated Notes due November 2011, our 4.0% Convertible Senior Notes due August 2013 and the concurrent note offerings into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an
adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes,
appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our
financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.



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The discontinuation of any of the preferential tax treatments or the financial
incentives currently available to us in PRC could adversely affect our financial condition and results of operation.

On March 16, 2007, the PRC Enterprise Income Tax Law, or the EIT Law, was enacted, and became effective on January 1, 2008. The EIT Law adopts a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises)
and eliminates most of the tax exemptions, reductions and preferential treatments available under the previous tax laws and regulations. Under the EIT Law, enterprises that were established and already enjoyed preferential tax treatments before
March 16, 2007 will continue to enjoy (i) in the case of preferential tax rates, continue to enjoy the tax rates which will be gradually increased to the new tax rates within five years from January 1, 2008 or (ii) in the case of
preferential tax exemption or reduction for a specified term, continue to enjoy the preferential tax holiday until the expiration of such term. Specifically, an enterprise that was enjoying tax holidays on January 1, 2008 will continue to enjoy
its existing tax holidays, unless such tax holidays did not yet start on January 1, 2008 due to the loss position of the enterprise, in which case such tax holidays shall commence on January 1, 2008. In accordance with a notice issued by
the State Council in December 2007 on the implementation of transitional preferential tax treatments, or the Transition Implementation Notice, enterprises that were subject to income tax at the rate of 15% prior to 2008 will be subject to income tax
at the rates of 18%, 20%, 22%, 24% and 25% in the years of 2008, 2009, 2010, 2011 and 2012, respectively.

The EIT Law,
however, introduces new tax incentives, subject to various qualification criteria. The EIT Law and its implementing rules permit qualified high and new technology enterprises to enjoy a reduced 15% EIT rate. The recently published
qualification criteria are significantly higher than those prescribed by the old tax rules under which we had been granted preferential treatment. YDME Beijing and BBE obtained the qualification certificates of high and new technology
enterprises in 2008 with a validity period of three years starting from 2008 to 2010. However, the continuing qualification of YDME Beijing and BBE as high and new technology enterprises for the calendar years of 2009 and 2010 will
be subject to annual evaluation by the relevant government authorities in China. In addition, YDME Beijing and BBE will need to apply for a three-year extension upon the expiration of the current qualification certificates if they want to continue
to enjoy the 15% reduced rate. We cannot assure you that YDME Beijing and BBE will continue to qualify as high and new technology enterprises under the EIT Law, or that the local tax authorities will not, in the future, change their
position and revoke any of our past preferential tax treatments. The discontinuation of any preferential tax treatments could materially increase our tax obligations.

Beijing GP was previously entitled to an EIT rate of 15% and was entitled to an exemption from EIT from January 1, 2008 to December 31, 2009 and a 50% income tax reduction from January 1,
2010 to December 31, 2012. While Beijing GP will be able to enjoy the tax holiday under the EIT Law and the Transition Implementation Notice, its 50% income tax reduction from January 1, 2010 to December 31, 2012 will be partially
eliminated. Under the EIT Law and the Transition Implementation Notice, Beijing GPs EIT rates are 0%, 0%, 11%, 12% and 12.5% for the calendar years from 2008 to 2012. While we may apply for qualification of Beijing GP as a high and new
technology enterprise to reduce our income tax expense, we cannot guarantee that our application will be successful. In addition, the application process could be time-consuming and we will continue to be subject to the higher EIT rate before
the application is granted.

Any increase in the enterprise income tax rate applicable to us or discontinuation or reduction
of any of the preferential tax treatments or financial incentives currently enjoyed by our PRC subsidiaries could adversely affect our business, operating results and financial condition.

If we receive dividends from our operating subsidiaries located in the PRC, such dividends may be subject to PRC withholding tax.

The new EIT Law and the implementation regulations for the EIT Law issued by the PRC State Council became effective as
of January 1, 2008. The new EIT Law imposes a withholding tax of 10% on dividends



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distributed by a foreign-invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without
any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding companys jurisdiction of incorporation has a
tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are incorporated, does not have such tax treaty with China. According to the Arrangement Between Mainland China and Hong Kong Special
Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of no more
than 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise). All of our subsidiaries in China are invested and held by Hong Kong registered entities. Thus, dividends paid to us by our subsidiaries in
China may be subject to the 5% withholding tax if we are considered as a non-resident enterprise under the EIT Law. If we are required under the EIT Law to pay income tax for any dividends we receive from our subsidiaries, our income tax
expenses will be increased and the amount of dividends, if any, we may pay to our shareholders and ADS holders may be materially and adversely affected.

We may be deemed a PRC resident enterprise under the EIT Law and be subject to the PRC taxation on our worldwide income.

The EIT Law also provides that enterprises established outside of the PRC whose de facto management bodies are located in the PRC
are considered resident enterprises and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, de
facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties
and other assets of an enterprise. However, the EIT Law and its implementing rules are relatively new and ambiguous in terms of certain definitions, requirements and detailed procedures, and currently no official interpretation or application of the
resident enterprise definition is available. Therefore, it is unclear how PRC tax authorities will determine the tax residency of each company based on the facts and circumstances of the specific company. If we are treated as a resident
enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations, although
dividends distributed from our PRC subsidiaries to us could be exempt from PRC dividend withholding tax, since such income is exempted under the new EIT Law to a PRC resident recipient.

Interest and dividends payable by us to our foreign investors and gain on the sale of our notes, ADSs and ordinary shares may become
subject to taxes under PRC tax laws.

Under the EIT Law and implementation regulations issued by the State Council, PRC
income tax at the rate of 10% is applicable to interest and dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place
of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such interest and dividends have their sources within the PRC. Similarly, any gain realized on the transfer of the notes,
ADSs or ordinary shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. Therefore, if we are considered a PRC resident enterprise, and interest we pay with
respect to our notes and dividends we pay with respect to ADSs or ordinary shares, or the gain you may realize from the transfer of our notes, ADSs or ordinary shares are considered as income derived from sources within the PRC and be subject to PRC
tax. If we are required under the EIT Law to withhold PRC income tax on interest or dividends payable to our non-PRC investors that are non-resident enterprises, or if you are required to pay PRC income tax on the transfer of our notes,
ADSs or ordinary shares, the value of your investment in our notes, ADSs or ordinary shares may be materially and adversely affected.



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PRC regulation of loans and direct investment by offshore holding companies to PRC
entities may delay or prevent us from using the proceeds of our equity or debt offerings to make loans or additional capital contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability
to fund and expand our business.

In utilizing the proceeds of any equity or debt offerings, as an offshore holding
company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations and approvals. For
example, loans by us to our wholly owned subsidiaries in China, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange in
China, or the SAFE, or its local counterpart.

We may also decide to finance our wholly owned subsidiaries by means of capital
contributions. These capital contributions must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all,
with respect to future loans or capital contributions by us to our PRC subsidiaries or any of their respective subsidiaries. If we fail to receive such registrations or approvals, our ability to use the proceeds of any equity or debt offerings and
to capitalize our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

We face risks related to health epidemics and other outbreaks of contagious diseases, including swine flu, avian flu, severe acute respiratory syndrome, or SARS.

Our business could be adversely affected by the effects of swine flu, avian flu, SARS or another epidemic or outbreak. During April and May
2009, there have been outbreaks of highly pathogenic swine flu, caused by the H1N1A virus, in certain regions of the world, including parts of Asia. In 2007 and early 2008, there were reports of outbreaks of a highly pathogenic avian flu, caused by
the H5N1 virus, in certain regions of Asia and Europe. In 2005 and 2006, there were reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases. An outbreak of avian flu in the human population could
result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, particularly in Asia. Additionally, any recurrence of SARS, a highly contagious form of atypical pneumonia, similar to the
occurrence in 2003 which affected China, Hong Kong, Taiwan, Singapore, Vietnam and certain other countries, would also have similar adverse effects. These outbreaks of contagious diseases, and other adverse public health developments in China, would
have a material adverse effect on our business operations. These could include restrictions on our ability to travel or to ship our products within China, as well as cause temporary closure of our manufacturing facilities. Such closures or travel or
shipment restrictions would severely disrupt our business operations and adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of
swine flu, avian flu, SARS or any other epidemic.

Risks Related to Our Ordinary Shares and our ADSs

Activities in connection with hedging transactions may affect the market price of our ADSs.

Activities by investors in our notes, affiliates of the underwriters and others in connection with hedging transactions may affect the market
price of our ADSs from time to time. For example, in connection with the settlement of a hedging transaction, the underwriters or their affiliates may purchase ADSs and investors in our convertible notes may sell ADSs, which could temporarily
increase or decrease (or delay an increase or decrease in) the market price of our ADSs. In addition, investors in our convertible notes may wish to purchase or sell convertible notes or adjust any hedging transactions from time to time, such that
the short position created through the concurrent offering of the purchased ADSs may be larger or smaller than needed. As a result, hedge adjustments may result in the buying or selling of ADSs by investors, affiliates of the underwriters or others,
which may affect the market price of our ADSs.



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Because the purchased ADSs may be considered outstanding for the purpose of computing
and reporting our earnings per ADS, the purchased ADSs could decrease our earnings per ADS and potentially the market price of our ADSs.

While the ordinary shares underlying the purchased ADSs will be considered issued and outstanding for purposes of Cayman Islands Companies Law, we believe that under U.S. GAAP currently in effect, the
purchased ADSs will not be considered outstanding for the purpose of computing earnings per ADS because, pursuant to the ADS issuance and repurchase agreements, among other things, upon conversion, repurchase or payment at maturity of all of the
convertible notes, the ADS Purchasers are obligated to deliver to us a number of purchased ADSs, unless earlier delivered pursuant to the ADS issuance and repurchase agreements. If these accounting principles, or our interpretation thereof, were to
change in the future, we may become required to treat the purchased ADSs as outstanding for purposes of computing and reporting our earnings per ADS, our earnings per ADS would be reduced and the market price of our ADSs could decrease, possibly
significantly.

The market price for our ADSs may be volatile.

The market price for our ADSs has been, and may continue to be, subject to significant fluctuations. Since August 10, 2005, the intraday
sales prices of our ADSs on the Nasdaq Global Select Market (then called the Nasdaq National Market) have ranged from US$11.41 to US$57.50 per ADS, and the closing sale price on September 28, 2009 was US$16.97 per ADS. The price of
our ADSs may fluctuate in response to factors including the following:



| |  |  | announcements of technological or competitive developments;
| | - |  | -----------------------------------------------------------



| |  |  | announcements regarding patent litigation or the issuance of patents to us or our competitors;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | governmental developments in China, such as changes in fiscal policies or developments relating to the regulatory or health care reimbursement
environment, affecting us or our competitors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of studies and reports relating to the effectiveness or safety of our products or those of our competitors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | changes in financial estimates by securities research analysts;
| | - |  | ---------------------------------------------------------------



| |  |  | changes in the economic performance or market valuations of other medical technology companies;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | addition or departure of our senior management and key research and development personnel;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | negative publicity about us or our products or allegation of irregularities or improper conduct of our management, whether true or false;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any litigation, governmental investigation or enforcement proceedings brought against us by authorities and industry regulators in China or elsewhere;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | sales of additional ordinary shares or ADSs, or the perception that such sales might occur.
| | - |  | -------------------------------------------------------------------------------------------

Accordingly, holders of our ADSs will be subject to the risk of volatility and depressed prices of our ADSs.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the
operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

In addition, any sales in the public market of ADSs issued upon conversion of the convertible notes could adversely affect prevailing market prices of our ADSs.



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Future sales of our ordinary shares or ADSs in the public market or the issuance of
securities senior to our ordinary shares could adversely affect the trading price of our ADSs and our ability to raise funds in new share offerings.

Future sales of substantial amounts of our ordinary shares or ADSs or other equity-related securities in the public market, including sales by any existing shareholders, or the perception that such sales
could occur, could adversely affect prevailing trading prices of our ADSs and could impair our ability to raise capital through future offerings of equity or equity-related securities. No prediction can be made as to the effect, if any, that future
sales of our ordinary shares or ADSs or the availability of our ordinary shares or ADSs for future sale, will have on the trading price of our ADSs.

Holders of ADSs will have fewer rights than holders of ordinary shares and must act through the depositary to exercise those rights.

As a holder of our ADSs, you will not have the same rights as holders of our ordinary shares, and you may only exercise the voting rights
with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, if the vote is by show of hands, the depositary will vote the deposited securities in accordance with the voting
instructions received from a majority of holders of ADSs that provided timely voting instructions. If the vote is by poll, the depositary will vote the deposited securities in accordance with the voting instructions it timely receives from ADS
holders. In the event of poll voting, deposited securities for which no instructions are received will not be voted. Under our articles of association, the minimum notice period required to convene a general meeting is seven days. When a general
meeting is convened, you may not receive sufficient notice of a shareholders meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents
may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that
you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the
manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS
holder, you will not be able to call a shareholder meeting.

You may be subject to limitations on transfers of your
ADSs.

Although your ADSs will be transferable on the books of the depositary, the depositary may close its transfer
books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the
depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may not receive cash dividends if it is impractical to make them available.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary
shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is
inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may
be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property, in which event you would not receive such distribution.



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Your right to participate in any future rights offerings may be limited, which may
cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to
acquire our securities. However, we cannot make rights available to holders of our ADSs in the United States unless we register the rights and the securities to which the rights relate under the Securities Act of 1933, as amended, or the Securities
Act, or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will not make rights available to holders of our ADSs unless the distribution to ADS holders of both the rights and any related
securities are either registered under the Securities Act, or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such
a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution
in your holdings of ADSs.

Our articles of association contain anti-takeover provisions that could adversely affect the
rights of holders of our ordinary shares and ADSs.

Our articles of association contain provisions that could limit the
ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our holders of our ordinary shares and holders of our ADSs of an opportunity to sell
their ordinary shares and ADSs, as applicable, at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has
the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications,
limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or
otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors issues preferred shares, the price of our ADSs
may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be adversely affected.

We
are a Cayman Islands company, and because the rights of shareholders under Cayman Islands law differ from those under United States law, you may have difficulty protecting your shareholder rights.

We are an exempted company with limited liability incorporated under Cayman Islands law, and substantially all of our assets are located
outside the United States. In addition, a majority of our directors and executive officers reside outside the United States, and a substantial portion of their assets is located outside of the United States. As a result, it may be difficult for you
to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or executive officers.

Our corporate affairs are governed by our articles of association, the Cayman Islands Companies Law and the common law of the Cayman
Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common
law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in
the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In
particular, the Cayman Islands has a less developed body of securities laws as compared to the United States and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, shareholders
in Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States and will have no general right under Cayman Islands law to inspect or obtain copies of our list of
shareholders or our corporate records.



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Walkers, our counsel as to Cayman Islands Law, have advised that there is no statutory
mechanism by which a judgment obtained in the United States courts can be recognized or enforced in the Cayman Islands. At common law, a foreign judgment which is in personam (a judgment against a person or other legal entity such as a company) may
be recognized if:



| |  |  | the judgment debtor was, at the time the foreign proceedings were instituted, present in the foreign country (which could be presence through an agent
or representative office);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the judgment debtor was plaintiff, or counter-claimed, in the proceedings in the foreign country;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the judgment debtor, being a defendant in the foreign court, voluntarily submitted to the jurisdiction of that court by participating in the foreign
proceedings; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if the judgment debtor had, before the commencement of the foreign proceedings agreed, in respect of the subject matter of the proceedings, to submit
to the jurisdiction of that court or the courts of that country.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Cayman Islands court must also be
satisfied that: the judgment is for a fixed sum; the judgment was not obtained by fraud; the proceedings in which the judgment was obtained were not contrary to natural justice and the judgment is final and conclusive on the merits. The usual
procedure for enforcement of a foreign judgment is to commence proceedings on the judgment as a common law debt.

Walkers has
further advised us that an action based on the securities laws of the United States or any state in the United States may not be commenced in the Cayman Islands against us or our directors or officers.

In relation to statutory law, an action may only be commenced in a Cayman Islands court in respect of statutes enacted or in force in the
Cayman Islands.

There is uncertainty regarding whether Cayman Islands courts would:



| |  |  | recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of United States securities laws;
and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | impose liability against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of United States securities
laws.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States,
although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction of a fixed sum that is not contrary to natural justice or the public policy of the Cayman Islands
without retrial on the merit.

As a result of all of the above, our public shareholders may have more difficulty in protecting
their interests with respect to actions taken by our management, directors or major shareholders than they would as public shareholders of a United States company.

We may be considered a passive foreign investment company, which could result in adverse U.S. federal income tax consequences for U.S. Holders.

We do not believe that we are, for U.S. federal income tax purposes, a passive foreign investment company (a PFIC), and we expect
to operate in such a manner so as not to become a PFIC. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, our PFIC status may be determined in large part based on the
market price of our ADSs and the underlying ordinary shares, which is likely to fluctuate (and may fluctuate considerably given that market prices of technology companies have been especially volatile). Accordingly, fluctuations in the market price
of the ADSs and the ordinary shares may result in our being a PFIC for any year. Thus, there can be no assurance that we will not be considered a PFIC for our current taxable year or any future taxable year. If we are or become a PFIC, U.S.



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Holders (as defined in TaxationUnited States Federal Income Taxation) could be subject to additional U.S. federal income taxes on gain recognized with respect to the ADSs or
ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from
us in taxable years beginning prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. See Item 10. Additional InformationE. TaxationUnited States
Federal Income TaxationPassive Foreign Investment Company.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------



|A. | History and Development of the Company
|-- | --------------------------------------

Our predecessor company, Beijing Yuande Bio-Medical Engineering Co., Ltd., or YDME Beijing, was incorporated in China and commenced business operations in July 1999. In anticipation of our initial public
offering, we incorporated China Medical Technologies, Inc., or China Medical, in the Cayman Islands as a listing vehicle in July 2004. China Medical is an exempted company with limited liability incorporated under Cayman Islands law. China Medical
became our ultimate holding company when it issued shares to the existing shareholders of YDME Beijing in January 2005 in exchange for all of the shares that these shareholders held in YDME Beijing. Prior to our acquisition of the FISH business in
March 2007, we conducted substantially all of our operations through YDME Beijing. In June 2007, we completed the full integration of the FISH business and launched our FISH imaging analyzer and FISH probes to the market through Beijing GP Medical
Technologies Co., Ltd., or Beijing GP. In December 2008, we acquired the SPR technology and related assets through CMED Technologies Ltd. We started to conduct the SPR business through Beijing GP in April 2009. In December 2008, we sold the HIFU
business to Chengxuan International Ltd. and discontinued the HIFU business.

In March 2007, we established a wholly owned
subsidiary, CMED ECLIA Diagnostic Technology Ltd. (formerly known as CMED Molecular Diagnostics Ltd.), for investment holding purposes. CMED ECLIA Diagnostic Technology Ltd. acquired Beijing Bio-Ekon Biotechnology Co., Ltd., or BBE, in January 2008.
CMED (HK) Limited was set up in April 2007 to provide administrative services to our group companies. We currently conduct substantially all of our operations through YDME Beijing, Beijing GP and BBE.

Our principal executive offices are located at No. 24 Yong Chang North Road, Beijing Economic-Technological Development Area, Beijing
100176, Peoples Republic of China. Our telephone number at this address is (8610) 6787-1166 and our fax number is (8610) 6788-9588.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is http://www.chinameditech.com. The information
contained on our website is not part of this annual report on Form 20-F. Our agent for service of process in the United States is Corporation Service Company located at 1133 Avenue of the Americas, Suite 3100, New York, New York 10036.

We made capital expenditures of RMB884.5 million, RMB664.9 million and RMB1,789.7 million (US$261.9 million) in the fiscal years ended
March 31, 2007, 2008 and 2009, respectively. Such capital expenditures principally consisted of expansion of production facilities for ECLIA products, FISH probes, SPR systems and HPV-DNA chips and payments in relation to our acquisition of the
FISH business, our acquisition of BBE and our acquisition of the SPR technology and related assets. We expect to spend approximately RMB752 million (US$110 million) in the year ending March 31, 2010, consisting of the purchase of new
manufacturing equipment to enlarge production capacity, the renovation of existing facilities and the final two payments in relation to our acquisition of the SPR technology and related assets.



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|B. | Business Overview
|-- | -----------------

Overview

We are a leading China-based medical device company that develops, manufactures and markets advanced immunodiagnostic and
molecular diagnostic products utilizing ECLIA technology, FISH technology and SPR technology. Our IVD products are used to detect and monitor various diseases and disorders through laboratory evaluation and analysis of blood, urine or other body
fluids.

Our ECLIA business, which consists of ECLIA analyzer and reagent kits, is an IVD system based on ECLIA technology we
acquired in August 2004. The ECLIA system is a type of IVD system commonly used in the United States and Western Europe, but is relatively new in China. Our ECLIA system is a closed system in that only our ECLIA reagent kits can be used
with our ECLIA analyzer and our ECLIA analyzer can only be used with our ECLIA reagent kits. We had installed over 3,500 units of our ECLIA analyzers as of March 31, 2009. We currently offer 75 types of reagent kits for use with our ECLIA
analyzers. These reagent kits are used to detect various thyroid disorders, diabetes, hepatitis, Down syndrome, liver fibrosis, disorders related to reproduction and growth and various types of tumors.

Our FISH business, which consists of FISH imaging analyzer and FISH probes, is a molecular diagnostic system based on FISH technology we
acquired in March 2007. FISH probes are molecular diagnostic reagents used with FISH imaging analyzer for the prenatal and postnatal diagnosis of various genetic diseases and for the early detection and prognosis of various cancers. FISH technology
enables medical practitioners to visualize and locate DNA sequences in human cells for identifying chromosomal abnormalities. Although widely used in hospitals in the United States and Western Europe, FISH technology is relatively new to the China
market. We began marketing and selling FISH products in June 2007. We currently offer 37 FISH probes that are used to detect various genetic syndromes and cancers including breast cancer, bladder cancer, cervical cancer, prostate cancer, lung
cancer, leukemia and multiple myeloma. Our FISH probes can be used with FISH imaging analyzer purchased from us or other manufacturers or assembled by our customers using components purchased directly from manufacturers of such components.

Our SPR business, which consists of SPR system and HPV-DNA chips, is a molecular diagnostic system based on SPR technology we
acquired in December 2008. Our SPR system is referred to as a closed system since our SPR system can only be used with DNA chips manufactured by us and our DNA chips can only be used with our SPR system. SPR is a leading biosensor
technology in molecular biology used for the analysis of proteins, nucleic acids and viruses. It is relatively new to the China market. The HPV-DNA chips, which we currently offer for use with our SPR system, are label-free DNA chips for the
diagnosis of HPV infection and genotyping of HPV.

We have significant experience and demonstrated ability in identifying,
acquiring and commercializing medical technologies with significant market potential. We have acquired ECLIA, FISH and SPR technology platforms, successfully integrated these technologies into our existing operations and developed and marketed
products utilizing these technologies.

We sell our ECLIA reagent kits solely through distributors, who mainly target small to
medium-sized hospitals. As our ECLIA system is a closed system, we believe that a large installed base of our ECLIA analyzers will enable us to derive a steady source of recurring revenue from sales of our reagent kits. In April 2008, in
order to further expand the installed base of our ECLIA analyzers and to derive additional recurring revenue from sales of our reagent kits, we started to provide our ECLIA analyzers free of charge to hospitals with certain diagnostic volume to
promote the sales of our reagent kits. In April 2008, in order to promote the sales of our FISH probes, we started to recommend hospital customers to purchase components of FISH imaging analyzer, such as the microscope, directly from component
manufacturers so that these hospitals could reduce the cost of setting up the FISH test platform and expedite the commencement of this diagnostic service to patients. Our FISH probes are marketed and sold through our own sales force and mainly
target large hospitals. We had



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166 sales and marketing employees as of August 31, 2009. We plan to sell our HPV-DNA chips through our own sales force and mainly target large hospitals as well. We also plan to provide our
SPR systems free of charge to large hospitals to promote the sales of our HPV-DNA chips. Our main revenue streams currently come from the recurring sales of ECLIA reagent kits and FISH probes, and we expect the recurring sales of HPV-DNA chips will
become an additional main revenue stream in the future.

Our Strengths

We believe that our principal competitive strengths include the following:



| |  |  | a leader in the Chinese immunoassay and molecular diagnostic IVD market, offering IVD products including our ECLIA analyzer and reagent kits, our FISH
probes and our SPR system and HPV-DNA chips;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | strong research and development capabilities and commitment to our research and development efforts;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | low manufacturing and operating costs; and
| | - |  | ------------------------------------------



| |  |  | demonstrated ability to identify, acquire and commercialize medical technologies with significant market potential.
| | - |  | -------------------------------------------------------------------------------------------------------------------

Our Strategies

We intend
to continue to grow our business through the following strategies:



| |  |  | increase recurring revenue through developing and selling new ECLIA reagent kits, increasing the usage of our ECLIA reagent kits in hospitals and
expanding the installed base of our ECLIA analyzers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase recurring revenue from sales of our FISH probes by expanding our direct sales force targeting large hospitals, promoting the adoption of FISH
technology and developing new FISH probes with large market potential;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increase recurring revenue from sales of our HPV-DNA chips by expanding our direct sales force targeting large hospitals, promoting the adoption of SPR
technology and developing new DNA chips with large market potential;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | maintain our technological advantage through focused research and development; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | selectively acquire complementary products or technologies with significant market potential.
| | - |  | ---------------------------------------------------------------------------------------------

Our Products and Services

ECLIA Reagent Kits and ECLIA Analyzer

Our ECLIA system, which consists of reagent kits and an ECLIA
analyzer, is a closed IVD system based on ECLIA technology we acquired in August 2004.

To perform a test using our ECLIA
system, an ECLIA reagent is mixed with a sample of body fluid from the patient in a microplate provided in our reagent kit. The mixture reacts and emits light, which is measured and analyzed by the ECLIA analyzer. The result is compared with the
reference ranges for the particular reagent in order to reach a diagnosis. Our ECLIA analyzer is a sensitive, accurate, low cost and simple-to-use IVD device capable of detecting minute levels of light triggered by combining reagents with body fluid
samples to produce diagnostic results. We have developed several technologies that make our photon counter, a key component of our ECLIA analyzer, more sensitive and accurate. Our ECLIA analyzer uses our proprietary technology to analyze and
organize the information produced and contains encryption codes that prevent users from conducting tests with reagents produced by other manufacturers.



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We increasingly derive more revenue from recurring sales of ECLIA reagent kits. In April
2008, in order to further expand the installed base of our ECLIA analyzers and increase recurring revenue from sales of reagent kits, we started to provide our ECLIA analyzers free of charge to hospitals with certain diagnostic volume to promote the
sales of our ECLIA reagent kits.

We currently offer 75 types of reagent kits for detecting and monitoring various types of
diseases and disorders, including thyroid disorders, diabetes, hepatitis, and disorders related to reproduction and growth, severe acute respiratory syndrome, or SARS, Down syndrome, liver fibrosis and various types of tumors. We are also developing
reagents for other applications such as infectious disease, infertility disorders and cardiac diseases. The following table sets out the major clinical applications of our reagent kits:



|                                        |  |                        |  |                                                                                                                                                                                  
|--------------------------------------- |  | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Type of Test                            |  | Numbers ofReagent Kits |  | Description                                                                                                                                                                      
|Anemia                                  |  | 1                      |  | To evaluate levels of serum ferritin in diagnosing iron deficiency anemia.                                                                                                       
|Cardiac diseases                        |  | 1                      |  | To test the effectiveness of digoxin, a widely used drug for treatment of heart failure.                                                                                         
|Growth disorder                         |  | 1                      |  | Early diagnosis, identification and prognosis evaluation of problems relating to growth and development.                                                                         
|Hepatitis                               |  | 10                     |  | Basic tests hospitals perform to test for hepatitis B.                                                                                                                           
|HIV                                     |  | 1                      |  | To test for human immunodeficiency virus (HIV), a virus that can lead to acquired immunodeficiency syndrome (AIDS).                                                              
|Infertility                             |  | 7                      |  | To test for the sterility caused by the malfunction of immune system.                                                                                                            
|Liver fibrosis                          |  | 4                      |  | Main tests performed by hospitals for evaluating the presence and degree of liver fibrosis.                                                                                      
|Metabolic function (including diabetes) |  | 4                      |  | To test insulin and C-Peptide levels, two common indications of diabetes and to test for and monitor diabetes where insulin and C-Peptide levels may not be a reliable indicator.
|Others viruses                          |  | 10                     |  | To test for the infection of other viruses including the five viruses that could cause the fetal malformation if infected during pregnancy.                                      
|Reproductive endocrinology              |  | 18                     |  | Main tests performed by hospitals to evaluate the functions of the female and male reproductive organs as well as tests to assess Down Syndrome                                  
|SARS                                    |  | 1                      |  | To test for SARS, an atypical pneumonia of unknown etiology recognized in February 2003 in China, Taiwan, Hong Kong, Singapore and certain other regions in the
world.           
|Thyroid disorders                       |  | 7                      |  | The basic tests hospitals perform to evaluate the functions of a patients thyroid gland.                                                                                        
|Tumors                                  |  | 10                     |  | To detect the following types of tumors: breast; colon; intestine; kidney; liver; lung; ovary; pancreas; prostate and stomach.                                                   

FISH Probes and FISH Imaging Analyzer

Our FISH probes are molecular diagnostic IVD reagents used with FISH imaging analyzers for the prenatal diagnosis of various genetic diseases
and for the early detection and prognosis of various cancers.

To perform a FISH test, a specific FISH probe is mixed with a
sample of patient body fluid or tissue so that the probe can hybridize with its complementary target DNA in the patients cells. Once hybridized, the fluorescent fragments on the FISH probe will show precisely where the target DNA lies along
the patients chromosomes. Under the fluorescent microscope, which is a key component of the FISH imaging analyzer, the medical practitioners examine the labeled sample, check the quality of the fluorescent signals, analyze the findings and
record the areas for analysis. These fluorescent images are captured and saved on the computer for further analysis by the imaging analyzer if needed.



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In April 2008, in order to promote the sales of our FISH probes, we started to recommend
hospital customers to purchase components of FISH imaging analyzer, such as the microscope, directly from component manufacturers so that these hospitals could reduce the cost of setting up the FISH test platform and expedite the commencement of
this diagnostic service to patients. While it may reduce or eliminate the sales of our FISH imaging analyzer, we believe such practice could increase our sales of FISH probes, which are recurring in nature and generate higher gross margin than FISH
imaging analyzer.

We currently offer 37 types of FISH probes. The following table sets out the major clinical applications of
these FISH probes:



|                       |  |                  |  |                                                                                                                                                                                                        
|---------------------- |  | ---------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Application            |  | Numbersof Probes |  | Description                                                                                                                                                                                            
|Bladder cancer         |  | 4                |  | An advanced approach for early detection and monitoring the course of bladder cancer.                                                                                                                  
|Breast cancer          |  | 2                |  | An effective tool to guide treatment. Mostly used to determine whether a breast cancer patient is suitable for receiving Herceptin therapy which is recently approved to treat
stomach cancer patients.
|Cervical cancer        |  | 2                |  | An effective tool for early diagnosis of cervical cancer and for prediction of the risk of developing cervical cancer.                                                                                 
|Leukemia               |  | 15               |  | For diagnosis and prognosis of various leukemia and multiple myeloma.                                                                                                                                  
|Lung cancer            |  | 2                |  | For detecting epidermal growth factor receptor (EGFR) abnormalities in patients with non-small cell lung cancer to guide treatment.                                                                  
|Prenatal and postnatal |  | 6                |  | For detecting Trisomy 21, Trisomy 18, Trisomy 13, Turner syndrome, Trisomy X, XYY syndrome, DiGeorge syndrome, triploidy.                                                                              
|Prostate cancer        |  | 6                |  | An effective approach for early diagnosis of prostate cancer.                                                                                                                                          

HPV-DNA Chips and SPR-based Analysis System

Our HPV-DNA chips are molecular diagnostic biosensor chips used with SPR-based analysis system for the diagnosis of HPV infection and
genotyping of HPV.

To perform a test using our SPR-based analysis system, a sample of patient cervical cells is obtained.
After abstraction, DNA is amplified and then placed on a HPV-DNA chip. HPV genotype specific probes on the chip can hybridize with their complementary target DNA abstracted from the cervical cells. Once hybridized, the SPR-based analysis system can
read the hybridization signals and interpret the results based on control signals. The hybridization and analysis procedures are automatically performed by the SPR system. Medical practitioners examine and record the final results.

Manufacturing

Our
manufacturing strategy combines our internal design expertise and proprietary technology with strategic sourcing. We produce our ECLIA reagent kits, FISH probes and HPV-DNA chips and conduct the final product assembly, testing and packaging of our
ECLIA analyzer and SPR system at our facility in Beijing, China. We outsource the production of a majority of our product components to, and purchase raw materials from, third-party suppliers.

We design or configure many key components of our products and outsource their production to qualified manufacturers. Our suppliers undergo
quality certification in accordance with the standards developed by us, and we conduct frequent quality inspections of each of our suppliers manufacturing facilities. We believe we maintain components and raw materials at an adequate level to
ensure a stable supply.

The major components of our ECLIA analyzer are the photon-multiplier, motor drive and various types
of other electrical and plastic parts that are generally readily available in sufficient quantities from our local suppliers. The raw materials of our ECLIA reagent kits are antibodies and antigens for the production of coated



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microplate and conjugator, chemicals for the production of reagents, and plastics and packaging such as vacant microplate and bottles. We purchase a portion of our supplies of antibodies and
antigens overseas and source the other raw materials from local suppliers. The major component of our FISH imaging analyzer is the fluorescent microscope sourced from international suppliers. The raw materials of our FISH probes are substances from
our DNA clone bank and fluorescent dye. The major components of our SPR system are auto-sampling robot, a high resolution CCD camera and various types of electrical and plastic parts that are generally readily available in sufficient quantities from
our local suppliers. The raw materials of our HPV-DNA chips are substances from our DNA clone bank and gold or silver-coated glass slides.

We generally produce our products based on firm orders from our customers and anticipated orders that we are reasonably confident will be obtained. Lead times for raw materials and components vary and
depend on the specific supplier and the availability and demand for the raw materials or components. We currently use one or more suppliers for some of our key components for quality control purposes. We believe that we will be able to source most
of our key components from other suppliers if necessary. We do not currently have any long-term supply contracts, and our purchases are made on a purchase order basis.

We have streamlined our product assembly process to improve our responsiveness to changes in our business volume by training our employees to assemble multiple components. As our sales fluctuate from
month to month, employees with multiple skill sets and multi-tasked teams will allow us to make quicker deliveries while enabling us to more effectively manage our costs.

In October 2004, the SFDA imposed certain good manufacturing practice, or GMP, requirements for ECLIA reagent kits. As a result, all manufacturers of ECLIA reagent kits were obligated to meet GMP
standards by January 1, 2006. We are currently in compliance with such GMP requirements and obtained GMP certification for our ECLIA reagent kits in November 2005. The GMP certification is valid until October 2010. In 2007, the SFDA imposed certain
quality control system assessment requirements for certain reagent products, covering our FISH probes and HPV-DNA chips. We met such requirements for FISH probes and HPV-DNA chips, respectively in September 2009.

We are required to obtain production permits and to renew these permits six months prior to the expiration of the original permit. Our
production permit for the manufacture of our ECLIA analyzer and reagent kits is valid until July 2010 and our production permit for the manufacture of our FISH probes, SPR system and HPV-DNA chips is valid until May 2011. In addition, we are
required to complete the SFDA registration of our products before we may sell the products for clinical diagnosis purpose. See Regulation.

Quality Control

We have our own independent quality control system and
devote significant attention to quality control for the designing, manufacturing and testing of our products. We have established a quality control system in accordance with the SFDA regulations. To indicate our compliance with recognized
international standards for quality control, we obtained ISO9001 and ISO13485:2003 certifications for the production of our ECLIA systems and FISH probes in May 2006 and May 2008, respectively. We inspect components prior to assembly, and inspect
and test internally manufactured products both during and after the manufacturing process. We also conduct regular quality inspections of each of our suppliers manufacturing facilities.

Our quality control team is also responsible for ensuring that we are in compliance with all applicable regulations, standards and internal
policies. Our senior management team is actively involved in setting quality policies and managing internal and external quality performance.

Markets and Customers

We believe that our products have significant market potential in China as there is a
strong demand for sensitive and reliable IVD systems. According to the Ministry of Health of the Peoples Republic of China, or the



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MOH, there were approximately 18,300 hospitals in China in 2008. The target market for our ECLIA system is small-and medium-sized hospitals in China. We began marketing and selling our ECLIA
system in September 2004 and had sold over 3,500 units of ECLIA analyzers as of March 31, 2009. The target market for our FISH probes, SPR system and HPV-DNA chips is large hospitals in China. We began marketing and selling our FISH imaging
analyzer and probes in March 2007. As of March 31, 2009, about 400 large hospitals are using our FISH products. We began to introduce our SPR system and HPV-DNA chips to certain existing hospital customers of our FISH products in April 2009 and
expect to deliver our SPR system to some hospitals in October 2009.

Sales and Marketing

We market and sell our ECLIA system solely to distributors. We sold ECLIA analyzers prior to April 2008, and for sales of our ECLIA
analyzers, we generally required a payment of 20% to 40% of the sale price before delivery or after acceptance and the balance within six months of acceptance. For sales of reagent kits, we do not require down payments, and we collect payments three
months after acceptance. We started to provide our ECLIA analyzers to qualified hospitals free of charge in April 2008. The costs of the ECLIA analyzers that we provided free of charge to our customers are included in cost of revenues. As our ECLIA
analyzers are closed system, although it reduced the sales of our ECLIA analyzers, we believe such practice could increase the sales of our ECLIA reagent kits, which are recurring in nature and generate higher gross margin than ECLIA analyzer.

We market and sell our FISH imaging analyzer and probes directly to hospitals. For sales of our FISH imaging analyzer, we may
require a payment of a portion of the sale price before delivery or after acceptance and the balance within six months of acceptance. For sales of FISH probes, we do not require down payments, and we generally collect payments four to nine months
after acceptance. To promote the sales of our FISH probes, we also recommend hospital customers to purchase components of FISH imaging analyzer, such as the microscope, directly from component manufacturers so that these hospitals could reduce the
cost of setting up the FISH test platform and expedite the commencement of this diagnostic service to patients. While it may reduce or eliminate the sales of our FISH imaging analyzer, we believe such practice could increase our sales of FISH
probes, which are recurring in nature and generate higher gross margin than FISH imaging analyzer.

