20-F

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  ¨

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 per ADS 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 of Reagent 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	Numbers of 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.

* 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)		% of revenues		RMB (in thousands)		% of revenues		RMB (in thousands)		% of revenues
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 than 1 year	1-3 Years	3-5 years	More than 5 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 shares to be issued upon exercise of options and/or number of restricted shares granted	Per share exercise price/per share purchase 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 of Total (%)
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 shares beneficially 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

87

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.

88

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.

89

(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

90

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

Exhibit Number	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

Exhibit Number	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.

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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 WU
Name:	Mr. Xiaodong Wu
Title:	Chief Executive Officer

Date: September 30, 2009

94

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

F-1

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

F-2

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 shares Issued 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

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

CHINA MEDICAL TECHNOLOGIES, INC.

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

(RMB and US$ expressed in thousands, except share data)

	Note	Ordinary Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Shareholders’ Equity		Comprehensive income
		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.

F-5

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.

F-6

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

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.

F-8

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.

F-9

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.

F-10

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

F-11

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.

F-12

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.

F-13

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.

F-14

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

F-15

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.

F-16

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:

	Amortization period	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:

	Amortization period	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

F-17

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.

F-18

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:

	Amortization period	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

F-19

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
	Gross carrying amount	Accumulated amortization		Net	Weighted average amortization period
	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

F-20

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009

	March 31, 2009
	Gross carrying amount	Accumulated amortization		Net	Weighted average amortization period
	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

F-21

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

F-22

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

F-23

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.

F-24

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.

F-25

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.

F-26

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.

F-27

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

F-28

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

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.

	Immunodiagnostic Systems		Molecular Diagnostic Systems		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	)
	Immunodiagnostic Systems		Molecular Diagnostic Systems		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

CHINA MEDICAL TECHNOLOGIES, INC.

Notes to the Consolidated Financial Statements (Continued)

For the years ended March 31, 2007, 2008 and 2009

	Immunodiagnostics Systems		Molecular Diagnostic Systems		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.

F-31

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

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 of Restricted Shares		Grant Date Weighted Average Fair 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.

F-33

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 of options		Weighted average exercise price	Weighted average remaining contractual life	Aggregate intrinsic value
			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 2005 Option		June 2007 Option
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.

F-34

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

F-35

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.

F-36

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.

F-37

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

F-38

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

EX-4.2

Exhibit 4.2

Execution Version

ASSET ACQUISITION AGREEMENT

dated as of

October 5, 2008

by and among

CMED TECHNOLOGIES LTD.,

MOLECULAR DIAGNOSTIC TECHNOLOGIES LIMITED

AND

THE OTHER PARTIES NAMED HEREIN

ASSET ACQUISITION AGREEMENT

THIS ASSET ACQUISITION AGREEMENT (this “Agreement”) is made and entered into as of October 5, 2008 (the “Agreement Date”) by and among China Medical Technologies, Inc., an exempt corporation incorporated under the laws of the Cayman Islands (“CMED”), CMED Technologies Ltd., a business company incorporated under the laws of the British Virgin Islands and a wholly owned subsidiary of CMED (“CMED Sub”), Molecular Diagnostic Technologies Limited, a business company under the laws of the British Virgin Islands (“Seller”), and Supreme Well Investments Limited, a business company under the laws of the British Virgin Islands (“Supreme Well”). Each of Seller and Supreme Well is individually referred to herein as a “Seller Party”, and collectively as the “Seller Parties.” Each of CMED, CMED Sub and each Seller Party is individually referred to herein as a “Party”, and collectively as the “Parties.”

RECITALS

A. As of the Agreement Date, CytoTrend Biotech Engineering Limited, a company incorporated in Hong Kong (“CytoTrend HK”), and CytoTrend (Beijing) Biotech Engineering Co., Ltd. ( ), a wholly-foreign owned enterprise established in the People’s Republic of China ( “CytoTrend WFOE”), are engaged in the business of research, development, use, import, manufacturing, sales, maintenance and support of technologies, products and services used for research and diagnostic purposes in the field of medicine, comprising of (i) biochips and un-label bio-molecule high-throughput on-line parallel analysis systems based on surface plasmon resonance platform (the “SPR Business”), and (ii) testing kits and assays based on PCR and other molecular genetics platforms (the “PCR Business” and collectively with the SPR Business, the “Business”) (each of CytoTrend HK and CytoTrend WFOE is individually referred to herein as a “Group Company”, and collectively, as the “Group Companies”, and the Group Companies and the Seller Parties are each individually referred to herein as a “Seller Group Member” and are collectively referred to herein as the “Seller Group” );

B. Supreme Well owns all of the issued share capital of Seller, and there are no outstanding options or rights to acquire any share capital of Seller;

C. Seller owns all of the issued share capital of CytoTrend HK, and there are no outstanding options or rights to acquire any share capital of CytoTrend HK;

D. CytoTrend HK owns all of the registered capital of CytoTrend WFOE, and there are no outstanding options or rights to acquire any registered capital of the CytoTrend WFOE;

E. As of the Agreement Date, CytoTrend WFOE is the sole legal and beneficial owner of the Assets, PRC IP Rights and Relevant IP Rights (each as defined below), which, together with the Excluded IP and Excluded Asset (each as defined below), constitute all of the properties and assets, real, personal, mixed, tangible and intangible assets relating to the SPR Business, as currently conducted and as proposed to be conducted;

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F. CMED and CMED Sub believe it is advisable and in the best interests of CMED and its shareholders for CMED Sub and a PRC subsidiary of CMED (“CMED WFOE,” together with CMED and CMED Sub, the “CMED Group”) to acquire the Designated Assets (as defined below), PRC IP Rights and Relevant IP Rights from the Seller Group, and the Seller Parties desire for the Seller and CytoTrend WFOE to sell the Designated Assets, PRC IP Rights and Relevant IP Rights to CMED Sub and CMED WFOE, upon the terms and subject to the conditions set forth in this Agreement and in the PRC Asset Acquisition Agreement (as defined below), such that upon consummation of this Agreement and the PRC Asset Acquisition Agreement, CMED Sub will own all of the Relevant IP Rights of the SPR Business and CMED WFOE will own PRC IP Rights and certain of the tangible assets of the SPR Business as specified in the PRC Asset Acquisition Agreement. In addition, the Parties desire for the Seller Parties to agree to enter into and be bound by certain covenants and restrictions, including covenants to cause certain of the employees and consultants of the SPR Business to accept employment with CMED or its Affiliates (as defined below), covenants not to compete with CMED or its Affiliates (including the SPR Business), covenants not to solicit the employees or consultants of CMED or its Affiliates (including the Transferred Employees (as defined below)), and covenants to provide CMED or its Affiliates with transitional technical support to operate the Designated Assets, PRC IP Rights and Relevant IP Rights upon the request of CMED or its Affiliates. For the purpose of this Agreement, “PRC” shall mean the People’s Republic of China, excluding for the purposes of this Agreement, Hong Kong, Macao and Taiwan; and

G. As an inducement for CMED and CMED Sub to consummate the Transaction (as defined below), the Seller Parties have agreed to make certain representations, warranties, covenants and other agreements in connection with the Assets, PRC IP Rights and Relevant IP Rights, all as set forth herein.

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AGREEMENT

In consideration of the mutual promises, agreements, representations, warranties and provisions contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:

SECTION 1.

PURCHASE AND SALE OF DESIGNATED ASSETS, PRC IP RIGHTS AND

RELEVANT IP RIGHTS

1.1 Designated Assets and PRC IP Rights to be Sold and Purchased.

(a) Sale and Purchase of Designated Assets and PRC IP Rights. Subject to the terms and conditions of this Agreement, CMED and CMED Sub shall cause CMED WFOE, and the Seller Parties shall cause CytoTrend WFOE, to enter into a PRC asset acquisition agreement dated as of the Closing Date as defined in Section 2.1 hereunder by and between CMED WFOE and CytoTrend WFOE (the “PRC Asset Acquisition Agreement”), pursuant to which CytoTrend WFOE as the sole legal and beneficial owner shall sell, assign, transfer, convey and deliver, and CMED WFOE shall purchase, acquire and receive, free from any Liens, all right, title and interest in the Designated Assets and PRC IP Rights. For the purpose of this Agreement, “Liens” shall mean any pledge, lien (including, without limitation any Tax lien), collateral assignment, security interest, mortgage, deed of trust, title retention, conditional sale or other security arrangement, or any license, order or charge, or any adverse claim of title, ownership or use, or agreement of any kind restriction transfer, or any other encumbrance whatsoever.

(b) PRC IP Rights Schedule. All PRC IP Rights shall be set out in a schedule prepared by the Seller Parties as of the Agreement Date (the “PRC IP Rights Schedule”).

(c) Assets to be Purchased. From the Agreement Date, the Seller Parties shall cause CytoTrend WFOE to allow representatives of CMED Group to inspect from time to time during normal business hours all of its tangible assets related to the SPR Business, including, without limitation, all raw materials, works in progress, product inventory, supplies, samples, packaging, equipment and machinery (but excluding the asset set out in the Excluded Asset Schedule (the “Excluded Asset”)) (collectively, the “Assets”), upon the request of CMED Group. CMED WFOE shall be entitled, in its discretion, to purchase, and CytoTrend WFOE shall be required to sell, any of such tangible assets designated by CMED WFOE to CytoTrend WFOE in writing prior to the Closing (the “Designated Assets”). The price for the Designated Assets shall be determined in accordance with Section 1.7 below, and CytoTrend WFOE shall prepare a schedule of the Designated Assets which shall be attached to the PRC Asset Acquisition Agreement.

1.2 Relevant IP Rights to be Sold and Purchased.

(a) Sale and Purchase of Relevant IP Rights. Subject to the terms and conditions of this Agreement, as of the Closing Date, the Seller as the sole legal and beneficial owner shall sell, assign, transfer, convey and deliver, and CMED Sub shall purchase,

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acquire and receive, free from any Liens, all right, title and interest in the Relevant IP Rights. For the avoidance of doubt, the Excluded IP set forth in Schedule 1.2(a) attached hereto are excluded from the sale and purchase contemplated under this Agreement.

(b) Execution and Delivery of Instruments. The Seller covenants and agrees to duly execute and deliver all instruments of sale, conveyance, transfer and assignment, and all notices, releases, acquittances and other documents, and take all other actions that may be necessary to more fully grant, convey, transfer and assign, and deliver to, and vest in, CMED Sub the Relevant IP Rights hereby sold, conveyed, transferred and delivered, and further covenants and agrees to warrant and defend the sale, conveyance, transfer and assignment of the Relevant IP Rights against all persons, the costs of which shall be borne by the Seller.

(c) Relevant IP Rights Schedule. All Relevant IP Rights are set out in Schedule 1.2(c) attached hereto prepared by the Seller Parties as of the Agreement Date (the “Relevant IP Rights Schedule”).

(d) Relevant IP Rights. For the purpose of this Agreement, “Relevant IP Rights” shall mean all Intellectual Property (as defined below) used in the SPR Business as conducted at any time prior to the Closing Date or proposed to be conducted, and (if any), to the extent permitted by all applicable laws, all rights to causes of action and remedies under such Intellectual Property (including, without limitation the right to sue for past, present or future infringement, misappropriation or violation of rights related to the foregoing), in each case to the extent owned by the Seller Group, including any such rights set forth in the Relevant IP Rights Schedule attached hereto (including without limitation any and all software licenses used for imaging, data collection, processing, display, storage and/or analysis in the SPR Business), but is deemed to exclude the PRC IP Rights and the Excluded IP. Such Relevant IP Rights are set out in the Relevant IP Rights Schedule and do not include the PRC IP Rights.