We plan to market and sell
our SPR system and HPV-DNA chips directly to hospitals. Similar to our free arrangement for ECLIA analyzers, we plan to provide our SPR systems to qualified hospitals free of charge. The costs of free SPR systems will be included in cost of revenues
after the systems are delivered. As our SPR systems are closed systems, we expect such practice to increase the sales of our HPV-DNA chips, which are recurring in nature.

We recognize revenues at the time our products are accepted by either our distributors, the hospitals designated by these distributors or our hospital customers, which typically occurs within one to two
weeks after shipment. Certain of our distributors or hospital customers are required to pay an advance for purchase of products. Our distributors take ownership of our products when either they or the hospitals they designate accept the products.

We select our third-party distributors based on their reputation, market coverage, sales experience and the size of their
sales force. We conduct credit assessments of each of our distributors or hospital customers before we sell our products to them. Currently, all our products are being marketed and sold in China.

As of August 31, 2009, we had a team of 166 marketing and sales personnel who conduct direct sales of our FISH products, SPR system and
HPV-DNA chips, manage distributors for our ECLIA system and perform other sales related tasks. We intend to further increase the size of our sales force as our business grows.

The hospitals head of the department of diagnostics or pathology typically make the purchasing decision for our products. We believe
that hospitals make purchase decisions on diagnostics equipment based on the



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performance and the range of ECLIA reagent kits, FISH probes or HPV-DNA chips available, the prices of equipment and ECLIA reagent kits, FISH probes or HPV-DNA chips, ease of use and the
turnaround time of results.

We have established relationships with many hospital administrators at prominent hospitals and
other leading medical institutions. We believe our relationships with these major hospitals and medical institutions raise our profile, enhance awareness of our products in the medical community, medical equipment and supplies industry and among
patients, provide us with valuable clinical data to improve our products and keep us abreast of industry trends and developments, all of which in turn helps us market and sell our products. We manage our relationships with ECLIA distributors by
pricing our ECLIA system more attractively to distributors than imported alternatives. Our FISH probes address large unmet market in China, primarily the prenatal and cancer diagnosis market. Our direct sales force formed for FISH product
distribution helps us build closer relationships with the end-users which are large hospitals. We believe these relationships also facilitate cross-selling of our ECLIA system, SPR system and HPV-DNA chips.

Customer Support and Service

We maintain a dedicated team to provide customer support and service for our products. Our customer support and service teams are based in Beijing and other cities in China and provide on-site and off-site technical and clinical support to
hospitals across China upon customer request. As of August 31, 2009, this team consisted of 149 full-time employees, including physicians, biomedical engineers, acoustics engineers, computer science engineers, and service and repair
technicians. We believe that our ability to provide good customer support and service is an important part of our business.

We provide training to hospitals that purchase our ECLIA products and FISH products and plan to provide training to hospitals that purchase our SPR system and HPV-DNA chips. Training sessions are provided directly by us or through larger
hospitals that have purchased our products. Training for our ECLIA system, FISH probes and SPR system generally takes only one to five days long as our IVD systems are relatively easy and simple to operate.

Each of our ECLIA analyzer and FISH imaging analyzer is typically provided with a 12-month warranty against technical defects. We have
experienced a very limited number of warranty claims in the past for our ECLIA analyzers and FISH imaging analyzers. We expect to provide our SPR system with a 12-month warranty as well. The costs associated with our warranty claims have
historically been insignificant. We do not accrue any liability for potential warranty costs at the time of sale.

Competition

Our ECLIA system competes with other IVD systems and reagent kits offered in the China market by many established
international companies, including Abbott Diagnostics, Siemens Healthcare, Beckman Coulter, PerkinElmer, Johnson & Johnson and Roche Group. There are also a number of China-based manufacturers who also offer luminescence immunoassay
systems.

Our FISH probes compete with probes offered by Abbott Diagnostics. We are not aware of any China-based manufacturers
who offer FISH probes in China.

Our SPR system and HPV-DNA chips compete with HPV products offered by Qiagen, Hologic and
certain China-based manufacturers. We are not aware of any China-based manufacturers who offer both an SPR system and HPV-DNA chips in China.

Rapid product development, technological advances, intense competition and a strong emphasis on proprietary products characterize the industry in which we compete. Our products could be rendered obsolete
or



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uneconomical by the introduction and market acceptance of competing products or by technological advances of our current or potential competitors. We face direct competition from a number of
publicly traded and privately held companies, including other manufacturers of diagnostic products. Many of our existing and potential competitors have substantially greater financial, research and development, sales and marketing, personnel and
other resources than we do and may have more experience in developing, manufacturing, marketing and supporting new products. Competition will intensify as more players enter this field. We believe that an important competitive advantage for a
medical technology company is its ability to make continuous investments in research and development and to identify commercially viable technologies and successfully bring the technologies into the market.

Insurance

We have property
insurance coverage from China Pacific Property Insurance Co., Ltd. to cover certain of our fixed assets. Our insurance coverage, however, may not be sufficient to cover any claim for product liability or damage to our fixed assets. See Item 3.
Key InformationD. Risk factorsRisks related to our companyWe are subject to product liability exposure and have limited insurance coverage.

Regulation

Our ECLIA analyzer, FISH imaging analyzer and SPR system are
medical devices and are subject to regulatory controls governing medical devices. Pursuant to the SFDA regulation effective on June 1, 2007, reagents used for IVD testing are divided into three different categories depending on the degree of
risk associated with the reagent. All reagents are subject to regulatory controls governing IVD reagents. As a manufacturer of medical equipment and supplies, we are subject to regulation and oversight by different levels of the SFDA. We are also
subject to other government laws and regulations which are applicable to manufacturers in general. The SFDA requirements include obtaining production permits, compliance with clinical testing standards, manufacturing practices, quality standards,
applicable industry and adverse reporting, and advertising and packing standards.

Classification of medical devices

In China, medical devices are classified into three different categories, Class I, Class II and Class III, depending
on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Classification of a medical device is important because the class to which a medical device is assigned determines, among
other things, whether a manufacturer needs to obtain a production permit and the level of regulatory authority involved in obtaining such permit. Classification of a device also determines the types of registration required and the level of
regulatory authority involved in effecting the registration.

Class I devices are those with low risk to the human body and
are subject to general controls. Class I devices are regulated by the city level food and drug administration where the manufacturer is located. Class II devices are those with medium risk to the human body and are subject to
special controls. Class II devices require product certification, usually through a quality system assessment, and are regulated by the provincial level food and drug administration where the manufacturer is located. Class III devices
are those with high risk to the human body, such as life-sustaining, life-supporting or implantable devices, and are regulated by the SFDA under the strictest regulatory control.

Our ECLIA analyzer, FISH imaging analyzer and SPR system are classified as Class II devices.

Production permits for medical devices

A manufacturer must obtain a production permit from the provincial level food and drug administration before commencing the manufacture of Class II or Class III medical devices. A production permit, once
obtained, is valid for five years and is renewable upon expiration. Our production permit for the manufacture of



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our ECLIA analyzer will expire on July 3, 2010. Our production permit for the manufacture of our SPR system will expire on May 14, 2011. To renew a production permit, a manufacturer
needs to submit to the provincial level food and drug administration an application to renew the permit, along with required information six months before the expiration date of the permit. We do not believe it will be difficult for us to renew our
production permit.

Registration requirements of medical devices

Before a medical device can be manufactured for commercial distribution, a manufacturer must effect medical device registration by proving
the safety and effectiveness of the medical device to the satisfaction of respective levels of the food and drug administration. In order to conduct a clinical trial on a Class II or Class III medical device, the SFDA requires manufacturers to apply
for and to obtain in advance a favorable inspection result for the device from a third party inspection center recognized by the SFDA. The application to the inspection center must be supported by appropriate data, such as animal and laboratory
testing results. If the inspection center approves the application for clinical trial, and the respective levels of the food and drug administration approve the institutions which will conduct the clinical trials, the manufacturer may begin the
clinical trial. A registration application for a Class II or Class III device must provide certain pre-clinical and clinical trial data and information about the device and its components regarding, among other things, device design, manufacturing
and labeling. The provincial level food and drug administration, within 60 days of receiving an application for the registration of a Class II device, and the SFDA, within 90 days of receiving an application for the registration of a Class III
device, will notify the applicant whether the application for registration is approved. If approved, a registration certificate will be issued within 10 days of the notification. If the food and drug administration requires supplemental information,
the approval process may take much longer. The registration is valid for four years.

The SFDA occasionally changes its
policies, adopts additional regulations, revises existing regulations or tightens enforcement, each of which could block or delay the approval process for a medical device. For example, a 2003 regulation further specifies that a 100-patient clinical
trial is required before any medical device can be approved for commercial production.

The SFDA approval for our ECLIA
analyzer will expire in July 2012 and we do not believe it will be difficult for us to renew this approval for our ECLIA analyzer.

Classification of ECLIA reagent kits, FISH probes and HPV-DNA chips

Reagents used for IVD testing are
divided into three different categories, Class I, Class II and Class III, depending on the degree of risk associated with each reagent. Classification of a reagent is important because the class to which a reagent is assigned determines, among other
things, the types of registration required and the level of regulatory authority involved in effecting the registration.

Class I reagents are those with low risk and are subject to general controls. Class I reagents are regulated by the city level food and drug administration where the manufacturer is located. Class II reagents are those with
medium risk and are subject to special controls. Class II reagents are regulated by the provincial level food and drug administration where the manufacturer is located. Class III devices are those with high risk and are regulated by the
SFDA under the strictest regulatory control.

Our ECLIA reagent kits, FISH probes and HPV-DNA chips are classified as Class
III reagents, and they therefore are subject to all regulatory controls governing Class III reagents.

Production
permits for ECLIA reagent kits, FISH probes and HPV-DNA chips

A manufacturer must obtain a production permit from the
food and drug administration at the provincial level. A production permit, once obtained, is valid for five years and is renewable upon expiration. Our production permit for the manufacture of ECLIA reagent kits will expire in July 2010. Our
production permit for



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the manufacture of FISH probes and HPV-DNA chips will expire in May 2011. To renew the production permit, a manufacturer needs to submit to the provincial level food and drug administration an
application to renew the permit, along with required information six months before the expiration date of the permit. We do not believe it will be difficult for us to renew our production permit. In addition, pharmaceutical manufacturing operations
are also subject to periodic re-inspection and must comply with applicable quality regulations.

Registration
requirements of ECLIA reagent kits, FISH probes and HPV-DNA chips

Prior to selling an IVD reagent kit, a manufacturer
must obtain the SFDA registration of the product it plans to sell. The registration process starts with submitting a registration dossier to the SFDA. The registration dossier contains primarily detailed information concerning the effectiveness and
quality of the reagent kit. It also contains details concerning the manufacturing process and the production facilities. The registration process can last a few months and the timing depends on the nature of the pharmaceutical product under review,
the quality of the data and the general efficiency of the SFDA. The approval process involves the detailed examination of the testing, effectiveness, labeling, manufacturing and marketing of IVD reagents by the SFDA. The registration is valid for
four years.

We currently offer a total of 75 ECLIA reagent kits and 37 FISH probes in China. Of the 75 ECLIA reagent kits, 62
are covered by registration certificates. Of the 37 FISH probes, 14 are covered by registration certificates. Of the 13 ECLIA reagent kits and 23 FISH probes we currently sell for research purpose which are exempt from registration certificates, we
have submitted registration applications for all of them. We expect to start selling our HPV-DNA chips for research purpose in January 2010 and are in the process of applying for the registration certificate for our HPV-DNA chips.

Thus, although regulations require that the SFDA registration be obtained before a reagent kit is sold, a reagent kit may be exempt from
registration if it is used for research purposes only. A reagent kit intended for research use only may not be applied in human clinical diagnostic or prognostic uses. In addition, a reagent kit intended for research use only must comply with the
labeling requirements that require the statement: For research use only. Not for use in diagnostic procedures. We have sold many of our ECLIA reagent kits and FISH probes without required registrations. In addition, we believe that many
ECLIA reagent kits and FISH probes sold in China, including some manufactured by our overseas-based competitors, are also sold without required registrations. See Item 3. Key InformationD. Risk factorsRisks related to our
industryIn order to manufacture and market our products, we are required to obtain various authorizations from governmental regulatory authorities in China and other countries. If we fail to obtain clearances or approvals in a timely fashion,
our business may be significantly affected. and Item 3. Key InformationD. Risk factorsRisks related to doing business in ChinaFuture changes in laws, regulations or enforcement policies in China could adversely affect
our business.

In October 2004, the SFDA imposed certain good manufacturing practice, or GMP, requirements for ECLIA
reagent kits. As a result, all manufacturers of ECLIA reagent kits were obligated to meet GMP standards by January 1, 2006. We are currently in compliance with such GMP requirements and obtained GMP certification for our ECLIA reagent kits in
November 2005. The GMP certification is valid until October 2010. In 2007, the SFDA imposed certain quality control system assessment requirements for certain reagent products, covering our FISH probes and HPV-DNA chips. We met such requirements for
FISH probes and HPV-DNA chips, respectively in September 2009.

Continuing SFDA regulations

We are subject to continuing regulation by the SFDA. In the event of significant modification to an approved medical device, its labeling or
its manufacturing process, a new pre-market approval or pre-market



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approval supplement may be required. Our ECLIA analyzer and ECLIA reagent kits, FISH probes, and SPR system and HPV-DNA chips are subject to, among others, the following regulations:



| |  |  | the SFDAs quality system regulations, which require manufacturers to create, implement and follow certain design, testing, control, documentation
and other quality assurance procedures;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | medical device reporting regulations, which require that manufacturers report to the SFDA certain types of adverse reactions and other events involving
their products; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the SFDAs general prohibition against promoting products for unapproved uses.
| | - |  | ------------------------------------------------------------------------------

Class II and III devices may also be subject to special controls applicable to them, such as supply purchase information, performance
standards, quality inspection procedures and product testing, which may not be required for Class I devices. We believe we are in compliance with the applicable SFDA guidelines, but we could be required to change our compliance activities or be
subject to other special controls if the SFDA changes or modifies its existing regulations or adopts new requirements.

We are
also subject to inspection and market surveillance by the SFDA to determine compliance with regulatory requirements. If the SFDA decides to enforce its regulations and rules, the agency can institute a wide variety of enforcement actions, such as:



| |  |  | fines, injunctions and civil penalties;
| | - |  | ---------------------------------------



| |  |  | recall or seizure of our products;
| | - |  | ----------------------------------



| |  |  | the imposition of operating restrictions, partial suspension or complete shutdown of production; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | criminal prosecution.
| | - |  | ---------------------

Other national and provincial level laws and regulations

We are
subject to changing regulation under many other laws and regulations administered by governmental authorities at the national, provincial and city levels, some of which are, or may be, applicable to our business. Our hospital customers are also
subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us.

Laws
regulating medical device manufacturers and hospitals cover a broad array of subjects. For example, regulations control the confidentiality of patient medical information and the circumstances under which patient medical information may be released
for inclusion in our databases, or released by us to third parties. These laws and regulations governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future.

We must also comply with numerous additional state and local laws relating to matters such as safe working conditions, manufacturing
practices, environmental protection and fire hazard control. We believe we are currently in compliance with these laws and regulations; however, we may be required to incur significant costs to comply with these laws and regulations in the future.
Unanticipated changes in existing regulatory requirements or adoption of new requirements could therefore have a material adverse effect on our business, results of operations and financial condition.

Regulation of foreign currency exchange and dividend distribution

Foreign currency exchange regulation in China is primarily governed by the following rules:



| |  |  | Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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Under the Exchange Rules, the Renminbi is convertible for current account items, including
the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment,
however, is still subject to the approval of the SAFE.

Under the Administration Rules, companies in China with foreign
investments, such as YDME Beijing, Beijing GP or BBE, may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account
item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, which include approvals by the SAFE and other relevant government authorities.

The principal regulations governing distribution of dividends paid by wholly foreign owned enterprises include:



| |  |  | Wholly Foreign Owned Enterprise Law (1986), as amended; and
| | - |  | -----------------------------------------------------------



| |  |  | Wholly Foreign Owned Enterprise Law Implementation Rules (1990), as amended.
| | - |  | ----------------------------------------------------------------------------

Under these regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in China are required to set aside certain amounts out of their accumulated profits each year, if any, to fund certain reserve funds. These
reserves are not distributable as cash dividends.

Regulation of foreign exchange in certain onshore and offshore
transactions.

In January and April 2005, the SAFE issued two rules that require PRC residents to register with and
receive approvals from the SAFE in connection with their offshore investment activities. The SAFE has announced that the purpose of these regulations is to achieve the proper balance of foreign exchange and the standardization of the cross-border
flow of funds.

On October 21, 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign
Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. Notice 75 replaced the two rules issued by the SAFE
in January and April 2005 mentioned above.

According to Notice 75:

(i) prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with
assets or equity interests in an onshore enterprise in the PRC, each PRC resident who is an ultimate controller, whether a natural or legal person, must complete the overseas investment foreign exchange registration procedures with the relevant
local SAFE branch;

(ii) an amendment to the registration with the local SAFE branch is required to be filed by
any PRC resident that directly or indirectly holds interests in that offshore company upon either (a) the injection of equity interests or assets of an onshore enterprise to the offshore company, or (b) the completion of any overseas fund
raising by such offshore company; and

(iii) an amendment to the registration with the local SAFE branch is
also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (a) an increase or decrease in its capital, (b) a transfer or swap of shares, (c) a
merger or division, (d) a long-term equity or debt investment, or (e) the provision of a guarantee to third parties.

Moreover, Notice 75 applies retroactively and to indirect shareholdings. As a result, PRC residents who have established or acquired direct or indirect control of offshore companies that have made onshore investments in the PRC in the past
are required to complete the relevant overseas investment foreign exchange registration



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procedures by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign
exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to
penalties under PRC foreign exchange administration regulations.

In order to clarify the issues arising from the
implementation and application of Notice 75, on May 29, 2007, SAFE promulgated Implementing Procedures of Notice 75, or Notice 106. However, the complex rules and requirements set forth under Notice 106 need even more interpretation and
operating guidance. For example, it is not clear under Notice 106 if our establishment of the two entities in the British Virgin Islands would be subject to the registration requirement of Notice 106.

As a result of the lack of implementing rules and other uncertainties relating to the interpretation and implementation of Notice 75 and
Notice 106, we cannot predict how these regulations will affect our business operations or strategies. For example, our present or future PRC subsidiaries ability to conduct foreign exchange activities, such as remittance of dividends and
foreign-currency-denominated borrowings, may be subject to compliance with such SAFE registration requirements by relevant PRC residents, over whom we have no control. In addition, we cannot assure you that any such PRC residents will complete the
necessary approval and registration procedures required by the SAFE regulations.

On March 28, 2007, SAFE promulgated the
Operating Procedures on Administration of Foreign Exchange regarding PRC Individuals Participation in Employee Share Ownership Plans and Employee Share Option Plans of Overseas Listed Companies, or the Share Option Rules. Under the Share
Option Rules, PRC citizens who participate in employment share ownership or share option plans of an overseas listed company are required to appoint a domestic agent to deal with the relevant foreign exchange matters in China. For participants of an
employment share ownership plan, an overseas custodian bank should be retained by the domestic agent to hold on trusteeship all overseas assets held by such participants under the employment share ownership plan. In the case of a share option plan,
a financial institution with stock brokerage qualification at the place where the overseas listed company is listed or a qualified institution designated by the overseas listed company is required to be retained to handle matters in connection with
exercise or sale of stock options for the share option plan participants. For participants who had already participated in an employment share ownership plan or share option plan before the date of the Share Option Rules, the Share Option Rules
require their domestic employers or domestic agents to complete the relevant formalities within three months of the date of the Share Option Rules. The failure to comply with the Share Option Rules may subject us as the company offering the plan to
penalties under the PRC foreign exchange regime.

Company Law

On October 27, 2005, the Standing Committee of the National Peoples Congress adopted amendments to the PRC Company Law, which
substantially overhauled the PRC company law system and removed a number of legal restrictions and hurdles on the management and operations of limited liability companies and companies limited by shares. It is expected that the PRC Law of Wholly
Foreign-owned Enterprises, or the WFOE Law, and its implementing regulations will be amended accordingly in order to align the WFOE Law with the amendments to the PRC Company Law. Each of YDME Beijing, Beijing GP and BBE is governed by both the PRC
Company Law and the WFOE Law and their implementing regulations, and we believe that YDME Beijing, Beijing GP and BBE will be able to benefit from a more flexible and business friendly company law regime under the new PRC Company Law. For example,
the amended PRC Company Law eliminated a restriction which limited the amount of equity investments a company could make to a maximum of 50% of such companys net assets. With the removal of this restriction, YDME Beijing, Beijing GP and BBE
may have increased flexibility in making equity investments or planning potential acquisitions. In addition, the amended PRC Company Law now permits the establishment of single-shareholder limited liability companies. As a result, YDME Beijing,
Beijing GP and BBE may acquire 100% of the equity interest in a PRC limited liability company and become the sole shareholder of such limited liability company.



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|C. | Organizational Structure
|-- | ------------------------

The following diagram illustrates our companys organizational structure, and the place of formation, ownership interest and affiliation of each of our significant subsidiaries as of August 31, 2009.

LOGO



|* | Formerly known as CMED Molecular Diagnostics Ltd.
|- | -------------------------------------------------



|D. | Property, Plant and Equipment
|-- | -----------------------------

Most of our manufacturing facilities are located in the Beijing Economic-Technological Development Area, where we own two buildings with an aggregate of approximately 10,000 square meters of office, research and development and
manufacturing spaces.

To further expand our production capacity, we have leased properties of over 10,000 square meters in
the Beijing Economic-Technological Development Area for the production of our ECLIA analyzers, FISH probes, SPR system and HPV-DNA chips.

Through the acquisition of BBE in January 2008, we obtained an aggregate of approximately 2,000 square meters of research and development and manufacturing spaces in Fengtai district, Beijing, which are
owned by BBE. BBE also entered into a one-year lease for approximately 583 square meters of office space in Fengtai district, Beijing.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable.



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|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included
elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in other parts of this annual report on Form 20-F.



|A. | Operating Results
|-- | -----------------

Overview

We are a China-based medical device company that develops, manufactures and markets advanced IVD products using ECLIA,
FISH and SPR technologies to detect and monitor various diseases and disorders. As of March 31, 2009, our sales were generated from two products, our ECLIA system and our FISH system. We started reporting our financial results in segments along
product lines since our acquisition of the ECLIA technology in August 2004 and added the FISH product line for the fiscal year ended March 31, 2008 as the sales and distribution of our FISH products began in June 2007 and removed the HIFU
product line for the fiscal year ended March 31, 2009 as we sold the HIFU business in December 2008. In December 2008, we completed the SPR acquisition for cash consideration of US$346.1 million. After the sale of the HIFU business and the SPR
acquisition, we re-classified our reportable operating segments into (i) immunodiagnostic systems and (ii) molecular diagnostic systems for the fiscal year ended March 31, 2009. Immunodiagnostic systems currently include ECLIA
analyzers and reagent kits while molecular diagnostic systems include FISH imaging analyzers and probes, and will include SPR systems and HPV-DNA chips.

One of our main products, the ECLIA system, is an IVD system that can be used to diagnose and analyze a variety of diseases and conditions, including various thyroid disorders, diabetes, hepatitis, liver
fibrosis, Down syndrome, disorders related to reproduction and growth, and various types of tumors. Our FISH imaging analyzer is an integrated system comprised of a fluorescent microscope, CCD camera and FISH imaging analysis software that enable
medical practitioners to visualize and locate DNA sequences in human cells for identifying chromosomal abnormalities using FISH technology. FISH probes are molecular diagnostic reagents used with the FISH imaging analyzer for the prenatal and
postnatal diagnosis of various genetic diseases and for the early detection and prognosis of various cancers. Our newly acquired products, the SPR system and HPV-DNA chips, utilized a biosensor technology in molecular biology which is currently used
for the analysis and detection of HPV and certain genotyping of HPV related to the development of cervical cancer.

In
December 2008, we completed the sale of the HIFU business to Chengxuan for cash consideration of US$53.5 million, of which US$23.5 million has been paid. As a result, the HIFU business has been accounted for as a discontinued operation in accordance
with U.S. GAAP. Chengxuan is owned by Mr. Xiaodong Wu, the chairman of our board of directors and our chief executive officer. As we have completed the sale of the HIFU business, we have become a pure advanced IVD company. We expect to use the
proceeds from the sale of the HIFU business to support the further development of the fast growing molecular diagnostic businesses and strive to become the leading molecular diagnostic company in China.

Pricing

We believe
that our ECLIA system is competitively priced to offer attractive economic returns to our distributors. We reduced the selling price of our ECLIA reagent kits in September 2009 in response to increasing market competition and to maintain the
competitiveness of our ECLIA reagent kits. The prices of our ECLIA reagent kits are significantly lower than those of foreign imports after the price reduction.

We believe that the prices of our FISH probes are considerably lower than those of foreign imports. We are not aware of any China-based manufacturers who offer FISH probes in China.



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Revenues

As of March 31, 2009, we derived revenues primarily from two sources, which were sales of our ECLIA reagent kits and our FISH probes. We expect to derive revenues from sales of our HPV-DNA chips
starting in January 2010.

Our revenues, growth and results of operations depend on several factors, including the level of
acceptance of our products among doctors, hospitals and patients and our ability to maintain prices for our products at levels that provide favorable margins. The level of acceptance among doctors, hospitals and patients is influenced by the
performance and pricing of our products, our ability to educate distributors and the medical community about our products, our relationships with hospitals and major distributors, government reimbursement levels as well as other factors.

Our sales have historically been made on the basis of unit-by-unit purchase orders rather than long-term commitments, and we do not have
long-term contracts with any of our customers. In the fiscal years ended March 31, 2007, 2008 and 2009, we market and sell our ECLIA system solely to distributors. At present, we market and sell our FISH system directly to hospitals. We expect
to market and sell our HPV-DNA chips directly to hospitals as well. We cannot assure you that any customer will continue to purchase our products at the same levels as in prior years or that our relationship with any of them will continue.

For sales of ECLIA reagent kits, we do not require down payments, and collect payments within three months after product
acceptance. For sales of our FISH imaging analyzer, we may require a payment of a portion of the sale price before delivery or after acceptance and the balance within six months of acceptance. For sales of FISH probes, we do not require down
payments, and we collect payments four to nine months after acceptance.

To promote the sales of our ECLIA reagent kits, we
provide our ECLIA analyzers to qualified hospitals free of charge. As our ECLIA analyzers are closed system, although it may reduce or eliminate the sales of our ECLIA analyzers, we believe such practice could increase the sales of our
ECLIA reagent kits, which are recurring in nature and generate higher gross margin than ECLIA analyzer. To promote the sales of our FISH probes, we recommend our hospital customers to purchase components of FISH imaging analyzer, such as the
microscope, directly from component manufacturers so that these hospitals could reduce the cost of setting up the FISH test platform and expedite the commencement of this diagnostic service to patients. While it may reduce or eliminate the sales of
our FISH imaging analyzer, we believe such practice could increase our sales of FISH probes, which are recurring in nature and generate higher gross margin than FISH imaging analyzer. We also plan to provide our SPR systems to qualified hospitals
free of charge to increase the sales of our HPV-DNA chips.

Costs

Cost of revenues

Our cost of revenues primarily consists of material and component costs, including cost of ECLIA analyzers that we provided free of charge. Our cost of revenues also includes amortization of intangible assets and direct costs incurred in
the assembly, installation and service of our products, such as salaries and related personnel expenses and depreciation costs of plant and equipment used for production purposes. Depreciation of property, plant and equipment for the fiscal years
ended March 31, 2007, 2008 and 2009 in the amount of RMB1.8 million, RMB6.1 million and RMB9.6 million (US$1.4 million), respectively, were recorded as cost of revenues. Amortization of intangible assets in the amount of RMB14.9 million,
RMB90.2 million and RMB90.1 million (US$13.2 million) were included in cost of revenues for the fiscal years ended March 31, 2007, 2008 and 2009, respectively. The cost of free analyzers was RMB13.2 million for the year ended March 31, 2009 and
there was no such cost for the years ended March 31, 2007 and 2008. Our in-house production manufactures the ECLIA reagent kits and FISH probes and conducts the final product assembly, testing and packaging of our ECLIA analyzers. We also source a
majority of our components from third-party suppliers.



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As we source a significant portion of our components and raw materials in China, we
currently have a relatively low cost base compared to medical technology companies in more developed countries. We expect the costs of components and raw materials in China will increase in the future as a result of further economic development in
China. In addition, our focus on new generations and applications of our products may require higher cost components and raw materials. We plan to offset increases in our cost of raw materials and components through more efficient product designs
and product assembly enhancements as well as through savings due to economies of scale.

Operating expenses

Our operating expenses primarily consist of research and development expenses, sales and marketing expenses and general and administrative
expenses.



| |  |  | Research and development. Research and development expenses primarily consist of costs associated with the design, development, testing and
enhancement of our existing products and development of new ECLIA reagent kits and FISH probes. These costs consist of expenditures for purchases of supplies, clinical trials, salaries and related personnel expenses, and other relevant costs.
Share-based compensation of RMB8.2 million (US$1.2 million) was included in research and development expenses for the fiscal year ended March 31, 2009. Going forward, we expect to increase our research and development expenses to develop new
applications and improve the product designs of our immunodiagnostic systems and molecular diagnostic systems.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and marketing. Sales and marketing expenses consist primarily of salaries and related expenses for personnel engaged in sales, marketing
and customer support functions and costs associated with advertising and other marketing activities. Similar to most China-based manufacturers of medical equipment and supplies, our sales of ECLIA reagent kits are made primarily to distributors. As
a result, our sales and marketing expenses for ECLIA system as a percentage of revenues are significantly lower than manufacturers of medical equipment and supplies that operate their own marketing and distribution networks and sell directly to
hospitals. At present, we market and sell our FISH system directly to hospitals. Going forward, we expect to increase our expenditures on sales and marketing to promote the sales of our FISH probes and HPV-DNA chips.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and administrative. General and administrative expenses consist primarily of salaries and benefits and related costs for our
administrative personnel and management, fees and expenses of our outside advisers, including legal, audit and valuation expenses, expenses associated with our administrative offices and the depreciation of equipment used for administrative
purposes. We expect that our general and administrative expenses will increase as we hire additional personnel and incur costs related to the anticipated growth of our business. Share-based compensation of RMB42.0 million (US$6.1 million) was
included in general and administrative expenses for the fiscal year ended March 31, 2009. We adopted our 2005 stock option plan in February 2005 and amended and restated the plan in November 2006. We have granted restricted shares and share
options to our directors, officers and employees under the plan. We account for these restricted shares and share options granted under this stock option plan in accordance with Statements of Financial Accounting Standards, or SFAS, No. 123
(Revised 2004), Share-Based Payment, and its related interpretations, which require us to record a compensation charge measured at the grant date fair value of the restricted shares and share options. We recognize the compensation
expense over the applicable service period of the grantee, which is usually the vesting period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Taxation

Cayman Islands

Under the current laws of the Cayman Islands, we are not subject to tax on our income or capital gains. In addition, no Cayman Islands withholding tax will be imposed on payments of dividends by us to our shareholders.



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British Virgin Islands (BVI)

Under the current laws of BVI, our BVI subsidiaries are not subject to tax on income or capital gain. In addition, payments of dividends by
our BVI subsidiaries to its shareholders are not subject to withholding tax in the BVI.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiaries are subject to 16.5% income tax on its taxable income
generated from operations in Hong Kong. In addition, payments of dividends by our Hong Kong subsidiaries to the Company are not subject to any Hong Kong withholding tax.

PRC

The newly enacted EIT Law, and the implementation regulations
for the EIT Law issued by the PRC State Council, became effective as of January 1, 2008. The EIT Law imposes a uniform tax rate of 25% on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax
exemptions, reductions and preferential treatments available under the old EIT law. Under the new EIT law, enterprises that were established before March 16, 2007 and already enjoy preferential tax treatments will, in accordance with any
detailed directives to be issued by the State Council, (i) in the case of preferential tax rates, continue to enjoy the preferential tax rates which will be gradually increased to the new tax rates within five years from January 1, 2008 or
(ii) in the case of preferential tax exemption or reduction for a specified term, continue to enjoy the preferential tax holiday until the expiration of such term. The State Council issued the Notice on Implementation of the Transition Period
for Preferential Enterprise Income Tax, or the Transition Implementation Notice, on December 26, 2007, which provides detailed rules on how preferential tax rate under previous income tax laws or regulations would transition to the uniform 25%
EIT rate. In addition, entities that qualify as high and new technology enterprises will enjoy a 15% preferential tax rate under the EIT law. The Ministry of Science and Technology, the Ministry of Finance and the State Administration of
Taxation issued the Measures on Qualification of High and New Technology Enterprises, or Circular 172, on April 14, 2008, which provides detailed standards for high and new technology enterprises. In addition, according to the
Notice on Prepayment of Enterprise Income Tax issued by the State Administration of Taxation, enterprises that have been certified as a high and new technology enterprise should pre-pay its EIT in the rate of 25% temporarily until it is
re-certified as a high and new technology enterprise under Circular 172.

Under the current PRC laws, YDME
Beijing, Beijing GP and BBE are subject to EIT and VAT.

YDME Beijing and BBE obtained the qualification certificates of
high and new technology enterprises in 2008 with a validity period of three years from 2008 to 2010. However, the continuing qualification of YDME Beijing and BBE as high and new technology enterprises for the calendar years
of 2009 and 2010 will be subject to annual evaluations by the relevant government authorities in China. In addition, YDME Beijing and BBE will need to apply for a three-year extension upon the expiration of the current qualification certificates if
they want to continue to enjoy the 15% reduced EIT rate. We cannot assure you that YDME Beijing and BBE will continue to qualify as high and new technology enterprises under the EIT Law, or that the local tax authorities will not, in the
future, change their position and revoke any of our past preferential tax treatments. The discontinuation of any preferential tax treatments could materially increase our tax obligations.

Beijing GP was previously entitled to an EIT rate of 15% and was entitled to an exemption from EIT from January 1, 2008 to
December 31, 2009 and a 50% income tax reduction from January 1, 2010 to December 31, 2012. While Beijing GP will be able to enjoy the tax holiday under the EIT Law and the Transition Implementation Notice, its 50% income tax
reduction from January 1, 2010 to December 31, 2012 will be partially eliminated. Under the EIT Law and the Transition Implementation Notice, Beijing GPs EIT rates are 0%, 0%, 11%, 12% and 12.5% for the calendar years from 2008 to
2012. We may apply for qualification of Beijing GP as a high and new technology enterprise under the EIT Law to reduce our income tax expense in the future.



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If YDME Beijing and Beijing GP had not had any preferential tax rate or tax holiday, our
basic earnings from continuing operations per share for the three fiscal years ended March 31, 2007, 2008 and 2009 would have been reduced by RMB0.02, RMB0.19 and RMB0.41 (US$0.06), respectively, and our diluted earnings from continuing
operations per share for the three fiscal years ended March 31, 2007, 2008 and 2009 would have been reduced by RMB0.02, RMB0.19 and RMB0.41 (US$0.06), respectively.

VAT is charged based on the selling price of our products at a general rate of 17%, or at a reduced rate of 6% for products that we have obtained the appropriate approvals from the relevant tax
authorities. Our revenues are recorded net of this VAT.

The EIT Law also provides that enterprises established outside of
China whose de facto management bodies are located in China are considered resident enterprises and are generally subject to the uniform 25% EIT rate as to their worldwide income. Under the implementation regulations for the
EIT Law issued by the PRC State Council, de facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and
treasury, and acquisition and disposition of properties and other assets of an enterprise. Although substantially all of our operational management is currently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us
to be treated as a PRC resident enterprise.

The EIT Law imposes a withholding tax of 10% on dividends distributed by a
foreign-invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have
no connection with the establishment or place of such immediate holding company within China, unless such immediate holding companys jurisdiction of incorporation has a tax treaty with China that provides for a different withholding
arrangement. Such withholding income tax was exempted under the previous income tax regulations. The Cayman Islands, where we are incorporated, does not have such tax treaty with China. According to the Arrangement Between Mainland China and Hong
Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate
of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise). All of our subsidiaries in China are invested and held by Hong Kong registered entities. In accordance with APB Option
No. 23, Accounting for Income TaxesSpecial Area, all undistributed earnings of our subsidiaries in China are presumed to be transferred to their respective parent companies and are subject to the withholding tax. Based on the
subsequently issued interpretation of the new EIT Law, however, dividends on earnings prior to 2008 but distributed after 2008 are not subject to the withholding tax.

As of March 31, 2008, we intended to reinvest all undistributed earnings indefinitely and therefore no deferred tax liability was recognized. After we sold the HIFU business and completed the
acquisition of the SPR technology and related assets, in the fiscal year ended March 31, 2009, certain undistributed earnings were no longer required to be reinvested indefinitely and therefore the related deferred tax liability was recognized.
Undistributed earnings that we intend to reinvest indefinitely were RMB419 million and RMB249 million (US$36 million) at March 31, 2008 and 2009 respectively. The unrecognized deferred tax liability related to the undistributed earnings subject
to withholding tax was RMB42 million and RMB12 million (US$2 million) as of March 31, 2008 and 2009 respectively.

Critical Accounting
Policies

We prepare our financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates
and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period.
We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations



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regarding the future considering available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily
apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies involve a greater use of estimates or require
a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments
and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our consolidated financial statements. We believe
the following accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue recognition

We recognize revenue when persuasive evidence
of an arrangement exists, delivery has occurred and services performed, the sales price is fixed or determinable, and collection is reasonably assured. Written sales agreements or customers purchase orders, which specify price, product
specifications, and quantity, are used as evidence of an arrangement. We recognize revenue for reagent kits and probes upon customer acceptance and the customer acceptance is evidenced by signed acceptance documents. Our equipment sales agreements
include the provision of training and installation services. These services are ancillary to the customers purchase of medical equipment and are considered by the customers to be an integral part of the acquired equipment. We recognize revenue
for the entire equipment sales arrangement upon customer acceptance, which occurs after delivery, installation and training. Customer acceptance is evidenced by signed acceptance documents.

Share-based compensation

We adopted SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123(R)), which replaced SFAS No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123) and superseded APB No. 25. SFAS No. 123(R) requires that share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. We
adopted SFAS No. 123(R) using the modified prospective method, which requires us to recognize compensation cost for all shared-based payments granted, modified or settled on or after April 1, 2006, as well as for any awards that were
granted prior to the date of adoption for which the requisite service had not been provided as of April 1, 2006. Accordingly, we recorded share-based compensation expense for awards granted prior to but not yet vest as of April 1, 2006
using the grant date fair value amounts determined for pro forma disclosure under SFAS No. 123. Since April 1, 2006, we recognize share-based compensation based on grant date fair value of the award. We recognize compensation cost for an
award with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.

We use the Black-Scholes option pricing model or the Hull and White Binomial option pricing model to determine the fair value of share
options. The determination of the fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables,
including our expected stock price volatility over the term of the awards, actual and projected employee share option exercise behaviors, risk-free interest rate and expected dividends. If we use different assumptions for estimating stock-based
compensation expense in future periods or if we decide to use a different valuation model, the change in our stock-based compensation expense could materially affect our operating income, net income and net income per share.

Furthermore, we are required to estimate forfeitures at the time of grant and record stock-based compensation expense only for those awards
that are expected to vest. If actual forfeitures differ materially from our estimated forfeitures, we may need to revise those estimates used in subsequent periods.



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Income taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in
tax rates or change in tax status is recognized in income in the period the change in tax rates or the tax law is enacted. A valuation allowance is provided to reduce the amount of deferred income tax assets if it is considered more likely than not
that some portion, or all, of the deferred income tax assets will not be realized.

We adopted Financial Accounting Standards
Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertain tax positions. This interpretation requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the
technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. The adoption of FIN 48 on April 1, 2007 did not have any effect on our consolidated financial statements. Prior to the adoption of FIN 48, we recognized the effect of income tax positions only if such positions were probable of being
sustained.

Under APB Opinion No. 23, Accounting for Income TaxesSpecial Areas, all undistributed earnings
are presumed to be transferred to the parent company and are subject to the withholding taxes. The presumption may be overcome if we have sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of
the dividends will be postponed indefinitely. Accordingly, deferred income tax liabilities are only recognized for the undistributed earnings that we do not intend to reinvest indefinitely.

Discontinued operation

We segregate the revenues and expenses related to the discontinued operation from continuing operations and reported as discontinued operation for all periods in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.

Depreciation and amortization of long-lived
assets and intangible assets, other than goodwill

We depreciate property, plant and equipment and amortize our
intangible assets other than goodwill on a straight-line basis over the respective estimated useful lives of these assets, after taking into account their estimated residual values.

The patent we acquired as part of our ECLIA acquisition in August 2004 is amortized over its remaining protected period at time of
acquisition of 17 years as allowed by the relevant regulatory authorities.

In determining the estimated useful lives of our
unpatented technology in our ECLIA and BBE acquisitions, we consider the following pertinent factors:



| |  |  | the expected protective period of similarly patented technologies as allowed by the relevant regulatory authorities;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the planning horizon of our operations taking into account the medical equipment and supply market in China as a whole; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the economic lives and history of other similar diagnostic technologies currently used by hospitals in the world.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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As a result, we have estimated the useful life of the unpatented technology we acquired as
part of our ECLIA and BBE acquisitions range between 15 and 20 years.

The estimated useful life of the non-compete commitment
acquired as part of our ECLIA acquisition in August 2004 is based on the period of time during which the non-compete commitment is expected to be of value to us, which we consider to be the estimated time required for Beijing Weixiao to develop a
similar technology and the length of the impact if Beijing Weixiao were to develop the technology and to compete with us. As a result, we have estimated the useful life of the non-compete commitment to be nine years.

The customer relationships acquired during BBE acquisition is amortized over the estimated remaining life for existing customers of 15 years
based on historical customer retention rates.

The intangible assets we acquired in our FISH acquisition and SPR acquisition
are amortized over their respective estimated useful lives. These intangible assets are amortized over the length of time that they are expected to bring economic value to us.

In determining the estimated useful lives of FISH and SPR related technology and know-how acquired, we consider the following pertinent
factors:



| |  |  | the useful life of similar technology and technical know-how;
| | - |  | -------------------------------------------------------------



| |  |  | the planning horizon of our operations taking into account the medical equipment and supply market in China as a whole; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the economic lives and history of other similar diagnostic technologies currently used by hospitals in the world.
| | - |  | -----------------------------------------------------------------------------------------------------------------

Our estimated useful life for the technical know-how for production for FISH imaging analyzer and FISH probes are 5 years and 20 years,
respectively.

Our estimated useful life for the technical know-how for production for SPR Life Science application and
HPV-DNA chips are 5 years and 20 years, respectively.

The estimated useful life of the non-compete commitment acquired as
part of our SPR acquisition in December 2008 is based on the period of time during which the non-compete commitment is expected to be of value to us, which we consider to be the estimated time required to develop a similar technology and the length
of the impact if Molecular Diagnostic Technologies Limited were to develop the technology and to compete with us. As a result, we have estimated the useful life of the non-compete commitment to be five years.

We review the estimated useful lives and estimated residual values of our assets regularly in order to determine the amount of depreciation
and amortization expenses to be recorded during any reporting period. We determine the estimated useful lives for property, plant and equipment based on our historical usage experience with similar assets and taking into account anticipated
technological changes.

We adjust depreciation and amortization expense for future periods if there are significant changes
from previous estimates. For the fiscal years ended March 31, 2007, 2008 and 2009, there were no significant changes in the estimated useful lives or residual values of these long-lived assets.

Acquisitions

As of
March 31, 2009, our intangible assets consisted of ECLIA-related patented technologies, unpatented technologies, customer relationships and non-compete agreements, FISH related unpatented technologies and non-compete agreement and SPR related
unpatented technologies, assembled workforce and non-compete agreement. The acquisitions in ECLIA assets, the FISH business, BBE business and SPR assets were made during the fiscal years ended March 31, 2005, March 31,
2007, March 31, 2008 and March 31, 2009, respectively.



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We evaluate whether the net assets acquired in a business combination constitute a business
as defined by EITF Issue No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business. For an acquired set of activities and assets to qualify for a business, it must contain all of the
inputs and processes necessary for it to continue to conduct normal operations after separated from the seller, which includes the ability to sustain a revenue stream by providing its outputs to customers. As the assets acquired upon the ECLIA and
SPR acquisitions lack of some necessary processes like distribution, strategic management, accounting and human resources to continue to conduct normal operations and do not have access to the customers to sustain their revenue stream, we determined
them to be asset acquisition.

We allocate the cost of acquisitions based on the estimated fair value of the net assets
acquired on the date of acquisition. This process is commonly referred to as the purchase price allocation. As part of the purchase price allocation, we are required to determine the fair value of any identifiable intangible assets acquired. The
determination of the fair value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future. A change in the
amount allocated to identifiable intangible assets would change the amount of amortization expense recognized related to those identifiable intangible assets. When a business combination involves an excess of fair value of the acquired net assets
over cost and a contingent consideration agreement that, when resolved, might result in the recognition of an additional element of cost with respect to the acquired entity, we recognize a liability for the lesser of the maximum amount of contingent
consideration or the initial amount of negative goodwill. If an amount of negative goodwill remains after we recognize this liability, we first write down the eligible acquired assets, and recognize any remaining unallocated amount as an
extraordinary gain. When a business involves an excess of cost over the fair value of net assets acquired, goodwill arises. Goodwill is not amortized, but is instead tested for impairment at least annually.

As part of the purchase price allocation, we allocate the estimated fair value based on risk-adjusted cash flows related to in-process
projects that have not yet reached technological feasibility and have no alternative future uses as of the date of the acquisition to in-process research and development. The fair value attributable to these in-process projects was expensed at the
time of the acquisition. If the projects are not successful or completed in a timely manner, the Group may not realize the financial benefits expected for these projects. The determination of in-process projects involves significant judgments by
management, including but are not limited to, the assessment of whether the in-process projects reached technological feasibility or have alternative future uses as of the date of the acquisition. The determination of the fair value of the
in-process projects acquired also involves judgments and estimates, including but are not limited to, the cash flows that a project is expected to generate in the future.

The fair values of our identifiable intangible assets were determined by management with the assistance of independent appraisers using mainly the income approach.

For unpatented technologies of FISH probes and FISH imaging analyzer, the fair values were determined by using the relief-from-royalty
method under the income approach. Under the relief-from-royalty method, a hypothetical construct is used to represent what we would be willing to pay to continue to use the intangible asset in business operations if we no longer had legal ownership
of the intangible asset. Since ownership of the asset relieves the business from being required to make these payments, financial results are improved to the extent the upfront payment and royalty payments are avoided. The net of tax hypothetical
royalties of 25.5% for the first 10 years and 20% for the next 10 years are discounted at a weighted average cost of capital at 14.75% to present value and to arrive at the indication of the assets fair value. Capital Asset Pricing Model was
adopted to determine the weighted average cost of capital. For the non-compete agreement in the FISH business, we have adopted an income approach that compares the prospective cash flows with and without the subject competition in place.

For unpatented ECLIA reagent technologies and customer relationships acquired upon the BBE acquisition, the fair values were determined
by using the multi-period excess earnings method. The principal of multi-period



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excess earnings method implies that the value of an asset is the capitalized amount of incremental profits achieved through use of the intangible assets as compared with the profits of the same
business not using it, or the value of an asset is the capitalized amount of earnings relating to that asset less the returns on all other assets that contribute to that earning stream. For the unpatented ECLIA core technologies, the fair values
were determined by using the relief-from-royalty method under the income approach. Under the relief-from-royalty method, a hypothetical construct is used to represent what we would be willing to pay to continue to use the intangible asset in
business operations if we no longer had legal ownership of the intangible asset. Since ownership of the asset relieves the business from being required to make these payments, financial results are improved to the extent the upfront payment and
royalty payments are avoided. After considering the profit margins on comparable companies, the estimate of the reasonable royalty rates for ECLIA products are from 20% to 25% of sales revenue. They were based on the entire operating income of the
business enterprise selling and marketing the ECLIA products in the PRC with the unpatented technologies. For the non-compete agreements in BBE acquisition, we have adopted an income approach that compares the prospective cash flows with and without
the subject competition in place.

For unpatented SPR technologies acquired upon the SPR acquisition, the fair values were
determined by using the multi-period excess earnings method. The principal of multi-period excess earnings method implies that the value of an asset is the capitalized amount of incremental profits achieved through use of the intangible assets as
compared with the profits of the same business not using it, or the value of an asset is the capitalized amount of earnings relating to that asset less the returns on all other assets that contribute to that earning stream. For the non-compete
agreements in SPR acquisition, we have adopted an income approach that compares the prospective cash flows with and without the subject competition in place. For assembled workforce in SPR acquisition, we have adopted a cost approach that estimates
the replacement cost for the experienced employees acquired.

Impairment assessment of long-lived assets

Our long-lived assets consisted of property, plant and equipment, land use rights and intangible assets. We review periodically the carrying
amounts of our long-lived assets to be held and used in order to assess whether the recoverable amounts, based on expected undiscounted net cash flows, have declined below the carrying amounts. We test these assets for impairment whenever events or
changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, we reduce the carrying amount to the estimated fair value and record the difference as an impairment loss, which is
charged against earnings. We determine estimated fair value using expected future cash flows generated by the assets and such future cash flows are discounted to their present value, which requires significant judgment in terms of projection of cash
flows for future years and the assumption on the pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the fiscal years ended March 31, 2007, 2008 and 2009, we did not
recognize any impairment losses in our consolidated financial statements.

Collectibility of our accounts receivable

We evaluate the collectibility of our accounts receivable based on the aging of account balances, collection history, credit quality of
the customer and current economic conditions that may affect a customers ability to pay.

We have recognized an
allowance for doubtful accounts in our consolidated financial statements. We have been dependent on a small number of distributors for a significant portion of our revenues. If a major customers financial condition deteriorates, or if our
customer default rates become higher than historical levels, our estimates of the recoverability of amounts due to us could change, and additional allowance could be required, which could have a material adverse effect on our results of operations.



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Results of Operations

The following table sets forth a summary, for the periods indicated, our consolidated results of operations and each item expressed as a percentage of our total revenues. Our historical results presented
below are not necessarily indicative of the results that may be expected for any future period.



|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|------------------------------------------------------ |  | -------------------- | - |  | ------------ | - |  | ------------------ | - |  | ------------ | - |  | ------------------ | - |  | ------------ | -
|                                                       |  | Year ended March 31, |  
|                                                       |  | 2007                 |   |  | 2008         |   |  | 2009               |  
|                                                       |  | RMB (in thousands)   |   |  | % ofrevenues |   |  | RMB (in thousands) |   |  | % ofrevenues |   |  | RMB (in thousands) |   |  | % ofrevenues |  
|Revenues                                               |  | 215,550              |   |  | 100.0        |   |  | 547,421            |   |  | 100.0        |   |  | 829,950            |   |  | 100.0        |  
|Cost of revenues                                       |  | (57,750              | ) |  | (26.8        | ) |  | (245,437           | ) |  | (44.8        | ) |  | (232,571           | ) |  | (28.0        | )
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Gross profit                                           |  | 157,800              |   |  | 73.2         |   |  | 301,984            |   |  | 55.2         |   |  | 597,379            |   |  | 72.0         |  
|Operating expenses:                                    |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Research and development                               |  | (6,079               | ) |  | (2.8         | ) |  | (20,231            | ) |  | (3.7         | ) |  | (31,450            | ) |  | (3.8         | )
|Acquired in-process research and development           |  |                     |   |  |             |   |  | (672               | ) |  | (0.1         | ) |  | (244,872           | ) |  | (29.5        | )
|Sales and marketing                                    |  | (10,261              | ) |  | (4.8         | ) |  | (22,012            | ) |  | (4.0         | ) |  | (42,722            | ) |  | (5.1         | )
|General and administrative                             |  | (49,953              | ) |  | (23.2        | ) |  | (70,939            | ) |  | (13.0        | ) |  | (97,596            | ) |  | (11.8        | )
|Amortization of SPR intangible assets                  |  |                     |   |  |             |   |  |                   |   |  |             |   |  | (36,511            | ) |  | (4.4         | )
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Total operating expenses                               |  | (66,293              | ) |  | (30.8        | ) |  | (113,854           | ) |  | (20.8        | ) |  | (453,151           | ) |  | (54.6        | )
|Operating income                                       |  | 91,507               |   |  | 42.5         |   |  | 188,130            |   |  | 34.4         |   |  | 144,228            |   |  | 17.4         |  
|Other income (expense), net(1)                         |  | 24,217               |   |  | 11.2         |   |  | (23,565            | ) |  | (4.3         | ) |  | (73,243            | ) |  | (8.8         | )
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Income before income taxes                             |  | 115,724              |   |  | 53.7         |   |  | 164,565            |   |  | 30.1         |   |  | 70,985             |   |  | 8.6          |  
|Income tax expense                                     |  | (12,049              | ) |  | (5.6         | ) |  | (51,999            | ) |  | (9.5         | ) |  | (73,042            | ) |  | (8.8         | )
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Income (loss) from continuing operations               |  | 103,675              |   |  | 48.1         |   |  | 112,566            |   |  | 20.6         |   |  | (2,057             | ) |  | (0.2         | )
|Income from and gain on sale of discontinued operation |  | 186,043              |   |  | 86.3         |   |  | 212,656            |   |  | 38.8         |   |  | 364,409            |   |  | 43.9         |  
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  
|Net income                                             |  | 289,718              |   |  | 134.4        |   |  | 325,222            |   |  | 59.4         |   |  | 362,352            |   |  | 43.7         |  
|                                                       |  |                      |   |  |              |   |  |                    |   |  |              |   |  |                    |   |  |              |  



|(1) | Other income (expense) includes interest expense, interest income, amortization of convertible notes issuance costs and other
income, net.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

Year Ended March 31, 2009 Compared to Year Ended March 31, 2008

Revenues.Our revenues were derived from two operating segments, immunodiagnostic system sales and molecular diagnostic system sales.
Immunodiagnostic system sales include the sales of ECLIA reagent kits. Molecular diagnostic system sales include the sales of FISH probes and, to a lesser extent, the sales of FISH imaging analyzers. Immunodiagnostics system sales and molecular
diagnostics system sales accounted for 60.8% and 39.2% of our revenues, respectively, for the fiscal year ended March 31, 2009 and 69.5% and 30.5%, respectively, for the fiscal year ended March 31, 2008.

Our revenues increased 51.6% to RMB830.0 million (US$121.5 million) for the fiscal year ended March 31, 2009, from RMB547.4 million for
the fiscal year ended March 31, 2008. This increase was primarily due to the significant increase in the ECLIA reagent kits sales and FISH probes sales.

Revenues from sales of our immunodiagnostic system increased 32.6% to RMB504.7 million (US$73.9 million) for the fiscal year ended March 31, 2009 from RMB380.5 million for the fiscal year ended
March 31, 2008. This significant increase was attributable to the increased utilization of ECLIA analyzers by hospitals and the expanded installed base of the analyzers, both of which increased the demand for our reagent kits and our revenues
from sale of reagent kits.

Revenues from sales of our molecular diagnostic system increased 94.9% to RMB325.3 million
(US$47.6 million) for the fiscal year ended March 31, 2009 from RMB166.9 million for the fiscal year ended



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March 31, 2008. The significant increase was attributable to strong growth in sales of our FISH probes to hospitals as a result of increase in new hospital customers and increased usage of
our FISH probes by existing hospital customers.

Cost of revenues and gross margin. Our cost of revenues decreased 5.2%
to RMB232.6 million (US$34.0 million) for the fiscal year ended March 31, 2009 from RMB245.4 million for the fiscal year ended March 31, 2008. Our overall gross margin increased to 72.0% for the fiscal year ended March 31, 2009
as compared to 55.2% for the fiscal year ended March 31, 2008. This increase in our overall gross margin was primarily due to the change in revenue mix where almost all revenues were derived from recurring sales of higher margin ECLIA reagent
kits and FISH probes for the fiscal year ended March 31, 2009. Gross margin for our ECLIA system decreased to 72.6% for the fiscal year ended March 31, 2009 from 72.9% for the fiscal year ended March 31, 2008 primarily due to the
costs of ECLIA analyzers provided free of charge to customers starting from April 2008. In comparison, gross margin for our FISH system increased to 71.1% for the fiscal year ended March 31, 2009 from 14.7% for the fiscal year ended
March 31, 2008. The lower gross margin for FISH system in the fiscal year ended March 31, 2008 was mainly due to the amortization of FISH intangible assets and the sales of FISH imaging analyzer which generated lower gross margin than sale
of FISH probes.

Operating expenses. Our operating expenses increased significantly to RMB453.2 million (US$66.3
million) for the fiscal year ended March 31, 2009 from RMB113.9 million for the fiscal year ended March 31, 2008. This increase was primarily due to the charge of in-process research and development and an additional amortization of
acquired intangible assets in connection with the SPR acquisition. Our operating expenses as a percentage of revenues increased to 54.6% for the fiscal year ended March 31, 2009 from 20.8% for the fiscal year ended March 31, 2008.

Our research and development expenses increased 55.5% to RMB31.5 million (US$4.6 million) for the fiscal year ended
March 31, 2009 from RMB20.2 million for the fiscal year ended March 31, 2008. The increase was primarily due to the development of new FISH probes and fully automated ECLIA analyzer. Our research and development expenses as a percentage of
revenues slightly increased to 3.8% for the fiscal year ended March 31, 2009 from 3.7% for the fiscal year ended March 31, 2008.

Our charge of acquired in-process research and development of RMB244.9 million (US$35.8 million) for the fiscal year ended March 31, 2009 was in connection with the SPR acquisition. The charge of
acquired in-process research and development of RMB0.7 million for the fiscal year ended March 31, 2008 was in connection with the BBE acquisition. Our charge of acquired in-process research and development as a percentage of revenues increased
to 29.5% for the fiscal year ended March 31, 2009 from 0.1% for the fiscal year ended March 31, 2008.

Our sales and
marketing expenses increased significantly to RMB42.7 million (US$6.3 million) for the fiscal year ended March 31, 2009 from RMB22.0 million for the fiscal year ended March 31, 2008. This increase was primarily due to the expansion of
direct sales force for the FISH business and increased product promotional activities. Our sales and marketing expenses as a percentage of revenues increased to 5.1% for the fiscal year ended March 31, 2009 from 4.0% for the fiscal year ended
March 31, 2008.

Our general and administrative expenses increased 37.6% to RMB97.6 million (US$14.3 million) for the
fiscal year ended March 31, 2009 from RMB70.9 million for the fiscal year ended March 31, 2008. This increase was primarily due to an increase in employee expenses as a result of the increased headcount associated with the expansion of our
operation and an increase in share-based compensation expenses. Our general and administrative expenses as a percentage of revenues decreased to 11.8% for the fiscal year ended March 31, 2009 from 13.0% for the fiscal year ended March 31,
2008.

Our amortization of SPR intangible assets related to the SPR acquisition completed in December 2008.

Other expense. We incurred net interest expense of RMB69.5 million (US$10.2 million) for the fiscal year ended March 31, 2009,
as compared to RMB23.7 million for the fiscal year ended March 31, 2008. Our interest



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expense for our convertible notes increased significantly to RMB83.2 million (US$12.2 million) in the fiscal year ended March 31, 2009 from RMB39.1 million for the fiscal year ended
March 31, 2008. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008. Also included in the calculation of the net interest expense was the amortization of convertible notes issuance costs of
RMB14.4 million (US$2.1 million) and RMB7.9 million for the fiscal years ended March 31, 2009 and 2008, respectively. Such amortization of convertible notes issuance costs were related to our convertible notes issued in November 2006 and August
2008. The issuance costs are amortized over the five-year term of the convertible notes.

Income tax expense. Our
effective tax rate for the fiscal year ended March 31, 2009 was 102.9%, as compared to 31.6% for the fiscal year ended March 31, 2008. The effective tax rate in the fiscal year ended March 31, 2009 increased significantly primarily
due to the charge of acquired in-process research and development which was not deductible for income tax expenses.

Income
from and gain on sale of discontinued operation, net. Our income from and gain on sale of discontinued operation increased to RMB364.4 million (US$53.3 million) for the fiscal year ended March 31, 2009 from RMB212.7 million for the fiscal
year ended March 31, 2008. This increase was primarily due to a gain from the sale of the HIFU business of RMB243.3 million (US$35.6 million). In August 2009, we received a request for compensation from Chengxuan relating to the sale of the
HIFU business and we reduced the gain on the sale of the HIFU business by deferring approximately US$15.5 million of the gain. We recently received another letter from Chengxuan which informed us that Chengxuan decided to withdraw its request for
compensation and would fulfill its payment obligations under the agreement for the sale of the HIFU business. As such, we considered that the deferral was no longer necessary and recognized the full gain on the sale of the HIFU business in the
amount of RMB243.3 million.

Net income. Net income increased 11.4% to RMB362.4 million (US$53.0 million) for the
fiscal year ended March 31, 2009 from RMB325.2 million for the fiscal year ended March 31, 2008, as a result of the cumulative effect of the above factors.

Year Ended March 31, 2008 Compared to Year Ended March 31, 2007

Revenues. Our revenues were derived from two operating segments, immunodiagnostic system sales and molecular diagnostic system sales. Immunodiagnostic system sales include the sales of ECLIA analyzer and reagent kits. Molecular
diagnostic system sales include the sales of FISH imaging analyzer and FISH probes. Immunodiagnostic system sales and molecular diagnostic system sales accounted for 69.5% and 30.5% of our revenues, respectively, for the fiscal year ended
March 31, 2008 and 100.0% and 0.0% of our revenues, respectively, for the fiscal year ended March 31, 2007.

Our
revenues increased significantly to RMB547.4 million for the fiscal year ended March 31, 2008 from RMB215.6 million for the fiscal year ended March 31, 2007. This increase was primarily due to the significant increase in the ECLIA system
sales and the commencement of sale of our FISH system in June 2007.

Revenues from sales of our immunodiagnostic system
increased 76.5% to RMB380.5 million for the fiscal year ended March 31, 2008 from RMB215.6 million for the fiscal year ended March 31, 2007. This significant increase was attributable to the increased utilization of ECLIA analyzers by
hospitals and the introduction of new reagent kits, both of which increased the demand for our reagent kits and our revenue from sale of reagent kits.

Revenues from sales of our molecular diagnostic system were RMB166.9 million for the fiscal year ended March 31, 2008. We began sale of our FISH system in June 2007.

Cost of revenues and gross margin. Our cost of revenues increased significantly to RMB245.4 million for the fiscal year ended
March 31, 2008 from RMB57.8 million for the fiscal year ended March 31, 2007. Our overall gross margin decreased to 55.2% for the fiscal year ended March 31, 2008 as compared to 73.2% for the



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fiscal year ended March 31, 2007. This decrease in our overall gross margin was primarily due to the commencement of sales of molecular diagnostic system in June 2007 which had lower gross
margin than that of immunodiagnostic system sales. The gross margin for molecular diagnostic system was significantly lower than the gross margins for immunodiagnostic system primarily due to the amortization of FISH intangible assets, a fixed cost
and the sales of FISH imaging analyzer which generated lower gross margin than sale of FISH probes. Gross margin for our immunodiagnostic system slightly decreased to 72.9% for the fiscal year ended March 31, 2008 from 73.2% for the fiscal year
ended March 31, 2007. We expect future FISH probe sales to generate recurring revenue and higher gross margin.

Operating expenses. Our operating expenses increased 71.7% to RMB113.9 million for the fiscal year ended March 31, 2008 from RMB66.3 million for the fiscal year ended March 31, 2007. This increase was primarily due to
expansion of our existing business and commencement of sale of FISH products in the fiscal year ended March 31, 2008. Our operating expenses as a percentage of revenues decreased to 20.8% for the fiscal year ended March 31, 2008 from 30.8%
for the fiscal year ended March 31, 2007.

Our research and development expenses increased significantly to RMB20.2
million for the fiscal year ended March 31, 2008 from RMB6.1 million for the fiscal year ended March 31, 2007. The increase was primarily due to the development of new ECLIA reagent kits and FISH probes and an increase in the share-based
compensation expenses we incurred in 2007. Our research and development expenses as a percentage of revenues increased to 3.7% for the fiscal year ended March 31, 2008 from 2.8% for the fiscal year ended March 31, 2007.

Our charge of acquired in-process research and development of RMB0.7 million for the fiscal year ended March 31, 2008 was in connection
with the BBE acquisition. Our charge of acquired in-process research and development as a percentage of revenues is 0.1% for the fiscal year ended March 31, 2008.

Our sales and marketing expenses increased significantly to RMB22.0 million for the fiscal year ended March 31, 2008 from RMB10.3 million for the fiscal year ended March 31, 2007. This increase
was primarily due to promotional activities for both ECLIA system and FISH system. Our sales and marketing expenses as a percentage of revenues decreased to 4.0% for the fiscal year ended March 31, 2008 from 4.8% for the fiscal year ended
March 31, 2007.

Our general and administrative expenses increased 42.0% to RMB70.9 million for the fiscal year ended
March 31, 2008 from RMB50.0 million for the fiscal year ended March 31, 2007. This increase was primarily due to an increase in the number of employees to meet the expansion of our operations and an increase in share-based compensation
expenses. Our general and administrative expenses as a percentage of revenues decreased to 13.0% for the fiscal year ended March 31, 2008 from 23.2% for the fiscal year ended March 31, 2007.

Other income (expense). We incurred net interest expense of RMB23.7 million for the fiscal year ended March 31, 2008, compared
to net interest income of RMB23.5 million for the fiscal year ended March 31, 2007. The increase in our interest expense was primarily due to the interest expense of RMB39.1 million for the convertible notes in the fiscal year ended
March 31, 2008. In comparison, we had less interest on the convertible notes in the fiscal year ended March 31, 2007 because we issued the notes in November 2006 and the notes were outstanding for less than five months during the fiscal
year. We also incurred other interest expense of RMB5.2 million for the fiscal year ended March 31, 2008 due to the present value discounting of long term other payable of US$10 million for the final payment of the FISH acquisition due in
March 2009. The decrease in interest income was primarily due to a decrease in cash balance from RMB1,173.6 million as of March 31, 2007 to RMB682.7 million as of March 31, 2008 as a result of payments made for acquisition of the FISH
business and BBE and a decrease in interest rate for US dollar bank deposits. Also included in the calculation of the net interest income (expense) was the amortization of convertible notes issuance costs of RMB7.9 million and RMB3.1 million for the
fiscal years ended March 31, 2008 and 2007, respectively. Such amortization of convertible notes issuance costs were related to our convertible notes issued in November 2006. The issuance costs are amortized over the five-year term of the
convertible notes.



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Income tax expense. Our effective tax rate for the fiscal year ended March 31,
2008 was 31.6%, compared to 10.4% for the fiscal year ended March 31, 2007. The effective tax rate in the fiscal year ended March 31, 2008 increased primarily due to the increase in income tax rate from 10% to the transitional rate of 18%
in connection with the EIT Law that became effective in January 2008 as well as certain non-deductible expenses for income tax.

Income from and gain on sale of discontinued operation, net. Our income from and gain on sale of discontinued operation increased 14.3% to RMB212.7 million for the fiscal year ended March 31, 2008 from RMB186.0 million for the
fiscal year ended March 31, 2007. This increase was primarily due to the increase in the sales of HIFU therapy systems for the fiscal year ended March 31, 2008.

Net income. Net income increased 12.3% to RMB325.2 million for the fiscal year ended March 31, 2008 from RMB289.7 million for the fiscal year ended March 31, 2007, as a result of the
cumulative effect of the above factors.



|B. | Liquidity and Capital Resources
|-- | -------------------------------

Liquidity and Capital Resources

The following table sets forth a summary of our net cash flows for the periods
indicated:



|                                                    |  |                      |   |  |           |   |  |            |   |  |          |  
|--------------------------------------------------- |  | -------------------- | - |  | --------- | - |  | ---------- | - |  | -------- | -
|                                                    |  | Year ended March 31, |  
|                                                    |  | 2007                 |   |  | 2008      |   |  | 2009       |   |  | 2009     |  
|                                                    |  | RMB                  |   |  | RMB       |   |  | RMB        |   |  | US$      |  
|                                                    |  | (in thousands)       |  
|Net cash provided by operating activities           |  | 360,999              |   |  | 463,334   |   |  | 490,758    |   |  | 71,823   |  
|Net cash used in investing activities               |  | (884,455             | ) |  | (831,551  | ) |  | (1,467,195 | ) |  | (214,725 | )
|Net cash provided by (used in) financing activities |  | 871,554              |   |  | (86,149   | ) |  | 1,751,297  |   |  | 256,303  |  
|Net increase (decrease) in cash                     |  | 329,849              |   |  | (490,961  | ) |  | 773,731    |   |  | 113,236  |  
|Cash at beginning of year                           |  | 843,791              |   |  | 1,173,640 |   |  | 682,679    |   |  | 99,911   |  
|Cash at end of year                                 |  | 1,173,640            |   |  | 682,679   |   |  | 1,456,410  |   |  | 213,147  |  

As of March 31, 2009, we had working capital of RMB1,043.9 million (US$152.8
million). We believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital, research and development expenditures and capital expenditures for the
foreseeable future. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash resources are
insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from banks. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The
sale of additional equity securities, including convertible debt securities, would result in additional dilution to our shareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financial
covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business, operations and prospects may suffer.

In the fiscal years ended March 31, 2007, 2008 and 2009, we have financed our operations primarily through cash generated by our
operating activities and our issuance of convertible notes in November 2006 and August 2008. We received net proceeds of approximately US$144.7 million and US$267.7 million from our issuance of convertible notes in November 2006 and August 2008,
respectively.

Our principal uses of cash during the fiscal year ended March 31, 2009 were for our working capital
requirements, payment of RMB68.3 million (US$10.0 million) in relation to our acquisition of the FISH business, payment of RMB14.8 million (US$2.2 million) in relation to our BBE acquisition, payment of



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RMB1,514.0 million (US$221.6 million) in relation to our SPR acquisition, payment of cash dividends in the aggregate amount of RMB86.6 million (US$12.7 million) to our shareholders, payment of
RMB26.0 million (US$3.8 million) in relation to the expansion of our production facility and purchase of other property, plant and equipment.

As of March 31, 2009, we had RMB1,456.4 million (US$213.1 million) in cash. Our cash primarily consists of cash on hand and bank balances which are mainly held in RMB denominated accounts with banks
in China and U.S. dollar denominated accounts with banks in Hong Kong and the United States.

In September 2009, our board of
directors approved a share repurchase program with a view to demonstrate our commitment to maximize shareholder value. Under the terms of the program, we may repurchase up to US$30 million worth of our outstanding ADSs for a period of one year,
commencing on October 1, 2009. Repurchases may be made from time to time on the open market at prevailing market prices or in block trades, in accordance with the Safe Harbor requirements of Rule 10b-18 under the U.S. Securities
Exchange Act of 1934, as amended (the Exchange Act). We may effect the repurchases pursuant to a 10b5-1 plan (which allows us to repurchase our ADSs during periods in which we may be in possession of material non-public information) or
otherwise. The timing and extent of any repurchase will depend upon market conditions, the trading price of ADSs and other factors, and subject to the restrictions relating to volume, price and timing under applicable laws and regulations. We expect
to implement this share repurchase program in a manner consistent with market conditions and the interest of the shareholders. Our board of directors will review this share repurchase program periodically, and may authorize adjustment of its terms
and size accordingly. The program may be suspended or discontinued at any time. We plan to fund repurchases made under this program from our available cash balance.

Operating Activities

Net cash provided by operating activities increased
to RMB490.8 million (US$71.8 million) for the fiscal year ended March 31, 2009 from RMB463.3 million for the fiscal year ended March 31, 2008. This increase was mainly attributable to the increase in revenues in the fiscal year ended
March 31, 2009.

Net cash provided by operating activities increased to RMB463.3 million for the fiscal year ended
March 31, 2008 from RMB361.0 million for the fiscal year ended March 31, 2007. This increase was mainly attributable to the increase in revenues in the fiscal year ended March 31, 2008.

Investing Activities

Net
cash used in investing activities increased to RMB1,467.2 million (US$214.7 million) for the fiscal year ended March 31, 2009 from RMB831.6 million for the fiscal year ended March 31, 2008. Net cash used in investing activities for the
fiscal year ended March 31, 2009 consisted primarily of payment of RMB68.3 million in relation to our acquisition of the FISH business, payment of RMB14.8 million in relation to our BBE acquisition, payment of RMB1,514.0 million in relation to
our SPR acquisition, payment of RMB26.0 million in relation to the expansion of our production facility and purchase of other property, plant and equipment.

Net cash used in investing activities decreased to RMB831.6 million for the fiscal year ended March 31, 2008 from RMB884.5 million for the fiscal year ended March 31, 2007. Net cash used in
investing activities for the fiscal year ended March 31, 2008 consisted primarily of payment of RMB439.9 million in relation to our acquisition of the FISH business, payment of RMB195.6 million in relation to our BBE acquisition, and a
refundable deposit of RMB166.7 million paid in July 2007 for a potential SPR acquisition.

Financing Activities

Net cash provided by financing activities was RMB1,751.3 million (US$256.3 million) for the fiscal year ended March 31, 2009, as
compared to net cash used in financing activities of RMB86.1 million for the fiscal



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year ended March 31, 2008. Net cash provided by financing activities for the fiscal year ended March 31, 2009 consisted primarily of proceeds of RMB1,837.9 million raised from our
issuance of convertible notes in August 2008, partially offset by cash dividends in the aggregate amount of RMB86.6 million paid to our shareholders in August 2008.

Net cash used in financing activities was RMB86.1 million for the fiscal year ended March 31, 2008, as compared to net cash provided by financing activities of RMB871.6 million for the fiscal year
ended March 31, 2007. Net cash used in financing activities for the fiscal year ended March 31, 2008 consisted primarily of cash dividends in the aggregate amount of RMB83.3 million paid to our shareholders in August 2007 and principal
payments on bank loan in the amount of RMB8.0 million.

We are a holding company and have historically relied on proceeds from
our equity and debt financings as well as dividends paid by our wholly owned subsidiaries, YDME Beijing, Beijing GP and BBE, for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, service
any debt we may incur and pay our operating expenses. In the event equity and debt financings are not available in amounts or on terms acceptable to us, we may need to cause our wholly owned subsidiaries to pay dividends to us for our cash needs.
The payment of dividends in China is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. YDME Beijing,
Beijing GP and BBE are also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to fund certain reserve funds. These reserves can be used to recoup previous years losses, if any, and, subject
to the approval of the relevant government authority, may be converted into share capital in proportion to their existing shareholdings, or by increasing the par value of the shares currently held by them. Such reserves, however, are not
distributable as cash dividends. In addition, if YDME Beijing, Beijing GP and BBE incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

The ability of our subsidiaries, YDME Beijing, Beijing GP and BBE to convert Renminbi into U.S. dollars and make payments to
us is subject to PRC foreign exchange regulations. Under these regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions.
Conversion of Renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the SAFE.

Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of deliveries, our payment cycles
to our suppliers and the payment cycles of our customers.

Capital Expenditures

We made capital expenditures of RMB884.5 million, RMB664.9 million and RMB1,789.7 million (US$261.9 million) in the fiscal years ended
March 31, 2007, 2008 and 2009, respectively. We expect to spend approximately RMB752 million (US$110 million) in the fiscal year ending March 31, 2010, consisting of the purchase of new manufacturing equipment to expand production
capacity, the renovation of existing facilities and the two payments in relation to our SPR acquisition. We expect to finance such capital expenditures primarily through our existing cash balances carried forward and cash generated by our operating
activities. Our past capital expenditures principally consisted of expansion of production facility and payments in relation to our acquisitions of the FISH business, BBE business and the SPR technology and related assets.

Recent Accounting Pronouncements

During the fiscal year ended March 31, 2009, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for



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measuring fair value in accordance with the U.S. GAAP and expands disclosures about fair value measurements. It also establishes a fair value hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair value. In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB
Statement No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157 to fiscal year ended March 31, 2010 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). We adopted SFAS 157 in the fiscal year ended March 31, 2009, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP 157-2.
The partial adoption of SFAS 157 in the fiscal year ended March 31, 2009 did not have a material impact on our consolidated financial position, cash flows and results of operations. We are still evaluating the impact of the remaining SFAS 157
on its consolidated financial position, cash flows and results of operations.

In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141R (Revised), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for the recognition and measurement of acquired assets, liabilities, goodwill, and
non-controlling interests (formerly minority interests). SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning
after December 15, 2008. SFAS 141R will be applied prospectively to business combinations with an acquisition date on or after April 1, 2009. We are currently evaluating the impact, if any, of the adoption of the provisions of SFAS 141R on
our financial position, results of operations and cash flows.