(e) Intellectual Property. For the purpose of this Agreement, “Intellectual Property” shall mean any or all of the following and all rights in, arising out of, or associated therewith: (A) all United States, international and foreign (including PRC) patents and applications therefore and all reissues, re-examinations, renewals, extensions, supplemental protection certificates, certificates of invention, provisionals, substitutions, divisionals, continuations and continuations-in-part thereof; (B) all inventions (whether patentable or not), invention disclosures, discoveries, ideas, protocols, processes, methods, designs, techniques, formulas, improvements, trade secrets, confidential or proprietary information, know how, technology, technical data and customer and supplier list, and all documentation relating to any of the foregoing; (C) all copyrights and works of authorship in any media, copyright registrations and applications therefore and all other rights corresponding

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thereto throughout the world; (D) all mask works, mask work registrations and applications therefore; (E) all industrial designs and utility models and any registrations and applications therefore throughout the world; (F) all trade names, service names, brand names, trade dress, logos, symbols, common law trademarks and service marks; trademark and service mark registrations and applications therefore and all goodwill associated therewith throughout the world; (G) all databases and data collections and all rights therein throughout the world; (H) all computer software including all source code, object code, firmware, development tools, test suites, files, records and data, all media on which any of the foregoing is recorded, all Web addresses, sites and domain names; and (I) all documentation related to any of the foregoing irrespective of the media on which it is recorded, but (where applicable) excluding the Excluded IP.

(f) PRC IP Rights. For the purpose of this Agreement, “PRC IP Rights” shall mean all patent applications filed in the PRC by CytoTrend WFOE with a PRC intellectual property state, government or public legal authority, all copyrights or works of authorship in the PRC and any related Intellectual Property used in the SPR Business, all as set forth in the PRC IP Rights Schedule, but (where applicable) excluding the Excluded IP.

1.3 No Assumed Liabilities. The Parties agree that none of CMED, CMED Sub or any of their Affiliates shall assume, pay, perform or discharge, or otherwise have any obligation or Liability whatsoever for any Liabilities in connection with the Assets, PRC IP Rights and Relevant IP Rights attributable to the period prior to Closing, which shall remain the sole responsibility of the Seller Parties; provided that as from the Closing, CMED Sub and CMED WFOE shall be responsible for the registration, maintenance and renewal fees of the PRC IP Rights and the Relevant IP Rights once the Requisite Actions (as defined below) have been completed. “Liabilities” (or when used with reference to a single item described below, “Liability”) shall mean debts, commissions, duties, fees, salaries, performance or delivery penalties, and obligations (whether pecuniary or not, including without limitation obligations to perform or forebear from performing acts or services), fines or penalties, whether accrued or fixed, absolute or contingent, matured or un-matured, determined or determinable, known or unknown, arising or existing anywhere in the world, including without limitation those arising under any law, action or governmental order, liabilities for Taxes and those arising under any contract, agreement, arrangement, commitment or undertaking of any kind whatsoever (whether written or oral, express or implied).

1.4 Updating of Schedules. At the Closing, the Seller Parties shall update and prepare, in good faith in a manner consistent with the PRC IP Rights Schedule and Relevant IP Rights Schedule as of the Agreement Date, and deliver updated PRC IP Rights Schedule and Relevant IP Rights Schedule as of the Closing Date to CMED Sub and its counsel, and all work papers and back-up materials relating thereto.

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1.5 Consideration. In consideration for the sale of the Designated Assets, PRC IP Rights and Relevant IP Rights and subject to the terms and conditions set forth in this Agreement, CMED Sub agrees to pay the Seller the total consideration of US$345,000,000, being the aggregate of (a) the Net Signing Cash described in Section 1.6 below, (b) the Total Closing Cash described in Section 1.7 below, and (c) the right to receive the Deferred Payments pursuant to the terms and subject to the conditions set forth in Section 1.8 below and (d) US$22,000,000, which CMED Sub has previously paid to Supreme Well as a deposit pursuant to the Letter of Intent dated July 20, 2007 by and between CMED Sub and Supreme Well (the “Deposit”) ((a), (b) and (c) and (d) together, the “Consideration”). The Parties hereby agree that CMED Sub may, in its sole and absolute discretion, elect to pay all or any portion of the Consideration in RMB, calculated using the Exchange Rate. The “Exchange Rate” means the daily RMB/USD Dollar closing exchange rate set by the People’s Bank of China and published by the State Administration of Foreign Exchange at www.safe.gov.cn on the sixth (6^th) Business Day preceding each applicable payment date set forth in Sections 1.6, 1.7 and 1.8 below, rounded to the nearest two decimal places. “Business Day” means any day except a Saturday, Sunday or a day on which banking institutions in the U.S., PRC or Hong Kong are obligated or permitted by law, regulation or governmental order to close.

1.6 Signing Payment. Within ten (10) Business Days after the Agreement Date: (a) CMED Sub shall pay to the Seller US$47,000,000 (the “Net Signing Cash”), being US$69,000,000 less the deposit, subject to withholding for Taxes (as defined below) pursuant to Section 2.3 below.

1.7 Closing Payment. At the Closing: (a) CMED Sub shall pay US$103,500,000 (the “Total Closing Cash”) less the PRC Allocated Closing Value (as defined below) to the Seller, subject to withholding for Taxes pursuant to Section 2.3 below; and (b) CMED and CMED Sub shall cause CMED WFOE to pay the PRC Allocated Closing Value to CytoTrend WFOE pursuant to the PRC Asset Acquisition Agreement. The “PRC Allocated Closing Value” means the purchase price to be paid on the Closing Date for the Designated Assets and the PRC IP Rights being sold pursuant to the PRC Asset Acquisition Agreement, which amount shall be the fair market value to be determined jointly by CytoTrend WFOE and CMED WOFE prior to the Closing Date, in RMB, and for the purpose of determining the Total Closing Cash (and components thereof), the USD equivalent of such RMB amount, calculated using the Exchange Rate. The amount of the Total Closing Cash, less the PRC Allocated Closing Value and Taxes that are withheld pursuant to Section 2.3 below, is referred to in this Agreement as the “Net Closing Cash”).

1.8 Deferred Payments. In addition to the Net Signing Cash and Total Closing Cash, CMED Sub shall deliver to the Seller, subject to the right of set-off provided in Section 8.2 below and for Taxes pursuant to Section 2.3 below, an amount of US$69,000,000, US$51,750,000 and US$51,750,000 in cash, on the last Business Day of the third (3^rd), seventh (7^th) and twelfth (12^th) month after the Closing Date, respectively (each a “Deferred Payment” and collectively the “Deferred Payments”).

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1.9 Set-off. Notwithstanding anything to the contrary in this Agreement, CMED Sub shall have the right to deduct from any unpaid amounts due to the Seller on the terms set forth in Section 8.2 below.

1.10 Taxes; Prorations. Unless otherwise required under any applicable laws, the Seller Group shall be responsible for and shall pay any Taxes arising or resulting from or in connection with the ownership of the Designated Assets, PRC IP Rights and Relevant IP Rights attributable to the period prior to the Closing Date. CMED Sub and CMED WFOE shall be responsible for and shall pay any Taxes arising or resulting from or in connection with ownership of the Designated Assets, PRC IP Rights and Relevant IP Rights attributable to the period after the Closing Date.

(a) All real property, personal property, ad valorem or other similar Taxes (not including income Taxes) levied with respect to the Designated Assets, PRC IP Rights and Relevant IP Rights for a taxable period which includes (but does not end on) the Closing Date shall be apportioned between the Seller Group and CMED Sub and CMED WFOE based on the number of days included in such period through and including the Closing Date and the number of days included in such period after the Closing Date.

(b) The term “Taxes” shall mean all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign (including the United States, PRC, Hong Kong and British Virgin Islands) Governmental Authority (as defined below), which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to, federal income taxes and state income taxes, enterprise income taxes, business taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, social insurance contributions or payments (including housing funds), sales and use taxes, ad valorem taxes, value added taxes, customs duties, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers’ compensation and other governmental charges and fees, and other obligations of the same or of a similar nature to any of the foregoing, which are required to be paid, withheld or collected.

1.11 Employees; Transferred Employees.

(a) Schedule 1.11 attached hereto sets forth all employees and consultants who perform any services for the SPR Business as of the Agreement Date prepared by the Seller Parties (the “Employees”). CMED shall have the right, in its sole discretion, to interview or cause any Affiliate of CMED to interview any or all of the Employees, and to offer or cause any Affiliate of CMED to offer, any or all of the Employees an employment or a consulting arrangement with CMED or an Affiliate of

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CMED to commence immediately after the Closing (as defined below) on such terms and conditions as CMED shall agree with any such Employee (each such Employee that accepts CMED or its Affiliate’s offer of employment or consultancy is referred to herein as a “Transferred Employee”).

(b) Upon acceptance by each Transferred Employee of the offer of the employment or consultancy with CMED or an Affiliate of CMED, the relevant Seller Group Member shall (i) effective as of the Closing terminate its existing employment or consulting contract with any such Transferred Employee and take such actions as are necessary or appropriate under applicable PRC labor laws so that CMED WFOE is not required to assume the seniority of any Transferred Employee and (ii) bear, solely for its own account, all severance and other related costs associated with terminating the employment or consultancy of any such Transferred Employee.

(c) Other than the Transferred Employees, neither CMED nor its Affiliates shall be obligated to hire and shall not assume any obligations with respect to the Employees, and the Seller Parties shall be responsible for any and all continuing salary, benefits, severance and other costs of such Employees for the period before and after the Closing.

SECTION 2.

CLOSING

2.1 Closing Date. The closing (the “Closing”) of the purchase and sale provided for in this Agreement (the “Transaction”) shall be held at the offices of CMED, No. 24 Yongchang North Road, Beijing Economic-Technological Development Area, Beijing, P.R. China 100176 at 11:00 a.m. Beijing time on a date (the “Closing Date”) to be specified by CMED Sub and the Seller, which shall be no later than the fifth (5^th) Business Day after satisfaction or waiver of the latest to occur of the conditions set forth in Section 7 below (other than the conditions contemplated to be satisfied (unless waived) on the Closing Date), unless another date, time or place is agreed to in writing by CMED and the Seller.

2.2 Actions at the Closing. At the Closing, the Parties shall take such actions and execute and deliver such agreements and other instruments and documents as necessary or appropriate to effect the Transaction in accordance with its terms, including without limitation the following:

(a) At the Closing, the Seller Parties shall deliver or cause to be delivered to CMED Sub or CMED WFOE, as the case may be, the following:

(i) resolutions unanimously approved by each of the boards of directors and the shareholders of the Seller Parties approving this Agreement, the Related Agreements (as defined below) and the consummation of the Transaction;

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(ii) all Designated Assets and PRC IP Rights will be delivered to CMED WFOE by delivery of possession thereto to CMED WFOE pursuant to the PRC Asset Acquisition Agreement;

(iii) all Relevant IP Rights, to the extent in tangible form, will be delivered to CMED Sub by delivery of possession thereto to CMED Sub at No. 24 Yongchang North Road, Beijing Economic-Technological Development Area, Beijing, P.R. China 100176 or at such other place mutually agreed between CMED and the Seller;

(iv) any and all documents necessary to properly record the assignment or transfer to CMED Sub of all of the Seller’s right, title and interest in and to the Relevant IP Rights, including an assignment agreement (the “Relevant IP Rights Assignment Agreement”) substantially in the form of Exhibit 2.2(a)(iv) attached hereto;

(v) any and all documents necessary to properly record the assignment or transfer to CMED WFOE of all of CytoTrend WFOE’s right, title and interest in and to the PRC IP Rights, including an assignment agreement (the “PRC IP Rights Assignment Agreement”) substantially in the form as attached to the PRC Asset Acquisition Agreement;

(vi) an asset transfer agreement or other legally valid instrument of transfer evidencing the transfer of Relevant IP Rights from CytoTrend WFOE to the Seller in form and substance satisfactory to CMED, duly executed by CytoTrend WFOE and the Seller (the “Asset Transfer Agreement”) and, to the extent deemed necessary or appropriate by CMED, duly filed with the requisite PRC Governmental Authorities; and

(vii) all other documents, certificates, instruments or writings required to be delivered by the Seller Parties pursuant to this Agreement, including without limitation those documents set forth in Section 7.3 below.