In April 2008, FASB issued FSP No. FAS 142-3
Determination of the Useful Life of Intangible Assets. This FSP requires an entity shall disclose information that enables users of financial statements to assess the extent to which the expected future cash flows associated with the
asset are affected by the entitys intent and/or ability to renew or extend the arrangement; entitys accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible asset; in the period of
acquisition or renewal, the weighted-average period of time prior to the next renewal or extension (both explicit and implicit), by major intangible asset class and for an entity that capitalizes renewal or extension costs, the total amount of costs
incurred in the period to renew or extend the term of a recognized intangible asset for each period which a statement of financial position is presented, by major intangible asset class. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. These disclosure requirements should be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. We
are currently evaluating the impact on our financial position, results of operations and cash flows, but does not expect the adoption of FSP No. FAS 142-3 to have a material impact on the financial statements.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that May be Settled in Cash
Upon Conversion (FSP APB 14-1). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted
for in a manner that reflects an issuers nonconvertible debt borrowing rate. The resulting debt discount is amortized over the period that convertible debt is expected to be outstanding as additional non-cash interest expense. FSP APB 14-1
became effective for us on April 1, 2009 and requires retrospective application. FSP APB 14-1 will change the accounting treatment for our convertible notes. The effect of applying FSP APB 14-1 on our convertible notes is expected to reduce net
income for the years ended March 31, 2007, 2008, and 2009 by RMB10.3 million, RMB28.2 million, and RMB27.5 million, respectively.

In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force (EITF) Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
(EITF 07-05). EITF 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entitys own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. EITF 07-05 is effective for financial statements issued for fiscal



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years beginning after December 15, 2008. Early adoption for an existing instrument is not permitted. We do not expect the adoption of EITF 07-05 will have a material impact on our
consolidated financial statements.

In April, 2009, the FASB ratified the consensus-for-exposure reached on EITF Issue
No. 09-01, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance (EITF 09-01) and approved the issuance of a draft abstract for a public comment period. EITF 09-01 concludes that, at
the date of issuance, a share-lending arrangement entered into on an entitys own shares in contemplation of a convertible debt offering or other financing is required to be measured at fair value and recognized as a debt issuance cost in the
financial statements of the entity. The debt issuance cost shall be amortized using the effective interest method over the life of the financing arrangement as interest cost. This issue is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. This issue requires retrospective application for all arrangements outstanding as of the beginning of the fiscal year in which this Issue is
initially applied. We are currently evaluating the impact on our financial position, results of operations and cash flows.

In
May 2009, the FASB issued FASB Statement No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required
disclosure of the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. We are currently evaluating the impact on our financial position, results of operations and
cash flows.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting
Standards Codification (the Codification) and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 confirmed that the Codification will become the single official source of U.S.
GAAP, (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, EITF, and related literature. After that date, only one level of authoritative U.S. GAAP will exist. All other literature
will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing
of financial standards, becomes effective for interim and annual periods ending on or after September 15, 2009. We will apply the Codification beginning in the quarter ended September 30, 2009. The adoption of SFAS 168 will have an impact
on our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification.



|C. | Research and Development, Patents and Licenses, etc.
|-- | ----------------------------------------------------

Research and Development

As of August 31, 2009, our research and
development team consisted of 151 research personnel and medical professionals, which accounted for 17.9% of our employees. Many of the key research and development personnel who developed the ECLIA technologies at the Peking University
Peoples Hospital are currently employed by us. The key research and development personnel of the FISH business and the SPR business that we acquired in March 2007 and December 2008, respectively, were also transferred to our company and are
employed by us. Our research and development staff consists of medical professionals, biomedical engineers, electrical engineers and computer science engineers, many of whom have experience in the healthcare and medical device research fields,
including experience working with hospitals who are customers of our products.

Our research and development focuses primarily
on developing new applications and improving the product designs of our ECLIA analyzer and reagent kits, our FISH probes and our SPR system and DNA chips.



| |  |  | ECLIA analyzer and reagent kits research and development. Our ECLIA technology research and development focuses on expanding the range of
reagent kits for applications that are commonly used in
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | China. We plan to continue to add new reagent kits to increase the competitiveness of our ECLIA system. The reagent kits under development include tests for infectious diseases, infertility
disorders and cardiac diseases. Our fully automatic ECLIA analyzer for large hospitals is currently pending approval from the SFDA. We are also working on improving the response time and efficiency of our ECLIA analyzer.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FISH probes research and development. Our FISH technology research and development focuses on expanding the range of probes for applications
that address large unmet demand in China. The probes we currently offer are used in these applications: prenatal diagnosis, diagnosis and prognosis of cervical cancer, bladder cancer, breast cancer, leukemia and multiple myeloma, prostate cancer and
lung cancer. We are also working on enhancing the sensitivity and specificity of our probes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPR system and DNA chips research and development. Our SPR technology research and development focuses on expanding the range of DNA chips for
applications that address large unmet demand in China. We currently offer one type of DNA chip for HPV detection and genotyping. We plan to continue to add new DNA chips to our portfolio. We are also working on improving the response time and
efficiency of our SPR system.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We actively involve scientists and physicians during our research and
development process to produce products that provide clinical and economic benefits to hospitals and their patients. In recent years, we have increased our investment in research and development to accelerate the commercialization of new
technologies. Over the past years, we initiated various long term collaborations with leading institutions such as Chinese Academy of Sciences Institute of Acoustics and Biomed-X Center of Peking University to strengthen our research capabilities,
further enhance the functionality of existing products and expedite the development of new products. We expect to continue devoting significant resources to research and development.

Our research and development expenditures were RMB6.1 million, RMB20.2 million and RMB31.5 million (US$4.6 million) in the fiscal years
ended March 31, 2007, 2008 and 2009, respectively.

Intellectual Property

We are committed to developing and protecting our intellectual property portfolio. We own and have applied for patents to protect the
technologies, inventions and improvements that we believe are significant to our business. As of August 31, 2009, we have obtained 18 patents in China, including 10 utility patents and eight invention patents directed towards our ECLIA system.
The validity periods for our 10 utility patents and eight invention patents are 10 years and 20 years, respectively, from the date the application was filed. We have filed patent applications relating to our SPR technologies in China. Generally,
invention patents are viewed as offering more commercial protection than utility patents. As with patent rights in most other jurisdictions, a patent holder in the PRC enjoys the exclusive right to exclude others from using, licensing and otherwise
exploiting the patent within the PRC. To protect some of the most important proprietary technologies internationally, we have submitted three patent applications relating to ECLIA technology in the United States of which we have been granted one
patent. We have also filed patent applications directed towards our FISH and SPR methodology in the United States.

We have
developed, among others, the following key technologies for our ECLIA system, FISH probes and SPR system:



| |  |  | Enhanced chemiluminescence substrate technologythis technology improves the chemical reaction of reagents with the patients body fluid
sample to produce a long lasting and linear signal and enables our reagent kits to be more sensitive and accurate. We have a pending patent application directed toward this technology in China.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Substance storage technologythis technology can improve the shelf life of our reagent kits from six months to two years, thus reducing the risk
of inventory obsolescence. We have obtained a patent directed toward this technology in China.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | FISH methodologythis methodology discloses an innovative method to deplete repetitive sequences from human DNA. The approach has consistently
demonstrated that our present subtraction method is efficient in removing DNA hybridized complexes, thus leading to a significant depletion of repetitive sequences from a source DNA. We have filed a patent application directed toward this
methodology in the United States.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SPR methodologythis leading biosensor technology in molecular biology is used for the analysis of proteins, nucleic acids and viruses. The
HPV-DNA chips, which we currently offer for use with our SPR system, are label-free DNA chips for the diagnosis of HPV infection and genotyping of HPV. Once the HPV genotype specific probes on the HPV-DNA chip hybridize with their complementary
target DNA abstracted from the cervical cells, the SPR system can read the hybridization signals and interpret the results based on control signals. We have filed patent applications relating to our SPR technologies in China and the United States.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We require our employees, consultants and advisers to execute confidentiality agreements in connection with
their employment, consulting and advisory relationships with us. We also require our employees, consultants and advisers who are privy to confidential information to agree to disclose and assign to us all inventions conceived during their terms of
employment or contract. Despite any measures we take to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or our proprietary technology or to obtain and use information that we regard as proprietary.

We, like other medical device manufacturers in China and elsewhere, are subject to a number of uncertainties regarding the
commercial value of our patent portfolio. See Item 3. Key InformationD. Risk FactorsRisks Related to Our CompanyIf we fail to protect our intellectual property rights, our competitors may take advantage of our proprietary
technology and know-how and compete directly against us.



|D. | Trend Information
|-- | -----------------

Other
than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from April 1, 2007 to March 31, 2009 that are reasonably likely to have a material adverse
effect on our revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.



|E. | Off-Balance Sheet Arrangements
|-- | ------------------------------

We do not, and did not, have any interest in variable interest entities or any other off-balance sheet arrangements that require disclosure.



|F. | Tabular Disclosure of Contractual Obligations
|-- | ---------------------------------------------

The following table sets forth our contractual obligations as of March 31, 2009:



|                            |  |                       |  |           |  |           |  |                  |  |          
|--------------------------- |  | --------------------- |  | --------- |  | --------- |  | ---------------- |  | ---------
|                            |  | Payment due by period
|Contractual obligations     |  | Less than1 year       |  | 1-3Years  |  | 3-5years  |  | More than5 years |  | Total    
|                            |  | (RMB in thousands)   
|Convertible notesprincipal |  |                      |  | 1,024,935 |  | 1,885,880 |  |                 |  | 2,910,815
|Convertible notesinterest  |  | 111,308               |  | 222,616   |  | 113,153   |  |                 |  | 447,077  
|Operating lease obligations |  | 6,479                 |  | 5,908     |  | 4,344     |  |                 |  | 16,731   
|SPR acquisition             |  | 707,205               |  |          |  |          |  |                 |  | 707,205  
|Purchase obligations        |  | 1,789                 |  |          |  |          |  |                 |  | 1,789    
|                            |  |                       |  |           |  |           |  |                  |  |          
|Total                       |  | 826,781               |  | 1,253,459 |  | 2,003,377 |  |                 |  | 4,083,617
|                            |  |                       |  |           |  |           |  |                  |  |          



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Other than the contractual obligations and commercial commitments set forth above, we did
not have any other long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities as of March 31, 2009.

Inflation

Inflation in China has not had a material impact on our
results of operations in recent years. According to the National Bureau of Statistics of China, the change in the Consumer Price Index in China was 1.5%, 4.8% and 5.9% in 2006, 2007 and 2008, respectively.



|G. | Safe Harbor
|-- | -----------

This annual
report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition. The forward-looking statements are
contained principally in the sections entitled Item 3. Key InformationD. Risk Factors, Item 4. Information on the Company and Item 5. Operating and Financial Review and Prospects. These statements
involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the
forward-looking statements.

Forward-looking statements typically are identified by words or phrases such as may,
will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, is/are likely to or other
similar expressions or the negative of these words or expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that our actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including:



| |  |  | our anticipated growth strategies;
| | - |  | ----------------------------------



| |  |  | our future business development, results of operations and financial condition;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our ability to develop and market future applications of our ECLIA system, FISH system and SPR system and DNA chips;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | market acceptance of FISH probes, SPR system and DNA chips;
| | - |  | -----------------------------------------------------------



| |  |  | the expected market growth for medical devices and supplies in China;
| | - |  | ---------------------------------------------------------------------



| |  |  | market acceptance of our technology and products;
| | - |  | -------------------------------------------------



| |  |  | our ability to expand our production, sales and distribution network and other aspects of our operations;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | our ability to effectively build and manage a direct sales force for the distribution of FISH products, SPR system and DNA chips;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to diversify our product range and stay abreast of technological changes;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | competition from other companies that offer IVD systems in China;
| | - |  | -----------------------------------------------------------------



| |  |  | our ability to effectively protect our intellectual property and not infringe on the intellectual property of others;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to identify and acquire new medical technologies and products;
| | - |  | --------------------------------------------------------------------------



| |  |  | changes in the healthcare industry in China, including changes in the healthcare policies and regulations of the PRC government and changes in the
healthcare insurance sector in the PRC; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuations in general economic and business conditions in China.
| | - |  | ------------------------------------------------------------------

This annual report contains market information related to the medical devices and supplies industry, healthcare insurance, hospitals and IVD
markets in China. Unlike in the United States, there is limited



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authoritative data on the healthcare industry in China, particularly on a nationwide basis. For example, there is limited data concerning health and patient trends or the medical devices and
supplies industry. In addition, any data that is available may not be current. This annual report contains projections that are based on a number of assumptions. For example, our business and marketing plan for the ECLIA system assumes that small-
and medium-sized hospitals in China will be interested in buying an ECLIA system such as ours. We have also projected a certain penetration rate for our FISH system and SPR system in large hospitals in China. Any or all of our assumptions may turn
out to be incorrect. If demand for our ECLIA system, FISH system, SPR system and DNA chips does not grow at the projected rates, our business and the market price of our ADSs would suffer. In addition, the complex and changing nature of broad
macroeconomic factors subject any projections or estimates relating to the growth prospects or future conditions of our market to significant uncertainties.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we
undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated
events. You should read this annual report and the documents that we reference in this annual report and have filed as exhibits to the registration statement, of which this annual report is a part, completely and with the understanding that our
actual future results may be materially different from what we expect.



|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



|A. | Directors and Senior Management
|-- | -------------------------------

Directors and Executive Officers

The following table sets forth information regarding our directors and
executive officers as of August 31, 2009.



|                             |  |     |  |                                                            
|---------------------------- |  | --- |  | -----------------------------------------------------------
|Name                         |  | Age |  | Position/title                                             
|Xiaodong Wu                  |  | 53  |  | Chairman of the board of directors, chief executive officer
|Iain Ferguson Bruce(1)(2)(3) |  | 69  |  | Independent director                                       
|Lawrence A. Crum(1)(2)(3)    |  | 68  |  | Independent director                                       
|Yuedong Li(1)(3)             |  | 60  |  | Independent director                                       
|Guoming Qi                   |  | 63  |  | Independent director                                       
|Takyung (Sam) Tsang          |  | 38  |  | Director, chief financial officer                          
|Zhong Chen                   |  | 44  |  | Chief technology officer                                   
|Feng (Charles) Zhu           |  | 40  |  | Vice president                                             



|(1) | Member of the audit committee.
|--- | ------------------------------

|(2) | Member of the compensation committee.
|--- | -------------------------------------

|(3) | Member of the nomination committee.
|--- | -----------------------------------

Mr. Xiaodong Wu, our founder, currently serves as our chairman of the board of directors and chief executive officer. Mr. Wu has served on our board of directors since July 2004 and as the chairman of our board of directors
since February 2005. Mr. Wu is also a director and the chief executive officer of YDME Beijing, positions he has served since the inception of YDME Beijing in July 1999. Mr. Wu serves on the board of directors of Chengxuan, Beijing
Chengxuan, an investment holding company, Beijing Weixiao, a medical technology company, and Beijing Wan De Jin Da Industry and Trade Co., Ltd., a property management company. Mr. Wu worked in the foreign investment department of the Jiangxi
provincial government from 1990 to 1996. From 1980 to 1989, Mr. Wu worked in Jiangxi Municipal Science and Technology Commission and accumulated extensive experience in assessing and managing hi-tech projects. Mr. Wu is an advisor to
Beijing Medical University for technology development projects. Mr. Wu received his bachelors degree in Physics from Jiangxi University.



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Mr. Iain Ferguson Bruce has served as a member of our board of directors since
February 2005. Mr. Bruce is a member of the audit, compensation and nomination committees. Mr. Bruce joined KPMG in Hong Kong in 1964 and was elected to its partnership in 1971. He was the Senior Partner of KPMG from 1991 until his
retirement in 1996 and also concurrently served as Chairman of KPMG Asia Pacific from 1993 to 1997. Since 1964, Mr. Bruce has been a member of the Chartered Accountants of Scotland and is a fellow of the Hong Kong Institute of Certified Public
Accountants with over 40 years experience in the accounting profession. Mr. Bruce is currently an independent non-executive director of Paul Y Engineering Group Limited, a construction and engineering company, Vitasoy International
Holdings Ltd., a beverage manufacturing company, Wing On Company International Ltd., a department store operating and real property investment company, and Tencent Holdings Limited, a provider of Internet services and mobile value-added services.
All of these companies are listed companies on the Hong Kong Stock Exchange. Mr. Bruce is also a non-executive director of Noble Group Limited, a commodity trading company that is listed on the Singapore Stock Exchange, and a non-executive
director of Yingli Green Energy Holding Company Limited, a photovoltaic product manufacturing company that is listed on the New York Stock Exchange.

Dr. Lawrence A. Crum has served as a member of our board of directors since February 2005 and serves as a member of the audit, compensation and nomination committees. Dr. Crum is the
director of the Center for Industrial and Medical Ultrasound and a research professor in electrical engineering and bioengineering at the University of Washington in Seattle in the United States. He holds a Ph.D. degree in physics from the
University of Ohio, has served as the president of the Acoustical Society of America and the International Commission for Acoustics and holds an honorary doctorate degree from the University of Brussels.

Dr. Yuedong Li has served as a member of our board of directors since October 2007 and serves as a member of the audit and
nomination committees. He is currently the chief secretary of the China Hospital Association and the deputy director of Center of Organ Transplant at Beijing University from October 2006. Prior to that, he was the vice-president of Peking University
Peoples Hospital from 1986 to 2006 . Dr. Li also holds various positions in a number of medical associations in China and he obtained a bachelors degree from Beijing Medical University in 1976.

Dr. Guoming Qi has served as a member of our board of directors since November 2007. He is also currently the vice president of
the Chinese Medical Association, the largest and long established medical association in China. From 1997 to 2006, he was the general director of the Department of Medical Science, Technology and Education of the Ministry of Health in China. From
1992 to 1997, he was the vice president of the Chinese Center for Disease Control and Prevention (formerly known as the Chinese Academy of Preventive Medicine). Dr. Qi obtained his bachelors degree from Beijing Medical University in 1970
and a masters degree from Chinese Academy of Medical Sciences in 1981.

Mr. Takyung (Sam) Tsang has served
as our chief financial officer since January 2005 and as a member of our board of director since June 2007. Mr. Tsang was an advisor to the company for the areas of accounting and finance from February 2004 to December 2004. Prior to joining
us, Mr. Tsang worked as a manager of KPMG Hong Kong and Ernst & Young China. He is a Certified Public Accountant in the United States and Hong Kong. He received his bachelors degree in business administration from the Chinese
University of Hong Kong.

Dr. Zhong Chen has served as our chief technology officer since November 2007. He was
the medical director of cytogenetics program at the Associated Regional and University Pathologists Laboratories in Utah and a professor of Pediatrics and Pathology at the University of Utah. Prior to that, he served as the director of cytogenetics
laboratories at Genetrix Inc. from 1993 to 1996 and of Genzyme Genetics from 1996 to 1998, two leading biotechnology companies in the United States. Dr. Chen obtained his bachelors degree in Medicine in 1986 and a M.D. degree in 1989 from
Tongji Medical University. From 1990 to 1993, he also completed a fellowship in Medical Genetics/Cancer Genetics at Southwest Biomedical Research Institute in conjunction with the University of Arizona Genetics Program in Phoenix, Arizona, U.S. He
is certificated by the American Board of Medical Genetics.



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Mr. Feng (Charles) Zhu joined our company as our vice president for business
development and investor relations in January 2005. Prior to joining us, Mr. Zhu worked as a business development manager for GE Healthcare in China from February 2002 to December 2004, responsible for merger and acquisition projects. From May
2000 to February 2002, Mr. Zhu also worked as a business analyst for a Siemens joint venture in China, advising clients on fund raising projects. Mr. Zhu received his bachelors degree in English from Foreign Affairs College in China
and his masters degree in business administration from Texas Christian University.

The business address of our
directors and executive officers is China Medical Technologies, Inc. at No. 24 Yong Chang North Road, Beijing Economic-Technological Development Area, Beijing 100176, Peoples Republic of China.



|B. | Compensation
|-- | ------------

Compensation of
Directors and Executive Officers

For the fiscal year ended March 31, 2009, the aggregate cash compensation to our
directors and executive officers was approximately RMB13.6 million (US$2.0 million). The aggregate amount set aside or accrued to provide retirement, pension or other similar benefits for our executive officers was approximately RMB100,000
(US$15,000) for the fiscal year ended March 31, 2009. If we terminate an executive officer without cause, we are required to pay compensation equal to nine months of the executive officers salary. Except for directors who are also
executive officers, none of our directors receive benefits upon termination.

2005 Stock Option Plan

Our board of directors adopted the 2005 stock option plan on February 2, 2005 and amended and restated the 2005 stock option plan on
November 12, 2006. The 2005 stock option plan, as amended and restated, provides for the grant of share options as well as restricted stock, referred to as awards. The purpose of the plan is to attract and retain the best available
personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants and promote the success of our business. Our board of directors believes that our companys long-term success is
dependent upon our ability to attract and retain superior individuals who, by virtue of their ability, experience and qualifications, make important contributions to our business.

We have reserved an aggregate of 30,000,000 of our ordinary shares for issuance under our 2005 stock option plan, as amended and restated.
As of August 31, 2009, 4,940,000 restricted shares and share options to purchase an aggregate of 933,340 of our ordinary shares were issued and outstanding.

Termination of Awards. Options and restricted shares shall have the specified termination set forth in an award agreement. Where the option agreement permits the exercise of the options
granted for a certain period of time following the recipients termination of services with us, or the recipients disability or death, the options will terminate to the extent any is not exercised or purchased on the last day of the
specified period or the last day of the original term of the options, whichever occurs first.

Administration.
Our stock option plan is administered by an administrative committee designated by our board of directors. The administrative committee will determine the provisions, terms and conditions of each award grant, including, but not limited to, the
option vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment upon settlement of the award, payment contingencies and satisfaction of any performance criteria.

Vesting Schedule. Options and restricted shares granted under our stock option plan vest over a period of two to three years
after vesting commencement date. The vesting schedule is subject to the optionee continuing to be a service provider of our company over the vesting period.

Option Agreement. Options granted under our stock option plan are evidenced by an option agreement that contains, among other things, provisions concerning exercisability and forfeiture upon
termination of



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employment or consulting arrangements by reason of death, disability or otherwise, as determined by our board. In addition, the option agreement also provides that options granted under each plan
are subject to a 180-day lock-up period following the effective date of a registration statement filed by us under the Securities Act, if so requested by us or any representative of the underwriters in connection with any registration of the
offering of any of our securities.

Option Exercise. The term of options granted under the 2005 stock option
plan, as amended and restated, may not exceed five years from the date of grant. The consideration to be paid for our ordinary shares upon exercise of an option or purchase of shares underlying the option will be determined by the administrative
committee and may include cash, check, ordinary shares, a promissory note, consideration received by us under a cashless exercise program implemented by us in connection with our stock option plan, or any combination of the foregoing methods of
payment.

Third-party Acquisition. If a third-party acquires us through the purchase of all or substantially all
of our assets, a merger or other business combination, all outstanding share options or share purchase rights will be assumed or equivalent share options or share purchase rights will be substituted by the successor corporation or parent or
subsidiary of successor corporation. In the event that the successor corporation refuses to assume or substitute for the stock options or share purchase rights, all share options or share purchase rights will become fully vested and exercisable
immediately prior to such transaction and all unexercised options will terminate unless, in either case, the options are assumed by the successor corporation or its parent.

Termination of Plan. Unless terminated earlier, the 2005 stock option plan, as amended and restated, will expire in 2010. Our
board of directors has the authority to amend or terminate our stock option plan subject to shareholder approval to the extent necessary to comply with applicable law and regulations. However, no such action may (i) impair the rights of any
optionee unless agreed by the optionee and the stock option plan administrative committee, or (ii) affect the stock option plan administrative committees ability to exercise the powers granted to it under our stock option plan.

The following table summarizes the share options and restricted shares that we granted to our directors and management
personnel under our 2005 stock option plan, as amended and restated, as of August 31, 2009:



|                                      |  |                                                                                    |  |                                                                                             |  |                                                         |  |                                            |  |                                         
|------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------ |  | ----------------------------------------
|Name                                  |  | Type of awards                                                                     |  | Number of sharesto be issued uponexercise ofoptions and/ornumber ofrestricted
sharesgranted |  | Per share exerciseprice/per sharepurchase
price(in US$) |  | Date of grant                              |  | Date of expiration                      
|Xiaodong Wu                           |  | Restricted shares                                                                  |  | *                                                                                           |  | US$0.10                                                 |  | June 6, 2008                               |  | June 5, 2013                            
|Iain Ferguson Bruce                   |  | Share option/restricted shares                                                     |  | *                                                                                           |  | US$1.36/ US$0.10                                        |  | March 14, 2005/ June 11, 2007              |  | December 31, 2009/ May 31, 2012         
|Lawrence A. Crum                      |  | Share option/restricted shares                                                     |  | *                                                                                           |  | US$1.36/ US$0.10                                        |  | March 14, 2005/ June 11, 2007              |  | December 31, 2009/ May 31, 2012         
|Takyung (Sam) Tsang                   |  | Restricted shares                                                                  |  | *                                                                                           |  | US$0.10                                                 |  | June 11, 2007/ June 6, 2008                |  | May 31, 2012/ June 5, 2013              
|Yuedong Li                            |  | Restricted shares                                                                  |  | *                                                                                           |  | US$0.10                                                 |  | October 1, 2007                            |  | September 30, 2012                      
|Guoming Qi                            |  | Restricted shares                                                                  |  | *                                                                                           |  | US$0.10                                                 |  | November 16, 2007                          |  | November 15, 2012                       
|Other management personnel as a group |  | Share option/restricted shares                                                     |  | *                                                                                           |  | US$2.53/ US$0.10                                        |  | June 11, 2007/ June 11, 2007/ June 6, 2008 |  | May 31, 2012/ May 31, 2012/ June 5, 2013
|Total                                 |  | Options to purchase 1,550,000 ordinary shares** and 5,480,000 restricted shares*** |  |                                                                                             |  |                                                         |  |                                           



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|* | Upon exercise of all options and vesting of all restricted shares granted, would beneficially own less than 1% of our outstanding ordinary shares.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------

|** | Including options that have been exercised and forfeited after they were granted.
|-- | ---------------------------------------------------------------------------------

|*** | Including restricted shares that were subsequently forfeited after they were granted.
|--- | -------------------------------------------------------------------------------------

These options and restricted shares vest over a period of two to three years after the grant date.



|C. | Board Practices
|-- | ---------------

Committees of the
Board of Directors

We believe that our corporate governance practices comply with those required by domestic companies
under Nasdaq Marketplace Rules and do not differ in any significant ways.

Audit Committee

Our audit committee consists of Mr. Iain Ferguson Bruce, Dr. Lawrence A. Crum and Dr. Yuedong Li, and is chaired by
Mr. Bruce. All of the three directors satisfy the independence requirements of the Nasdaq corporate governance rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial
statements of our company. The audit committee is responsible for, among other things:



| |  |  | selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing with our independent auditors any audit problems or difficulties and managements response;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | discussing our annual audited consolidated financial statements with management and our independent auditors;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | annually reviewing and reassessing the adequacy of our audit committee charter;
| | - |  | -------------------------------------------------------------------------------



| |  |  | such other matters that are specifically delegated to our audit committee by our board of directors from time to time;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | meeting separately and periodically with management and our internal and independent auditors; and
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | reporting regularly to the full board of directors.
| | - |  | ---------------------------------------------------

Compensation Committee

Our compensation committee consists of
Mr. Iain Ferguson Bruce and Dr. Lawrence A. Crum, both of whom satisfy the independent requirements of the Nasdaq corporate governance rules. The committee is chaired by Mr. Bruce. Our compensation committee assists
the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not
prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among
other things:



| |  |  | approving and overseeing the compensation package for our executive officers;
| | - |  | -----------------------------------------------------------------------------



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| |  |  | reviewing and making recommendations to the board with respect to the compensation of our directors;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our
chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, employee pension and welfare benefit plans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Nomination Committee

We established a nomination committee in November 2005. Our nomination committee consists of Mr. Iain Ferguson
Bruce, Dr. Lawrence A. Crum and Dr. Yuedong Li, and is chaired by Mr. Bruce. All of the three directors satisfy the independence requirements of the Nasdaq corporate governance rules. The nomination committee assists
the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The nomination committee is responsible for, among other things:



| |  |  | identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing annually with the board the current composition of the board in light of the characteristics of independence, qualification, experience and
availability of service to us.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly, in good faith and with a view to our best interests. Our
directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association, as amended and re-stated from time to time. A shareholder has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:



| |  |  | convening shareholders annual general meetings and reporting its work to shareholders at such meetings;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | declaring dividends and distributions;
| | - |  | --------------------------------------



| |  |  | appointing officers and determining the term of office of officers;
| | - |  | -------------------------------------------------------------------



| |  |  | exercising the borrowing powers of our company and mortgaging the property of our company; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | approving the transfer of shares of our company, including the registering of such shares in our share register.
| | - |  | ----------------------------------------------------------------------------------------------------------------

Terms of Directors and Executive Officers

All directors hold office until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the board of directors. Currently, directors are not subject
to a term of office and hold office until such time as they are removed from office by special resolution or the unanimous written resolution of all shareholders. If a director has been appointed by Chengxuan, upon written notice to us, such
director may be removed and replaced by his or her nominator, at any time for any reason.

A director will be removed from
office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) dies or is found by our company to be or becomes of unsound mind.



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|D. | Employees
|-- | ---------

Employees

We had 334, 708 and 733 employees as of March 31, 2007, 2008 and 2009, respectively. As of August 31, 2009, we had 843
employees. The following table sets forth the number of our employees categorized by function as of August 31, 2009.



|                             |  |                      |  |                       
|---------------------------- |  | -------------------- |  | ----------------------
|                             |  | As of August 31,2009 |  | Percentage ofTotal (%)
|                             |  |                     
|Manufacturing and services   |  | 289                  |  | 34.3                  
|Research and development     |  | 151                  |  | 17.9                  
|General and administration   |  | 88                   |  | 10.4                  
|Sales and marketing          |  | 166                  |  | 19.7                  
|Customer support and service |  | 149                  |  | 17.7                  
|                             |  |                      |  |                       
|Total                        |  | 843                  |  | 100.0                 
|                             |  |                      |  |                       

From time to time, we also employ independent contractors to support our marketing
and sales and clinical support and research. We plan to hire additional employees for sales and marketing, customer support and service and manufacturing as we grow our business. None of our employees is represented by a labor union. We consider our
relationship with our employees to be good.

In accordance with applicable regulations in the PRC, we participate in a pension
contribution plan, a medical insurance plan, an unemployment insurance plan and a personal injury insurance plan for our employees. We have made adequate provisions in accordance with applicable regulations, which require us to contribute amounts
equal to 20%, 10%, 1.5% and 0.5%, respectively, of our employees aggregate base salaries to these statutory plans.

Also, in accordance with PRC regulations, we contribute amounts equal to 12%, 4% and 0.8% of our employees aggregate base salaries towards a housing fund, a supplemental medical insurance fund and a maternity fund, respectively.



|E. | Share Ownership
|-- | ---------------

The
following table sets forth information with respect to the beneficial ownership of our ordinary shares as of September 28, 2009, the latest practicable date, by:



| |  |  | each of our directors and executive officers; and
| | - |  | -------------------------------------------------



| |  |  | each person known to us to own beneficially more than 5.0% of our ordinary shares.
| | - |  | ----------------------------------------------------------------------------------



|                                                   |  |                                      |  |     
|-------------------------------------------------- |  | ------------------------------------ |  | ----
|                                                   |  | Ordinary sharesbeneficially owned(1)
|                                                   |  | Number                               |  | %   
|Directors and executive officers:                  |  |                                      |  |     
|Xiaodong Wu(2)(4)                                  |  | 74,820,001                           |  | 23.3
|Iain Ferguson Bruce                                |  | *                                    |  | *   
|Lawrence A. Crum                                   |  | *                                    |  | *   
|Guoming Qi                                         |  | *                                    |  | *   
|Yuedong Li                                         |  | *                                    |  | *   
|Takyung (Sam) Tsang                                |  | *                                    |  | *   
|Zhong Chen                                         |  | *                                    |  | *   
|Feng (Charles) Zhu                                 |  | *                                    |  | *   
|All directors and executive officers as a group(3) |  | 79,083,341                           |  | 24.6
|Principal and 5% shareholders:                     |  |                                      |  |     
|Chengxuan International Ltd.(4)                    |  | 74,820,001                           |  | 23.3
|Wellington Management Company, LLP(5)              |  | 32,246,990                           |  | 10.0
|Norges Bank(6)                                     |  | 16,265,300                           |  | 5.0 



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|* | Indicates less than 1%.
|- | -----------------------

|(1) | Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, and
includes shares as to which the indicated person holds voting or investment power with respect to the securities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 71,420,001 ordinary shares and 200,000 ADSs (equivalent to underlying 2,000,000 ordinary shares) owned by Chengxuan International Ltd., which is
beneficially owned by Mr. Xiaodong Wu, and 1,400,000 restricted shares granted to Mr. Xiaodong Wu.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes ordinary shares issuable upon exercise of options and restricted shares beneficially held by all of our directors and executive officers as a group.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 71,420,001 ordinary shares and 200,000 ADSs (equivalent to underlying 2,000,000 ordinary shares) owned by Chengxuan International Ltd., a British Virgin
Islands company beneficially owned by Mr. Xiaodong Wu. The address for Chengxuan is The Mill Mall, PO Box 92, Road Town, Tortola, British Virgin Islands.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Based solely upon a Form 13F filed by Wellington Management Company, LLP with the Commission on August 14, 2009, or the Form 13F. According to the Form 13F,
Wellington Management Company, LLP has sole investment discretion with respect to 2,698,404 of our ADSs and shared investment discretion with respect to 526,295 of our ADSs. As such, Wellington Management Company, LLP may be deemed to have
beneficial ownership of the 32,246,990 ordinary shares underlying the ADSs. The address of Wellington Management Company, LLP is 75 State Street, Boston, MA 02109.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Based solely upon a Schedule 13G filed by Norges Bank (Central Bank of Norway) with the Commission on September 18, 2009. The address of the principal business
office of Norges Bank is Bankplassen 2, PO Box 1179 Sentrum, NO 0107 Oslo, Norway.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of August 31,
2009, other than the 77.8% of our outstanding ordinary shares underlying the outstanding ADSs which were held by our custodian, Citibank, N.A., Hong Kong Branch, on behalf of Citibank, N.A., the depositary, none of our ordinary shares were held in
the United States. Our ordinary shares underlying the ADSs quoted on the Nasdaq Global Select Market are held in Hong Kong by the custodian, Citibank, N.A., Hong Kong Branch, on behalf of Citibank, N.A., the depositary.

None of our shareholders has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent
date, result in a change of control of our company.



|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------



|A. | Major Shareholders
|-- | ------------------

Please refer to Item 6. Directors, Senior Management and EmployeesE. Share Ownership.



|B. | Related Party Transactions
|-- | --------------------------

After the completion of our initial public offering on August 15, 2005, we adopted an audit committee charter, which requires that the audit committee review all related party transactions on an ongoing basis and all such transactions
be approved by the committee. Set forth below is a description of all of our related party transactions for the fiscal years ended March 31, 2007, 2008 and 2009.

Transactions with Chengxuan

Chengxuan International Ltd., or Chengxuan, is
one of our shareholders and controlled by Mr. Xiaodong Wu. In December 2008, we completed the sale of the HIFU business to Chengxuan for US$53.5 million in cash. Under the agreement, Chengxuan paid US$23.5 million upon the closing of the sale
and will make two other payments during the year after the closing.

In June 2009, we received a letter from Chengxuan in
connection with a notice issued by the State Food and Drug Administration, or the SFDA, in April 2009. The notice from the SFDA required the submission of new clinical trial data for the renewal application of the registration certificate for the
HIFU therapy system for the further evaluation of the renewal application and did not permit the sale of the HIFU therapy system starting



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from April 2009 until the approval of the renewal application. In August 2009, we received another letter from Chengxuan which updated their ongoing discussion with the SFDA about the
requirements for the new clinical trial data for the HIFU therapy system, Chengxuans loss of revenues due to the unexpected prohibition on selling the HIFU therapy system since April 2009 and their indication of seeking maximum compensation of
approximately US$15.5 million from us. We have established a special committee comprising two independent directors to evaluate and handle the related matters with Chengxuan and the special committee has engaged legal counsel to advise on
Chengxuans request for compensation. We recently received another letter from Chengxuan which withdrew their claim of compensation from us.

Secondary Offering

On March 22, 2006, we completed a secondary public offering of 57,500,000 shares held
by certain shareholders. In this offering, the selling shareholders received all net proceeds from the sale of shares and all of the expenses, including underwriting discounts and commissions, related to this offering were shared by the selling
shareholders. During the year ended March 31, 2006, we received RMB10.4 million from the selling shareholders to pay the expenses on behalf of them and the amount was recorded in other payables. In March 2006, RMB802,000 was paid and the
outstanding balance of RMB9.6 million was fully paid during the fiscal year ended March 31, 2007. Upon the completion of the secondary offering, we received RMB5.9 million from the selling shareholders for our arrangement of the secondary
offering.

Shareholders Agreement

In June 2005, we and Chengxuan, Golden Meditech (BVI) Company Ltd., or Golden Meditech, and General Electric Company, or GE, entered into a shareholders agreement. If any of Chengxuans, Golden
Meditechs or GEs ownership interest in our company falls below 5% of our outstanding shares, calculated on a fully diluted basis, such shareholder will cease to be a party to the June 2005 shareholders agreement and will no longer
have any rights or obligations under that agreement. In 2006, both GE and Golden Meditechs ownership interest in our company fell below 5% of our outstanding shares and ceased to be parties to the shareholders agreement. In July and
October 2006, GE and Golden Meditech ceased to be our shareholders.

Certain provisions of the June 2005 shareholders
agreement are still applicable to Chengxuan. Under these provisions, all transactions between Chengxuan and us, including any changes to the material terms thereof, should be approved by our audit committee and unanimously approved by our board of
directors.

Equity Incentive Plan

See Item 6.B., 2005 Stock Option Plan



|C. | Interests of Experts and Counsel
|-- | --------------------------------

Not applicable.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------



|A. | Consolidated Statements and Other Financial Information
|-- | -------------------------------------------------------

We have appended consolidated financial statements filed as part of this annual report.

Legal
and Administrative Proceedings

Neither we nor any of our directors and executive officers are a party to any material
legal or administrative proceedings, and we are not aware of threatened material legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of
our business.