(b) At the Closing, CMED Sub shall deliver or cause to be delivered:

(i) to the Seller, the Net Closing Cash by bank draft(s), subject to the right of CMED Sub to pay the Net Closing Cash in USD or RMB in its discretion as provided in Section 1.5 above;

(ii) to CytoTrend WFOE, the PRC Allocated Closing Value pursuant to the terms of the PRC Asset Acquisition Agreement; and

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(iii) to the Seller, all other documents, certificates, instruments or writings required to be delivered by CMED at the Closing pursuant to this Agreement, including without limitation those documents set forth in Section 7.2 below.

(c) At the Closing, CMED Sub and the Seller Parties shall deliver or cause to be delivered the PRC Asset Acquisition Agreement.

2.3 Tax Withholding. Notwithstanding anything in this Agreement to the contrary, the CMED Group shall be entitled to deduct and withhold from the portion of the Consideration otherwise payable pursuant to this Agreement and the PRC Asset Acquisition Agreement to the Seller and CytoTrend WFOE such amounts as the CMED Group is required to deduct and withhold with respect to the making of such payment under the United States Internal Revenue Code of 1986, as amended (the “Code”), or any provision of United States state or local Tax law, PRC Tax law, Hong Kong Tax law, British Virgin Islands Tax law, or the Tax laws of any other jurisdiction. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by the CMED Group, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Seller and CytoTrend WFOE in respect of which such deduction and withholding was made by the CMED Group.

SECTION 3.

REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES

In this Agreement, any reference to any event, change, condition or effect being “material” with respect to any entity or group of entities means any material event, change, condition or effect related to the condition (financial or otherwise), properties, assets (including intangible assets), liabilities, business, operations, results of operations or prospects of such entity or group of entities. In this Agreement, any reference to a “Material Adverse Effect” with respect to any entity or group of entities means any event, change or effect that, when taken individually or together with all other adverse changes and effects, is or is reasonably likely to be materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations, results or prospects of such entity and its subsidiaries, taken as a whole, or to prevent or materially delay consummation of the Transaction or otherwise to prevent such entity and its subsidiaries from performing their obligations under this Agreement; provided, however, that without limiting the generality of the foregoing, the Parties agree that any event, change or effect that has an adverse impact on the Assets, PRC IP Rights and Relevant IP Rights in an aggregate amount equal to or greater than US$1,000,000 shall be deemed a Material Adverse Effect for purposes of this Agreement.

In this Agreement, any reference to a party’s “knowledge” means such party’s actual knowledge or knowledge such party would reasonably be expected to have of such matters, including with respect to corporate entities, the actual knowledge or knowledge such party would be reasonably expected to have after due and diligent inquiry of its officers, directors, shareholders (direct and indirect),

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and subsidiaries (direct and indirect), as well as other employees and consultants of such party, its shareholders (direct and indirect) or its subsidiaries (direct or indirect) that would reasonably be expected to have knowledge of such matters.

Each Seller Party hereby jointly and severally represents and warrants to CMED and CMED Sub that the statements contained in this Section 3 are true and correct as of the Agreement Date, except as expressly set forth in the disclosure schedule delivered by the Seller to CMED Sub on or before the Agreement Date (the “Disclosure Schedule”). The Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 3.

3.1 Organization, Standing and Power; Subsidiaries.

(a) Each Seller Group Member is a company or corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Seller Group Member has the requisite corporate power and authority and all necessary approvals by the respective authorities to own, lease and operate its properties and to carry on its business as now being conducted and as proposed to be conducted. Each Seller Group Member is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed and in good standing that would not, individually or in the aggregate, have a Material Adverse Effect on the Assets, PRC IP Rights and Relevant IP Rights or any Seller Group Member.

(b) Neither CytoTrend WFOE, CytoTrend HK (other than with respect to CytoTrend WFOE) or Seller (other than with respect to CytoTrend HK and CytoTrend WFOE) owns, directly or indirectly any interest or any right to acquire interest in any corporation or other business entity or otherwise, directly or indirectly, controls, by way of security or otherwise any such entity. Section 3.1(b) of the Disclosure Schedule also contains a true and complete listing of the locations of all sales office and branch offices, manufacturing facilities, and any other office or facilities of the Seller Group, a true and complete list of all jurisdictions in which each Seller Group Member maintain any employees, and a true and complete list of all jurisdictions in which each Seller Group Member is duly qualified and licensed to transact business as a foreign corporation.

(c) As of the Closing, there is not outstanding any contractual relationship, arrangement or undertaking between any Seller Group Member on one hand and any other Seller Group Member or any Seller Group Member’s direct or indirect shareholders, directors and officers on the other, in each case with respect to the SPR Business.

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(d) CytoTrend Biotech Engineering Limited-USA Inc., a corporation previously established under the laws of the State of Utah (“CytoTrend US”) was duly dissolved on September 29, 2008.

3.2 Authorization. Each Seller Group Member has all requisite corporate power and authority to enter into this Agreement, each of the agreements listed as an exhibit hereto or otherwise referenced herein (collectively, the “Related Agreements”) to which it is a party and to consummate the Transaction. The execution and delivery of this Agreement and the Related Agreements and the consummation of the Transaction have been duly authorized by all necessary corporate action on the part of each of Seller Group Member (as applicable), and no further action is required on the part of any Seller Group Member to authorize this Agreement, the Related Agreements and the consummation of the Transaction. This Agreement has been and the Related Agreements has been or will be, as the case may be, as of the Closing Date, duly executed and delivered by each of the Seller Group Member who is a party thereto. This Agreement and the Related Agreements constitute, or will constitute as of the Closing Date as applicable, assuming the due authorization, execution and delivery by the other parties hereto and thereto, the valid and legally binding obligation of each Seller Group Member who is a party thereto, enforceable by CMED and CMED Sub against each of Seller Group Members who is a party thereto in accordance with its terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

3.3 No Conflict. The execution and delivery of this Agreement and the Related Agreements by each of the Seller Parties does not, and the consummation of the Transaction will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a “Conflict”) (a) any provision of the charter documents of any Seller Group Member, or (b) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise or license to which any of the Seller Group Member or any of their respective properties or assets is subject, or (c) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to any Seller Group Member or their respective properties or assets, except for the Requisite Actions as set out in Schedule 3.3 (“Requisite Actions”).

3.4 Consents. No consent, waiver, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission (“Governmental Authority”) or any third party, including a party to any agreement with any Seller Party (so as not to trigger any Conflict), is required by or with respect to any Seller Group Member in connection with the execution and delivery of this Agreement, the Related Agreements or the consummation of the Transaction except for the Requisite Actions.

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3.5 No Undisclosed Liabilities. Except as set forth in Section 3.5 of the Disclosure Schedule, the Assets, PRC IP Rights and Relevant IP Rights are not subject to any Liability, indebtedness, obligation, expense, claim, deficiency or guaranty of any type, whether accrued, absolute, contingent, matured, unmatured or other of a nature.

3.6 Restrictions on Business Activities. There is no agreement (non-compete or otherwise), commitment, judgment, injunction, order or decree to which any Seller Party is a party or otherwise binding upon any Seller Group Member which has or may reasonably be expected to have the effect of prohibiting or impairing in any material respect any business practice of the CMED Group or the Seller Group or their respective Affiliates relating to the SPR Business or any acquisition of the Assets, PRC IP Rights and Relevant IP Rights or their use by the CMED Group. Without limiting the foregoing, no Seller Group Member has entered into any agreement pursuant to which any Seller Group Member is restricted from selling, licensing or otherwise distributing any of its technology or products relating to the SPR Business to or providing services relating to the SPR Business to, customers or potential customers or any class of customers, in any geographic area, during any period of time or in any segment of the market relating to the SPR Business.

3.7 Title to Assets, PRC IP Rights and Relevant IP Rights; Absence of Liens and Encumbrances; Condition of Assets.

(a) As of the Agreement Date, CytoTrend WFOE owns all of the Assets, PRC IP Rights and Relevant IP Rights, and holds good and valid title to all of the Assets, PRC IP Rights and Relevant IP Rights, and, subject to the Requisite Actions, has the complete and unrestricted power and authority and the unqualified right to sell, assign and deliver the Assets, PRC IP Rights and Relevant IP Rights free and clear of any Liens, as contemplated under this Agreement and the PRC Asset Acquisition Agreement. Immediately prior to the Closing, CytoTrend WFOE owns all of the Assets and PRC IP Rights, the Seller owns all of Relevant IP Rights, and each holds good and valid title to all of the Assets, the PRC IP Rights and Relevant IP Rights, respectively, and, subject to the Requisite Actions, each has the complete and unrestricted power and authority and the unqualified right to sell, assign and deliver: (i) the Assets and PRC IP Rights to CMED WFOE; and (ii) the Relevant IP Rights to CMED Sub, respectively. There is no action, proceeding, claim or, to the Seller Parties’ knowledge, investigation against any Seller Group Member or any of the Seller Group Member’s assets, properties or, as applicable, any of the Seller Group Member’s shareholders (direct or indirect), officers or directors, pending or, to the Seller Parties’ knowledge, threatened, at law or in equity, or before any court, arbitrator or other tribunal, or before any administrative law judge, hearing officer or administrative agency relating to or in any other manner impacting upon the Assets, PRC IP Rights and Relevant IP Rights. Except for the Requisite Actions, no restrictions will exist between the Agreement Date and the Closing Date on the Seller Group’s right to sell, assign, transfer, convey and deliver the Assets, PRC IP Rights and Relevant IP Rights as contemplated under this Agreement and the PRC Asset Acquisition Agreement.

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(b) CytoTrend US has validly and irrevocably transferred, under all applicable laws, all Intellectual Property held by it to CytoTrend WFOE, and has obtained from each Governmental Authority or any other third party all approvals, waivers and consents, if any, necessary for such transfer.

(c) As of the Closing Date, CytoTrend WFOE has validly and irrevocably assigned, transferred, conveyed and delivered, under all applicable laws, all Relevant IP Rights held by it to the Seller, and has obtained from each Governmental Authority or any other third party all approvals, waivers and consents, if any, necessary for such transfer.

(d) The Assets have been properly maintained and are in good working condition, and are in all respects in a condition that is adequate for the intended uses of such Assets, subject to continued repair and replacement in accordance with past practice.

3.8 Relevant IP Rights; Intellectual Property.

(a) Section 3.8(a) of the Disclosure Schedule lists all Relevant IP Rights and lists any commencement or notice or to the knowledge of the Seller Parties, threat of any proceedings or actions before any court, tribunal (including the United States Patent and Trademark Office, the PRC State Intellectual Property Office and any other foreign equivalents (collectively, the “PTO”)) related to any of the Relevant IP Rights.

(b) To the extent that any Relevant IP Rights has been developed or created by any person other than the Seller Group Members for which the Seller Group has, directly or indirectly, paid, a Group Company has a written agreement with such person with respect thereto and (i) as of the Agreement Date, the relevant Group Company thereby has, and (ii) immediately prior to the Closing, the Seller has obtained ownership of and is the exclusive owner of, all such Relevant IP Rights by operation of law or by valid assignment.

(c) No Seller Group Member has transferred ownership of or granted any license of or right to use or authorized the retention of any rights to use any Relevant IP Rights, to any other person other than: (i) as of the Agreement Date, the Group Companies, and (ii) immediately prior to the Closing, the Seller.

(d) The Relevant IP Rights constitute all the Intellectual Property (other than the PRC IP Rights and the Excluded IP) used in and/or necessary to the SPR Business as conducted at any time prior to the Closing Date or proposed to be conducted.

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(e) Section 3.8(e) of the Disclosure Schedule includes all Contracts (including licenses) to which any Seller Group Member is a party with respect to any Relevant IP Rights. With respect to each such Contract, there is no default (or event that with the giving of notice or passage of time would constitute a default by any Seller Group Member or, to the knowledge of the Seller Parties, any other party(ies) thereto). No person who has licensed Intellectual Property related to the SPR Business to the Seller Group has ownership rights or license rights to improvements made by the Seller Group in such Intellectual Property that has been licensed to the Seller Group, and all such Intellectual Property has been licensed to: (i) as of the Agreement Date, CytoTrend WFOE; and (ii) immediately prior to the Closing, the Seller. Neither the execution, delivery or performance of this Agreement or the Related Agreements, nor the consummation of the Transaction, do or will constitute a breach or default under such license, cause the forfeiture or termination of any right under such license, or materially impair the right to use, make, market, license, sell, offer for sale, import, copy, distribute or dispose of any Relevant IP Rights or portion thereof. There are no royalties or other payments payable by any Seller Group Member or any third person as a result of the ownership, use, manufacture, marketing, license-in, sale, offering for sale, importing, copying, distribution, or disposition of any Relevant IP Rights by the Seller Group, and none shall become payable as a result of the execution, delivery or performance of this Agreement or the Related Agreements, or consummation of the Transaction. For the purpose of this Agreement, “Contracts” shall mean all contracts, leases, subleases, customer accounts, promises, commitments, undertakings, guarantees, warranties, representations, grant of rights, licenses, registrations, authorizations and agreements, and any and all claims, rights of setoff or recoupment, causes of action, accounts receivable, contract rights, accounts and/or rights to reciprocal compensation arising under or in connection therewith.

(f) No Seller Group Member is a party to or subject to any Contracts with any other person wherein or whereby such Seller Group Member has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, defend, hold harmless, guaranty or otherwise assume or incur any Liability or provide a right of rescission with respect to the infringement or misappropriation by any Seller Group Member or such other person of the Intellectual Property of any person in connection with the SPR Business.

(g) Each Relevant IP Right is valid, enforceable and subsisting, and except for the Requisite Actions, all necessary registration, maintenance and renewal fees in connection with such Relevant IP Rights have been paid and all necessary documents and certificates, including the notification of any change of the owner’s and/or applicant’s trade name or address in connection with such Relevant IP Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Relevant IP Rights. There are no actions that have not been taken by the Seller Group as of the Agreement Date nor any actions (other than those in

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relation to the Seller Party Restructuring which shall be completed on or before the Closing and the transactions contemplated under this Agreement) that must be taken by any Seller Group within sixty (60) days of the Agreement Date (including the payment of any registration, maintenance or renewal fees or the filing of any documents, applications or certificates for the purposes of maintaining, perfecting, preserving or renewing any Relevant IP Rights or the assignment thereof to the Seller Group). In each case in which any Seller Group Member has acquired any Relevant IP Rights from any person, the Seller Group Member has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights expressed to be acquired in such Relevant IP Rights (including, where applicable and to the extent permitted by all applicable laws, the right to seek past and future damages with respect to such Relevant IP Rights) (i) as of the Agreement Date, to CytoTrend WFOE, and (ii) immediately prior to the Closing, to the Seller.

(h) There is no Contract (including licenses) between any Seller Group Member and any other person with respect to Relevant IP Rights under which there is any dispute known to the Seller Group or its shareholders regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by a Seller Group Member thereunder.

(i) To the knowledge of the Seller Parties, no person is infringing or misappropriating any Relevant IP Rights.

(j) The Seller Group has taken all necessary steps to protect the Seller Parties’ rights in confidential information and trade secrets in connection with the Relevant IP Rights, and as of the Agreement Date, all of the SPR Business’ current and former employees and consultants have irrevocably assigned or otherwise transferred to the Group Companies all of their respective right, title and interest in the Relevant IP Rights. Immediately prior to the Closing, the Seller Group Members shall have assigned all of their respective right, title and interests in the Relevant IP Rights to the Seller, free and clear of any Liens. Without limiting the foregoing, the Seller Group has and uses all necessary efforts to enforce a policy requiring each current and former employee, consultant and contractor involved in the research and development of any nature related to the Relevant IP Rights to execute proprietary information, confidentiality and assignment agreements substantially in the form which has been approved in writing by CMED Sub (true and correct copies of which have been provided to CMED Sub), and all current and former employees, consultants and contractors involved in the research and development of any nature related to the Relevant IP Rights of the Seller Group Members in connection with the SPR Business have executed such an agreement. No current or former employee or consultant of the Seller Group or the SPR Business is in violation of any term in connection with covenant of any such agreement.

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(k) No Relevant IP Right is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Seller Group or may affect the validity, use or enforceability of the Relevant IP Rights.

(l) No Seller Group Member has any agreement or arrangement between such Seller Group Member and any person or entity that would permit such person or entity or any other party to obtain a copy of any Seller Party’s source code and program documentation (or any portion thereof) upon a change of control, or the liquidation, dissolution or winding up of the SPR Business or upon termination, breach or alleged breach of any contract or agreement between a Seller Group Member and such person or entity, or under any other circumstances in connection with the SPR Business. Without limiting the generality of the foregoing, no portion of the software products in connection with the Relevant IP Rights is subject to the provisions of any open source or other third party license agreement that (i) requires the distribution of source code in connection with the distribution of such software in object code form; (ii) prohibits or limits any Seller Group Member from charging a fee or receiving consideration in connection with sublicensing or distributing such licensed software (whether in source code or object code form); or (iii) allows a customer or requires that a customer have the right to decompile, disassemble or otherwise reverse engineer the software by its terms and not by operation of law.

(m) Section 3.8(m) of the Disclosure Schedule lists all software, documentation, or other material that is distributed, used by the SPR Business in any way, incorporated or made available as “free software,” “open source software” or under a similar licensing or distribution terms (“Open Source Materials”), including without limitation pursuant to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), GNU Free Documentation License (FDL), Logica Open Source License, Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards License (SISL), the Apache License, or any Creative Commons License (together, the “Open Source Terms”), and describes the manner in which such Open Source Materials were used (such description shall include whether the Open Source Materials were modified and/or distributed by the SPR Business). Each Seller Group Member has complied, and is in compliance with, all applicable Open Source Terms.

(n) No government funding, facilities of a university, college, other educational institution or research center, or funding from third parties was used in the development of the Relevant IP Rights. No current or former employees or consultants of the SPR Business performed services for the government, a university, college, other educational institution, or a research center during the time when such person was also performing services for the SPR Business, the performances of services for such entity of which has not and will not result in the claim, grant or right to any Relevant IP Rights to the entity for which such consultant provided services.

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(o) The SPR Business has complied with all laws and privacy policies relating to (i) the privacy of users of the products and services of the SPR Business and (ii) the collection, use, storage, and transfer of any personally identifiable information collected by the SPR Business or by third parties having authorized access to the record of the SPR Business. The execution, delivery, and performance of this Agreement, the Related Agreements and the consummation of the Transaction comply with all laws and regulations relating to privacy and each Seller Group Member’s privacy policies. The current and prior privacy policies of the Seller Group, including any policies on any Seller Group Member’s web site, are attached to Section 3.8(o) of the Disclosure Schedule.

(p) The disclosure by the Seller Group to the CMED Group, and the use and further disclosure by the CMED Group to other persons, of the Relevant IP Rights transferred to CMED Sub hereunder will not violate any privacy policy, data sharing agreement, confidentiality agreement, or non-disclosure agreement of which any Seller Group Member is a party, or infringe or violate the privacy rights of any third party.

(q) Section 3.8(q) of the Disclosure Schedule contains a list of all industry standards bodies or similar organizations that any Seller Group Member is now or ever was a member or promoter of, or a contributor to, or otherwise participated in. None of the Seller Group or the CMED Group or their respective Affiliates is or could be, as a result of such activities, obligated to grant or offer to any other Person (as defined below) any license or right to any Relevant IP Rights, or otherwise restricted or impaired in its ability to assert or enforce any Relevant IP Rights against any other Person. The Seller Group has provided to the CMED Group complete and accurate copies of all agreements, contracts, covenants, instruments, leases, commitments, licenses, policies and rules to which any Seller Group Member is a party or by which any Seller Group Member is bound relating to Intellectual Property rights of each standards body or similar organization identified in the Disclosure Schedule.

3.9 Governmental Authorization. Section 3.9 of the Disclosure Schedule accurately lists each consent, license, permit, certificate, grant or other authorization issued to any Seller Group Member by a Governmental Authority presently required by the Seller Group and presently held by the Seller Parties in connection with the Assets, PRC IP Rights and Relevant IP Rights (herein collectively called “Authorizations”). The Authorizations are in full force and effect and constitute all Authorizations required for the Seller Group with respect to the Assets, PRC IP Rights and Relevant IP Rights.

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3.10 Litigation. There is no action, suit or proceeding of any nature pending, or, to the Seller Parties’ knowledge, threatened, before any court or administrative agency against any Seller Group Member, the Assets, PRC IP Rights and Relevant IP Rights, nor, to the knowledge of the Seller Parties, is there any reasonable basis therefore. There is no investigation pending or, to the Seller Parties’ knowledge threatened, against any Seller Group Member, the Assets, PRC IP Rights and Relevant IP Rights (nor, to the knowledge of the Seller Parties, is there any reasonable basis therefore) by or before any Governmental Authority. No Governmental Authority has at any time challenged or questioned the legal right of the Seller Group to hold any interest in the Assets, PRC IP Rights and Relevant IP Rights.

3.11 Minutes. The minutes of the Seller Group furnished to counsel for CMED constitute the entirety and the only minutes of the board of directors or other supervisory body of the Seller Group and all committees thereof, and of the meetings of the security holders of the Seller Group, and contain true and accurate copies of all resolutions adopted by the board of directors or other supervisory body of the Seller Group and all committees thereof, and their respective security holders, in each case since the time of incorporation or formation.

3.12 Environmental Matters.

(a) Hazardous Material. No Seller Group Member has: (i) operated any underground storage tanks at any property that has at any time been owned, operated, occupied or leased by such entities; or (ii) released any material amount of any substance that has been designated by any Governmental Authority or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as hazardous substances, hazardous waste, or similar classification pursuant to the applicable law (a “Hazardous Material”). No Hazardous Materials are present, as a result of the deliberate actions of any Seller Group Member, or, to the knowledge of the Seller Parties, as a result of any actions of third parties or otherwise, in, on or under any property in a manner that would violate applicable law in effect on or before the date hereof, including the land and the improvements, ground water and surface water thereof, that any Seller Group Member has at any time owned, operated, occupied or leased.

(b) Hazardous Materials Activities. The Seller Group has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Agreement Date, nor has any Seller Group Member disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as “Hazardous Materials Activities”) in violation of any rule, regulation, treaty or statute promulgated by any Governmental Authority in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity.