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Dividend Policy

Our board of directors declared a cash dividend on our ordinary shares of US$0.04 per share, equivalent to US$0.40 per ADS based on our net income for the fiscal year ended March 31, 2007 and the
cash dividend was paid in August 2007. Our board of directors has declared a cash dividend on our ordinary shares of US$0.05 per share, equivalent to US$0.50 per ADS based on our net income for the fiscal year ended March 31, 2008 and the cash
dividend was paid in August 2008. Our board of directors has declared a cash dividend on our ordinary shares of US$0.055 per share, equivalent to US$0.55 per ADS based on our net income for the fiscal year ended March 31, 2009 and the cash
dividend will be paid on or around October 28, 2009 to shareholders of record as of September 30, 2009. Cash dividends, if any, will be at the discretion of our board of directors and will depend upon our future operations and earnings,
capital requirements and surplus, general financial conditions, shareholders interests, contractual restrictions and other factors as our board of directors may deem relevant. We can pay dividends only out of profits or other distributable
reserves.

We have historically relied on proceeds from equity and debt offerings as well as dividends paid to us by our
operating subsidiaries in China, for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. In the event equity and debt
financings are not available in amounts or on terms acceptable to us, we may need to cause our subsidiaries in China to pay dividends to us for our cash needs. In China, the payment of dividends is subject to limitations. PRC regulations currently
permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Under current PRC laws, regulations and accounting standards, our PRC operating subsidiaries are required to
allocate at least 10% of their after-tax profits to their general reserves. Allocation to these reserves is not required after these reserves have reached 50% of the registered capital of these subsidiaries. In addition, at the discretion of its
board of directors, these operating subsidiaries may allocate a portion of their after-tax profits to their enterprise expansion funds and staff welfare and bonus funds. The general reserves, the enterprise expansion funds and staff welfare and
bonus funds may not be distributed to equity owners.

Our board of directors has complete discretion as to whether we will
distribute dividends in the future. Even if our board of directors decides to distribute dividends, the form, frequency and amount of our dividends will depend upon our future operations and earnings, capital requirements and surplus, financial
condition, contractual restrictions and other factors that our board of directors may deem relevant. Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit agreement and applicable laws, to the same extent
as holders of our ordinary shares, less the fees and expenses payable under the deposit agreement. Any dividend we declare will be distributed by the depositary bank to the holders of our ADSs. Cash dividends on our ordinary shares, if any, will be
paid in U.S. dollars.



|B. | Significant Changes
|-- | -------------------

We
have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.



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|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------



|A. | Offering and Listing Details
|-- | ----------------------------

Our ADSs, each representing 10 of our ordinary shares, have been listed on the Nasdaq Global Select Market (formerly the Nasdaq National Market) since August 10, 2005 under the symbol CMED. The following table provides, for
the periods indicated, the high and low market prices for our ADSs.



|                                            |  |             |       |     |     |      
|------------------------------------------- |  | ----------- | ----- | --- | --- | -----
|                                            |  | Sales Price
|                                            |  | High        |       | Low
|Annual High and Low                         |  |             |       |     |     |      
|2005 (from August 10)                       |  | US$         | 42.60 |     | US$ | 14.95
|2006                                        |  | US$         | 44.93 |     | US$ | 18.30
|2007                                        |  | US$         | 48.25 |     | US$ | 21.65
|2008                                        |  | US$         | 57.50 |     | US$ | 16.70
|                                            |  |            
|Quarterly High and Low                      |  |             |       |     |     |      
|First Quarter 2007                          |  | US$         | 27.40 |     | US$ | 21.65
|Second Quarter 2007                         |  | US$         | 33.78 |     | US$ | 22.81
|Third Quarter 2007                          |  | US$         | 42.94 |     | US$ | 27.35
|Fourth Quarter 2007                         |  | US$         | 48.25 |     | US$ | 34.59
|First Quarter 2008                          |  | US$         | 57.50 |     | US$ | 35.61
|Second Quarter 2008                         |  | US$         | 49.82 |     | US$ | 32.52
|Third Quarter 2008                          |  | US$         | 55.24 |     | US$ | 32.04
|Fourth Quarter 2008                         |  | US$         | 36.65 |     | US$ | 16.70
|First Quarter 2009                          |  | US$         | 21.74 |     | US$ | 11.41
|Second Quarter 2009                         |  | US$         | 26.07 |     | US$ | 13.26
|                                            |  |            
|Monthly Highs and Lows                      |  |             |       |     |     |      
|January 2009                                |  | US$         | 21.74 |     | US$ | 14.25
|February 2009                               |  | US$         | 19.00 |     | US$ | 13.02
|March 2009                                  |  | US$         | 15.88 |     | US$ | 11.41
|April 2009                                  |  | US$         | 21.76 |     | US$ | 13.26
|May 2009                                    |  | US$         | 21.88 |     | US$ | 18.95
|June 2009                                   |  | US$         | 26.07 |     | US$ | 18.80
|July 2009                                   |  | US$         | 20.72 |     | US$ | 14.31
|August 2009                                 |  | US$         | 16.95 |     | US$ | 14.71
|September 2009 (through September 28, 2009) |  | US$         | 18.55 |     | US$ | 12.45



|B. | Plan of Distribution
|-- | --------------------

Not
applicable.



|C. | Markets
|-- | -------

Our ADSs, each
representing 10 of our ordinary shares, have been listed on the Nasdaq Global Select Market (formerly the Nasdaq National Market) since August 10, 2005 under the symbol CMED.



|D. | Selling Shareholders
|-- | --------------------

Not
applicable.



|E. | Dilution
|-- | --------

Not applicable.



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|F. | Expenses of the Issue
|-- | ---------------------

Not applicable.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------



|A. | Share Capital
|-- | -------------

Not
applicable.



|B. | Memorandum and Articles of Association
|-- | --------------------------------------

We incorporate by reference into this annual report the description of our amended and restated memorandum of association contained in our F-1 registration statement (File No. 333-132214), as
amended, initially filed with the Commission on July 15, 2005. Our shareholders adopted our amended and restated memorandum and articles of association by unanimous resolutions in June 2004.



|C. | Material Contracts
|-- | ------------------

We
have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4. Information on the Company or elsewhere in this annual report on Form 20-F.



|D. | Exchange Controls
|-- | -----------------

Foreign Currency
Exchange

Foreign currency exchange regulation in China is primarily governed by the following rules:



| |  |  | Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
| | - |  | -----------------------------------------------------------------------------------------------------------------

Under the Exchange Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments,
trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the SAFE.

Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of
China are also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Reform and Development Commission.



|E. | Taxation
|-- | --------

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in,
or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.



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Peoples Republic of China Taxation

The newly enacted PRC Enterprise Income Tax Law, or the EIT Law, and the implementation rules for the EIT Law issued by the PRC State
Council, became effective as of January 1, 2008. The EIT Law provides that enterprises established outside of China whose de facto management bodies are located in China are considered resident enterprises and are
generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation rules for the EIT Law issued by the PRC State Council, de facto management body is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Although substantially all of
our operational management is currently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us to be treated as a PRC resident enterprise.

Under the EIT Law and implementation rules issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable
to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the
establishment or place of business, to the extent such dividends driven from sources within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as
income derived from sources within the PRC. If we are considered a PRC resident enterprise, it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary
shares or ADSs, would be treated as income derived from sources within the PRC and be subject to PRC tax. It is also unclear whether, if we are considered a PRC resident enterprise, holders of our ordinary shares or ADSs might be able to
claim the benefit of income tax treaties entered into between China and other countries.

United States Federal Income Taxation

The following discussion describes certain U.S. federal income tax consequences to U.S. Holders (defined below) under
present law of an investment in the ADSs or ordinary shares. This summary applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This discussion is based on
the Internal Revenue Code of 1986, as amended (the Code) as in effect on the date of this annual report on Form 20-F and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report on Form
20-F, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described
below.

The following discussion does not address the tax consequences to any particular investor or to persons in special tax
situations such as:



| |  |  | banks;
| | - |  | ------



| |  |  | certain financial institutions;
| | - |  | -------------------------------



| |  |  | insurance companies;
| | - |  | --------------------



| |  |  | broker dealers;
| | - |  | ---------------



| |  |  | U.S. expatriates;
| | - |  | -----------------



| |  |  | traders that elect to mark to market;
| | - |  | -------------------------------------



| |  |  | tax-exempt entities;
| | - |  | --------------------



| |  |  | persons liable for alternative minimum tax;
| | - |  | -------------------------------------------



| |  |  | persons holding an ADS or ordinary share as part of a constructive sale, straddle, hedging, conversion or integrated transaction;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | persons that actually or constructively own 10.0% or more of our voting stock;
| | - |  | ------------------------------------------------------------------------------



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| |  |  | persons holding ADSs or ordinary shares through partnerships or other pass-through entities;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | regulated investment companies; or
| | - |  | ----------------------------------



| |  |  | real estate investment trusts.
| | - |  | ------------------------------

The discussion below of the U.S. federal income tax consequences to U.S. Holders will apply if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal income tax
purposes,



| |  |  | an individual citizen or resident of the United States;
| | - |  | -------------------------------------------------------



| |  |  | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States,
any State thereof or the District of Columbia;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an estate whose income is subject to U.S. federal income taxation regardless of its source; or
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | a trust that (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If you are a partner in a partnership or other entity taxable as a partnership that holds ADSs or ordinary shares, your tax treatment
generally will depend on your status and the activities of the partnership, and you should consult your tax advisors.

The
discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. If you hold ADSs, you
generally should be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, deposits or withdrawals of ordinary shares for ADSs should not be subject to U.S. federal income
tax.

The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and
the issuer of the security underlying the ADS may be taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, as described below. Accordingly, the analysis of the credibility of PRC taxes, if any, and the availability of the reduced tax rate for
dividends received by certain non-corporate U.S. Holders could be affected by future actions that may be taken by the U.S. Treasury or intermediaries in the chain of ownership between the holder of an ADS and our company.

The discussion below does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your
particular circumstances and does not address the effects of any state, local or non-U.S. tax laws. If you are considering the purchase, ownership or disposition of our ordinary shares or ADSs, you should consult your own tax advisors concerning
the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other taxing jurisdiction.

Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares

Subject to the passive foreign investment company rules discussed below, the gross amount of all our distributions to you with respect to the ADSs or ordinary shares (including the amount of PRC tax withheld, if any) generally will be
included in your gross income as foreign source dividend income on the date of actual or constructive receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent that the distribution is paid out
of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other
U.S. corporations under the Code.



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With respect to non-corporate U.S. Holders, certain dividends received in taxable years
beginning before January 1, 2011 from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid by it on shares (or ADSs
backed by such shares) that are readily tradable on an established securities market in the United States. Under Internal Revenue Service authority, shares, or ADSs representing such shares, are considered to be readily tradable on an established
securities market in the United States if they are listed on the Nasdaq Global Select Market, as our ADSs are. We do not believe, however, that dividends that we pay on ordinary shares that are not backed by ADSs currently meet the conditions to be
taxed as qualified dividend income. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in the United States in later years. A qualified foreign corporation also includes a foreign
corporation that is eligible for the benefits of certain income tax treaties with the U.S. In the event that we are deemed to be a PRC resident enterprise under PRC tax law (see discussion underItem 10. Additional
InformationE. TaxationPeoples Republic of China Taxation), we may be eligible for the benefits of the income tax treaty between the United States and the PRC, and if we are eligible for such benefits, dividends we pay on our
ADSs and ordinary shares, regardless of whether such ADSs or ordinary shares are readily tradable on an established securities market in the United States, would be subject to the reduced rates of taxation. Non-corporate holders that do not meet a
minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code will not be eligible for the
reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in
substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or
ordinary shares.

In the event that we are deemed to be a PRC resident enterprise under PRC tax law, you may be
subject to PRC withholding taxes on dividends paid to you with respect to the ADSs or ordinary shares. In that case, however, you may be able to obtain a reduced rate of PRC withholding taxes under the income tax treaty between the United States and
the PRC if certain requirements are met. In addition, subject to certain conditions and limitations, PRC withholding taxes on dividends, if any, may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. The
rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year as determined
under U.S. federal income tax principles, it will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital
gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be treated as a dividend (as discussed above).

Taxation of Disposition of Shares

Subject to the passive foreign investment company rules discussed below, for U.S. federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of
an ADS or ordinary share in an amount equal to the difference between the amount realized for the ADS or ordinary share and your tax basis in the ADS or ordinary share. The gain or loss generally will be capital gain or loss. If you are a
non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS or ordinary share for more than one year, you are currently eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such
gain or loss that you recognize will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes. However, in the event that we are deemed to be a Chinese resident enterprise under PRC tax law (see
discussion under Item 10. Additional InformationE. TaxationPeoples Republic of China Taxation), we may be eligible for the benefits of the income tax treaty between the United



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States and the PRC. Under that treaty, if any PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares and a U.S. Holder is eligible for the benefits of the
treaty, such U.S. Holders gain would be treated as PRC-source income. You are urged to consult your tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of ADSs or ordinary shares, including the
availability of the foreign tax credit under your particular circumstances.

Passive Foreign Investment Company

A non-U.S. corporation is considered a passive foreign investment company (PFIC) for any taxable year in which,



| |  |  | at least 75% of its gross income is passive income, or
| | - |  | ------------------------------------------------------



| |  |  | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets
that produce or are held for the production of passive income.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For this purpose, cash is a passive asset
and passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). We will be treated as owning our
proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

Based upon the past and projected composition of our income and valuation of our assets, including goodwill, we believe that we were not a
PFIC for our taxable year ended March 31, 2009, and we do not expect to be a PFIC for our current taxable year for U.S. federal income tax purposes. We must make a separate determination each year as to whether we are a PFIC. As a result, our
PFIC status may change. In particular, our PFIC status may be determined in large part based on the market price of our ADSs and ordinary shares, which is likely to fluctuate (and may fluctuate considerably given that market prices of technology
companies have been especially volatile). Accordingly, fluctuations in the market price of the ADSs and ordinary shares may result in our being a PFIC for any year. Thus, there can be no assurance that we will not be considered a PFIC for our
current taxable year or any future taxable year. If we are a PFIC for any year during which you hold ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold ADSs or ordinary shares.

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, you will be subject to special tax rules
with respect to any excess distribution that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares, unless you make a mark-to-market election as discussed
below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be
treated as excess distributions. Under these special tax rules: the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares, the amount allocated to the current taxable year, and any taxable
year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally
applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us in taxable years
beginning prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses)
realized on the sale of the ADSs or ordinary shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets.



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Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC
may make a mark-to-market election for such stock of a PFIC to elect out of the tax treatment discussed in the two preceding paragraphs. The mark-to-market election is available only for marketable stock, which is stock that is regularly
traded on a qualified exchange, including the Nasdaq Global Select Market. The ADSs are listed on the Nasdaq Global Select Market and, consequently, if you are a holder of ADSs the mark-to-market election would be available to you were we to be or
become a PFIC, provided the ADSs were traded in sufficient quantities. It should be noted that only the ADSs, and not the ordinary shares, are listed on the Nasdaq Global Select Market. Consequently, if you are a holder of ordinary shares that are
not represented by ADSs, you generally will not be eligible to make a mark-to-market election. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the
ADSs no longer qualify as marketable stock or the Internal Revenue Service consents to the revocation of the election. If you make a mark-to-market election, you will include in income each year an amount equal to the excess, if any, of
the fair market value of the ADSs as of the close of your taxable year over your adjusted basis in such ADSs. You are allowed a deduction for the excess, if any, of the adjusted basis of the ADSs over their fair market value as of the close of the
taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the
actual sale or other disposition of the ADSs, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs, as well as to any loss realized on the actual sale or disposition of
the ADSs, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs. Your basis in the ADSs will be adjusted to reflect any such income or loss amounts.

Alternatively, you can sometimes avoid the rules described above by electing to treat us as a qualified electing fund under
Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

If you hold ADSs or ordinary shares in any year in which we are a PFIC, you will be required to file Internal Revenue Service Form 8621
regarding distributions received on the ADSs or ordinary shares and any gain realized on the disposition of the ADSs or ordinary shares. You are urged to consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs
or ordinary shares.

Information Reporting and Backup Withholding

Dividend payments with respect to ADSs or ordinary shares and proceeds from the sale, exchange or redemption of ADSs or ordinary shares that
are paid to you within the United States (and in certain cases, outside the United States) may be subject to information reporting to the Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will
not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status
generally must provide such certification on Internal Revenue Service Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax
liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.



|F. | Dividends and Paying Agents
|-- | ---------------------------

Not applicable.



|G. | Statement by Experts
|-- | --------------------

Not
applicable.



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|H. | Documents on Display
|-- | --------------------

We
have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose
important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report.

You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SECs regional offices in New York, New York and Chicago, Illinois. You can also request copies of this annual report, including the exhibits incorporated by reference in
this annual report, upon payment of a duplicating fee, by writing information on the operation of the SECs Public Reference Room.

The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Our annual report and some of the
other information submitted by us to the SEC may be accessed through this web site.

As a foreign private issuer, we are
exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act.

Our financial statements have been prepared in accordance with
U.S. GAAP.

We will furnish our shareholders with annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP.



|I. | Subsidiary Information
|-- | ----------------------

Not applicable.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Foreign Exchange Risk

Our revenues, costs and expenses are
currently denominated mainly in Renminbi, but the Renminbi prices of some of the materials and supplies for reagent kits that are imported from companies in the United States, Finland and Sweden may be affected by fluctuations in the value of
Renminbi against the currencies of those countries. We do not believe that we currently have any significant direct foreign currency exchange rate risk and have not hedged exposures denominated in foreign currencies or any other derivative financial
instruments. Although our revenues and cost of revenues are denominated in Renminbi, fluctuations in the value of the Renminbi may affect the price competitiveness of our products if we commence international sales of our products in the future. On
July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. This
change in policy resulted initially in an approximately 2.0% appreciation in the value of the Renminbi against the U.S. dollar. Since the adoption of this new policy, the value of Renminbi against the U.S. dollar has fluctuated on a daily basis
within narrow ranges but overall has further strengthened against the U.S. dollar. There remains significant international pressure on the PRC government to further liberalize its currency policy, which could result in a further and more significant
appreciation in the value of the Renminbi against the U.S. dollar. Furthermore, a decline in the value of Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results, the value of your investment in our
company and the dividends we may pay in the future, if any, all of which may have a material adverse effect on the prices of our ADSs.



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Net assets of China Medical Technologies, Inc. and another non-PRC group entity, whose
functional currency is the U.S. dollar accounted for 25.3% of our consolidated net assets as of March 31, 2009, which results in our exposure to foreign currency exchange risk. Primarily as a result of the appreciation of the Renminbi against
the U.S. dollar, the translation of the net assets of China Medical Technologies, Inc. and another non-PRC group entity to Renminbi during consolidation resulted in translation loss of RMB51.9 million (US$7.6 million) which were recognized as a
component of comprehensive loss as of March 31, 2009. If the Renminbi against U.S. dollar as of March 31, 2009 had further appreciated by 10% from 6.8329 to 6.1496 as of March 31, 2009, the translation loss would have increased by
RMB46.7 million (US$6.8 million).

Interest Rate Risk

Our risk exposure from changes in interest rates relates primarily to the interest expenses associated with our historical bank borrowings,
as well as the interest income generated by excess cash invested in demand and time deposits. We recognized interest income of RMB32.4 million (US$4.7 million) for the fiscal year ended March 31, 2009. A one percent decrease in the average
applicable interest rate would have decreased our interest income by RMB15.5 million (US$2.3 million) for the fiscal year. On November 21, 2006, we completed an offering of US$150 million principal amount of 3.5% Convertible Senior Subordinated
Notes due November 2011. On August 15, 2008, we completed an offering of US$276 million principal amount of 4.0% Convertible Senior Notes due August 2013. As the convertible notes carry a fixed rate of interest, historical changes in market
interest rates have not exposed us to material interest rate risks.

As of March 31, 2009, the book value and fair value
of our convertible notes were US$426 million and US$228 million, respectively. We believe the fair value of our convertible notes is subject to changes, primarily based on the trading price of our ADSs and our credit risk, and to a lesser extent
changes in market interest rates. Changes in the fair value of our convertible notes do not have any impact on our financial position or results of operations. To the extent that we may need to raise debt financing in the future, increases in market
interest rates will increase the cost of new debt.

We have not historically used, and do not expect to use in the future, any
derivative financial instruments to manage our interest risk exposure. Such interest-earning instruments and borrowings carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to
changes in interest rates.



|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not applicable.



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PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None of these events occurred in any of the fiscal years ended March 31, 2007, 2008 and 2009.



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

There are no material modification to, or qualifications of, the rights of securities holders that are required to be disclosed.

We completed our initial public offering of 64,000,000 ordinary shares, in the form of ADSs, at US$15.00 per ADS on August 15, 2005,
after our ordinary shares and American Depositary Receipts were registered under the Securities Act. The aggregate price of the offering amount sold was US$110.4 million, of which we received net proceeds of US$99.5 million. The effective date of
our registration statement on Form F-1 (File number: 333-132214) was August 9, 2005. UBS Investment Bank was the sole underwriter/book runner for the global offering of our ADSs. As of March 31, 2009, we had used all the net proceeds of
US$99.5 million received from our initial public offering as follows:



| |  |  | approximately US$12.0 million has been used for the remaining payments relating to our acquisition of the ECLIA technology to Beijing Weixiao;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately US$8.0 million has been used to fund our research and development of new applications and product design improvements for our ECLIA
system;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately US$8.0 million has been used to purchase additional production equipment and renovate and expand our ECLIA reagent production facility;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | approximately US$5.0 million has been used to increase our sales and marketing efforts; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | approximately US$66.5 million has been used for other general corporate purposes.
| | - |  | ---------------------------------------------------------------------------------

On November 21, 2006, we closed an offering of US$150 million principal amount of 3.5% Convertible Senior Subordinated Notes due
November 2011 to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The aggregate principal amount of notes sold reflects the exercise in full by the initial purchaser of its option to purchase up to an additional US$25
million aggregate principal amount of the notes to cover over-allotments. We received net proceeds of approximately US$144.7 million from our issuance of the convertible notes. We filed a registration statement on Form F-3 (333-139777) to register
the resale of the convertible notes and the ADSs issuable upon conversion of the convertible notes in January 2007 and the registration statement was declared effective by the SEC on January 26, 2007. Concurrently with the offering of
convertible notes, we entered into a prepaid forward repurchase contract with an affiliate of Merrill Lynch & Co. pursuant to which we repurchased contemporaneously with the sales of the convertible notes, an aggregate of US$30 million of
ADSs, equivalent to 1,163,692 ADS at US$25.78 per ADS. As of March 31, 2009, we had used all the net proceeds of US$144.7 million received from the 3.5% Convertible Senior Subordinated Notes offering.

On August 15, 2008, we closed an offering of US$276 million principal amount of 4.0% Convertible Senior Notes due August 2013 pursuant
to a registration statement on Form F-3 (333-152937) which was filed and became effective on August 11, 2008. The aggregate principal amount of notes sold reflects the exercise in full by the underwriters of their option to purchase up to an
additional US$36 million aggregate principal amount of the notes to cover over-allotments. We received net proceeds of approximately US$267.7 million from our issuance of the convertible notes. Credit Suisse Securities (USA) LLC and Morgan
Stanley & Co. Incorporated were the underwriters for the offering of the convertible notes. Concurrently with the offering of convertible notes, we entered into an ADS issuance and repurchase agreement with affiliates of Credit Suisse
Securities (USA) LLC and Morgan Stanley & Co. Incorporated, or the Dealers, pursuant to which we issued 4,700,000



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ADSs to the Dealers at a consideration of US$1.00 per ADS. The Dealers will be obligated to deliver to us an equal number of ADSs. On the same day we issued the ADSs to the Dealers, we prepaid to
the Dealers a US$1.00 per ADS repurchase price for the 4,700,000 ADSs to be repurchased from the Dealers by us in the future.

In the fiscal year ended March 31, 2009, we used approximately US$219.5 million of the net proceeds received from the convertible note offering for the SPR acquisition.

As of March 31, 2009, our cash resources amounted to RMB1,456.4 million (US$213.1 million), comprising of cash on hand and demand
deposits.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

As of the end of the period covered by this annual report, an evaluation has been
carried out under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as
such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls
and procedures are effective in ensuring that material information required to be disclosed in this annual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is made within the time period
specified in the rules and forms of the Securities and Exchange Commission.

Managements Annual Report on Internal Control over
Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a15(f) under the Securities Exchange Act of 1934, as amended, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a companys assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with generally accepted accounting principles, and that a companys receipts and expenditures are being made only in accordance with authorizations of a companys management and directors, and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a companys assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with
respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As
required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, management assessed the effectiveness of the our internal control over financial reporting as of
March 31, 2009 using criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that our internal control over financial reporting was effective as of March 31, 2009 based on the criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



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PricewaterhouseCoopers Zhong Tian CPAs Limited Company, our independent registered public
accounting firm, has audited the effectiveness of our internal control over financial reporting as of March 31, 2009, as stated in its report, which appears on page F-2 of this annual report on Form 20-F.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the year ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

Our board of directors has determined that Mr. Iain Ferguson Bruce qualifies as an audit committee financial expert as defined in Item 16A of Form 20-F. Each of the members of the audit committee is an
independent director as defined in the Nasdaq Marketplace Rules.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

Our board
of directors has adopted a code of ethics that applies to our directors, officers, employees and advisors, including certain provisions that specifically apply to our chief executive officer, chief financial officer, vice presidents and any other
persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit to this annual report on Form 20-F. We hereby undertake to provide to any person without charge, a copy of our code of business conduct
and ethics within 10 working days after we receive such persons written request.



|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMG, independent registered public accounting firm for the
years ended March 31, 2007 and 2008, and PwC, independent registered public accounting firm for the year ended March 31, 2009. We did not pay any other fees to our auditors during the periods indicated below.



|                      |  |                              |  |      |  |     
|--------------------- |  | ---------------------------- |  | ---- |  | ----
|                      |  | For the Year Ended March 31,
|                      |  | 2007                         |  | 2008 |  | 2009
|                      |  | US$                          |  | US$  |  | US$ 
|                      |  | (In thousands)              
|KPMG                  |  |                              |  |      |  |     
|Audit fees(1)         |  | 235                          |  | 799  |  | 556 
|Audit-related fees(2) |  | 178                          |  |     |  | 42  
|Tax Fees(3)           |  |                             |  |     |  |    
|PwC                   |  |                              |  |      |  |     
|Audit fees(1)         |  |                             |  |     |  | 659 
|Other fees(4)         |  |                             |  |     |  | 82  



|(1) | Audit fees represent the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements
for each of the three fiscal years ended March 31, 2007, 2008 and 2009.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-related fees represent the aggregate fees billed by our principal auditors for services rendered that are reasonably related to the performance of the
audit or review of our financial statements and are not reported under Audit Fees. The fees for the fiscal year ended March 31, 2007 related primarily to providing review of the interim financial statements in connection with our
offering of convertible notes in November 2006. The fees for the fiscal year ended March 31, 2009 related to providing review of the SEC comment letter response.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Tax fees represent the aggregate fees billed for professional services rendered by our principal auditors for tax compliance, tax advice, and tax planning.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(4) | Other fees represent the aggregate fees billed in the fiscal year ended March 31, 2009 for services provided by PwC, other than services reported under
Audit fees and Audit-related fees. Other fees for the fiscal year ended March 31, 2009 related primarily to the accounting advisory services provided by PwC before they were engaged to be our principal
external auditor in August 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The policy of our audit committee is to pre-approve all audit and non-audit
services provided by KPMG and PwC, including audit services, audit-related services, tax services and other services as described above, other than those for de minimus services which are approved by the audit committee prior to the completion of
the audit.



|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------

Not applicable.



|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ----------------------------------------------------------------------

In the fiscal year ended March 31, 2009, there had not been any purchase made by or on behalf of us or any affiliated purchaser,
as such term is defined in Rule 10b-18(a)(3) of the Exchange Act, of our ordinary shares or ADSs.

In September 2009, our
board of directors approved a share repurchase program with a view to demonstrate our commitment to maximize shareholder value. Under the terms of the program, we may repurchase up to US$30 million worth of our outstanding ADSs for a period of one
year, commencing on October 1, 2009. Repurchases may be made from time to time on the open market at prevailing market prices or in block trades, in accordance with the Safe Harbor requirements of Rule 10b-18 under the Exchange Act.
We may effect the repurchases pursuant to a 10b5-1 plan (which allows us to repurchase our ADSs during periods in which we may be in possession of material non-public information) or otherwise. The timing and extent of any repurchase will depend
upon market conditions, the trading price of ADSs and other factors, and subject to the restrictions relating to volume, price and timing under applicable laws and regulations. We expect to implement this share repurchase program in a manner
consistent with market conditions and the interest of the shareholders. Our board of directors will review this share repurchase program periodically, and may authorize adjustment of its terms and size accordingly. The program may be suspended or
discontinued at any time. We plan to fund repurchases made under this program from our available cash balance. We have not made any repurchase under this program yet.



|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
|--------- | --------------------------------------------

In August 2009, our audit committee and board of directors resolved to engage PricewaterhouseCoopers Zhong Tian CPAs Limited Company, or PwC, to serve as our independent registered public accounting firm
in connection with the audit of our consolidated financial statements for the fiscal year ended March 31, 2009.

The
removal of our previous independent registered public accounting firm, KPMG, and the engagement of PwC were approved by our audit committee and board of directors in August 2009, after we received a competitive fee proposal from PwC for their
services.

The reports of KPMG on our consolidated financial statements for the fiscal years ended March 31, 2007 and
2008 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that KPMGs reports refer to a change in the method of accounting for
employee share-based arrangements as required by Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment. During the two fiscal years ended March 31, 2008 and 2009 and in the subsequent interim period
through August 2009, there were (i) no disagreements (as that term is used



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in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) between us and KPMG on any matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreement in its reports on the consolidated financial statements for such fiscal
years, and (ii) no reportable events (as defined in Item 16F (a)(1)(v) of Form 20-F).

During the two
fiscal years ended March 31, 2008 and 2009 and in the subsequent interim periods prior to the removal of KPMG with effect in August 2009, neither we nor any of our subsidiaries consulted with PwC, our new independent registered public
accounting firm, concerning (i) the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on our consolidated financial statements and no written or oral
advice was provided by PwC that was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a disagreement (as that term is used
in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to Item 16F) with the former independent registered public accounting firm or a reportable event (as defined in Item 16F (a)(1)(v) of Form 20-F).

In September 2009, we provided both PwC and KPMG with a copy of the foregoing disclosure. We requested that our former
independent registered public accounting firm, KPMG, furnish us with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. We
have received the requested letter from KPMG, a copy of which is included as Exhibit 99.1 to the registration statement of which this prospectus forms a part. We also requested our new independent registered public accounting firm, PwC, to review
the foregoing disclosures and offered PwC the opportunity to furnish us with a letter addressed to the Securities and Exchange Commission containing any new information, clarification of our expression of our views or the respects in which it does
not agree with the statements by us in response to Item 16F of Form 20-F. PwC had no disagreement with the disclosure and consequently declined the opportunity to furnish us with such a letter.



|ITEM 16G. | CORPORATE GOVERNANCE
|--------- | --------------------

None.



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PART III



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

We
have elected to provide financial statements pursuant to Item 18.



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

The
following financial statements are filed as part of this Annual Report on Form 20-F, together with the reports of the independent registered public accounting firms:

INDEX TO THE FINANCIAL STATEMENTS



|                                                                                                                            |  |     
|--------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                            |  | Page
|Reports of Independent Registered Public Accounting Firms                                                                   |  | F-1 
|Consolidated Balance Sheets as of March 31, 2008 and 2009                                                                   |  | F-3 
|Consolidated Statements of Income for the years ended March 31, 2007, 2008 and
2009                                         |  | F-4 
|Consolidated Statements of Shareholders Equity and Comprehensive Income for the years ended March 31,
 2007, 2008 and 2009 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2008 and
2009                                     |  | F-6 
|Notes to the Consolidated Financial Statements                                                                              |  | F-7 



|ITEM 19. | EXHIBITS
|-------- | --------



|              |  |                                                                                                                                                                                                                                                                                        
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                                                                                
|1.1          |  | Second Amended and Restated Memorandum and Articles of Association of the Registrant                                                                                                                                                                                                   
|              | 
|2.1          |  | Specimen Certificate for Ordinary Shares of the Registrant                                                                                                                                                                                                                             
|              | 
|2.2           |  | Specimen American Depositary Receipt of the Registrant (included in Exhibit 2.3)                                                                                                                                                                                                       
|              | 
|2.3          |  | Deposit Agreement, dated as of August 9, 2005, among the Registrant, the depositary and holders and beneficial owners of the American Depositary Shares issued thereunder, as amended
by the letter agreement, dated as of November 21, 2006, between the Registrant and the depositary
|              | 
|2.4       |  | Indenture, dated as of November 21, 2006, among the Registrant, Wilmington Trust Company, as the trustee, and Citibank, N.A., as the initial agent.                                                                                                                                    
|              | 
|2.5           |  | Form of China Medical Technologies, Inc. 3.5% Convertible Senior Subordinated Notes due 2011 (included in Exhibit 2.4).                                                                                                                                                                
|              | 
|2.6       |  | Registration Rights Agreement, dated as of November 21, 2006, between the Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated.                                                                                                                                           
|              | 
|2.7      |  | Form of First Supplemental Indenture, dated as of August 15, 2008, between the Registrant and Wilmington Trust Company, as the trustee.                                                                                                                                                
|              | 
|2.8           |  | Form of China Medical Technologies, Inc. 4.00% Convertible Senior Notes due 2013 (included in Exhibit 2.7).                                                                                                                                                                            
|              | 
|2.9      |  | Form of ADS Issuance and Repurchase Agreement, dated as of August 12, 2008, between the Registrant and Credit Suisse International.                                                                                                                                                    
|              | 
|2.10     |  | Form of ADS Issuance and Repurchase Agreement, dated as of August 12, 2008, between the Registrant and Morgan Stanley & Co. International PLC.                                                                                                                                         



92



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|              |  |                                                                                                                                                                                           
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                   
|              | 
|4.1        |  | Business Acquisition Agreement, dated as of February 6, 2007, among the Registrant, CMED Technologies Ltd., Supreme Well Investments Limited and Molecular Diagnostic Technologies
Limited
|              | 
|4.2*          |  | Asset Acquisition Agreement, dated as of October 5, 2008, among the Registrant, CMED Technologies Ltd., Molecular Diagnostic Technologies Limited and Supreme Well Investments
Limited    
|              | 
|4.3*          |  | Share Purchase Agreement, dated as of December 17, 2008, between CMED ECLIA Diagnostic Technology Ltd. and Chengxuan International Ltd.                                                   
|              | 
|8.1*          |  | List of Subsidiaries                                                                                                                                                                      
|              | 
|11.1        |  | Code of Business Conduct and Ethics                                                                                                                                                       
|              | 
|12.1*         |  | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                               
|              | 
|12.2*         |  | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                               
|              | 
|13.1*         |  | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                               
|              | 
|13.2*         |  | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                               
|              | 
|15.1*         |  | Consent of KPMG, Independent Registered Public Accounting Firm                                                                                                                            
|              | 
|15.2*         |  | Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company, Independent Registered Public Accounting Firm                                                                          
|              | 
|99.1*         |  | Letter, dated as of September 30, 2009, from KPMG to the Commission                                                                                                                       



| | Previously filed with the Registrants registration statement on Form F-1 (File No. 333-126630), as amended, initially filed with the Commission on
July 15, 2005, and incorporated herein by reference.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Previously filed with the Registrants annual report on Form 20-F on September 29, 2006, and incorporated herein by reference.
|-- | ------------------------------------------------------------------------------------------------------------------------------

| | Previously filed with the Registrants annual report on Form 20-F on September 28, 2007, and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------

| | Previous filed with the Registrants registration statement on Form F-3 (File No. 333-139777), as amended, initially filed with the Commission on
January 3, 2007, and incorporated herein by reference.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Previous filed with the Registrants report on Form 6-K on August 15, 2008, and incorporated herein by reference.
|----- | -----------------------------------------------------------------------------------------------------------------

|* | Filed with this Annual Report on Form 20-F.
|- | -------------------------------------------



93



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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused
and authorized the undersigned to sign this annual report on its behalf.