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(c) Permits. The Seller Group currently holds all environmental approvals, permits, licenses, clearances and consents (the “Environmental Permits”) necessary for the conduct of the Seller Group’s Hazardous Material Activities, respectively, and other businesses of the Seller Group as such activities and businesses are currently being conducted and proposed to be conducted.

(d) Environmental Liabilities. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of the Seller Parties, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Seller Group. The Seller Parties are not aware of any fact or circumstance that could involve any Seller Group Member in any environmental litigation or impose upon any Seller Group Member in any environmental Liability.

3.13 Brokers’ and Finders’ Fees. The Seller Group and their shareholders (direct or indirect) have not incurred, nor will they incur, directly or indirectly, any Liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Related Agreements or the consummation of the Transaction.

3.14 Labor Matters.

(a) No Seller Group Member is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by any Seller Group Member or the SPR Business, and currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit that could affect any Seller Group Member or the SPR Business.

(b) There are no controversies, strikes, slowdowns or work stoppages pending or, to the knowledge of the Seller Parties, threatened between any Seller Group Member and any of the Seller Group Member’s or the SPR Business’ employees, and no Seller Group Member has experienced any such controversy, strike, slowdown or work stoppage within the past (3) three years.

(c) No Seller Group Member has breached or otherwise failed to comply with the provisions of any collective bargaining or union contract in respect of the SPR Business and there are no grievances outstanding against any Seller Group Member under any such agreement or contract.

(d) The Seller Group has been and is in compliance with all applicable laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority. No Seller Group Member is liable for any arrears of wages or any taxes or penalties with respect to the foregoing.

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(e) There is no claim with respect to employment discrimination, payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Authority with respect to any persons currently or formerly employed by or consulting for any Seller Group Member or the SPR Business.

3.15 Employees of the Business.

(a) All current and former employees and consultants of the Seller Group in relation to the SPR Business are under written obligation to the relevant Group Company, as applicable, to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment or service during such employment or service and for a reasonable period thereafter and to assign to the relevant Group Company, all inventions made by them within the scope of their employment or service. Immediately prior to the Closing, all confidential or proprietary information assigned by current and former employees and consultants of any Seller Group Member in relation to the SPR Business, to the extent related to the Assets, PRC IP Rights and Relevant IP Rights, have been assigned by the relevant Group Company to the Seller or CytoTrend WFOE. To the knowledge of the Seller Parties, no current or former employee or consultant of the Seller Parties in relation to the SPR Business is in violation of any term of any employment agreement, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer restricting the right of any such person or entity to be employed or otherwise engaged by CMED, CMED Sub, or any Seller Party because of the nature of the SPR Business or the use of trade secrets or proprietary information of others.

(b) Section 3.15(b) of the Disclosure Schedule contains a true, complete and correct list setting forth (i) the names, job descriptions/titles, current compensation rate (including but not limited to salary, commission and bonus compensation, and withholdings (including social insurance and social housing withholding)), date of hire, vacation accrual rate and accrued vacation time of the employees and consultants of the SPR Business (“Employees”), and (ii) the amounts of any and all 13^th month bonuses, annual wage supplements or similar bonuses. No Seller Group Member has received notice from any Employee that he or she is terminating his or her employment or consultancy with the Seller Group or the SPR Business, and to the knowledge of the Seller Parties, no Employee intends to terminate his or her employment or consultancy with the Seller Group or the SPR Business, as the case may be, except as specifically required pursuant to this Agreement.

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3.16 Insurance. Section 3.16 of the Disclosure Schedule lists all insurance policies and fidelity bonds covering the Assets, PRC IP Rights and Relevant IP Rights (if any). There is no claim by any Seller Group Member pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid, and the Seller Group is otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Seller Parties have no knowledge of any threatened termination of, change to named insured under, premium increase or other material amendment with respect to, any of such policies.

3.17 Certain Advances; Guaranties. There are no receivables in connection with the Assets, PRC IP Rights and Relevant IP Rights owing by any director, officer, employee, consultant of the Business or owing by any Affiliate of any director, officer, employee, or consultant of the Business. No Seller Group Member has agreed to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any Liability of any other Seller Group Member in connection with the SPR Business.

3.18 Compliance with Laws. The Seller Group has, in respect of the Assets, PRC IP Rights and Relevant IP Rights, complied in all material respects with, is not in violation in any material respect of, and has not received any notices of violation with respect to, any foreign (including PRC, Hong Kong and British Virgin Islands), federal, state or local statute, law or regulation.

3.19 Warranties; Indemnities. No Seller Group Member has given any warranties or indemnities relating to the Assets, PRC IP Rights and Relevant IP Rights in connection with the SPR Business except as set forth in Section 3.19 of the Disclosure Schedule.

3.20 Complete Copies of Materials. The Seller Parties have delivered true and complete copies of each document that has been requested by CMED or its counsel in respect of the SPR Business or in respect of these representations and warranties.

3.21 Offers. Since April 1, 2008, the Seller Group, its shareholders (direct and indirect), directors, officers, employees, consultants, agents and representatives have suspended or terminated, and have the legal right to suspend or terminate, all negotiations and discussions with respect to any offer or proposal for, or any indication of interest in, other than the Transaction, any (i) sale, license, disposition or acquisition of all or a material portion of the Assets, PRC IP Rights and Relevant IP Rights, (ii) issuance, grant, disposition or acquisition of (A) any shares or other equity security of any Seller Group Member or its Affiliates, (B) any option, call, warrant or right (whether or not immediately exercisable) to acquire any shares of any Seller Group Member or its Affiliates, or (C) any security, instrument or obligation that is or may become convertible into or exchangeable for any share or other equity security of any Seller Group Member or its Affiliates; or (iii) any merger, consolidation, business combination, share exchange, reorganization or similar transaction involving any Seller Group Member or its Affiliates.

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3.22 Corporate Approvals. The boards of directors or other supervisory bodies, as applicable, of each Seller Group Member have unanimously approved this Agreement, the Related Agreements, and the consummation of the Transaction.

3.23 Certain Business Practices.

(a) The Seller Group has complied with the U.S. Foreign Corrupt Practices Act (“FCPA”) and any applicable PRC anti-corruption laws with respect to the SPR Business. No Seller Group Member has, to obtain or retain business for the SPR Business in contravention of the FCPA and any applicable PRC anti-corruption laws, directly or indirectly offered, paid or promised to pay, or authorized the payment of, any money or other thing of value (including any fee, gift, sample, travel expense or entertainment with a value in excess of US$100 in the aggregate to any one individual in any year) or any commission payment to: (i) any person who is an official, officer, agent, employee or representative of any Governmental Authority or of any existing or prospective customer (whether or not government owned); (ii) any political party or official thereof; (iii) any candidate for political or political party office; or (iv) any other individual or entity; while knowing or having reason to believe that all or any portion of such money or thing of value would be offered, given, or promised, directly or indirectly, to any such official, officer, agent, employee, representative, political party, political party official, candidate, individual, or any entity affiliated with such customer, political party or official or political office (collectively, “Prohibited Payments”).

(b) Each Seller Group Member has made all payments relating to the SPR Business to third parties in compliance with the laws of the PRC, US (regardless of whether the Seller Group Members are currently subject to US law) and any other applicable jurisdiction.

(c) Each transaction in respect of the SPR Business is properly and accurately recorded on the books and records of the Seller Group, and each document in respect of the SPR Business upon which entries in the Seller Group’s books and records are based is complete and accurate in all respects. The Seller Group maintains a system of internal accounting controls adequate to insure that the Seller Group maintains no off-the-books accounts and that the Seller Group’s assets are used only in accordance with the Seller Group’s management directives.

(d) The Seller Group has at all times been in compliance with all legal requirements relating to export control and trade embargoes. No product sold or service provided by the SPR Business during the last five (5) years has been, directly or indirectly, sold to or performed on behalf of Cuba, Iraq, Iran, Libya or North Korea.

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(e) The Seller Group has not violated the anti-boycott prohibitions contained in 50 U.S.C. 2401 et seq. or taken any action that can be penalized under Section 999 of the Code. During the five (5) years immediately preceding the Closing Date, no Seller Group Member has been a party to, or a beneficiary under or performed any service or sold any product of the SPR Business to customers in Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, United Arab Emirates or the Republic of Yemen.

3.24 Disclosure. Each Seller Group Member has disclosed to CMED and CMED Sub in writing all material information relating to the SPR Business, the Agreement, the Related Agreements and the consummation of the Transaction. No representation or warranty contained in this Agreement or the Related Agreements, and no statement contained in the Disclosure Schedule or in any certificate, list, business plan or other writing furnished to CMED, CMED Sub or its advisors (including the financials), contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.

SECTION 4.

GUARANTY

Each Seller Party hereby jointly, severally and unconditionally guarantees the full and complete discharge and performance of each and every other term, covenant, Liability, obligation and warranty contained in this Agreement and the Related Agreements by each other Seller Party (the “Seller Party Guaranty”). CMED hereby jointly, severally and unconditionally guarantees the full and complete discharge and performance of each and every other term, covenant, Liability, obligation and warranty contained in this Agreement and the Related Agreements by CMED Sub (“CMED Guaranty”, and together with the Seller Party Guaranty, the “Guarantees”). The Seller Party Guaranty and the CMED Guaranty are continuing guarantees of the obligations of the Seller Parties and CMED Sub, respectively. Each Seller Party and CMED acknowledges that there are no conditions precedent to the effectiveness of the Guarantees, and that the Seller Party Guaranty and the CMED Guaranty are in full force and effect and is binding on each Seller Party and CMED, respectively, as of the Agreement Date. Each Seller Party and CMED waives the benefit of any statute of limitations affecting any Seller Parties’ Liability or CMED Sub’s Liability hereunder or the enforcement thereof and the Seller Parties and CMED agree that any act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to the Seller Parties’ Liability or CMED’s hereunder.

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SECTION 5.

REPRESENTATIONS AND WARRANTIES OF CMED AND CMED SUB

CMED and CMED Sub jointly and severally represent and warrant to the Seller that the statements contained in this Section 5 are true and correct on or before the Agreement Date.

5.1 Organization, Good Standing and Qualification. Each of CMED and CMED Sub is a company or corporation duly organized, validly existing and, if applicable, in good standing under the laws of its jurisdiction of organization. Each of CMED and CMED Sub has the requisite corporate power and authority and all necessary approvals by the respective authorities to own, lease and operate its properties and to carry on its business as now being conducted, and to carry out the Transaction. Each of CMED and CMED Sub is duly qualified to transact business and in good standing in each jurisdiction where the failure so to qualify would have a Material Adverse Effect on its business or properties.

5.2 Authorization. All corporate action on the part of each of CMED, CMED Sub necessary for the authorization, execution and delivery of this Agreement and the Related Agreements, the performance of all obligations of CMED and CMED Sub hereunder and thereunder has been taken or will be taken prior to the Closing, and this Agreement and the Related Agreements, when executed and delivered by CMED and CMED Sub shall constitute the valid and legally binding obligations of CMED and CMED Sub, enforceable against CMED and CMED Sub in accordance with their respective terms except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors’ rights generally, or (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

5.3 No Violation. Neither the execution and delivery of this Agreement or the Related Agreements nor the consummation of the Transaction, each by CMED or CMED Sub, will violate any provisions of the charter documents of CMED or CMED Sub or violate, or be in conflict with, any statute or law or any judgment, decree, order, regulation, or rule of any Governmental Authority that CMED or CMED Sub is subject to.

SECTION 6.

ADDITIONAL AGREEMENTS

6.1 Expenses. All fees and expenses incurred in connection with this Agreement and the Transaction, including, without limitation, all legal, accounting, financial advisory, appraisal, consulting, broker, and all other fees and expenses of third parties and all bonus, retention, relocation (if applicable), incentive and severance payments and costs paid or incurred by the Parties in connection with the Transaction (collectively, “Transaction Expenses”), shall be borne by the party incurring such expense. For

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the avoidance of doubt, all Transaction Expenses of the Seller Parties shall be jointly and severally borne by the Seller Parties and shall not be payable by CMED or CMED Sub. The Seller Parties shall be jointly and severally responsible for any of their Liability caused by them and payment of any local, state, federal and foreign sales, use, stamp or similar Taxes or duties incurred by the Seller Parties in connection with the Transaction. CMED and CMED Sub shall be jointly and severally responsible for any of their Liability and payment of any local state, federal and foreign sales, use, stamp or similar Taxes or duties incurred by CMED and CMED Sub in connection with the Transaction.

6.2 Conduct of the Business. During the period from the Agreement Date to the Closing Date, the Seller Parties shall and shall cause the Seller Group to (except to the extent expressly contemplated by this Agreement, or as consented to in writing by CMED or CMED Sub in their reasonable discretion) carry on the SPR Business in the usual, regular and ordinary course, consistent with past practice, in substantially the same manner as heretofore conducted, to pay debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other obligations when due, and to use all reasonable efforts consistent with past practice and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing SPR Business shall be unimpaired. The Seller Parties shall and shall cause the Seller Group to promptly notify CMED and CMED Sub of any event or occurrence not in the ordinary course of the SPR Business, consistent with past practice, and of any event which could have a Material Adverse Effect on any Seller Group Member, the Assets, PRC IP Rights and Relevant IP Rights, or which could reasonably be expected to result in the representations and warranties of the Seller Parties in this Agreement or the Related Agreements not being true and correct as of the Closing, or prevent the Seller Group from performing or cause the Seller Group not to perform the Seller Parties covenants under this Agreement or the Related Agreements.

6.3 No Solicitation. Until the Long-Stop Date (as defined below), the Seller Parties shall not, and shall not permit any Seller Group Member and the members of the boards of directors of such Seller Group Member, and their respective Affiliates, officers, directors, employees or other agents of each of the foregoing, directly or indirectly, (a) take any action to solicit, initiate or encourage any Acquisition Proposal (as defined below) or (b) engage in negotiations with, continue negotiations with or disclose any nonpublic information relating to the SPR Business, (c) afford access to the properties, books or records of the SPR Business to, any person that has advised that it may be considering making, or that has made, an Acquisition Proposal, or (d) enter into any agreement with any Person providing for the acquisition of all or any portion of the SPR Business or any Seller Group Member. The Seller Parties will promptly (within 24 hours) notify CMED Sub in writing after receipt of any Acquisition Proposal or any notice that any person is considering making an Acquisition Proposal or any request for nonpublic information relating to the SPR Business or for access to the properties, books or records of the SPR Business by any person that

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has advised any Seller Group Member that it may be considering making, or that has made, an Acquisition Proposal and will keep CMED Sub fully informed of the status and details of any such Acquisition Proposal notice or request. For purposes of this Agreement, “Acquisition Proposal” shall mean any transaction involving: (i) the sale, license, disposition or acquisition of all or a material portion of the assets of the SPR Business or of any Seller Group Member; (ii) the issuance, grant, disposition or acquisition of (A) any capital stock or other equity security of any Seller Group Member, (B) any option, call, warrant or right (whether or not immediately exercisable) to acquire any capital stock or other equity security of any Seller Group Member, or (C) any security, instrument or obligation that is or may become convertible into or exchangeable for any capital stock or other equity security of any Seller Group Member; or (iii) any merger, consolidation, business combination, share exchange, reorganization or similar transaction involving any Seller Group Member.

6.4 Access to Facilities and Employees; Cooperation. For a period of five (5) years following the Agreement Date, the Seller Parties shall not, and shall not permit any Seller Group Member or other party to, dispose of or destroy any of the books and records of any of the Seller Group Member in their possession with respect to the Assets (or Designated Assets from and after Closing), PRC IP Rights and Relevant IP Rights, for any periods prior to the Survival Date (as defined below) without offering to turn over possession thereof to CMED Sub by written notice to CMED Sub at least thirty (30) days prior to the proposed date of such disposition or destruction. From and after the Agreement Date up to the Survival Date, each of the Seller Parties agrees to make available all books, records, facilities, employees, non-employee agents (such as patent and regulatory counsel) and information with respect to the Assets, PRC IP Rights and Relevant IP Rights necessary for CMED, CMED Sub and their respective Affiliates and advisors, and financing sources in their possession, power or control, excluding: (a) any such materials already provided by the Seller Parties to CMED or its respective Affiliates and advisors, (b) any such materials generated by CMED and its Affiliates and advisors after the Closing Date, and (c) any such materials related only to the Assets which are not the Designated Assets at Closing. Until the earlier of the termination of this Agreement or the Closing Date, the Seller Parties shall and shall cause the Seller Group Members and the members of the boards of directors of each of the foregoing shall allow CMED and CMED Sub and their respective Affiliates and advisors to have, upon reasonable notice, free access to the premises and the Employees for discussions regarding employment or consultancy with CMED, CMED Sub or their respective Affiliates, as applicable. The Seller Parties will use their respective best efforts to offer the Employees selected by CMED and CMED Sub for employment or consultancy with CMED or an Affiliate of CMED, as applicable.

6.5 Confidentiality. Each of CMED, CMED Sub and the Seller Parties shall, and the Seller Parties shall cause the Seller Group and its shareholders (direct and indirect) to, keep confidential and not make use of any information treated by any other Party as confidential (including, without limitation, the existence of this Agreement, the Related Agreements, the consummation of the Transaction or the failure of such a consummation), obtained from disclosing party concerning the assets, properties, business or

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operations of the other party other than to legal counsel, consultants, financial advisors, key employees, lenders and investment bankers where such disclosure is related to the performance of obligations under this Agreement or the consummation of the Transaction (all of whom shall be similarly bound by the provisions of this Section 6.5), except as may be required to be disclosed by applicable law or as may be required to obtain the consents, waivers or releases from any Governmental Authority or other third party. Each of the Seller Parties shall, and shall cause the Seller Group, its shareholders (direct and indirect) and Employees to, keep confidential and not make use of any Assets, PRC IP Rights and Relevant IP Rights, except as may be required to be disclosed by applicable law, as may be required to obtain the consents, waivers or releases from any Governmental Authority or other third party, or in connection with the authorized performance of duties as an employee or consultant of CMED or its Affiliates. Notwithstanding the foregoing, the foregoing confidentiality restrictions shall not apply to any information which (a) becomes generally available to the public through no fault of the receiving party or its employees, agents or representatives; (b) is independently developed by the receiving party without benefit of the above-described information (and such independent development is substantiated in writing), or rightfully received from another source on a non-confidential basis; (c) when such disclosure is required by a Governmental Authority or is otherwise required by law or is necessary to establish rights under this Agreement or any agreement contemplated hereby, provided that (i) the disclosing party has taken all reasonable efforts to limit the scope of such disclosure and to protect the confidential nature of the information disclosed and (ii) that the non-disclosing party shall provide prompt notice of such court order or requirement to the disclosing party to enable the disclosing party or non-disclosing party to seek a protective order or otherwise prevent or restrict such disclosure.

6.6 Public Announcements. No Party hereto shall without the prior written consent of the other parties (which consent shall not be unreasonably withheld) disclose to any third party (other than to legal counsel, consultants, financial advisors, key employees, lenders and investment bankers where such disclosure is related to the performance of obligations under this Agreement, the Related Agreements or the consummation of the Transaction) the existence of this Agreement, the identity of the other parties hereto or the Transaction except (i) as required by law, (ii) as reasonably necessary to obtain any consents, waivers or releases from any Governmental Authority or other third party, or (iii) as reasonably requested by any Governmental Authority. Notwithstanding the foregoing, following the Agreement Date, CMED and its Affiliates may disclose to third parties the existence of this Agreement, the identity of the other parties hereto or the Transaction without the prior written consent of the other Parties hereto.

6.7 Cooperation. Each Party will cooperate with the other Parties, their counsel and accountants in connection with any steps required to be taken as part of its obligations under this Agreement and the Related Agreements and the consummation of the Transaction, including without limitation, obtaining from the relevant Governmental Authorities of all consents, licenses, filings and registrations required under PRC law and other applicable law for the transfer and assignment of the Designated Assets,

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PRC IP Rights and Relevant IP Rights as contemplated under this Agreement. The Seller Parties will use their best efforts to cause all conditions to this Agreement to be satisfied as promptly as possible and to obtain all consents and approvals necessary for the due and timely performance of this Agreement and the Related Agreements, for the satisfaction of the conditions hereof and thereof, and to consummate the Transaction. No party will undertake any course of action inconsistent with this Agreement or which would make any representations, warranties or agreements made by such party in this Agreement untrue or any conditions precedent to this Agreement or the Related Agreements unable to be satisfied at or prior to the Closing.

6.8 Notification of Claims. Until the Survival Date, the Seller Parties shall promptly notify CMED Group in writing of the commencement or threat of any claims, litigation or proceedings against or affecting any of the Seller Parties or the Assets (or the Designated Assets from and after Closing), PRC IP Rights and Relevant IP Rights.

6.9 Release. Subject to the Closing, each Seller Party hereby agrees, and shall use its best efforts to cause the Seller Group, its successors, assigns and Affiliates to agree, to waive, release, and discharge CMED, CMED Sub, and their present and former subsidiaries, divisions, departments, predecessors, partners, joint ventures, directors, officers, shareholders, agents, employees, successors, assigns, and any and all other Affiliates from any and all claims, rights, demands, debts, obligations, damages or accountings of whatever nature in respect of the Assets, PRC IP Rights and Relevant IP Rights, that it may have or may have had, arising on or prior to the Closing Date (other than the rights and obligations hereunder or under the Related Agreements), whether known or unknown, asserted or unasserted other than acts or conduct constituting fraud or intentional misconduct; provided, however, that the foregoing waivers, releases and discharges do not affect in any respect the rights and obligations of the Parties pursuant to this Agreement and the Related Agreements. For the purpose of this Agreement, “Affiliate” means, with respect to any means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a Governmental Authority (or any department, agency, or political subdivision thereof) or any other type of entity (each, a “Person”), (a) any Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the specified Person; (b) any Person that is a director or officer of, partner in, or trustee of, or serves in a similar capacity with respect to, the specified Person or of which the specified Person is a director, officer, partner, or trustee, or with respect to which the specified Person serves in a similar capacity; or (c) any Person that directly or indirectly through one or more intermediaries is the beneficial owner of 10% or more of any class of equity securities of the specified Person or of which the specified Person is directly or indirectly through one or more intermediaries the owner of 10% or more of any class of equity securities. For purposes of this definition, “control” as applied to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.

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6.10 Further Acts.

(a) After the Closing Date, each Party hereto, at the request of and without any further cost or expense to the other parties (except as expressly provided in this Agreement), will take any further actions necessary or desirable to carry out the purposes of this Agreement and to vest in CMED Sub and CMED WFOE full title to all the Designated Assets, PRC IP Rights and Relevant IP Rights. In addition, without in any way limiting the generality of the foregoing, the Seller Parties hereby agree to, upon the request of CMED Group, take at such Seller Parties’ expense any and all further actions necessary or desirable to carry out the assignment or transfer of all Relevant IP Rights from the Seller to CMED Sub and the assignment or transfer of all PRC IP Rights from CytoTrend WFOE to CMED WFOE.