CHINA MEDICAL TECHNOLOGIES, INC.By

/S/    XIAODONG
WUName:

Mr. Xiaodong WuTitle:

Chief Executive Officer


Date: September 30, 2009



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

China Medical Technologies, Inc.:

We have audited the accompanying consolidated balance sheet of China Medical
Technologies, Inc. and subsidiaries (the Company) as of March 31, 2008, and the related consolidated statements of income, shareholders equity and comprehensive income and cash flows for each of the years in the two-year
period ended March 31, 2008. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Medical Technologies, Inc. and its subsidiaries as of March 31, 2008, and the results of their operations and their cash flows for each of the years in the two-year period ended
March 31, 2008, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG

Hong Kong, China

June 27, 2008, except for

Note 9 and Note 20, which

are as of
September 30, 2009



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of China Medical Technologies, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, shareholders equity and
comprehensive income and cash flows present fairly, in all material respects, the financial position of China Medical Technologies, Inc. and its subsidiaries at March 31, 2009, and the results of their operations and their cash flows for the
year ended March 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of March 31, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these
financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Annual Report on Internal Control over
Financial Reporting appearing under Item 15 of the accompanying Form 20-F. Our responsibility is to express an opinion on these financial statements and on the Companys internal control over financial reporting based on our integrated
audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Beijing, the Peoples Republic of China

September 30, 2009



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Consolidated Balance Sheets

(RMB and US$ expressed in thousands, except share data)



|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | --------- | - |  | --------- | - |  | ------- | -
|                                                                                                                                    |  |      |  | March 31, |  
|                                                                                                                                    |  | Note |  | 2008      |   |  | 2009      |   |  | 2009    |  
|                                                                                                                                    |  |      |  | RMB       |   |  | RMB       |   |  | US$     |  
|                                                                                                                                    |  |      |  |          
|Assets                                                                                                                              |  |      |  |           |   |  |           |   |  |         |  
|Current assets:                                                                                                                     |  |      |  |           |   |  |           |   |  |         |  
|Cash and cash equivalents                                                                                                           |  |      |  | 682,679   |   |  | 1,456,410 |   |  | 213,147 |  
|Accounts receivable, net                                                                                                            |  |      |  | 289,751   |   |  | 343,037   |   |  | 50,204  |  
|Prepayments and other assets                                                                                                        |  |      |  | 27,845    |   |  | 20,425    |   |  | 2,989   |  
|Inventories                                                                                                                         |  | 4    |  | 27,834    |   |  | 16,932    |   |  | 2,478   |  
|Due from a related party                                                                                                            |  |      |  |          |   |  | 204,987   |   |  | 30,000  |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total current assets                                                                                                                |  |      |  | 1,028,109 |   |  | 2,041,791 |   |  | 298,818 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Property, plant and equipment, net                                                                                                  |  | 5    |  | 164,499   |   |  | 169,422   |   |  | 24,795  |  
|Land use rights                                                                                                                     |  |      |  | 7,430     |   |  | 7,239     |   |  | 1,059   |  
|Deposit related to SPR acquisition                                                                                                  |  |      |  | 154,264   |   |  |          |   |  |        |  
|Intangible assets, net                                                                                                              |  | 6    |  | 1,541,793 |   |  | 3,487,474 |   |  | 510,394 |  
|Goodwill                                                                                                                            |  | 3    |  | 8,654     |   |  | 8,654     |   |  | 1,267   |  
|Convertible notes issuance costs                                                                                                    |  |      |  | 27,055    |   |  | 68,596    |   |  | 10,039  |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total assets                                                                                                                        |  |      |  | 2,931,804 |   |  | 5,783,176 |   |  | 846,372 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Liabilities and Shareholders Equity                                                                                                |  |      |  |           |   |  |           |   |  |         |  
|Current liabilities:                                                                                                                |  |      |  |           |   |  |           |   |  |         |  
|Accounts payable                                                                                                                    |  |      |  | 48,040    |   |  | 27,863    |   |  | 4,078   |  
|Accrued expenses and other liabilities                                                                                              |  | 7    |  | 172,787   |   |  | 185,700   |   |  | 27,178  |  
|Payables related to FISH/SPR acquisition                                                                                            |  | 3    |  | 65,793    |   |  | 707,205   |   |  | 103,500 |  
|Income taxes payable                                                                                                                |  |      |  | 69,499    |   |  | 77,112    |   |  | 11,285  |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total current liabilities                                                                                                           |  |      |  | 356,119   |   |  | 997,880   |   |  | 146,041 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Convertible notes                                                                                                                   |  | 8    |  | 1,051,800 |   |  | 2,910,815 |   |  | 426,000 |  
|Deferred income taxes                                                                                                               |  | 12   |  | 1,124     |   |  | 29,898    |   |  | 4,375   |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total liabilities                                                                                                                   |  |      |  | 1,409,043 |   |  | 3,938,593 |   |  | 576,416 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Commitments and contingencies                                                                                                       |  | 18   |  |          |   |  |          |   |  |        |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|                                                                                                                                    |  |      |  |          
|Shareholders equity:                                                                                                               |  |      |  |           |   |  |           |   |  |         |  
|Ordinary shares:                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Par value: US$0.10                                                                                                                  |  |      |  |           |   |  |           |   |  |         |  
|Authorized: 500,000,000 sharesIssued and outstanding:274,066,661 and 321,066,661 shares as of March 31, 2008 and
2009, respectively |  |      |  | 225,473   |   |  | 257,738   |   |  | 37,720  |  
|Additional paid-in capital                                                                                                          |  |      |  | 526,264   |   |  | 544,178   |   |  | 79,641  |  
|Accumulated other comprehensive loss                                                                                                |  |      |  | (48,046   | ) |  | (51,946   | ) |  | (7,602  | )
|Retained earnings                                                                                                                   |  |      |  | 819,070   |   |  | 1,094,613 |   |  | 160,197 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total shareholders equity                                                                                                          |  |      |  | 1,522,761 |   |  | 1,844,583 |   |  | 269,956 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  
|Total liabilities and shareholders equity                                                                                          |  |      |  | 2,931,804 |   |  | 5,783,176 |   |  | 846,372 |  
|                                                                                                                                    |  |      |  |           |   |  |           |   |  |         |  

The accompanying notes are an integral part of these consolidated financial
statements.



F-3



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Consolidated Statements of Income

(RMB and US$ expressed in thousands, except per share data)



|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|---------------------------------------------------------------------- |  | ------ |  | -------------------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                                                       |  |        |  | Year ended March 31, |  
|                                                                       |  | Note   |  | 2007                 |   |  | 2008     |   |  | 2009     |   |  | 2009    |  
|                                                                       |  |        |  | RMB                  |   |  | RMB      |   |  | RMB      |   |  | US$     |  
|                                                                       |  |        |  |                      |  
|Revenues                                                               |  |        |  | 215,550              |   |  | 547,421  |   |  | 829,950  |   |  | 121,464 |  
|Cost of revenues                                                       |  |        |  | (57,750              | ) |  | (245,437 | ) |  | (232,571 | ) |  | (34,037 | )
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Gross profit                                                           |  |        |  | 157,800              |   |  | 301,984  |   |  | 597,379  |   |  | 87,427  |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Operating expenses:                                                    |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Research and development                                               |  |        |  | (6,079               | ) |  | (20,231  | ) |  | (31,450  | ) |  | (4,603  | )
|Acquired in-process research and development                           |  |        |  |                     |   |  | (672     | ) |  | (244,872 | ) |  | (35,837 | )
|Sales and marketing                                                    |  |        |  | (10,261              | ) |  | (22,012  | ) |  | (42,722  | ) |  | (6,252  | )
|General and administrative                                             |  |        |  | (49,953              | ) |  | (70,939  | ) |  | (97,596  | ) |  | (14,284 | )
|Amortization of SPR intangible assets                                  |  |        |  |                     |   |  |         |   |  | (36,511  | ) |  | (5,343  | )
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Total operating expenses                                               |  |        |  | (66,293              | ) |  | (113,854 | ) |  | (453,151 | ) |  | (66,319 | )
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Operating income                                                       |  |        |  | 91,507               |   |  | 188,130  |   |  | 144,228  |   |  | 21,108  |  
|Other income (expense):                                                |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Interest income                                                        |  |        |  | 41,970               |   |  | 28,650   |   |  | 32,354   |   |  | 4,735   |  
|Interest expense                                                       |  |        |  | (15,342              | ) |  | (44,378  | ) |  | (87,478  | ) |  | (12,803 | )
|Amortization of convertible notes issuance costs                       |  | 8      |  | (3,111               | ) |  | (7,937   | ) |  | (14,387  | ) |  | (2,105  | )
|Other income (expense)                                                 |  |        |  | 700                  |   |  | 100      |   |  | (3,732   | ) |  | (546    | )
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Income before income taxes                                             |  |        |  | 115,724              |   |  | 164,565  |   |  | 70,985   |   |  | 10,389  |  
|Income tax expense                                                     |  | 12     |  | (12,049              | ) |  | (51,999  | ) |  | (73,042  | ) |  | (10,690 | )
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Income (loss) from continuing operations                               |  |        |  | 103,675              |   |  | 112,566  |   |  | (2,057   | ) |  | (301    | )
|Income from and gain on sale of discontinued operation, net            |  | 9      |  | 186,043              |   |  | 212,656  |   |  | 364,409  |   |  | 53,331  |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Net income                                                             |  |        |  | 289,718              |   |  | 325,222  |   |  | 362,352  |   |  | 53,030  |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Net income (loss) per shareBasic:                                     |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|                                                                       |  |        |  |                      |  
|Income (loss) from continuing operations                               |  | 11, 12 |  | 0.39                 |   |  | 0.43     |   |  | (0.01    | ) |  | (0.00   | )
|Income from and gain on sale of discontinued operation, net            |  | 11, 12 |  | 0.69                 |   |  | 0.81     |   |  | 1.39     |   |  | 0.20    |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Net income                                                             |  |        |  | 1.08                 |   |  | 1.24     |   |  | 1.38     |   |  | 0.20    |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Net income (loss) per shareDiluted:                                   |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|                                                                       |  |        |  |                      |  
|Income (loss) from continuing operations                               |  | 11, 12 |  | 0.38                 |   |  | 0.43     |   |  | (0.01    | ) |  | (0.00   | )
|Income from and gain on sale of discontinued operation, net            |  | 11, 12 |  | 0.69                 |   |  | 0.81     |   |  | 1.39     |   |  | 0.20    |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Net income                                                             |  |        |  | 1.07                 |   |  | 1.24     |   |  | 1.38     |   |  | 0.20    |  
|                                                                       |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|Weighted average shares used in computing net income per share (000): |  |        |  |                      |   |  |          |   |  |          |   |  |         |  
|                                                                       |  |        |  |                      |  
|Basic                                                                  |  |        |  | 269,232              |   |  | 262,219  |   |  | 262,776  |   |  | 262,776 |  
|Diluted                                                                |  |        |  | 269,508              |   |  | 263,465  |   |  | 262,776  |   |  | 262,776 |  

The accompanying notes are an integral part of these consolidated financial
statements.



F-4



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Consolidated Statements of Shareholders Equity and Comprehensive Income

(RMB and US$ expressed in thousands, except share data)



|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|---------------------------------------------------------------------------------------- |  | ----- |  | --------------- |  | ------------------------ |  | -------- | --------------------------------- |  | ------- | ---------------- |  | --------- | ------------------------ |  | --------- | ------------------- |  | ------- | -
|                                                                                         |  | Note  |  | Ordinary Shares |  | AdditionalPaid-inCapital |  |          | AccumulatedOtherComprehensiveLoss |  |         | RetainedEarnings |  |           | TotalShareholdersEquity |  |           | Comprehensiveincome | 
|                                                                                         |  |       |  | Number          |  | RMB                      |  | RMB      |                                   |  | RMB     |                  |  | RMB       |                          |  | RMB       |                     |  | RMB     |  
|Balance as of April 1, 2006                                                              |  |       |  | 273,600,001     |  | 225,125                  |  | 739,710  |                                   |  | (5,737  | )                |  | 287,436   |                          |  | 1,246,534 |                     |  |         |  
|Net income                                                                               |  |       |  |                |  |                         |  |         |                                   |  |        |                  |  | 289,718   |                          |  | 289,718   |                     |  | 289,718 |  
|Foreign currency translation adjustment, net of nil tax                                  |  |       |  |                |  |                         |  |         |                                   |  | (15,598 | )                |  |          |                          |  | (15,598   | )                   |  | (15,598 | )
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Comprehensive income                                                                     |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  | 274,120 |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Share-based compensation                                                                 |  | 17    |  |                |  |                         |  | 1,260    |                                   |  |        |                  |  |          |                          |  | 1,260     |                     |  |         |  
|Prepaid forward repurchase of ordinary shares                                            |  | 10(b) |  |                |  |                         |  | (236,175 | )                                 |  |        |                  |  |          |                          |  | (236,175  | )                   |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Balance as of March 31, 2007                                                             |  |       |  | 273,600,001     |  | 225,125                  |  | 504,795  |                                   |  | (21,335 | )                |  | 577,154   |                          |  | 1,285,739 |                     |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Net income                                                                               |  |       |  |                |  |                         |  |         |                                   |  |        |                  |  | 325,222   |                          |  | 325,222   |                     |  | 325,222 |  
|Foreign currency translation adjustment, net of nil tax                                  |  |       |  |                |  |                         |  |         |                                   |  | (26,711 | )                |  |          |                          |  | (26,711   | )                   |  | (26,711 | )
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Comprehensive income                                                                     |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  | 298,511 |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Issuance of ordinary shares upon exercise of options                                     |  | 17    |  | 466,660         |  | 348                      |  | 4,809    |                                   |  |        |                  |  |          |                          |  | 5,157     |                     |  |         |  
|Share-based compensation                                                                 |  | 17    |  |                |  |                         |  | 16,660   |                                   |  |        |                  |  |          |                          |  | 16,660    |                     |  |         |  
|Dividends declared and paid                                                              |  | 10(d) |  |                |  |                         |  |         |                                   |  |        |                  |  | (83,306   | )                        |  | (83,306   | )                   |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Balance as of March 31, 2008                                                             |  |       |  | 274,066,661     |  | 225,473                  |  | 526,264  |                                   |  | (48,046 | )                |  | 819,070   |                          |  | 1,522,761 |                     |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Net income                                                                               |  |       |  |                |  |                         |  |         |                                   |  |        |                  |  | 362,352   |                          |  | 362,352   |                     |  | 362,352 |  
|Foreign currency translation adjustment, net of nil tax                                  |  |       |  |                |  |                         |  |         |                                   |  | (3,900  | )                |  |          |                          |  | (3,900    | )                   |  | (3,900  | )
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Comprehensive income                                                                     |  |       |  |                |  |                         |  |         |                                   |  |        |                  |  |          |                          |  |          |                     |  | 358,452 |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Share-based compensation                                                                 |  | 17    |  |                |  |                         |  | 50,179   |                                   |  |        |                  |  |          |                          |  | 50,179    |                     |  |         |  
|Issuance and repurchase of ordinary shares under share issuance and repurchase agreement |  | 10(c) |  | 47,000,000      |  | 32,265                   |  | (32,265  | )                                 |  |        |                  |  |          |                          |  |          |                     |  |         |  
|Dividends declared and paid                                                              |  | 10(d) |  |                |  |                         |  |         |                                   |  |        |                  |  | (86,809   | )                        |  | (86,809   | )                   |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Balance as of March 31, 2009                                                             |  |       |  | 321,066,661     |  | 257,738                  |  | 544,178  |                                   |  | (51,946 | )                |  | 1,094,613 |                          |  | 1,844,583 |                     |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  
|Balance as of March 31, 2009 (US$)                                                       |  |       |  |                 |  | 37,720                   |  | 79,641   |                                   |  | (7,602  | )                |  | 160,197   |                          |  | 269,956   |                     |  |         |  
|                                                                                         |  |       |  |                 |  |                          |  |          |                                   |  |         |                  |  |           |                          |  |           |                     |  |         |  

The accompanying notes are an integral part of these consolidated financial
statements.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows

(RMB and US$ expressed in thousands)



|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|------------------------------------------------------------------------------------------------------ |  | ----- | --- |  | -------------------- | - |  | --------- | - |  | ---------- | - |  | -------- | -
|                                                                                                       |  |       |     |  | Year ended March 31, |  
|                                                                                                       |  | Note  |     |  | 2007                 |   |  | 2008      |   |  | 2009       |   |  | 2009     |  
|                                                                                                       |  |       |     |  | RMB                  |   |  | RMB       |   |  | RMB        |   |  | US$      |  
|Cash flow from operating activities:                                                                   |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Net income                                                                                             |  |       |     |  | 289,718              |   |  | 325,222   |   |  | 362,352    |   |  | 53,030   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                      |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Depreciation and amortization of property, plant and equipment                                         |  |       |     |  | 8,484                |   |  | 16,067    |   |  | 20,150     |   |  | 2,949    |  
|Amortization of intangible assets                                                                      |  |       |     |  | 18,930               |   |  | 90,233    |   |  | 126,588    |   |  | 18,526   |  
|Acquired in-process research and development                                                           |  |       |     |  |                     |   |  | 672       |   |  | 244,872    |   |  | 35,837   |  
|Amortization of convertible notes issuance costs                                                       |  |       |     |  | 3,111                |   |  | 7,937     |   |  | 14,387     |   |  | 2,105    |  
|Accrued interest on FISH hold-back payment                                                             |  |       |     |  |                     |   |  | 5,087     |   |  | 4,240      |   |  | 621      |  
|Share-based compensation                                                                               |  |       |     |  | 1,260                |   |  | 16,660    |   |  | 50,179     |   |  | 7,343    |  
|Land use rights expense                                                                                |  |       |     |  | 192                  |   |  | 189       |   |  | 191        |   |  | 28       |  
|Loss on disposal of property, plant and equipment                                                      |  |       |     |  |                     |   |  | 179       |   |  | 188        |   |  | 27       |  
|Deferred income taxes                                                                                  |  |       |     |  | 992                  |   |  | 1,666     |   |  | 28,774     |   |  | 4,211    |  
|Gain on sale of HIFU Business, net                                                                     |  |       |     |  |                     |   |  |          |   |  | (243,329   | ) |  | (35,611  | )
|Provision for allowance for doubtful accounts                                                          |  |       |     |  |                     |   |  |          |   |  | 3,373      |   |  | 494      |  
|Changes in operating assets and liabilities net of effects of acquisitions and discontinued operation: |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Accounts receivable                                                                                    |  |       |     |  | (46,027              | ) |  | (80,326   | ) |  | (184,459   | ) |  | (26,996  | )
|Prepayments and other assets                                                                           |  |       |     |  | (10,715              | ) |  | 15,260    |   |  | (1,305     | ) |  | (190     | )
|Inventories                                                                                            |  |       |     |  | (4,447               | ) |  | 9,928     |   |  | 5,171      |   |  | 757      |  
|Accounts payable                                                                                       |  |       |     |  | 13,884               |   |  | (3,201    | ) |  | 18,959     |   |  | 2,775    |  
|Accrued expenses and other liabilities                                                                 |  |       |     |  | 68,752               |   |  | 26,729    |   |  | 36,337     |   |  | 5,318    |  
|Income taxes payable                                                                                   |  |       |     |  | 16,865               |   |  | 31,032    |   |  | 4,090      |   |  | 599      |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Net cash provided by operating activities                                                              |  |       |     |  | 360,999              |   |  | 463,334   |   |  | 490,758    |   |  | 71,823   |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Cash flow from investing activities:                                                                   |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Purchase of property, plant and equipment                                                              |  |       |     |  | (36,283              | ) |  | (29,323   | ) |  | (25,972    | ) |  | (3,801   | )
|Payments for FISH acquisition                                                                          |  |       |     |  | (848,172             | ) |  | (439,926  | ) |  | (68,329    | ) |  | (10,000  | )
|Payments for BBE acquisition                                                                           |  |       |     |  |                     |   |  | (195,637  | ) |  | (14,788    | ) |  | (2,164   | )
|Deposit and payments for SPR acquisition                                                               |  | 3     | (c) |  |                     |   |  | (166,665  | ) |  | (1,513,964 | ) |  | (221,570 | )
|Proceeds from sale of HIFU Business                                                                    |  |       |     |  |                     |   |  |          |   |  | 155,858    |   |  | 22,810   |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Net cash used in investing activities                                                                  |  |       |     |  | (884,455             | ) |  | (831,551  | ) |  | (1,467,195 | ) |  | (214,725 | )
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Cash flow from financing activities:                                                                   |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Dividends paid                                                                                         |  |       |     |  |                     |   |  | (83,306   | ) |  | (86,574    | ) |  | (12,670  | )
|Principal payments on bank loan                                                                        |  |       |     |  |                     |   |  | (8,000    | ) |  |           |   |  |         |  
|Payment of offering expenses                                                                           |  |       |     |  | (9,620               | ) |  |          |   |  |           |   |  |         |  
|Proceeds from exercise of stock options                                                                |  |       |     |  |                     |   |  | 5,157     |   |  |           |   |  |         |  
|Net proceeds from issuance of convertible notes                                                        |  |       |     |  | 1,117,349            |   |  |          |   |  | 1,837,871  |   |  | 268,973  |  
|Payment for repurchase of ordinary shares under prepaid forward contract                               |  | 10(b) |     |  | (236,175             | ) |  |          |   |  |           |   |  |         |  
|Proceeds from issuance of ordinary shares under issuance and repurchase agreement                      |  | 10(c) |     |  |                     |   |  |          |   |  | 32,265     |   |  | 4,722    |  
|Payment for repurchase of ordinary shares under issuance and repurchase agreement                      |  | 10(c) |     |  |                     |   |  |          |   |  | (32,265    | ) |  | (4,722   | )
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Net cash provided by (used in) financing activities                                                    |  |       |     |  | 871,554              |   |  | (86,149   | ) |  | 1,751,297  |   |  | 256,303  |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Effect of foreign currency exchange rate change on cash and cash equivalents                           |  |       |     |  | (18,249              | ) |  | (36,595   | ) |  | (1,129     | ) |  | (165     | )
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Net increase (decrease) in cash and cash equivalents                                                   |  |       |     |  | 329,849              |   |  | (490,961  | ) |  | 773,731    |   |  | 113,236  |  
|Cash and cash equivalents at beginning of year                                                         |  |       |     |  | 843,791              |   |  | 1,173,640 |   |  | 682,679    |   |  | 99,911   |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Cash and cash equivalents at end of year                                                               |  |       |     |  | 1,173,640            |   |  | 682,679   |   |  | 1,456,410  |   |  | 213,147  |  
|                                                                                                       |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Supplemental disclosures of cash flow information:                                                     |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Cash paid during the year for:                                                                         |  |       |     |  |                      |   |  |           |   |  |            |   |  |          |  
|Income taxes                                                                                           |  |       |     |  | 12,237               |   |  | 45,499    |   |  | 79,028     |   |  | 11,566   |  
|Interest expenses                                                                                      |  |       |     |  |                     |   |  | 39,104    |   |  | 74,024     |   |  | 10,833   |  

The accompanying notes are an integral part of these consolidated financial
statements.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements

For the years ended March 31, 2007, 2008 and 2009

1    Principal Activities and Organization

China Medical Technologies, Inc. (the
Company) was incorporated in the Cayman Islands on July 6, 2004 as part of a reorganization of entities under common control and in connection with its initial public offering. China Medical Technologies, Inc. and its subsidiaries
(collectively the Group) are principally engaged in the commercialization, manufacture and sale of medical devices and supplies to customers primarily in the Peoples Republic of China (the PRC).

On August 10, 2005, the Company was listed on the Nasdaq Global Select Market (then called the Nasdaq National Market) when the Company
issued 6,400,000 American Depositary Shares (ADSs), representing 64,000,000 ordinary shares, at an initial public offering price of US$15.00 per ADS. On August 29, 2005, an additional 960,000 ADS, representing 9,600,000 ordinary
shares, were sold by the Company at the initial public offering price of US$15.00 per ADS. In connection with this initial public offering, the Company received proceeds of RMB799,067,000, net of related offering expenses paid.

On March 27, 2006, the Company completed a secondary public offering of 5,750,000 ADSs, representing 57,500,000 ordinary shares held by
certain shareholders. The selling shareholders received the entire net proceeds from the sale of shares in this secondary offering.

On November 21, 2006, the Company completed an offering of US$150 million principal amount of 3.5% Convertible Senior Subordinated Notes due November 2011 to qualified institutional buyers.

On August 15, 2008, the Company completed an offering of US$276 million principal amount of 4.0% Convertible Senior Notes due August
2013 to qualified buyers.

2    Summary of Significant Accounting Policies

(a) Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).

(b) Reclassifications

Amounts in the consolidated financial statements for the years ended March 31, 2007 and 2008 were reclassified to conform to the presentation used in the year ended March 31, 2009. See
Note 9, Discontinued Operation, for a discussion relating to these reclassifications.

(c) Principles of
consolidation

The accompanying consolidated financial statements include the financial statements of
China Medical Technologies, Inc. and its subsidiaries. All significant inter-company balances and transactions have been eliminated upon consolidation.

(d) Cash and cash equivalents

Cash and cash
equivalents consist of cash on hand and highly liquid short-term deposits which are unrestricted as to withdrawal and use, and which have original maturities less than three months.



F-7



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



(e) Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is managements best estimate of the amount of probable credit losses in the
Groups existing accounts receivable. Management determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions. Accounts receivable balances are charged off against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was RMB nil for the year ended March 31, 2008 and RMB3,373,000 for the year ended
March 31, 2009.

(f) Inventories

Inventories are stated at the lower of cost or market. Cost is determined using first-in, first-out method. Cost of
work-in-progress and finished goods comprise direct materials, direct production costs and an allocation of production overheads based on normal operating capacity.

(g) Property, plant and equipment

Property, plant
and equipment are stated at cost. Depreciation is provided on the straight-line method (after taking into consideration any estimated residual value), over the following estimated useful lives:



|                                  |  |            
|--------------------------------- |  | -----------
|Buildings                         |  | 10-30 years
|Machinery and equipment           |  | 5-10 years 
|Furniture, fixtures and equipment |  | 3-5 years  
|Motor vehicles                    |  | 5 years    

Leasehold improvements are amortized using the straight-line method
over 2 to 5 years which represents the shorter of the remaining lease term or estimated useful life of the leasehold improvement.

Depreciation and amortization of property, plant and equipment attributable to manufacturing activities is capitalized as part of inventories, and recognized as cost of revenues when the inventory is
sold. Cost incurred in the construction of property, plant and equipment, including progress payments and deposits, are initially capitalized as construction-in-progress and transferred into their respective asset categories when the assets are
ready for their intended use, at which time depreciation commences.

When items are retired or otherwise
disposed of, income is charged or credited for the difference between net book value and the proceeds received thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized and
amortized over the remaining useful life.

(h) Goodwill and other intangible assets

Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired. Goodwill is not
amortized, but is instead tested for impairment at least annually as of year-end or when a triggering event occurs.

Intangible assets are amortized on a straight-line basis over their respective estimated useful lives, which range from 3 to 20 years. The Group has no intangible assets with indefinite useful lives.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



(i) Land use rights

Land use rights represent the exclusive right to occupy and use a piece of land in the PRC for a specified contractual term. Land use rights are carried at cost and charged to expense on a straight-line
basis over the contractual term of the rights, which range from 44 to 47 years. The current portion of land use rights of RMB192,000 and RMB192,000 (US$28,000) as of March 31, 2008 and 2009, respectively, has been included in prepayments and
other assets in the accompanying consolidated balance sheets.

(j) Impairment of long-lived assets

Long-lived assets, such as property, plant, and equipment and intangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Assets
to be disposed of are separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate
that goodwill might be impaired. The determination of goodwill impairment is made at the reporting unit level and is a two-step test. In the first step, management determines the fair value of the reporting unit (determined using a discounted cash
flow analysis) and compares it to its carrying value (including goodwill). Second, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting
units goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with Statement
of Financial Accounting Standards (SFAS) No. 141, Business Combinations(SFAS 141). The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

There was no impairment of goodwill or other long-lived assets as of March 31, 2008 and 2009.

(k) Revenue recognition

The Group derived revenues from immunodiagnostic system sales and molecular diagnostic system sales for the fiscal year ended March 31, 2009. Immunodiagnostic system sales include the sales of the
Enhanced Chemiluminescence Immunoassay (ECLIA) reagent kits. Molecular diagnostic system sales include the sales of the Fluorescent In Situ Hybridization (FISH) probes and, to a lesser extent, the sales of FISH imaging
analyzers. The Groups immunodiagnostic system sales also include sales of ECLIA analyzers for the fiscal year ended March 31, 2008 and 2007. No revenues were generated from the sales of ECLIA analyzers for the fiscal year ended March 31,
2009 due to the Company started to provide its ECLIA analyzers to qualified potential customers free of charge starting from April 2008 to promote its sales of ECLIA reagent kits. The Group sells its immunodiagnostic system primarily through
distributors and sells its molecular diagnostic system directly to hospitals.

The Group recognizes revenues
when persuasive evidence of an arrangement exists, delivery has occurred and services performed, the sales price is fixed or determinable, and collection is reasonably assured. Written sales agreements or customers purchase orders, which specify
price, product specifications, and quantity, are used as evidence of an arrangement.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The Group recognizes revenue for ECLIA reagent kits and FISH probes upon customer acceptance and the customer acceptance is
evidenced by signed acceptance documents.

The Groups FISH imaging analyzers and ECLIA analyzers sales
agreements include the provision of training and installation services. These services are ancillary to the customers purchase of medical equipment and are considered by the customers to be an integral part of the acquired equipment. In
addition, The Group recognizes revenue for the entire equipment sales arrangement upon customer acceptance, which occurs after delivery, installation and training. Customer acceptance is evidenced by signed acceptance documents.

All of the Groups products sold through distributors are non-exchangeable, non-refundable, non-returnable and without
any rights of price protection or stock rotation. Accordingly, the Group considers all the distributors as end-customers.

In the PRC, value added tax (VAT) of 6% or 17% on invoiced amount is collected on behalf of tax authorities. Revenue is recorded net of VAT. VAT collected from customers, net of VAT paid for
purchases, is recorded as a liability and included in accrued expenses and other liabilities in the consolidated balance sheets until paid.

Pursuant to the laws and regulations of the PRC, Beijing Yuande Bio-Medical Engineering Co., Ltd. (Beijing Yuande), a subsidiary of the Company, is entitled to a refund of VAT on sales of
self-developed software embedded in the medical equipment. The VAT refund represents the amount of VAT collected from customers and paid to tax authorities in excess of 3% of relevant sales. As the refund relates directly to sales, the Group
recognizes the VAT refund at the time the corresponding product is sold. VAT refunds included in revenue for the years ended March 31, 2007, 2008 and 2009 were RMB6,632,000, RMB4,443,000 and RMB13,000 (US$2,000), respectively.

(l) Government grants

Government grants, of RMB400,000, RMB100,000 and RMB nil for the years ended March 31, 2007, 2008 and 2009, respectively, which did not have specific terms of usage and are not refundable, were
recognized as other income when received.

(m) Convertible notes issuance costs

Cost incurred by the Company that were directly attributable to the issuance of convertible notes, were deferred and charged
to the consolidated statements of income using the straight line method over the term of the convertible notes, the results of which approximate the effective interest rate method.

(n) Income taxes

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates or change in tax status is recognized in income in the
period the change in tax rates or the tax law is enacted. A valuation allowance is provided to reduce the amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income tax assets will
not be realized.



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CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



On April 1, 2007, the Group adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertain tax positions. This interpretation
requires that an entity recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The adoption of FIN 48 on April 1,
2007 did not have any effect on the Groups consolidated financial statements. Prior to the adoption of FIN 48, the Group recognized the effect of income tax positions only if such positions were probable of being sustained.

Under APB Opinion No.23, Accounting for Income TaxesSpecial Areas, all undistributed earnings are
presumed to be transferred to the parent company and are subject to withholding taxes. The presumption may be overcome if the Group has sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of the
dividends will be postponed indefinitely. Accordingly, deferred income tax liabilities are only recognized for the undistributed earnings that the Group does not intend to reinvest indefinitely.

(o) Share-based compensation

On April 1, 2006, the Group adopted SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS 123(R)), which replaced SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123) and superseded APB No. 25. SFAS 123(R) requires that share-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of
the award. The Group adopted SFAS 123(R) using the modified prospective method, which requires the Group to recognize compensation cost for all shared-based payments granted, modified or settled on or after April 1, 2006, as well as for any
awards that were granted prior to the date of adoption for which the requisite service had not been provided as of April 1, 2006. Accordingly, the Group recorded share-based compensation expense for awards granted prior to but not yet vest as
of April 1, 2006 using the grant date fair value amounts determined for pro forma disclosure under SFAS 123. Since April 1, 2006, the Group recognizes share-based compensation based on grant date fair value of the award. The Group
recognizes compensation cost for an award with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance,
multiple awards.

(p) Research and development, and advertising costs

Research and development and advertising costs are expensed as incurred.

In-process research and development costs acquired in business combinations and asset acquisitions are expensed as research
and development expense upon acquisition and amounted to RMB nil, RMB672,000 and RMB244,872,000 (US$35,837,000) for the years ended March 31, 2007, 2008 and 2009, respectively.

Advertising costs, which are included in sales and marketing expense, amounted to RMB1,721,000, RMB1,145,000 and RMB1,625,000
(US$238,000) for the years ended March 31, 2007, 2008 and 2009, respectively.

(q) Cost of free ECLIA analyzers

To acquire more new customers for its ECLIA reagent kits, the Group started to provide free ECLIA
analyzers to its potential customers from April 2008. As the ECLIA analyzer can only be used with reagent kits manufactured by the Group and the successful rate of obtaining customers within a short period of time



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



after providing free analyzers is high, the costs of free analyzers are included in cost of revenues. The free analyzer costs were RMB13,234,000 for the year ended March 31, 2009 and there was no
such cost for the years ended March 31, 2007 and 2008.

(r) Retirement and other postretirement benefits

Pursuant to the relevant PRC regulations, the Companys PRC subsidiaries are required to make
contributions at approximately 20% on a standard salary base as determined and organized by the Beijing Social Security Bureau to a defined contribution retirement plan. The Chinese government is responsible for the pension liability to be paid to
these employees and the Groups obligations are limited to the amounts contributed. Contributions to the defined contribution plans are charged to the consolidated statements of income as the related employee service is provided. For the years
ended March 31, 2007, 2008 and 2009, contributions to the defined contribution plans amounted to RMB346,000, RMB2,177,000 and RMB3,888,000 (US$569,000), respectively.

(s) Foreign currency transactions and translation

The Companys reporting currency is the Renminbi (RMB). The functional currency of the Company is the U.S.
dollar, whereas the functional currency of the Companys subsidiaries located in the PRC is the RMB. Since the RMB is not fully convertible into foreign currencies, all foreign exchange transactions involving RMB must take place either through
the Peoples Bank of China (the PBOC) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC.

Transactions denominated in currencies other than the functional currency are converted into the functional currency at the
exchange rates prevailing at the date of transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are converted into the functional currency using the applicable exchange rates at each balance sheet
date. The resulting exchange differences are recorded as a component of other income, net in the consolidated statements of income.

Asset and liabilities of the Company and other non-PRC group entities with functional currencies other than the RMB, are translated into RMB using the applicable exchange rate at each balance sheet date.
Revenues, if any, and expenses are translated at average rates prevailing during the year. The gains and losses from such translations are recorded as a separate component of accumulated other comprehensive loss within shareholders equity.

For the United States dollar convenience translation amounts included in the accompanying financial
statements, the Renminbi equivalents were translated into United States dollar (US$) at the rate of US$1.00=RMB6.8329 on March 31, 2009, representing the noon buying rate in the City of New York for cable transfers of Renminbi, as
set forth in the H.10 weekly statistical release of the Federal Reserve Bank of New York. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollars at that rate or at any other certain
rate on March 31, 2009 or at any other date.

(t) Warranty costs

The Group provides a warranty that its products will meet certain functionality standards. The term of the product warranty
is generally twelve months. Based on the limited number of actual warranty claims and the historically low cost of such repairs, the Group has not recognized a liability for warranty claims. Warranty expenses were insignificant for the years ended
March 31, 2007, 2008 and 2009.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



(u) Income (loss) from continuing operations per share

Income (loss) from continuing operations per share is computed by dividing income (loss) from continuing operations by the
weighted average number of ordinary shares outstanding, excluding ordinary shares to be purchased under a forward share repurchase contract and ordinary shares issued and to be repurchased under a share issuance and repurchase agreement, during the
year. Diluted income (loss) from continuing operations per share is calculated by dividing income (loss) from continuing operations by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding, excluding the
ordinary shares repurchased pursuant to the forward share repurchase contract and ordinary shares issued and to be repurchased under a share issuance and repurchase agreement, during the year. Ordinary equivalent shares consist of ordinary shares
issuable upon the conversion of convertible notes (using if-converted method) and ordinary shares issuable upon the exercise of outstanding share options and restricted shares (using the treasury share method). Potential dilutive securities are not
included in the calculation of dilutive income (loss) from continuing operations per share if the impact is anti-dilutive.

(v) Use of estimates

The preparation of the consolidated financial statements in
accordance with U.S. GAAP requires management of the Group to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant items subject to such estimates and assumptions include the recoverability of the carrying amount and the estimated useful lives of
long-lived assets, allowance for doubtful accounts, realizable values for inventories, estimated warranty obligations, share-based compensation, accounting for convertible notes, accounting for income taxes and fair value of assets and liabilities
acquired in business combinations. Actual results could differ from those estimates.

(w) Segment reporting

The Group uses the management approach in determining reportable operating segments. The
management approach considers the internal organization and reporting used by the Groups chief operating decision maker for making operating decisions and assessing performance as the source for determining the Groups reportable
segments. The Groups chief operating decision maker is the chief executive officer of the Group. The Group started reporting financial results in segments along product lines since acquisition of the ECLIA technology in August 2004 and added
the FISH product line for the fiscal year ended March 31, 2008 as the sales and distribution of our FISH products began in June 2007 and removed the High Intensity Focused Ultrasound (HIFU) product line for the fiscal year ended
March 31, 2009 as the Group sold HIFU Business in December 2008. In December 2008, the Group completed the acquisition of the SPR business related assets. After the sale of the HIFU Business and the acquisition of SPR business related assets,
the Group has re-classified the reportable operating segments into (i) immunodiagnostic systems and (ii) molecular diagnostic systems for the fiscal year ended March 31, 2009. Immunodiagnostic systems currently include ECLIA analyzers
and reagent kits while molecular diagnostic systems include FISH imaging analyzers and probes, and will include SPR system and HPV-DNA chips. The change is applied retrospectively for comparability.

The Group generates substantially all revenues from customers in the PRC and the Groups tangible long-lived assets are
substantially located in the PRC. Consequentially, no geographic information is presented.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



(x) Contingencies

In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its businesses, that cover a wide range of matters, including among
others, product liability. In accordance with SFAS No. 5, Accounting for Contingencies, the Group records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can
be reasonably estimated.

(y) Recently issued accounting pronouncements

During the fiscal year ended March 31, 2009, the Group adopted SFAS No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with the U.S. GAAP and expands disclosures about fair value measurements. It also establishes a fair value hierarchy used in fair
value measurements and expands the required disclosures of assets and liabilities measured at fair value. In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement
No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157 to fiscal year ended March 31, 2010 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). The Group adopted SFAS 157 in the fiscal year ended March 31, 2009, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP
157-2. The partial adoption of SFAS 157 in the fiscal year ended March 31, 2009 did not have a material impact on the Groups consolidated financial position, cash flows and results of operations. The Group is still evaluating the impact
of the full adoption of SFAS 157 on its consolidated financial position, cash flows and results of operations

In December 2007, the FASB issued SFAS No. 141R (Revised), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for the recognition and measurement of acquired assets,
liabilities, goodwill, and non-controlling interests (formerly minority interests). SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective
for fiscal years beginning after December 15, 2008. SFAS 141R will be applied prospectively to business combinations with an acquisition date on or after April 1, 2009. The Group is currently evaluating the impact, if any, of the adoption
of the provisions of SFAS 141R on its financial position, results of operations and cash flows.

In April 2008,
FASB issued FSP No. FAS 142-3 Determination of the Useful Life of Intangible Assets. This FSP requires an entity to disclose information that enables users of financial statements to assess the extent to which the expected future cash
flows associated with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement; entitys accounting policy on the treatment of costs incurred to renew or extend the term of a recognized intangible
asset; in the period of acquisition or renewal, the weighted-average period of time prior to the next renewal or extension (both explicit and implicit), by major intangible asset class and for an entity that capitalizes renewal or extension costs,
the total amount of costs incurred in the period to renew or extend the term of a recognized intangible asset for each period which a statement of financial position is presented, by major intangible asset class. This FSP is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. These disclosure requirements should be applied prospectively to all intangible assets recognized as of, and subsequent to, the
effective date. The Group is currently evaluating the impact on its financial position, results of operations and cash flows, but does not expect the adoption of FSP No. FAS 142-3 to have a material impact on the financial statements.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that May be
Settled in Cash Upon Conversion (FSP APB 14-1). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be
separately accounted for in a manner that reflects an issuers nonconvertible debt borrowing rate. The resulting debt discount is amortized over the period that convertible debt is expected to be outstanding as additional non-cash interest
expense. FSP APB 14-1 became effective for the Group on April 1, 2009 and requires retrospective application. FSP APB 14-1 will change the accounting treatment for the Companys convertible notes (Note 8). The effect of applying FSP APB
14-1 on the Companys convertible notes is expected to reduce net income for the years ended March 31, 2007, 2008, and 2009 by approximately RMB10.3 million, RMB28.2 million, and RMB27.5 million, respectively.