(b) After the Closing Date, if any Designated Assets, PRC IP Rights and Relevant IP Rights continue to be owned, held or titled by any Seller Party, then the Seller Parties shall within three (3) Business Days of its discovery of such ownership, holding or titling, or within three (3) Business Days of a request by CMED or CMED Sub, transfer and assign (or cause to be transferred and assigned) to CMED or any Person designated by CMED, all of such Seller Party’s right, title and interest in such property or asset. Such transfer or assignment shall be at the sole expense of the Seller Parties.

6.11 CytoTrend Non-Competition Covenant.

(a) For a period of five (5) years following the Closing (the “Restricted Period”), the Seller Parties shall not, directly or indirectly, and shall not cause or permit any other Seller Group Member or any Employee to, without the prior written consent of CMED or CMED Sub (i)(x) engage in a Competitive Business Activity (as defined below) anywhere in the Restricted Territory (as defined below), or (y) interfere with the SPR Business or business of the CMED Group or their respective Affiliates, or approach, contact or solicit any supplier, customers or potential suppliers or customers of the CMED Group or their respective Affiliates in connection with a Competitive Business Activity, and (ii) during the Restricted Period, the Seller Parties shall not, directly or indirectly, and shall not cause or permit any other Seller Group Member or Employee to, solicit, encourage, entice, influence, induce or take any other action which is intended to solicit, encourage, entice, influence, induce or has the effect of inducing, influencing or encouraging, any employee or consultant of the CMED Group or their respective Affiliates, or to terminate his or her employment with CMED, CMED Sub or their respective Affiliates.

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(b) For all purposes hereof, the term “Competitive Business Activity” shall mean (i) engaging in (with or without compensation), or managing or directing persons engaged in: (A) any business which provides products, services or technologies substantially similar to the SPR Business or the business currently conducted or proposed to be conducted by CMED or its Affiliates, or (B) any business relating to the SPR Business or the business currently conducted or proposed to be conducted by CMED or its Affiliates; (ii) acquiring or having an ownership interest in any firm, partnership, corporation, entity or business engaged in the activities described under clauses (i) of this Section 6.11 (except for passive ownership of one percent (1%) or less of any entity whose securities have been listed or quoted on the NASDAQ Global Select Market, New York Stock Exchange, the Main Board of the Tokyo Stock Exchange, the Main Board of the Hong Kong Stock Exchange or any other recognized stock exchange(s)); or (iii) participating in the financing, operation, management or control of any firm, partnership, corporation, entity or business described in clause (i) of this sentence or engaged in any of the activities described in clauses (i) or (ii) of this sentence. For all purposes hereof, the term “Restricted Territory” shall mean worldwide. For the avoidance of doubt, the operation of the PCR Business and the holding of the Excluded IP and the Excluded Asset shall not be deemed a Competitive Business Activity; provided that the Excluded IP and Excluded Asset are not otherwise used by the Seller Parties or their Affiliates in furtherance of a Competitive Business Activity. The Parties recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability of covenants similar to those set forth in this Section 6.11. It is the intention of the Parties that the provisions of this Section 6.11 shall be enforced to the fullest extent permissible under the laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such laws or policies) of any provisions of this section shall not render unenforceable, or impair, the remainder of the provisions of this section. Accordingly, if any provision of this Section 6.11 shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction.

6.12 Restructuring. The Seller Parties shall, and shall cause the Seller Group, to take all requisite action so that prior to the Closing, all of the Relevant IP Rights of CytoTrend WFOE shall have been transferred to the Seller in compliance with all applicable laws, and free and clear of any Liens (“Seller Party Restructuring”). The Seller Parties shall, and shall cause the Seller Group and their Affiliates to, provide CMED Sub or its advisors with copies of all draft agreements, filings, applications and memorandums regarding the Seller Party Restructuring, and provide CMED with no less than five (5) days prior written notice to approve or comment on the Seller Party Restructuring. The Seller Parties shall, and shall cause the Seller Group to, also use their best efforts to assist CMED and its Affiliates to obtain all relevant licenses, permits and contractual rights necessary for the Designated Assets, PRC IP Rights and Relevant IP Rights.

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6.13 Certain Business Practices. The Seller Parties shall, and shall cause the Seller Group and their Affiliates to, comply with the FCPA and any applicable PRC anti-corruption laws with respect to the SPR Business. No Seller Party shall, directly or indirectly, make or permit to be made any Prohibited Payments with respect to the SPR Business, and shall make, and cause to be made, all payments in compliance with the laws of the PRC, US (regardless of whether the Seller Parties are currently subject to US law) and any other applicable jurisdiction. The Seller Parties shall, and shall cause the Seller Group to, maintain a system of internal accounting controls adequate to insure that the Seller Group maintain no off-the-books accounts and that the Seller Group’s assets are used only in accordance with the Seller Group’s management directives. The Seller Parties shall, and shall cause the Seller Group, to at all times remain in compliance with all legal requirements relating to export control and trade embargoes with respect to the SPR Business. The Seller Parties shall not, and shall cause the Seller Group not to, violate the anti-boycott prohibitions contained in 50 U.S.C. 2401 et seq. or take any action that can be penalized under Section 999 of the Code, as applied to the SPR Business. No Seller Group Member shall be a party to, or a beneficiary under or perform any service on behalf of the SPR Business or sell any product on behalf of the SPR Business in Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, United Arab Emirates or the Republic of Yemen.

6.14 Transitional Technical Support. Upon the request of CMED or its Affiliates, the Seller Parties shall, and shall cause the Seller Group and their Affiliates to, promptly provide CMED or its Affiliates with transitional technical support to operate the Designated Assets, PRC IP Rights and/or Relevant IP Rights.

SECTION 7.

CONDITIONS; CLOSING ACTIONS; DELIVERABLES

7.1 Conditions to Obligations of Each Party. The respective obligations of each party to this Agreement to consummate and effect the Closing and the Transaction shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by agreement of each of CMED and the Seller hereto:

(a) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Transaction or limiting the CMED Group’s ownership of or interest in the Designated Assets, PRC IP

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Rights and Relevant IP Rights immediately following the Closing shall be in effect, nor shall any proceeding brought by any Governmental Authority, foreign or domestic, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transaction, which makes the consummation of such transactions illegal.

(b) Governmental Approval. The Parties shall have obtained from each Governmental Authority all approvals, waivers and consents, if any, necessary for consummation of or in connection with the execution and delivery of this Agreement and the Related Agreements, and the consummation of the Transaction.

(c) Completion of Seller Restructuring. Seller shall have acquired all of the Relevant IP Rights, in compliance with all applicable laws, and free any clear of any Liens.

7.2 Conditions to Obligations of the Seller Parties; Actions Taken by CMED Sub. The obligations of the Seller Parties to consummate and effect the Closing and the Transaction shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by the Seller (on behalf of the Seller Parties):

(a) Representations, Warranties and Covenants. (i) Each of the representations and warranties of CMED and CMED Sub in this Agreement that is expressly qualified by a reference to materiality shall be true in all respects as so qualified, and each of the representations and warranties of CMED and CMED Sub in this Agreement that is not so qualified shall be true and correct in all material respects, on and as of the Closing as though such representation or warranty had been made on and as of the Closing (except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date), and (ii) CMED and CMED Sub shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by CMED and CMED Sub as of the Closing.

(b) Compliance Certificate of CMED. Seller shall have been provided with a certificate executed on behalf of a director or officer of CMED Sub to the effect that, as of the Closing, each of the conditions set forth in Section 7.2(a) above has been satisfied with respect to CMED and CMED Sub.

7.3 Deliverables to CMED; Actions Taken by the Seller; Conditions. The obligations of CMED and CMED Sub to consummate and effect the Closing and the Transaction shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, any of which may be waived, in writing, by CMED Sub:

(a) Representations, Warranties and Covenants. (i) Each of the representations and warranties of the Seller Parties in this Agreement that is expressly qualified by a reference to materiality shall be true in all respects as so qualified, and each of the representations and warranties of the Seller Parties in this Agreement that is not so qualified shall be true and correct in all material respects, on and as of the Closing as though such representation or warranty had been made on and as of the Closing (except that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date) and (ii) the Seller Parties shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by them as of the Closing.

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(b) No Material Adverse Changes. There shall not have occurred any Material Adverse Effect on any of the Seller Group, the Designated Assets, PRC IP Rights and Relevant IP Rights.

(c) Due Diligence. CMED Sub shall have completed its financial, tax, business and legal due diligence to its satisfaction.

(d) Certificates of the Seller.

(i) Seller Party Certificates. CMED Sub shall have been provided with certificates executed by the directors of the Seller and Supreme Well, certifying that as of the Closing, each of the conditions set forth in Section 7.1 and this Section 7.3 (other than Sections 7.3(c),(g), and (h)) have been satisfied;

(ii) Seller Director/Secretary Certificates. CMED Sub shall have been provided with a certificate executed by a director or the secretaries of the Seller Parties on behalf of such entities certifying:

(A) resolutions duly adopted by the boards of directors of each of the Seller Parties, authorizing the Transaction and the execution of this Agreement and the execution, performance and delivery of all agreements, documents and the Transaction;

(B) the incumbency of the officers of the Seller Parties executing this Agreement and all agreements and documents contemplated hereby.

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(e) Amendments to Contracts; Third Party Consents. CMED Sub shall have received:

(i) An executed invention assignment and general release agreement signed by CytoTrend WFOE and each current and former Employee substantially in the form of Exhibit 7.3(e)(i);

(ii) Evidence reasonably satisfactory to CMED Sub that the representations and warranties in Section 3.8(n) above are true and correct (if applicable);

(iii) Executed consents from third party licensors or assignors for the Designated Assets, PRC IP Rights and Relevant IP Rights, in a form reasonably acceptable to CMED Sub;

(iv) Other consents reasonably requested by CMED Sub, upon completion of its due diligence review; and

(v) In addition to the consents, waivers, approvals and authorizations described in (i) through (iv) above, CMED Sub shall have been furnished with evidence satisfactory to it that the Seller Group has obtained those consents, waivers, approvals or authorizations of those Governmental Authorities and third parties whose consent or approval are required in connection with this Agreement, the Related Agreements, and the consummation of the Transaction, including without limitation, the Seller Party Restructuring.

(f) Assignment Agreements. The Relevant IP Rights Assignment Agreement shall have been duly executed by CMED Sub and the Seller and delivered to CMED Sub. The PRC IP Rights Assignment Agreement shall have been duly executed by CMED WFOE and CytoTrend WFOE and delivered to CMED WFOE.

(g) Anti-Trust Approvals and Waiting Periods. Any waiting period (and extension thereof) application to the consummation of the Transaction under applicable law will have expired or been terminated.

(h) Releases. CMED Sub shall have received duly and validly executed copies of all agreements, instruments, certificates and other documents, in form and substance satisfactory to CMED Sub, that are necessary or appropriate to evidence the release of any and all Liens on the Designated Assets, PRC IP Rights and Relevant IP Rights arising out of, resulting from or in connection with any loans, guarantees or other similar arrangements between or among the Seller Group or their Affiliates or any third party creditors of any of the foregoing.

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(i) Hong Kong and US Legal Opinion. CMED and CMED Sub shall have received a legal opinion from K&L Gates, legal counsel to the Seller Parties or such other legal counsel acceptable to CMED and CMED Sub, with respect to matters of Hong Kong and US law, in a form acceptable to CMED and CMED Sub.

(j) PRC Legal Opinion. CMED, CMED Sub and CMED WFOE shall have received a legal opinion from PRC counsel to the Seller Parties or CytoTrend WFOE acceptable to CMED and CMED Sub, with respect to matters of PRC law, which opinion shall be in form and substance satisfactory to CMED Sub.