In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force (EITF) Issue No. 07-05,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-05). EITF 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an
entitys own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF 07-05 is effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption for an existing instrument is not permitted. The Group does not expect the adoption of EITF 07-05 will have a material impact on its consolidated financial statements.

In April, 2009, the FASB ratified the consensus-for-exposure reached on EITF Issue No. 09-01, Accounting for
Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance (EITF 09-01) and approved the issuance of a draft abstract for a public comment period. EITF 09-01 concludes that, at the date of issuance, a
share-lending arrangement entered into on an entitys own shares in contemplation of a convertible debt offering or other financing is required to be measured at fair value and recognized as a debt issuance cost in the financial statements of
the entity. The debt issuance cost shall be amortized using the effective interest method over the life of the financing arrangement as interest cost. This issue is effective for fiscal years beginning on or after December 15, 2009, and interim
periods within those fiscal years. Early adoption is not permitted. This issue requires retrospective application for all arrangements outstanding as of the beginning of the fiscal year in which this issue is initially applied. The Group is
currently evaluating the impact on its financial position, results of operations and cash flows.

In May 2009,
the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required disclosure of the date through
which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The Group is currently evaluating the impact on its financial position, results of operations and cash flows.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification (the
Codification) and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 confirmed that the Codification will become the single official source of U.S. GAAP, (other than guidance issued by the
SEC), superseding existing FASB, American Institute of Certified Public Accountants, EITF, and related literature. After that date, only one level of authoritative U.S. GAAP will exist. All other literature will be considered non-authoritative. The
Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing of financial standards, becomes effective
for interim and annual periods ending on or after September 15, 2009. The Group will apply the Codification beginning in



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



the quarter ended September 30, 2009. The adoption of SFAS 168 will have an impact on the Groups financial statements as all future references to authoritative accounting literature
will be referenced in accordance with the Codification.

3    Acquisitions

(a) FISH Acquisition

On March 1, 2007, the Group completed the acquisition of the FISH business of Supreme Well Investments Limited and its subsidiaries (the FISH acquisition). The Group has accounted for the
FISH acquisition using the purchase method. The sum of the fair values of the assets acquired less liabilities assumed exceeded the acquisition cost, excluding contingent consideration, by RMB571,517,000, resulting in negative goodwill. In
accordance with SFAS 141, since the contingent consideration could result in the recognition of additional purchase price in a future period, the Group recognized, as if it were a liability, an amount equal to the lesser of the maximum amount of the
contingent consideration or the total amount of the negative goodwill. Accordingly, the maximum amount of the contingent earnout payments of RMB308,928,000 (US$40,000,000) has been recognized as if it were a liability at the date of acquisition. The
remaining negative goodwill of RMB262,589,000 was allocated to reduce the amounts assigned to certain long-lived assets.

The results of FISH operation have been included in the Groups consolidated statements of income from March 1, 2007. The total purchase consideration, including the contingent earnout payments,
is as follows:



|                                                                    |  |          
|------------------------------------------------------------------- |  | ---------
|                                                                    |  | RMB000  
|                                                                    | 
|Cash consideration (note (i))                                       |  | 902,204  
|Transaction costs                                                   |  | 23,200   
|Holdback payments (note (i))                                        |  | 144,438  
|                                                                    |  |          
|Total purchase consideration                                        |  | 1,069,842
|Contingent consideration (note (ii))                                |  | 308,928  
|                                                                    |  |          
|Total purchase consideration, including contingent earnout payments |  | 1,378,770
|                                                                    |  |          

| | 
| | 

Notes:

| | (i) | Cash consideration includes US$10,000,000 which was paid by the Group in June 2007. Further, pursuant to the acquisition agreement US$20,000,000 was held back by the
Group to settle any claims that arise if the sellers acted fraudulently or made misrepresentation to the Group. US$10,000,000 was due by and paid in March 2008 and the remaining US$10,000,000 was paid in March, 2009. The US$10,000,000 holdback
payment due by March 1, 2009 was recorded at its present value as of the acquisition date of March 1, 2007 or US$8,702,000 using a discount rate of 7.2%, representing the borrowing rate for debt with similar terms. All amounts related to
the FISH acquisition has been paid as of March 31, 2009.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | Pursuant to acquisition agreement, the sellers are entitled to additional consideration of US$20,000,000 if the Group receives bona fide, irrevocable, binding purchase
orders of an amount equal to or in excess of US$20,000,000 during the 12-month period ending March 1, 2008. In addition, the sellers are entitled to an additional consideration of US$20,000,000, if the Group recognizes revenue of US$20,000,000
as reported under U.S. GAAP during the 12-month period ending March 1, 2008. During the 12-month period ended March 1, 2008, the purchase order and revenue targets were achieved and the Group paid the contingent payments in cash in
February and March 2008.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The Group has accounted for the FISH acquisition using the purchase method. The following table summarizes the allocation of
the purchase consideration to the fair value of the assets acquired and liabilities assumed on March 1, 2007:



|                                                    |  |                    |  |          
|--------------------------------------------------- |  | ------------------ |  | ---------
|                                                    |  | Amortizationperiod |  | RMB000  
|                                                    |  |                   
|Net tangible assets acquired                        |  |                    |  | 19,222   
|Identifiable intangible assets:                     |  |                    |  |          
|Unpatented technologyFISH probes                  |  | 20                 |  | 1,323,960
|Unpatented technologyFISH imaging analysis system |  | 5                  |  | 18,767   
|Non-compete agreement                              |  | 5                  |  | 16,821   
|                                                    |  |                    |  |          
|Purchase price allocated                            |  |                    |  | 1,378,770
|                                                    |  |                    |  |          

(b) BBE Acquisition

On January 8, 2008, the Group acquired 100% interest in Beijing Bio-Ekon Biotechnology Co., Ltd. (BBE) from
Finnea International Limited (the BBE acquisition) for cash consideration of RMB212,230,000, including transaction costs of RMB1,709,000.

BBE is a medical device company engaged in the commercialization, manufacture and sale of medical devices using ECLIA technology. The acquisition is expected to strengthen the Groups position in
advanced in-vitro diagnostics market in China. The Group paid a premium (i.e. goodwill) over the fair value of the net tangible and identified intangible assets mainly due to expected cost savings and synergies resulting from selling similar
products to similar customers.

The Group has accounted for BBE acquisition using the purchase method. The
results of BBE have been included in the Groups consolidated statements of income from January 8, 2008. The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired and liabilities
assumed on January 8, 2008:



|                                                                       |  |                    |  |         |   |  |         |  
|---------------------------------------------------------------------- |  | ------------------ |  | ------- | - |  | ------- | -
|                                                                       |  | Amortizationperiod |  | RMB000 |   |  | US$000 |  
|                                                                       |  |                    | 
|Cash                                                                   |  |                    |  | 1,650   |   |  | 235     |  
|Net current liabilities                                                |  |                    |  | (1,521  | ) |  | (216    | )
|Property and equipment                                                 |  |                    |  | 15,630  |   |  | 2,229   |  
|Identifiable intangible assets:                                        |  |                    |  |         |   |  |         |  
|Unpatented technologyECLIA core technology                           |  | 20                 |  | 174,347 |   |  | 24,864  |  
|Unpatented technologyECLIA reagent technology                        |  | 15                 |  | 7,828   |   |  | 1,116   |  
|Customer relationships                                                |  | 15                 |  | 2,019   |   |  | 288     |  
|Non-compete agreement                                                 |  | 5                  |  | 2,951   |   |  | 421     |  
|In-process research and development charged to the statement of income |  |                    |  | 672     |   |  | 96      |  
|Goodwill                                                               |  |                    |  | 8,654   |   |  | 1,234   |  
|                                                                       |  |                    |  |         |   |  |         |  
|Purchase price allocated                                               |  |                    |  | 212,230 |   |  | 30,267  |  
|                                                                       |  |                    |  |         |   |  |         |  



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The acquired identifiable intangible assets, all of which are being amortized, have a weighted
average life of approximately 20 years. RMB8,654,000 of goodwill, which has been allocated to the Groups immunodiagnostic system segment, is not deductible for tax purpose.

The following unaudited pro forma financial information presents the results of the operations of the Group as if the BBE
acquisition had occurred on April 1, 2006. Amortization expense of acquired identifiable intangible assets in the amount of RMB9,964,000 was included in the unaudited pro forma financial information for the years ended March 31, 2007 and
2008, respectively. The unaudited pro forma financial information is not necessarily indicative of what the Groups consolidated results of operations actually would have been had it completed the BBE acquisition on April 1, 2006. In
addition, the unaudited pro forma financial information does not attempt to project the future results of operation of the combined entity.



|                                            |  |                                |  |            
|------------------------------------------- |  | ------------------------------ |  | -----------
|                                            |  | Year ended March 31,          
|                                            |  | 2007                           |  | 2008       
|                                            |  | RMB000, except per share data
|                                            |  | (unaudited)                    |  | (unaudited)
|                                            |  |                               
|Revenues                                    |  | 248,388                        |  | 567,369    
|Income from continuing operations           |  | 91,462                         |  | 93,131     
|Net income                                  |  | 277,505                        |  | 305,787    
|Income per share from continuing operations |  |                                |  |            
|Basic                                       |  | 0.34                           |  | 0.36       
|Diluted                                     |  | 0.34                           |  | 0.35       

(c) HPV-DNA Chip and SPR System Asset Acquisition

On December 4, 2008, the Group acquired HPV-DNA Biosensor Chip (HPV-DNA Chip) and SPR-based Analysis System
(SPR System) from Molecular Diagnostic Technologies Limited for cash consideration of RMB2,380,064,000 (US$346,071,000), including transaction costs of RMB7,370,000 (US$1,071,000). As of March 31, 2009, the unpaid consideration was
RMB707,205,000 (US$103,500,000), which will be paid by two equal installments in July and December 2009.

As
the acquired net assets does not constitute a business as defined by EITF Issue No. 98-3, Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business, the Group accounted for this
acquisition as an asset acquisition in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, and allocated the entire purchase price to the individual assets acquired and liabilities assumed based on their
relative fair values, with no goodwill recorded.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The following table summarizes the allocation of the purchase consideration to the fair value of the assets acquired on
December 4, 2008:



|                                                                       |  |                    |  |           |  |        
|---------------------------------------------------------------------- |  | ------------------ |  | --------- |  | -------
|                                                                       |  | Amortizationperiod |  | RMB000   |  | US$000
|Equipment                                                              |  |                    |  | 12,387    |  | 1,800  
|Inventories                                                            |  |                    |  | 6,194     |  | 900    
|Identifiable intangible assets:                                        |  |                    |  |           |  |        
|Unpatented technologyHPV                                             |  | 20                 |  | 2,088,396 |  | 303,471
|Unpatented technologyLife Sciences                                   |  | 5                  |  | 24,774    |  | 3,600  
|Non-compete agreement and assembled workforce                         |  | 3-5                |  | 3,441     |  | 500    
|                                                                       |  |                    | 
|In-process research and development charged to the statement of income |  |                    |  | 244,872   |  | 35,800 
|                                                                       |  |                    |  |           |  |        
|Purchase price allocated                                               |  |                    |  | 2,380,064 |  | 346,071
|                                                                       |  |                    |  |           |  |        

The acquired identifiable intangible assets, all of which are being
amortized, have a weighted average life of approximately 20 years.

Acquired in-process research and development

As part of the purchase price allocation, RMB244,872,000 (US$35,800,000) of the purchase price has been
allocated to acquired in-process research and development projects. The amount allocated to acquired in-process research and development represents the estimated fair value based on risk-adjusted cash flows related to in-process projects that have
not yet reached technological feasibility and have no alternative future uses as of the date of the acquisition. The fair value attributable to these in-process projects was expensed at the time of the acquisition. If the projects are not successful
or completed in a timely manner, the Group may not realize the financial benefits expected for these projects.

The Group estimates that the amount it will incur in additional costs related to the efforts necessary to develop the acquired, incomplete technology into commercially viable products can be material.

4    Inventories

Inventories by major class consist of the following:



|                  |  |           |  |         |  |        
|----------------- |  | --------- |  | ------- |  | -------
|                  |  | March 31,
|                  |  | 2008      |  | 2009    |  | 2009   
|                  |  | RMB000   |  | RMB000 |  | US$000
|Raw materials     |  | 12,623    |  | 10,293  |  | 1,506  
|Work-in-progress  |  | 8,629     |  | 3,969   |  | 581    
|Finished goods    |  | 6,582     |  | 2,670   |  | 391    
|                  |  |           |  |         |  |        
|Total inventories |  | 27,834    |  | 16,932  |  | 2,478  
|                  |  |           |  |         |  |        



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CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



5    Property, Plant and Equipment, net

Property, plant and equipment consist of the following:



|                                          |  |           |   |  |         |   |  |         |  
|----------------------------------------- |  | --------- | - |  | ------- | - |  | ------- | -
|                                          |  | March 31, |  
|                                          |  | 2008      |   |  | 2009    |   |  | 2009    |  
|                                          |  | RMB000   |   |  | RMB000 |   |  | US$000 |  
|Buildings                                 |  | 134,394   |   |  | 134,394 |   |  | 19,669  |  
|Leasehold improvements                    |  | 5,722     |   |  | 14,288  |   |  | 2,091   |  
|Machinery and equipment                   |  | 47,495    |   |  | 49,794  |   |  | 7,288   |  
|Furniture, fixtures and equipment         |  | 9,591     |   |  | 10,232  |   |  | 1,497   |  
|Motor vehicles                            |  | 7,222     |   |  | 6,151   |   |  | 900     |  
|Construction-in-progress                  |  | 25        |   |  |        |   |  |        |  
|                                          |  |           |   |  |         |   |  |         |  
|Total property, plant and equipment       |  | 204,449   |   |  | 214,859 |   |  | 31,445  |  
|Accumulated depreciation and amortization |  | (39,950   | ) |  | (45,437 | ) |  | (6,650  | )
|                                          |  |           |   |  |         |   |  |         |  
|Total property, plant and equipment, net  |  | 164,499   |   |  | 169,422 |   |  | 24,795  |  
|                                          |  |           |   |  |         |   |  |         |  

Depreciation and amortization of property, plant and equipment was allocated to the
following expense items:



|                                            |  |                      |  |         |  |         |  |        
|------------------------------------------- |  | -------------------- |  | ------- |  | ------- |  | -------
|                                            |  | Year ended March 31,
|                                            |  | 2007                 |  | 2008    |  | 2009    |  | 2009   
|                                            |  | RMB000              |  | RMB000 |  | RMB000 |  | US$000
|Cost of revenues                            |  | 1,816                |  | 6,141   |  | 9,601   |  | 1,406  
|Research and development                    |  | 192                  |  | 673     |  | 1,204   |  | 176    
|Sales and marketing                         |  |                     |  | 171     |  | 139     |  | 20     
|General and administrative                  |  | 1,816                |  | 3,888   |  | 5,253   |  | 769    
|Income from discontinued operation          |  | 4,660                |  | 5,194   |  | 3,953   |  | 578    
|                                            |  |                      |  |         |  |         |  |        
|Total depreciation and amortization expense |  | 8,484                |  | 16,067  |  | 20,150  |  | 2,949  
|                                            |  |                      |  |         |  |         |  |        

6    Intangible Assets, net

The following table summarizes the Groups intangible assets as of March 31, 2008 and 2009:



|                        |  |                     |  |                         |   |  |           |  |                                  
|----------------------- |  | ------------------- |  | ----------------------- | - |  | --------- |  | ---------------------------------
|                        |  | March 31, 2008     
|                        |  | Grosscarryingamount |  | Accumulatedamortization |   |  | Net       |  | Weightedaverageamortizationperiod
|                        |  | RMB000             |  | RMB000                 |   |  | RMB000   |  | Years                            
|Unpatented technology   |  | 1,590,943           |  | (105,099                | ) |  | 1,485,844 |  | 20                               
|Non-compete agreements  |  | 66,358              |  | (20,705                 | ) |  | 45,653    |  | 9                                
|Patented technology     |  | 10,530              |  | (2,219                  | ) |  | 8,311     |  | 17                               
|Customer relationships  |  | 2,019               |  | (34                     | ) |  | 1,985     |  | 15                               
|                        |  |                     |  |                         |   |  |           |  |                                  
|Total intangible assets |  | 1,669,850           |  | (128,057                | ) |  | 1,541,793 |  |                                  
|                        |  |                     |  |                         |   |  |           |  |                                  



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



|                        |  |                     |  |                         |   |  |           |  |                                  
|----------------------- |  | ------------------- |  | ----------------------- | - |  | --------- |  | ---------------------------------
|                        |  | March 31, 2009     
|                        |  | Grosscarryingamount |  | Accumulatedamortization |   |  | Net       |  | Weightedaverageamortizationperiod
|                        |  | RMB000             |  | RMB000                 |   |  | RMB000   |  | Years                            
|Unpatented technology   |  | 3,657,989           |  | (220,153                | ) |  | 3,437,836 |  | 20                               
|Non-compete agreements  |  | 68,018              |  | (29,137                 | ) |  | 38,881    |  | 9                                
|Patented technology     |  | 10,530              |  | (2,839                  | ) |  | 7,691     |  | 17                               
|Customer relationships  |  | 2,019               |  | (168                    | ) |  | 1,851     |  | 15                               
|Assembled workforce     |  | 1,367               |  | (152                    | ) |  | 1,215     |  | 3                                
|                        |  |                     |  |                         |   |  |           |  |                                  
|Total intangible assets |  | 3,739,923           |  | (252,449                | ) |  | 3,487,474 |  |                                  
|                        |  |                     |  |                         |   |  |           |  |                                  

Amortization of intangible assets was allocated to the following expense items:



|                           |  |                      |  |         |  |         |  |        
|-------------------------- |  | -------------------- |  | ------- |  | ------- |  | -------
|                           |  | Year ended March 31,
|                           |  | 2007                 |  | 2008    |  | 2009    |  | 2009   
|                           |  | RMB000              |  | RMB000 |  | RMB000 |  | US$000
|Cost of revenues           |  | 14,910               |  | 90,233  |  | 90,077  |  | 13,183 
|Operating expenses         |  | 4,020                |  |        |  | 36,511  |  | 5,343  
|                           |  |                      |  |         |  |         |  |        
|Total amortization expense |  | 18,930               |  | 90,233  |  | 126,588 |  | 18,526 
|                           |  |                      |  |         |  |         |  |        

The amortization of acquired intangible assets in connection with FISH and SPR
acquisition is classified as operating expenses until significant revenues are generated from these intangible assets.

Estimated annual amortization expense for each of the next five years is RMB195,309,000 each year.

7    Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist
of the following:



|                                             |  |           |  |         |  |        
|-------------------------------------------- |  | --------- |  | ------- |  | -------
|                                             |  | March 31,
|                                             |  | 2008      |  | 2009    |  | 2009   
|                                             |  | RMB000   |  | RMB000 |  | US$000
|VAT payables                                 |  | 81,580    |  | 90,416  |  | 13,232 
|Accrued salaries and welfare                 |  | 31,071    |  | 33,311  |  | 4,875  
|Convertible notes interest payable           |  | 14,418    |  | 23,480  |  | 3,436  
|Payable related to BBE acquisition           |  | 14,944    |  |        |  |       
|Accrued professional fees                    |  | 8,740     |  | 9,810   |  | 1,436  
|Receipts in advance                          |  | 9,351     |  | 6,339   |  | 928    
|Other payables                               |  | 12,683    |  | 22,344  |  | 3,271  
|                                             |  |           |  |         |  |        
|Total accrued expenses and other liabilities |  | 172,787   |  | 185,700 |  | 27,178 
|                                             |  |           |  |         |  |        

8    Convertible Notes

3.5% Convertible Senior Subordinated Notes due November 2011

On November 21, 2006, the Company received an aggregate US$150 million from the issuance of 3.5% convertible senior subordinated notes
due on November 15, 2011 (the 2011 Convertible Notes) to Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The net proceeds from the offering, after



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



deducting the offering expenses, were approximately US$144.7 million. The 2011 Convertible Notes bear interest at a rate of 3.5% per year, payable semiannually in arrears on May 15 and
November 15 of each year beginning on May 15, 2007.

The 2011 Convertible Notes are convertible, at the discretion
of the holders of the 2011 Convertible Notes (the 2011 Convertible Notes Holders) at any time prior to November 15, 2011, the maturity date, at an initial conversion rate of 31.0318 ADSs per US$1,000 principal amount of 2011
Convertible Notes (equivalent to a conversion price of approximately US$32.23 per ADS), subject to dilution protection adjustment for the issuance of shares and dividends, as defined in the agreement.

Upon conversion of the 2011 Convertible Notes, in lieu of delivery of ADS, the Company may elect to deliver cash or a combination of cash
and ADSs based on the conversion price then in effect, the average trading price of the ADSs (over a 20 day period as defined in the agreement) and the portion the Company elects to settle with cash.

4.0% Convertible Senior Notes due August 2013

On August 15, 2008, the Company received an aggregate US$276 million from the issuance of 4.0% convertible senior subordinated notes due on August 15, 2013 (the 2013 Convertible
Notes) to Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated. The net proceeds from the offering, after deducting the offering expenses, were approximately US$267.7 million. The 2013 Convertible Notes bear
interest at a rate of 4.0% per year, payable semiannually in arrears on February 15 and August 15 of each year beginning on February 15, 2009.

The 2013 Convertible Notes are convertible, at the discretion of the holders of the 2013 Convertible Notes (the 2013 Convertible Notes Holders) at any time prior August 15, 2013, the
maturity date, at an initial conversion rate of 17.0068 ADSs per US$1,000 principal amount of 2013 Convertible Notes (equivalent to a conversion price of approximately US$58.80 per ADS), subject to dilution protection adjustment for the issuance of
shares and dividends, as defined in the agreement.

Upon conversion of the 2013 Convertible Notes, the Company can only
deliver ADS.

If a fundamental change, as defined in the agreements, occurs, both the 2011 Convertible Notes Holders and the
2013 Convertible Notes Holders may be entitled to an increase in the conversion rate and may require the Company to repurchase all or a portion of their convertible notes for cash at a repurchase price equal to 100% of the principal amount plus
accrued and unpaid interest, if any.

The 2013 Convertible Notes are senior unsecured obligation and will rank equally in
right of payment with the Companys future senior indebtedness. The 2013 Convertible Notes are senior in right of payment to the Companys existing, and future subordinated indebtedness, including the 2011 Convertible Notes. In addition,
both the 2011 Convertible Notes and the 2013 Convertible Notes are effectively junior to any secured indebtedness to the extent of the value of the related collateral, and structurally subordinated to the existing and future indebtedness and other
liabilities, including trade payables, of the subsidiaries.

The Company has determined that the conversion feature embedded
in the 2011 Convertible Notes and 2013 Convertible Notes are not required to be bifurcated and accounted for as a derivative pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities. Since the
embedded conversion feature of the 2011 Convertible Notes and the 2013 Convertible Notes are indexed to the Companys own stock and would be classified in shareholders equity if they were free-standing instruments. Further, since the
effective conversion



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



price of the 2011 Convertible Notes and the 2013 Convertible Notes exceeded the market price of the Companys ordinary shares on the date of issuance of respective convertible notes; no
portion of the proceeds from the issuance was accounted for as a beneficial conversion feature.

As a result of the
declarations of dividends by the Company, the conversion rate of the 2011 Convertible Notes was adjusted from 31.0318 ADSs to 31.3953 ADSs and from 31.3953 ADSs to 31.7378 ADSs per US$1,000 principal amount of 2011 Convertible Notes (equivalent to
conversion price change from US$32.225 to US$31.852 and from US$31.852 to US$31.508) in July 2007 and July 2008 respectively. As the adjusted conversion price of US$31.852 and US$31.508 per ADS exceeded the market price of the Companys
ordinary shares on the date of issuance of 2011 Convertible Notes, there was no beneficial conversion feature recognized.

The
Company recognized the amortization of convertible notes issuance costs of RMB3,111,000, RMB7,937,000, and RMB14,387,000 (US$2,105,000) for the years ended March 31, 2007, 2008 and 2009.

9    Discontinued Operation

On December 17, 2008, the Company decided to sell its High Intensity Focused Ultrasound tumor therapy system business (the HIFU Business) to Chengxuan International Ltd.
(Chengxuan), a major shareholder of the Company and beneficially owned by Mr. Xiaodong Wu, the Companys founder, the chairman of board of directors and chief executive officer. On December 30, 2008, the Group completed
the sale for cash consideration of RMB365,378,000 (US$53,500,000). The HIFU Business was previously presented in HIFU System segment.

The consolidated balance sheets at March 31, 2008 and 2009 do not reflect the assets held for sale due to the fact that the decision to dispose of the assets occurred after March 31, 2008, and the sale was completed prior to
March 31, 2009. As there was no continuing cash flow from the disposed HIFU Business expected to be generated by the on going entity and the Group will not have significant continuing involvement in the operations of the disposed HIFU Business
after December 30, 2008, the revenues and expenses related to the operations of HIFU Business have been segregated from continuing operations and reported as discontinued operation for all periods in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Following are revenues, income from discontinued operation and gain on sale of discontinued operation:



|                                                                   |  |                      |   |  |         |   |  |         |  
|------------------------------------------------------------------ |  | -------------------- | - |  | ------- | - |  | ------- | -
|                                                                   |  | Year ended March 31, |  
|                                                                   |  | 2007                 |   |  | 2008    |   |  | 2009    |  
|                                                                   |  | RMB000              |   |  | RMB000 |   |  | RMB000 |  
|Revenues                                                           |  | 331,420              |   |  | 368,317 |   |  | 246,588 |  
|                                                                   |  |                      |   |  |         |   |  |         |  
|Income before income taxes                                         |  | 204,088              |   |  | 238,854 |   |  | 159,930 |  
|Income tax expense                                                 |  | (18,045              | ) |  | (26,198 | ) |  | (38,850 | )
|                                                                   |  |                      |   |  |         |   |  |         |  
|Income from discontinued operation, net of tax                     |  | 186,043              |   |  | 212,656 |   |  | 121,080 |  
|                                                                   |  |                      |   |  |         |   |  |         |  
|Gain on sale of discontinued operation before income taxes         |  |                     |   |  |        |   |  | 263,947 |  
|Income tax expense                                                 |  |                     |   |  |        |   |  | (20,618 | )
|                                                                   |  |                      |   |  |         |   |  |         |  
|Gain on sale of discontinued operation, net of tax                 |  |                     |   |  |        |   |  | 243,329 |  
|                                                                   |  |                      |   |  |         |   |  |         |  
|Income from and gain on sale of discontinued operation, net of tax |  | 186,043              |   |  | 212,656 |   |  | 364,409 |  
|                                                                   |  |                      |   |  |         |   |  |         |  



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



10    Shareholders Equity

(a) Statutory reserves

In accordance with the
relevant laws and regulations of the PRC, the Companys PRC subsidiaries are required to transfer 10% of their respective after tax profit, as determined in accordance with PRC accounting standards and regulations to a general reserve fund
until the balance of the fund reaches 50% of the registered capital of the respective subsidiary. The transfer to this general reserve fund must be made before distribution of dividends can be made. As of March 31, 2008 and 2009, the PRC
subsidiaries had appropriated RMB80,750,000 and RMB120,849,000 (US$17,686,000), respectively to the general reserve funds, which are restricted from being distributed to the Company. General reserve funds are restricted for set off against losses,
expansion of production and operation or increase in registered capital of the respective company. These reserves are therefore not available for distribution except in liquidation.

Further, the PRC subsidiaries may, at the discretion of the enterprise, make appropriations to a staff welfare and bonus
reserve in accordance with the relevant laws and regulations in the PRC. The appropriation to staff welfare and bonus reserve is recognized as an expense as it is a current liability to the employees. For the years ended March 31, 2007, 2008
and 2009, the PRC subsidiaries made appropriations to the staff welfare and bonus reserve of RMB2,956,000, RMB4,575,000 and RMB nil, respectively.

(b) Forward share repurchase contract

In connection
with the issuance of the 2011 Convertible Notes, the Company entered into a prepaid forward repurchase contract (the Forward Repurchase Contract) on November 15, 2006 with an affiliate of Merrill Lynch & Co. (the
Dealer). Pursuant to the Forward Repurchase Contract, the Company paid, an aggregate of US$30 million (1,163,692 ADSs at US$25.78 per ADS) for the Forward Repurchase Contract. The Dealer may deliver the shares pursuant to the Forward
Repurchase Contract at its discretion, in full or in part, over a period of five years from the date of the contract. As of March 31, 2009, the Dealer had not delivered any shares. Since the Forward Repurchase Contract requires physical
settlement of a fixed number of ADSs at a fixed price per ADS, the shares to be repurchased pursuant to the Forward Repurchase Contract are treated as retired for purposes of the Companys basic and diluted earnings per share calculations. The
Company has accounted for the prepaid forward repurchase of the shares as a reduction of shareholders equity in the consolidated financial statements. As a result of the Forward Repurchase Contract, the ADSs to be repurchased do not have any
voting or dividend rights effectively.

(c) Share issuance and repurchase agreement

In connection with the issuance of the 2013 Convertible Notes, the Company entered into a share issuance and repurchase
agreement (the Share Issuance and Repurchase Agreement) on August 15, 2008 with affiliates of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated (the Dealers). Pursuant to the Share
Issuance and Repurchase Agreement, the Company issued 4,700,000 ADSs to the Dealers at a consideration of US$1.00 per ADS. The Dealers will be obligated to deliver to the Company an equal number of ADSs. On the same day the Company issued the ADSs
to the Dealers, the Company prepaid to the Dealers a US$1.00 per ADS repurchase price for the 4,700,000 ADSs to be repurchased from the Dealers by the Company in August 2013. Since the Share Issuance and Repurchase Agreement requires physical
settlement of a fixed number of ADSs at a fixed price per ADS, the shares to be repurchased pursuant to the Share Issuance and Repurchase Agreement are treated as retired for purposes of the Companys basic and diluted earnings per share
calculations. The Company has accounted for the issuance and repurchase of the shares as one connected transaction in shareholders equity in the consolidated financial statements. As a result of the Share Issuance and Repurchase Agreement, the
issued ADSs do not have any voting or dividend rights effectively.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



(d) Declaration of dividend

On June 18, 2007, the Company declared a cash dividend on its ordinary shares of US$0.04 per share, equivalent to US$0.40 per ADS to the shareholders of record as of July 18, 2007. The dividend
was paid in August 2007.

On June 18, 2008, the Company declared a cash dividend on its ordinary shares of
US$0.05 per share, equivalent to US$0.50 per ADS to the shareholders of record as of July 25, 2008. The dividend was paid in August 2008.

11    Net Income (Loss) Per Share

The following table sets forth the computation of basic
and diluted net income (loss) per share for the years indicated:



|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|---------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | - |  | ------- | - |  | ------- | -
|                                                                                                                             |  | Year ended March 31,                  |  
|                                                                                                                             |  | 2007                                  |   |  | 2008    |   |  | 2009    |  
|                                                                                                                             |  | RMB                                   |   |  | RMB     |   |  | RMB     |  
|                                                                                                                             |  | (in thousands, except per share data) |  
|Income (loss) from continuing operations                                                                                     |  | 103,675                               |   |  | 112,566 |   |  | (2,057  | )
|Income from and gain on sale of discontinued operation                                                                       |  | 186,043                               |   |  | 212,656 |   |  | 364,409 |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Net income                                                                                                                   |  | 289,718                               |   |  | 325,222 |   |  | 362,352 |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Shares issued and outstanding at the beginning of the year                                                                   |  | 273,600                               |   |  | 273,600 |   |  | 274,067 |  
|Add: weighted average shares issued upon exercise of options                                                                 |  |                                      |   |  | 256     |   |  | 346     |  
|weighted average shares issued under share issuance and repurchase agreement                                                 |  |                                      |   |  |        |   |  | 29,616  |  
|Less: weighted average shares to be purchased under the prepaid forward contract and share issuance and repurchase
agreement |  | (4,368                                | ) |  | (11,637 | ) |  | (41,253 | )
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Weighted average ordinary shares outstandingBasic                                                                           |  | 269,232                               |   |  | 262,219 |   |  | 262,776 |  
|Effect of dilutive ordinary equivalent shares                                                                                |  | 276                                   |   |  | 1,246   |   |  |        |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Weighted average ordinary shares outstandingDiluted                                                                         |  | 269,508                               |   |  | 263,465 |   |  | 262,776 |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Basic net income (loss) per share:                                                                                           |  |                                       |   |  |         |   |  |         |  
|Income (loss) from continuing operations                                                                                     |  | 0.39                                  |   |  | 0.43    |   |  | (0.01   | )
|Income from and gain on sale of discontinued operation, net                                                                  |  | 0.69                                  |   |  | 0.81    |   |  | 1.39    |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Net income                                                                                                                   |  | 1.08                                  |   |  | 1.24    |   |  | 1.38    |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Diluted net income (loss) per share:                                                                                         |  |                                       |   |  |         |   |  |         |  
|Income (loss) from continuing operations                                                                                     |  | 0.38                                  |   |  | 0.43    |   |  | (0.01   | )
|Income from and gain on sale of discontinued operation, net                                                                  |  | 0.69                                  |   |  | 0.81    |   |  | 1.39    |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  
|Net income                                                                                                                   |  | 1.07                                  |   |  | 1.24    |   |  | 1.38    |  
|                                                                                                                             |  |                                       |   |  |         |   |  |         |  

The Companys ordinary equivalent shares for the years ended March 31,
2007, 2008 and 2009 consist of 276,293, 1,245,625 and 1,876,181, respectively, ordinary shares issuable upon exercise of share options (using the treasury stock method); and 17,471,328, 46,932,057 and 94,383,602 ordinary shares issuable upon
conversion of convertible notes (using the treasury stock method). The Company has 17,471,328, 46,932,057 and 96,259,783 potential ordinary equivalent shares that were anti-dilutive for the years ended March 31, 2007, 2008 and 2009.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



12    Income Taxes

The Company is incorporated in the Cayman Islands, and is not subject to tax on income or capital gain under the current laws of the Cayman Islands. In addition, upon payment of dividends by the Company
to its shareholders, no Cayman Islands withholding tax is imposed. The Companys other subsidiaries are subject to income tax as described below.

British Virgin Islands (BVI)

Under the current laws of
BVI, our BVI subsidiaries are not subject to tax on income or capital gain. In addition, payments of dividends by our BVI subsidiaries to its shareholders are not subject to withholding tax in the BVI.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, our Hong Kong subsidiaries are subject to 16.5% income tax on its taxable income generated from operations in Hong Kong. In addition, payments of dividends by our Hong Kong subsidiaries
to the Company are not subject to any Hong Kong withholding tax.

PRC

Prior to January 1, 2008, the Group was governed by the previous Income Tax Law (the  Previous IT Law) of China. Under the
Previous IT Law, the Companys subsidiaries were entitled to various preferential tax treatments.

On February 8,
2006, Beijing Yuande Bio-Medical Engineering Co., Ltd. (Beijing Yuande), being a foreign-invested advanced technology enterprise accredited by Beijing Commerce Bureau, was granted a reduction from 15% to 10% in its PRC income
tax rate for the tax period from January 1, 2005 to December 31, 2007. The effect of the tax rate change was recognized in the consolidated financial statements during the year ended March 31, 2006.

Beijing GP Medical Technologies, Ltd. (Beijing GP), a subsidiary of the Company is also an entity located in an approved
economic-technological development area in the PRC, and was entitled to a PRC income tax rate of 15%. Further, Beijing GP, which was deemed a production-oriented foreign investment enterprise, was entitled to an exemption from PRC income tax from
January 1, 2008 to December 31, 2009 and a 50% income tax reduction from January 1, 2010 to December 31, 2012.

BBE, a subsidiary of the Company was an entity qualified as a High and New Technology Enterprises under the Previous IT Law, and was entitled to a PRC income tax rate of 15%.

On March 16, 2007, the National Peoples Congress passed the new Enterprise Income Tax law (the new EIT law) which
imposes a single income tax rate of 25% for most domestic enterprises and foreign investment enterprises. The new EIT law was effective as of January 1, 2008. The new EIT law provides a five-year transition period from its effective date for
those enterprises which were established before March 16, 2007 and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations, as well as grandfathering tax holidays. Further, according to the new EIT
law, entities that qualify as High and New Technology Enterprises are entitled to the preferential EIT rate of 15%. Beijing Yuande and BBE have received approval for the status as a High and New Technology Enterprises. The
status is valid for three years starting from January 2008 and will be renewed after evaluation by relevant government authorities every three years.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



Further, on December 26, 2007, the PRC government passed the detailed implementing rules which allow enterprises to continue to enjoy their unexpired tax holiday under the previous income
tax laws and rules. As a result, under the new EIT law, Beijing Yuandes tax rate and BBEs tax rate are 15% for the calendar years from 2008 to 2010 and subject to renewal of the status of High and New Technology Enterprises
after calendar year 2010; and Beijing GPs tax rates are 0%, 0%, 11%, 12%, 12.5% for the calendar years from 2008 to 2012 and 25% thereafter.

The new EIT Law also provides that an enterprise established under the laws of foreign countries or regions but whose de facto management body is located in the PRC be treated as a resident
enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the new EIT Law merely defines the location of the de facto management body as
the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located. Based on a review of surrounding
facts and circumstances, the Group does not believe that it is likely that its operations outside of the PRC should be considered a resident enterprise for PRC tax purposes. However, due to limited guidance and implementation history of the new EIT
Law, should the Company be treated as a resident enterprise for PRC tax purposes, the Company will be subject to PRC tax on worldwide income at a uniform tax rate of 25% retroactive to January 1, 2008.

The new EIT Law also imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate
holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such
immediate holding company within China, unless such immediate holding companys jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Such withholding income tax was exempted under the
previous income tax regulations. The Cayman Islands, where the Company is incorporated, does not have such tax treaty with China. According to the arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of
Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a foreign-invested enterprise in China to its direct holding company incorporated in Hong Kong will be subject to withholding tax at a rate of no more than 5%
(if the foreign investor owns directly at least 25% of the shares of the FIE). All of the Companys subsidiaries in China are invested and held by Hong Kong registered entities. Based on the subsequently issued interpretation of the new EIT,
Article 4 of Cai Shui [2008] Circular No. 1, dividends on earnings earned prior to January 1, 2008 but distributed after 2008 are not subject to withholding income tax.

As of March 31, 2008, the Group intended to reinvest all undistributed earnings indefinitely and therefore no deferred tax liability
was recognized. After the Group disposed its HIFU Business and acquired SPR business related assets, in the fiscal year ended March 31, 2009, certain undistributed earnings were no longer required to be reinvested indefinitely. Undistributed
earnings that the Group intends to reinvest indefinitely, and for which no deferred tax liability was recognized, were RMB419 million and RMB249 million (US$36 million) at March 31, 2008 and 2009 respectively. The unrecognized deferred tax
liability related to the undistributed earnings subject to withholding tax was RMB42 million and RMB12 million (US$2 million) as of March 31, 2008 and 2009 respectively.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The components of income (loss) before income taxes are as follows:



|                                 |  |                      |   |  |          |   |  |          |   |  |         |  
|-------------------------------- |  | -------------------- | - |  | -------- | - |  | -------- | - |  | ------- | -
|                                 |  | Year ended March 31, |  
|                                 |  | 2007                 |   |  | 2008     |   |  | 2009     |   |  | 2009    |  
|                                 |  | RMB000              |   |  | RMB000  |   |  | RMB000  |   |  | US$000 |  
|PRC                              |  | 129,514              |   |  | 316,444  |   |  | 592,013  |   |  | 86,642  |  
|Other countries                  |  | (13,790              | ) |  | (151,879 | ) |  | (521,028 | ) |  | (76,253 | )
|                                 |  |                      |   |  |          |   |  |          |   |  |         |  
|Total income before income taxes |  | 115,724              |   |  | 164,565  |   |  | 70,985   |   |  | 10,389  |  
|                                 |  |                      |   |  |          |   |  |          |   |  |         |  

Income tax expense, which is all incurred in the PRC, consists of:



|                            |  |                      |  |         |  |         |  |        
|--------------------------- |  | -------------------- |  | ------- |  | ------- |  | -------
|                            |  | Year ended March 31,
|                            |  | 2007                 |  | 2008    |  | 2009    |  | 2009   
|                            |  | RMB000              |  | RMB000 |  | RMB000 |  | US$000
|Current income tax expense  |  | 11,057               |  | 50,333  |  | 47,673  |  | 6,977  
|Deferred income tax expense |  | 992                  |  | 1,666   |  | 25,369  |  | 3,713  
|                            |  |                      |  |         |  |         |  |        
|Total income tax expense    |  | 12,049               |  | 51,999  |  | 73,042  |  | 10,690 
|                            |  |                      |  |         |  |         |  |        

Basic and diluted earnings from continuing operations per share effects of the tax
holiday and preferential tax rate for the years ended March 31, 2007, 2008 and 2009 are as follows:



|                                                        |  |                      |  |      |  |      |  |     
|------------------------------------------------------- |  | -------------------- |  | ---- |  | ---- |  | ----
|                                                        |  | Year ended March 31,
|                                                        |  | 2007                 |  | 2008 |  | 2009 |  | 2009
|                                                        |  | RMB                  |  | RMB  |  | RMB  |  | US$ 
|Basic net income from continuing operations per share   |  | 0.02                 |  | 0.19 |  | 0.41 |  | 0.06
|                                                        |  |                      |  |      |  |      |  |     
|Diluted net income from continuing operations per share |  | 0.02                 |  | 0.19 |  | 0.41 |  | 0.06
|                                                        |  |                      |  |      |  |      |  |     

Income tax expense reported in the consolidated statements of income differs from the
amount computed by applying the PRC income tax rate of 15% for the year ended March 31, 2007, and 25% for the years ended March 31, 2008 and 2009 for the following reasons:



|                                                                   |  |                      |   |  |         |   |  |          |   |  |         |  
|------------------------------------------------------------------ |  | -------------------- | - |  | ------- | - |  | -------- | - |  | ------- | -
|                                                                   |  | Year ended March 31, |  
|                                                                   |  | 2007                 |   |  | 2008    |   |  | 2009     |   |  | 2009    |  
|                                                                   |  | RMB000              |   |  | RMB000 |   |  | RMB000  |   |  | US$000 |  
|Income before income taxes                                         |  | 115,724              |   |  | 164,565 |   |  | 70,985   |   |  | 10,389  |  
|                                                                   |  |                      |   |  |         |   |  |          |   |  |         |  
|Computed expected tax expense                                    |  | 17,359               |   |  | 41,141  |   |  | 17,746   |   |  | 2,597   |  
|Non-deductible expenses                                            |  | 434                  |   |  | 1,479   |   |  | 369      |   |  | 54      |  
|Non-taxable income                                                 |  | (1,055               | ) |  | (1,139  | ) |  | (45      | ) |  | (7      | )
|Tax benefit resulting from tax holiday and preferential tax rate   |  | (6,548               | ) |  | (49,983 | ) |  | (107,907 | ) |  | (15,792 | )
|Change in enacted tax rate                                         |  |                     |   |  | 23,065  |   |  |         |   |  |        |  
|Change in valuation allowance                                      |  | (15                  | ) |  |        |   |  | 2,921    |   |  | 428     |  
|Tax effect related to foreign entities not subject to income taxes |  | 1,677                |   |  | 37,691  |   |  | 129,930  |   |  | 19,015  |  
|Withholding tax                                                    |  |                     |   |  |        |   |  | 22,889   |   |  | 3,350   |  
|Restructuring tax                                                  |  |                     |   |  |        |   |  | 4,895    |   |  | 717     |  
|Change in the tax status of prior year non-taxable income          |  |                     |   |  |        |   |  | 1,642    |   |  | 240     |  
|Others                                                             |  | 197                  |   |  | (255    | ) |  | 602      |   |  | 88      |  
|                                                                   |  |                      |   |  |         |   |  |          |   |  |         |  
|Provision for income tax expense                                   |  | 12,049               |   |  | 51,999  |   |  | 73,042   |   |  | 10,690  |  
|                                                                   |  |                      |   |  |         |   |  |          |   |  |         |  



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The tax effect of temporary differences that gives rise to significant portions of the deferred income tax assets and deferred income tax
liabilities are presented below:



|                                       |  |           |   |  |         |   |  |         |  
|-------------------------------------- |  | --------- | - |  | ------- | - |  | ------- | -
|                                       |  | March 31, |  
|                                       |  | 2008      |   |  | 2009    |   |  | 2009    |  
|                                       |  | RMB000   |   |  | RMB000 |   |  | US$000 |  
|Deferred tax assets:                   |  |           |   |  |         |   |  |         |  
|Operating loss carryforwards           |  | 2,485     |   |  | 4,699   |   |  | 688     |  
|Allowances for doubtful accounts       |  |          |   |  | 707     |   |  | 104     |  
|Accrued expenses and other liabilities |  | 1,000     |   |  | 1,000   |   |  | 146     |  
|                                       |  |           |   |  |         |   |  |         |  
|Total gross deferred tax assets        |  | 3,485     |   |  | 6,406   |   |  | 938     |  
|Less: valuation allowance              |  | (3,485    | ) |  | (6,406  | ) |  | (938    | )
|                                       |  |           |   |  |         |   |  |         |  
|Net deferred tax assets                |  |          |   |  |        |   |  |        |  
|                                       |  |           |   |  |         |   |  |         |  
|Deferred tax liabilities:              |  |           |   |  |         |   |  |         |  
|Intangible assets                      |  | (1,124    | ) |  | (3,604  | ) |  | (527    | )
|Withholding tax                        |  |          |   |  | (26,294 | ) |  | (3,848  | )
|                                       |  |           |   |  |         |   |  |         |  
|Total deferred tax liabilities         |  | (1,124    | ) |  | (29,898 | ) |  | (4,375  | )
|                                       |  |           |   |  |         |   |  |         |  
|Net deferred tax liabilities           |  | (1,124    | ) |  | (29,898 | ) |  | (4,375  | )
|                                       |  |           |   |  |         |   |  |         |  

Tax operating loss carryforwards of the Group, as approved by the PRC tax authority,
amounted to RMB11,438,000 as of March 31, 2009, including RMB9,941,000 will expire during the year ending March 31, 2012 and RMB1,497,000 will expire during the year ending March 31, 2013.

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or
all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of March 31, 2008 and 2009, deferred income tax assets represented the acquired
tax operating loss carryforwards of BBE, other deferred tax assets identified in the BBE acquisition and provision for bad debts in Beijing Yuande. BBE incurred tax operating loss through March 2008. Management believes that BBEs cumulative
losses arising from recurring business in recent years, constituted significant negative evidence that deferred tax assets would not be realizable and this evidence outweighed the Groups expectations that BBE would generate future taxable
income. Therefore, a full valuation allowance has been provided against BBEs deferred income tax assets as of the date of acquisition of January 8, 2008, March 31, 2008 and March 31, 2009. The provision of bad debts was
provided for the accounts receivable of Beijing Yuande. The amount of the deferred tax assets considered realizable, however, could change in the near term if estimates of future taxable income during the carry forward period also change.

As of April 1, 2008 and for the year ended March 31, 2009 , the Group did not have any unrecognized tax benefits or
liabilities and thus, no interest and penalties related to unrecognized tax liabilities were recorded.

According to the PRC
Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under
special circumstances, which are not clearly defined. In the case of



F-29



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The income tax returns of the PRC subsidiaries for the tax calendar
years 2004 to 2008 are subject to examination by the relevant tax authorities.

13    Related Party Transactions

On December 30, 2008, the Group completed the sale of its HIFU Business to Chengxuan (Note 9), a major shareholder of the
Company.

14    Segment Information

The Groups principal operating segments coincide with the types of products to be sold. The products from which revenues are derived are consistent with the reporting structure of the Groups
internal organization. The Groups reportable segments for the year ended March 31, 2009 were immunodiagnostic systems and molecular diagnostic systems.

The Groups chief operating decision-maker has been identified as the chief executive officer. During the year ended March 31, 2009, the Group changed its measure of reported segment profit or
loss to be gross profit (i.e., revenues less cost of revenues) in order to align the segment disclosures with the way the chief executive officer assesses performance of the segments. Prior periods have been revised to be consistent with current
year presentation. The change had no impact on previously reported gross profit by segment. There are no inter-segment revenue transactions and, therefore, revenues are only to external customers. The Group does not allocate any specific assets or
expenditures for long lived assets to the operating segments, as chief executive officer does not use the information to measure the performance of the reportable segments.

The accounting policies of the segments are the same as those used by the Group.

As the Group primarily generates its revenues from customers in the PRC, no geographical segments are presented.



|                                                           |  |                         |   |  |                            |   |  |          |  
|---------------------------------------------------------- |  | ----------------------- | - |  | -------------------------- | - |  | -------- | -
|                                                           |  | ImmunodiagnosticSystems |   |  | MolecularDiagnosticSystems |   |  | Total    |  
|                                                           |  | RMB000                 |   |  | RMB000                    |   |  | RMB000  |  
|Year ended March 31, 2007                                  |  |                         |   |  |                            |   |  |          |  
|Revenues                                                   |  | 215,550                 |   |  |                           |   |  | 215,550  |  
|Cost of revenues                                           |  | (57,750                 | ) |  |                           |   |  | (57,750  | )
|                                                           |  |                         |   |  |                            |   |  |          |  
|Segment income                                             |  | 157,800                 |   |  |                           |   |  | 157,800  |  
|Depreciation and amortization included in cost of revenues |  | (16,726                 | ) |  |                           |   |  | (16,726  | )
|                                                           |  |                         |   |  |                            |   |  |          |  
|                                                           |  |                         |  
|                                                           |  | ImmunodiagnosticSystems |   |  | MolecularDiagnosticSystems |   |  | Total    |  
|                                                           |  | RMB000                 |   |  | RMB000                    |   |  | RMB000  |  
|Year ended March 31, 2008                                  |  |                         |   |  |                            |   |  |          |  
|Revenues                                                   |  | 380,520                 |   |  | 166,901                    |   |  | 547,421  |  
|Cost of revenues                                           |  | (103,143                | ) |  | (142,294                   | ) |  | (245,437 | )
|                                                           |  |                         |   |  |                            |   |  |          |  
|Segment income                                             |  | 277,377                 |   |  | 24,607                     |   |  | 301,984  |  
|Depreciation and amortization included in cost of revenues |  | (22,726                 | ) |  | (73,648                    | ) |  | (96,374  | )
|                                                           |  |                         |   |  |                            |   |  |          |  



F-30



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



|                                                           |  |                          |   |  |                            |   |  |          |  
|---------------------------------------------------------- |  | ------------------------ | - |  | -------------------------- | - |  | -------- | -
|                                                           |  | ImmunodiagnosticsSystems |   |  | MolecularDiagnosticSystems |   |  | Total    |  
|                                                           |  | RMB000                  |   |  | RMB000                    |   |  | RMB000  |  
|Year ended March 31, 2009                                  |  |                          |   |  |                            |   |  |          |  
|Revenues                                                   |  | 504,656                  |   |  | 325,294                    |   |  | 829,950  |  
|Cost of revenues                                           |  | (138,467                 | ) |  | (94,104                    | ) |  | (232,571 | )
|                                                           |  |                          |   |  |                            |   |  |          |  
|Segment income                                             |  | 366,189                  |   |  | 231,190                    |   |  | 597,379  |  
|Depreciation and amortization included in cost of revenues |  | (32,154                  | ) |  | (67,524                    | ) |  | (99,678  | )
|                                                           |  |                          |   |  |                            |   |  |          |  

The reconciliation of depreciation and amortization included in cost of revenues to
total depreciation and amortization included in the statements of income is as follows:



|                                            |  |                      |  |         |  |         |  |        
|------------------------------------------- |  | -------------------- |  | ------- |  | ------- |  | -------
|                                            |  | Year ended March 31,
|                                            |  | 2007                 |  | 2008    |  | 2009    |  | 2009   
|                                            |  | RMB000              |  | RMB000 |  | RMB000 |  | US$000
|                                            |  |                      |  |        
|Depreciation and amortization included in   |  |                      |  |         |  |         |  |        
|Cost of revenues                            |  | 16,726               |  | 96,374  |  | 99,678  |  | 14,589 
|Research and development                    |  | 192                  |  | 673     |  | 1,204   |  | 176    
|Sales and marketing                         |  |                     |  | 171     |  | 139     |  | 20     
|General and administrative                  |  | 5,836                |  | 3,888   |  | 5,253   |  | 769    
|Amortization of SPR intangible assets       |  |                     |  |        |  | 36,511  |  | 5,343  
|Income from discontinued operation          |  | 4,660                |  | 5,194   |  | 3,953   |  | 578    
|                                            |  |                      |  |         |  |         |  |        
|Total depreciation and amortization expense |  | 27,414               |  | 106,300 |  | 146,738 |  | 21,475 
|                                            |  |                      |  |         |  |         |  |        

15    Fair Value of Financial Instruments

The carrying amount of financial assets, such as cash, accounts receivable, other receivables, accounts payable and other current payables,
approximates their fair values because of the short-term maturity of these instruments. As of March 31, 2008 and 2009, the fair value of the 2011 Convertible Notes, determined based on quoted market value, was approximately US$222,000,000
(RMB1,556,664,000) and US$95,390,000 (RMB651,790,300), respectively. As of March 31, 2009, the fair value of the 2013 Convertible Notes, determined based on quoted market value, was approximately US$132,480,000 (RMB905,222,600).

16    Business and Credit Concentrations

All of the Groups customers are located in the PRC. The Group had no customer that individually comprised 10% or more of revenue for the years ended March 31, 2007, 2008 and 2009.

The Group has no customer that individually comprised 10% or more of the outstanding accounts receivable balance as of March 31,
2008 and 2009.

As of March 31, 2008 and 2009, the Groups cash balance was held at major financial institutions
located in the PRC and other countries. Further, as of March 31, 2008 and 2009, the Groups cash balance included U.S. dollar denominated bank deposits of US$23,190,000 and US$134,273,000 (equivalent to RMB162,608,000 and
RMB917,474,000), respectively. Management believes that these major financial institutions are of high credit quality.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The Group was dependent on single-source suppliers for certain major materials and components used to manufacture its HIFU products.
Purchases (net of VAT) made from the two local suppliers for the ultrasound imaging system and treatment bed for the years ended March 31, 2007 and 2008 were RMB79,966,000 and RMB73,215,000. After the sale of HIFU Business (Note 9), the Group
is not dependent on single-source suppliers.

The Groups business is affected by competition in the market for the
products that many of the Groups major customers sell, and any decline in their businesses could reduce purchase orders from these customers. The loss of sales to any of these customers could have a material adverse effect on the Groups
business and results of operations. Furthermore, these customers have sought, from time to time, to prospectively renegotiate the pricing terms of their current agreements with the Group or obtain more favorable terms upon renewal of the contracts.
Any adverse revisions to the material terms of the Groups agreements with its key customers could have a material adverse effect on its business and results of operations.

17    Share-Based Compensation

On February 2,
2005, the Company adopted the 2005 stock option plan (the Plan) pursuant to which the Companys board of directors may grant stock options to directors and employees. The Company has reserved an aggregate of 30,000,000 of its
ordinary shares for issuance under the Plan. The Plan will remain in effect for 5 years starting from the date of adoption.

On November 12, 2006, the Company adopted the Amended and Restated 2005 Stock Option Plan (the Restated Plan) pursuant to which the Companys board of directors may grant stock options or restricted stock to employees,
directors and consultants. The Restated Plan is administered by an administrative committee. The per share exercise price of the option for the ordinary shares shall be such price, determined by the administrative committee. The Restated Plan will
remain in effect for 5 years starting from the date of adoption. As of March 31, 2009, there were 22,970,000 shares outstanding under the Restated Plan.

Restricted shares

Prior to March 31, 2007, no restricted
shares were granted. On June 11, 2007, the Company granted 1,800,000 restricted shares, equivalent to 180,000 ADS to certain directors and management personnel. The restricted shares vest over a period of three years commencing from the date of
grant.

On October 1, 2007 and November 16, 2007, the Company granted a total of 120,000 restricted shares,
equivalent to 12,000 ADS to new independent directors. The restricted shares vest over a period of three years commencing from the date of grant.

On June 6, 2008, the Company granted 3,560,000 restricted shares, equivalent to 356,000 ADS to certain directors and management personnel. The restricted shares vest over a period of three years
commencing from the date of grant.

Share-based compensation expense with respect to the restricted shares was measured based
on the fair value of the Companys ordinary shares at the date of grant and is recognized on an accelerated basis over the three-year vesting period. The grant-date fair value of restricted shares is based on the market price of the
Companys ADS on the grant date.

No compensation cost for restricted shares was recognized for the year ended
March 31, 2007. The amount of compensation cost recognized for restricted shares was RMB14,225,000 and RMB49,152,000 (US$7,193,000)



F-32



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



for the years ended March 31, 2008 and 2009, respectively, of which RMB1,336,000 and RMB7,429,000 (US$1,087,000) respectively was recorded as research and development expenses and
RMB12,889,000 and RMB41,723,000 (US$6,106,000) respectively was recorded as general and administrative expenses. No income tax benefit was recognized in the income statement for these restricted shares as such compensation expenses were recorded and
incurred by the Company, a Cayman Islands incorporated entity which is not subject to income tax under Cayman Islands laws and regulations.

Restricted share activity during the periods indicated is as follows:



|                                 |  |                           |   |  |                                     |  
|-------------------------------- |  | ------------------------- | - |  | ----------------------------------- | -
|                                 |  | Number ofRestrictedShares |   |  | Grant DateWeightedAverageFair value |  
|                                 |  |                           |   |  | US$                                 |  
|Balance as of April 1, 2007      |  |                          |   |  |                                    |  
|Granted                          |  | 1,920,000                 |   |  | 5,064,000                           |  
|Issued                           |  |                          |   |  |                                    |  
|Forfeited                        |  | (90,000                   | ) |  | (227,700                            | )
|                                 |  |                           |   |  |                                     |  
|Balance as of March 31, 2008     |  | 1,830,000                 |   |  | 4,836,300                           |  
|Granted                          |  | 3,560,000                 |   |  | 12,132,480                          |  
|Issued                           |  |                          |   |  |                                    |  
|Forfeited                        |  |                          |   |  |                                    |  
|                                 |  |                           |   |  |                                     |  
|Balance as of March 31, 2009     |  | 5,390,000                 |   |  | 16,968,780                          |  
|                                 |  |                           |   |  |                                     |  
|Exercisable as of March 31, 2009 |  | 450,000                   |   |  | 1,207,300                           |  
|Exercisable as of March 31, 2008 |  |                          |   |  |                                    |  

Stock options

On August 8, 2005, the Company granted options to purchase an aggregate of 400,000 ordinary shares, equivalent to 40,000 ADS, at an
exercise price of US$1.50 per share (August 2005 Option) to two directors. The share options vest over a period of two years and expire on December 31, 2009.

On June 11, 2007, the Company granted 750,000 share options, equivalent to 75,000 ADS to certain management personnel at an exercise
price of US$2.53 per share (June 2007 Option). The share options vest over a period of three years and expire on May 31, 2012.

The amount of compensation cost recognized for share options was RMB1,260,000, RMB2,435,000 and RMB1,027,000 (US$150,000) for the years ended March 31, 2007, 2008 and 2009, respectively, of which
RMB nil, RMB1,461,000 and RMB761,000 (US$111,000) respectively was recorded as research and development expenses, and RMB1,260,000, RMB974,000 and RMB266,000 (US$39,000) respectively was recorded as general and administrative expenses. No
income tax benefit was recognized in the income statement for these share options as such compensation expenses were recorded and incurred by the Company, a Cayman Islands incorporated entity which is not subject to income tax under Cayman Islands
laws and regulations.



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CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



Stock option activity during the periods indicated is as follows:



|                                                 |  |                  |   |  |                              |  |                                         |  |                        
|------------------------------------------------ |  | ---------------- | - |  | ---------------------------- |  | --------------------------------------- |  | -----------------------
|                                                 |  | Number ofoptions |   |  | Weightedaverageexerciseprice |  | Weightedaverageremainingcontractuallife |  | Aggregateintrinsicvalue
|                                                 |  |                  |   |  | US$                          |  | Years                                   |  | US$                    
|Balance as of March 31, 2006 and 2007            |  | 800,000          |   |  | 1.43                         |  |                                         |  |                        
|Granted                                          |  | 750,000          |   |  | 2.53                         |  |                                         |  |                        
|Exercised                                        |  | (466,660         | ) |  | 1.48                         |  |                                         |  |                        
|                                                 |  |                  |   |  |                              |  |                                         |  |                        
|Balance as of March 31, 2008                     |  | 1,083,340        |   |  | 2.17                         |  |                                         |  |                        
|Forfeited                                        |  | (150,000         | ) |  | 2.53                         |  |                                         |  |                        
|                                                 |  |                  |   |  |                              |  |                                         |  |                        
|Balance as of March 31, 2009                     |  | 933,340          |   |  | 2.11                         |  | 2.31                                    |  | 5,667                  
|                                                 |  |                  |   |  |                              |  |                                         |  |                        
|Exercisable as of March 31, 2009                 |  | 533,340          |   |  | 1.80                         |  | 1.66                                    |  | 5,667                  
|Vested and expected to vest as of March 31, 2009 |  | 876,140          |   |  | 2.08                         |  | 2.25                                    |  | 5,667                  

The total intrinsic value of options exercised during the years ended March 31,
2007, 2008 and 2009 was US$ nil, US$954,634 and US$ nil, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares. Cash received from the exercises of
stock option was RMB nil, RMB5,157,000 and RMB nil for the years ended March 31, 2007, 2008 and 2009.

The intrinsic value of
options outstanding, options exercisable and options vested and expected to vest is calculated as the difference between the market value as of the last day of the fiscal year and the exercise price of the shares.

Share-based compensation expense with respect to the stock options was measured based on the fair value of the options at the date of grant
and is recognized on an accelerated basis over the vesting period.

The weighted average option fair value of US$0.39
(RMB3.16) per share or an aggregate of RMB1,265,000 (US$156,000) for the options granted on August 8, 2005 was estimated using the Black-Scholes option-pricing model on the grant date. The weighted average option fair value of US$0.90 (RMB6.92)
per share or an aggregate of RMB5,189,000 (US$677,000) for the options granted on June 11, 2007 was estimated using the Hull and White Binomial option-pricing model on the grant date. The following assumptions were used to estimate the fair
value of the options:



|                                          |  |                   |         |                 |    |        
|----------------------------------------- |  | ----------------- | ------- | --------------- | -- | -------
|                                          |  | August 2005Option |         | June 2007Option
|Option granted                            |  |                   | 400,000 |                 |    | 750,000
|Average risk-free interest rate of return |  |                   | 4.216%  |                 |    | 5.07%  
|Early Exercise Multiple                   |  |                   |        |                 |    | 2.0x   
|Expected Exit Rate (Post-vesting)         |  |                   |        |                 |    | 5.0%   
|Weighted average expected option life     |  |                   | 3 years |                 |    |       
|Volatility rate                           |  |                   | 30.00%  |                 |    | 40.00% 
|Dividend yield                            |  |                   | 0.0%    |                 |    | 1.1%   
|Share price                               |  | US$               | 1.50    |                 | US | $2.53  

As of March 31, 2009, there was RMB52,914,000 (US$7,744,000) of total
unrecognized compensation cost related to stock options and restricted shares. This cost is expected to be recognized over a weighed average period of 1.65 years.



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CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



18    Commitments and Contingencies

(a) Operating lease obligation

Rental expense under
operating leases was RMB3,855,000, RMB5,801,000 and RMB5,258,000 (US$770,000), for the years ended March 31, 2007, 2008 and 2009, respectively. As of March 31, 2009, total future minimum lease payments under non-cancellable operating
leases were as follows:



|                      |  |        
|--------------------- |  | -------
|                      |  | RMB000
|Year ending March 31, |  |        
|2010                  |  | 6,479  
|2011                  |  | 3,011  
|2012 to 2014          |  | 7,241  
|                      |  |        
|                      |  | 16,731 
|                      |  |        

(b) Purchase obligation

As of March 31, 2009, the Group had outstanding purchase obligations totaling RMB1,789,000 (US$262,000), which mainly
related to the production of SPR System.

19    Subsequent Events

Declaration of dividend

On September 1, 2009, the Company declared a cash dividend on its ordinary shares of US$0.055 per share, equivalent to US$0.55 per ADS to the shareholders of record as of September 30, 2009. As
a result of the declaration of dividend by the Company and pursuant to the terms of the indenture governing the Companys convertible notes, the conversion rates of the convertible notes will be adjusted and the conversion prices of the
convertible notes are subject to change.

Approval of share repurchase program

In September 2009, the Companys board of directors approved a share repurchase program. Under the terms of the program, the Company may
repurchase up to US$30 million worth of its outstanding ADSs for a period of one year, commencing on October 1, 2009. Repurchases may be made from time to time on the open market at prevailing market prices or in block trades, in accordance
with the Safe Harbor requirements of Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act).

HIFU Business claim

In June 2009, the Company received a letter
(First Letter) from Chengxuan International Ltd. (Chengxuan), the buyer of the HIFU Business and a major shareholder of the Company in connection with a notice from the State Food and Drug Administration (the
SFDA) in April 2009. The notice from the SFDA required the submission of new clinical trial data for the renewal application of the registration certificate for the HIFU system and did not permit the sale of the HIFU system starting from April
2009 until approval of the renewal application. In August, the Company received another letter (Second Letter) from Chengxuan which updated their ongoing discussion with the SFDA about the requirements for the new clinical trial data for
the HIFU system, Chengxuans loss of revenues due to the prohibition on selling the HIFU system since April 2009



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CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



and their preliminary indication of seeking maximum compensation of approximately US$15.5 million from the Company. The Company has established a special committee comprising two independent
directors to evaluate and handle the related matters with Chengxuan and the special committee has engaged legal counsel to advise on Chengxuans request for compensation. Recently, the Company received another letter (Third Letter)
from Chengxuan which they decided to withdraw the compensation request in the Second Letter. The Third Letter also states that Chengxuan will fulfill their payment obligation with regard to the remaining payments for the HIFU Business transaction.
While Chengxuan may make a claim of compensation to the Company again in the future, the Company does not believe, based on current knowledge, that it is likely to happen. In the event that Chengxuan does make a claim to the Company again and the
Company fails to reach an agreement with Chengxuan, the Company may get into lawsuits or arbitration proceedings with Chengxuan which could be lengthy and costly and the result of any lawsuit or arbitration will be unpredictable and could negatively
impact the Companys business. Any compensation that the Company needs to pay Chengxuan will negatively impact its results of operations and financial condition.

20    China Medical Technologies, Inc. (the Parent only)

Under PRC regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, China Medical Technologies,
Inc.s (or the Parent) PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund general reserve funds unless such reserve funds have reached 50% of its respective
registered capital. These reserves are not distributable in the form of cash dividends to the Parent.

As of March 31,
2009, the amount of restricted net assets of the PRC subsidiaries which may not be transferred to the Parent in the forms of loans, advances or cash dividends without the consent of PRC government authorities, was more than 25% of the Groups
consolidated net assets.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



The following presents condensed financial information of the Parent only.

Condensed Balance Sheets



|                                           |  |           |   |  |           |   |  |         |  
|------------------------------------------ |  | --------- | - |  | --------- | - |  | ------- | -
|                                           |  | March 31, |  
|                                           |  | 2008      |   |  | 2009      |   |  | 2009    |  
|                                           |  | RMB000   |   |  | RMB000   |   |  | US$000 |  
|Assets                                     |  |           |   |  |           |   |  |         |  
|Current assets                             |  |           |   |  |           |   |  |         |  
|Cash                                       |  | 169,851   |   |  | 102,145   |   |  | 14,949  |  
|Prepayments and other assets               |  | 661       |   |  | 422       |   |  | 62      |  
|                                           |  |           |   |  |           |   |  |         |  
|Total current assets                       |  | 170,512   |   |  | 102,567   |   |  | 15,011  |  
|Investments in subsidiaries                |  | 764,730   |   |  | 978,897   |   |  | 143,262 |  
|Amounts due from subsidiaries              |  | 1,994,318 |   |  | 4,077,444 |   |  | 596,737 |  
|Convertible notes issuance costs           |  | 27,055    |   |  | 68,596    |   |  | 10,039  |  
|                                           |  |           |   |  |           |   |  |         |  
|Total assets                               |  | 2,956,615 |   |  | 5,227,504 |   |  | 765,049 |  
|                                           |  |           |   |  |           |   |  |         |  
|Liabilities                                |  |           |   |  |           |   |  |         |  
|Current liabilities                        |  |           |   |  |           |   |  |         |  
|Accrued expenses and other liabilities     |  | 28,674    |   |  | 39,909    |   |  | 5,841   |  
|Amounts due to subsidiaries                |  | 353,380   |   |  | 432,197   |   |  | 63,252  |  
|                                           |  |           |  
|Non-current liabilities                    |  |           |   |  |           |   |  |         |  
|Convertible notes                          |  | 1,051,800 |   |  | 2,910,815 |   |  | 426,000 |  
|                                           |  |           |   |  |           |   |  |         |  
|Total liabilities                          |  | 1,433,854 |   |  | 3,382,921 |   |  | 495,093 |  
|                                           |  |           |   |  |           |   |  |         |  
|Shareholders equity                       |  |           |   |  |           |   |  |         |  
|Ordinary shares                            |  | 225,473   |   |  | 257,738   |   |  | 37,720  |  
|Additional paid-in capital                 |  | 526,264   |   |  | 544,178   |   |  | 79,641  |  
|Accumulated other comprehensive loss       |  | (48,046   | ) |  | (51,946   | ) |  | (7,602  | )
|Retained earnings                          |  | 819,070   |   |  | 1,094,613 |   |  | 160,197 |  
|                                           |  |           |   |  |           |   |  |         |  
|Total shareholders equity                 |  | 1,522,761 |   |  | 1,844,583 |   |  | 269,956 |  
|                                           |  |           |   |  |           |   |  |         |  
|Total liabilities and shareholders equity |  | 2,956,615 |   |  | 5,227,504 |   |  | 765,049 |  
|                                           |  |           |   |  |           |   |  |         |  

The Parent has guaranteed the payment by CMED Technologies Ltd. to FISH Sellers for
the settlement of liabilities, including the contingent payments in relation to the FISH acquisition (see note 3(a)). Save for the foregoing contingent payments and the Convertible Notes, the Parent had no other contingencies, long-term obligations
and guarantee as of March 31, 2008 and 2009.



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



Condensed Statements of Income



|                                    |  |                      |   |  |         |   |  |         |   |  |         |  
|----------------------------------- |  | -------------------- | - |  | ------- | - |  | ------- | - |  | ------- | -
|                                    |  | Year ended March 31, |  
|                                    |  | 2007                 |   |  | 2008    |   |  | 2009    |   |  | 2009    |  
|                                    |  | RMB000              |   |  | RMB000 |   |  | RMB000 |   |  | USD000 |  
|Interest income                     |  | 20,237               |   |  | 18,546  |   |  | 12,625  |   |  | 1,847   |  
|Interest expenses                   |  | (18,453              | ) |  | (47,086 | ) |  | (97,625 | ) |  | (14,287 | )
|Share of net income of subsidiaries |  | 314,995              |   |  | 395,268 |   |  | 518,767 |   |  | 75,922  |  
|General and administrative expenses |  | (27,061              | ) |  | (41,506 | ) |  | (71,415 | ) |  | (10,452 | )
|                                    |  |                      |   |  |         |   |  |         |   |  |         |  
|Income before income taxes          |  | 289,718              |   |  | 325,222 |   |  | 362,352 |   |  | 53,030  |  
|Income tax expense                  |  |                     |   |  |        |   |  |        |   |  |        |  
|                                    |  |                      |   |  |         |   |  |         |   |  |         |  
|Net income                          |  | 289,718              |   |  | 325,222 |   |  | 362,352 |   |  | 53,030  |  
|                                    |  |                      |   |  |         |   |  |         |   |  |         |  



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##### Table of Contents

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009



Condensed Statements of Cash Flows



|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|------------------------------------------------------------------------------------------- |  | -------------------- | - |  | -------- | - |  | ---------- | - |  | -------- | -
|                                                                                            |  | Year ended March 31, |  
|                                                                                            |  | 2007                 |   |  | 2008     |   |  | 2009       |   |  | 2009     |  
|                                                                                            |  | RMB000              |   |  | RMB000  |   |  | RMB000    |   |  | US$000  |  
|Cash flow from operating activities                                                         |  |                      |   |  |          |   |  |            |   |  |          |  
|Net income                                                                                  |  | 289,718              |   |  | 325,222  |   |  | 362,352    |   |  | 53,030   |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                      |   |  |          |   |  |            |   |  |          |  
|Share-based compensation                                                                    |  | 1,260                |   |  | 16,660   |   |  | 50,179     |   |  | 7,343    |  
|Share of net income of subsidiaries                                                         |  | (314,995             | ) |  | (395,268 | ) |  | (518,767   | ) |  | (75,922  | )
|Amortization of convertible notes issuance costs                                            |  | 3,111                |   |  | 7,937    |   |  | 14,387     |   |  | 2,105    |  
|Changes in assets and liabilities:                                                          |  |                      |   |  |          |   |  |            |   |  |          |  
|Prepayments and other assets                                                                |  | 825                  |   |  | 248      |   |  | 239        |   |  | 36       |  
|Amount due from a subsidiary                                                                |  | 28,657               |   |  | (2,843   | ) |  |           |   |  |         |  
|Accrued expenses and other liabilities                                                      |  | 36,833               |   |  | (290     | ) |  | 11,235     |   |  | 1,645    |  
|Amount due to a subsidiary                                                                  |  | (348                 | ) |  |         |   |  | 78,817     |   |  | 11,535   |  
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Net cash provided by (used in) operating activities                                         |  | 45,061               |   |  | (48,334  | ) |  | (1,558     | ) |  | (228     | )
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Cash flow from investing activities                                                         |  |                      |   |  |          |   |  |            |   |  |          |  
|Dividends received                                                                          |  |                     |   |  | 200,000  |   |  | 431,066    |   |  | 63,087   |  
|Advance to a subsidiary                                                                     |  | (841,862             | ) |  | (447,447 | ) |  | (2,209,357 | ) |  | (323,341 | )
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Net cash used in investing activities                                                       |  | (841,862             | ) |  | (247,447 | ) |  | (1,778,291 | ) |  | (260,254 | )
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Cash flow from financing activities                                                         |  |                      |   |  |          |   |  |            |   |  |          |  
|Dividends paid                                                                              |  |                     |   |  | (83,306  | ) |  | (86,574    | ) |  | (12,670  | )
|Payment of offering expenses                                                                |  | (9,620               | ) |  |         |   |  |           |   |  |         |  
|Proceeds from exercise of stock options                                                     |  |                     |   |  | 5,157    |   |  |           |   |  |         |  
|Net proceeds from issuance of convertible notes                                             |  | 1,117,349            |   |  |         |   |  | 1,837,871  |   |  | 268,973  |  
|Payment for repurchase of shares under prepaid forward contract                             |  | (236,175             | ) |  |         |   |  |           |   |  |         |  
|Proceeds from issuance of ordinary shares under issuance and repurchase agreement           |  |                     |   |  |         |   |  | 32,265     |   |  | 4,722    |  
|Payment for repurchase of ordinary shares under issuance and repurchase agreement           |  |                     |   |  |         |   |  | (32,265    | ) |  | (4,722   | )
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Net cash provided by (used in) financing activities                                         |  | 871,554              |   |  | (78,149  | ) |  | 1,751,297  |   |  | 256,303  |  
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Effect of foreign currency exchange rate changes on cash and cash equivalents               |  | (18,249              | ) |  | (33,692  | ) |  | (39,154    | ) |  | (5,730   | )
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|Net increase (decrease) in cash and cash equivalents                                        |  | 56,504               |   |  | (407,622 | ) |  | (67,706    | ) |  | (9,909   | )
|                                                                                            |  |                      |   | 
|Cash and cash equivalents:                                                                  |  |                      |   |  |          |   |  |            |   |  |          |  
|At beginning of year                                                                        |  | 520,969              |   |  | 577,473  |   |  | 169,851    |   |  | 24,858   |  
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  
|At end of year                                                                              |  | 577,473              |   |  | 169,851  |   |  | 102,145    |   |  | 14,949   |  
|                                                                                            |  |                      |   |  |          |   |  |            |   |  |          |  



F-39