(k) BVI Legal Opinion. CMED and CMED Sub shall have received a legal opinion from Conyers Dill & Pearman, British Virgin Islands counsel to the Seller Parties, or such other legal counsel acceptable to CMED and CMED Sub, with respect to matters of British Virgin Islands law, which opinion shall be in form and substance satisfactory to CMED Sub.

(l) Transferred Employees. Each of the Employees offered employment or consultancy by CMED or an Affiliate of CMED in accordance with Section 1.11 above shall have accepted (effective upon the Closing), executed and delivered an Employment Agreement and Proprietary Information and Inventions Agreement (for employees) or a Consulting Agreement and Proprietary Information and Inventions Agreement (for consultants) in forms and substance satisfactory to CMED (together, the “Employment and Consulting Agreements”).

(m) Updated Schedules. CMED shall have approved the updated PRC IP Rights Schedule and Relevant IP Rights Schedule provided by the Seller pursuant to Section 1.4 above.

(n) Filings; Recordation. The Seller shall have filed with the U.S. Patent and Trademark Office the assignment of the U.S. patent applications referred to in I of Schedule 1.2(c) attached hereto from the Seller to CMED Sub; provided that the Seller hereby agrees to use its best efforts to effect the recordation of such assignment on or as soon as practicable after the Closing Date and in any event no later than three (3) Business Days following the Closing. In addition, CytoTrend WFOE shall have filed with the relevant PRC Governmental Authorities the assignment of the PRC IP Rights from CytoTrend WFOE to CMED WFOE; provided that the Seller hereby agrees to cause CytoTrend WFOE to complete the recordation of such assignment on or as soon as practicable after the Closing Date and in any event no later than ten (10) Business Days after the Closing Date, in the case of PRC patent applications, and sixty (60) Business Days after the Closing Date, in the case of copyright or similar applications.

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SECTION 8.

SET-OFF AND INDEMNIFICATION

8.1 Survival of Representations and Warranties. All covenants to be performed prior to the Closing, and all representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the consummation of the Closing and continue for two (2) years following the Closing Date (the “Survival Date”); provided, however, that if any claims for indemnification have been asserted with respect to any such representations and warranties prior to the Survival Date, the representations and warranties on which any such claims are based shall continue in effect until final resolution of any claims, provided, further, that all claims based on fraud and intentional misrepresentation shall survive indefinitely. All covenants to be performed, in whole or in part, after the Closing shall continue until the Survival Date, provided, that all covenants and agreements in Section 6.11 above shall survive until the fifth (5^th) anniversary of the Closing Date, and all indemnification obligations shall survive in accordance with Section 8.3(b)(iii) below.

8.2 Set-Off. In connection with Section 1.9 above, any and all amounts claimed by an Indemnified Person (as defined below) pursuant to Section 8.3 below in connection with Damages (as defined below) for which the Indemnified Person has delivered a notice to the Seller may be set-off, at CMED’s sole direction, any unpaid amounts by the CMED Group due to the Seller. In the event the Seller objects to CMED’s set-off, the dispute shall be subject to Section 8.5 below, provided, that CMED Group shall not be required to make any unpaid amounts that it has set-off unless, until and to the extent it is so ordered to do so in a final and binding award of an arbitration tribunal pursuant to an arbitration conducted in accordance with Section 8.5 below.

8.3 Indemnification.

(a) Indemnification Obligations. Subject to the limitations set forth in this Section 8, from and after the Closing Date, each of the Seller Parties shall jointly and severally protect, defend, indemnify and hold harmless CMED, CMED Sub and their respective Affiliates, officers, directors, employees, representatives and agents (each, an “Indemnified Person” and collectively, the “Indemnified Persons”) from and against any and all losses, costs, amounts paid or payable, damages, liabilities, fees (including without limitation reasonable attorneys’ fees) and expenses (collectively, the “Damages”), that any of Indemnified Persons incurs by reason of or in connection with:

(i) any claim, demand, action or cause of action alleging misrepresentation, breach of, or default in connection with, any of the representations, warranties, covenants or agreements of any of the Seller Parties contained in this Agreement, the Related Agreements, and any exhibits or schedules attached hereto or thereto;

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(ii) any Damages for Known Liabilities (as defined below) up to the Survival Date;

(iii) any failure of any of the Seller Parties to perform any of its covenants, obligations or agreements under this Agreement;

(iv) any claims brought prior to the second (2^nd) anniversary of the Closing relating to title, infringement, misappropriation or unlawful use by CMED or its Affiliates of the Relevant IP Rights (excluding, for the avoidance of doubt, claims brought relating to title, infringement, misappropriation or unlawful use by CMED or its Affiliates with respect to improvements and derivative works of the PRC IP Rights or Relevant IP Rights developed exclusively by CMED or its Affiliates from and after the Closing);

(v) any claims brought by a Governmental Authority, shareholder or Employee in respect of Employees who were or who are terminated by a Seller Group Member prior to or as of the Closing (excluding, for the avoidance of doubt, any claims brought by Transferred Employees of the CMED or its Affiliates after the Closing arising out of the Employment and Consulting Agreements executed by such Transferred Employees and CMED or its applicable Affiliates);

(vi) any Transaction Expenses of the Seller Parties that remain unpaid as of the Closing;

(vii) any fraud or intentional misrepresentation by any Seller Group Member, or any of their respective employees, officers, directors or shareholders (direct or indirect) with respect to the subject matter of any of the representations, warranties, covenants, obligation or agreements contained or contemplated by this Agreement or the Related Agreements; and

(viii) any termination of service of the Transferred Employees, whether by CMED or its applicable Affiliate, on one hand, or by the Transferred Employee, as applicable, on the other hand, on or prior to or on the fifth (5^th) anniversary of the Closing Date, unless and to the extent such termination resulted from an intentional breach by CMED, CMED Sub or their Affiliates (as the case may be) of any employment agreement with any Transferred Employee.

In determining the amount of any Damages in respect of the failure of any representation or warranty to be true and correct, any materiality standard or qualification (including a Material Adverse Effect qualification) contained in such

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representation or warranty shall be disregarded. The Seller Parties shall have no right of contribution, indemnification or similar right from CMED or CMED Sub. Each of the Seller Parties is individually referred to in this Section 8 as the “Indemnifying Person”, and collectively, the “Indemnifying Persons”.

(b) Limitations.

(i) The Seller Parties shall not be required to indemnify an Indemnified Party or be liable to CMED, CMED Sub or their Affiliates for any Liability under this Agreement or the Related Agreements unless the aggregate amount of all Damages and Liability exceeds US$100,000 (“Basket”), after which the Seller Parties shall be responsible for all Damages and Liability, including the Basket;

(ii) The maximum Liability of the Seller Parties under this Agreement or the Related Agreements shall be limited to the aggregate amount of Consideration actually paid to the Seller Parties under this Agreement (including the PRC Allocated Closing Value); provided, however, that nothing herein shall limit the Liability: (A) of any Seller Party for any breach of a representation or warranty, covenant or agreement pursuant to Section 9.2 below if the Transaction does not close, or (B) of any officer, director, shareholder or other equity holder of the Seller Parties for such Person’s fraud or intentional misrepresentation. Nothing contained in this Section 8 is intended to limit the right of CMED to terminate this Agreement pursuant to Section 9.1 below;

(iii) Except for (A) claims in connection with fraud or intentional misrepresentation, which shall survive indefinitely; and (B) claims in connection with a breach of or default of the covenants and agreements in Section 6.11 above (whether or not through an indemnification claim brought under Section 8.3(a)(iii) above), or an indemnification claim in connection with Section 8.3(a)(viii) above), which shall survive until the fifth (5^th) anniversary of the Closing Date, no claim may be initiated against any of the Seller Parties after the Survival Date; and

(c) Known Liabilities. “Known Liabilities” shall mean all Damages incurred related to any compensation expenses (including payments made to employees in connection with covenants not to compete) made to the Transferred Employees as contemplated under this Agreement to the extent greater than the lesser of: (i) the compensation paid to such Transferred Employees while employed with the Seller Party in the twelve (12) months preceding the Closing; or (ii) the compensation payable to similarly situated employees of CMED and its Affiliates, up to the period of 5 years from the Closing Date. The foregoing shall be considered Damages without regard to whether or not such Damages are disclosed on the Disclosure Schedule.

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8.4 Method of Asserting Claims. Whenever any claim shall arise for indemnification hereunder, the Indemnified Party shall promptly notify the Seller in writing of the claim and, when known. The facts constituting the basis for such claim, provided, that failure to give such notice shall not affect any rights or remedies of the Indemnified Party hereunder with respect to the indemnification of Damages except to the extent the Indemnifying Party is materially and irrevocably prejudiced thereby. In the event of any claim for indemnification hereunder resulting from any claim by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the Damages arising therefrom, which estimate may be the amount claimed by such third party.

8.5 Resolution of Conflicts; Arbitration.

(a) Negotiation Between Parties. The Parties agree to negotiate in good faith to resolve any dispute under this Agreement and the Related Agreements, and for such purpose the Seller (including the Selling Parties), and CMED (including CMED Sub) shall each nominate one senior officer of the rank of Vice President or higher as its representative. These representatives shall, within fifteen (15) days of a written request by either Party to call such a meeting, meet in person and alone (except for one assistant for each Party) and shall attempt in good faith to resolve the dispute. If the dispute cannot be resolved by such senior managers within thirty (30) days of the written meeting request, either Party may thereafter commence appropriate legal proceedings in accordance with Section 8.5(b) below.

(b) Arbitration. Any dispute not resolved under Section 8.5(a) above shall be resolved through arbitration pursuant to this Section 8.5(b). The arbitration shall be conducted in Hong Kong, administered by the Hong Kong International Arbitration Centre (“HKIAC”) in accordance with the UNCITRAL Rules in effect at the time of the arbitration. There shall be three arbitrators. The Seller and CMED shall each select one arbitrator. The Party commencing the arbitration shall nominate his arbitrator at the time of filing the demand for arbitration. The respondent shall nominate his arbitrator within thirty (30) days after receiving the demand for arbitration. The two nominated arbitrators shall select a third arbitrator. Each arbitrator shall be qualified to practice law in New York and shall have experience in connection with mergers and acquisitions in the PRC. If either Party does not appoint an arbitrator within the time set forth above, the relevant appointment shall be made by HKIAC. The arbitration proceedings shall be conducted in English. The arbitrators shall have the authority to award attorney’s fees and other costs and expenses of the arbitration as they deem just and appropriate under the circumstances. Pending appointment of the arbitration tribunal, any Party shall be entitled to seek preliminary injunctive relief from any court of competent jurisdiction. Once the arbitration tribunal is appointed, such

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tribunal shall have exclusive authority to order such relief. Any award of the arbitration tribunal, whether it is for interim, provisional or final relief, shall be binding upon the disputing Parties, and any Party may apply to a court of competent jurisdiction for enforcement of such award. The Parties shall cooperate and use its respective best efforts to take all actions reasonably required to facilitate the prompt enforcement in any jurisdiction of any arbitration award made by the tribunal.

8.6 Third-Party Claims.

(a) For any claim by a Person who is not a Party (“a Third Party Claim”) for which the Indemnifying Party has indemnification obligations under this Agreement or the Related Agreements, the Indemnifying Party at its sole expense may, upon written notice to the Indemnified Party, assume the defense of any such claim if the Indemnifying Party acknowledges to the Indemnified Party in writing its obligation to indemnify the Indemnified Party with respect to all elements of such claim, and thereafter diligently conducts the defense thereof with counsel reasonably acceptable to the Indemnified Party. The Indemnified Party shall be entitled to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate therein at their own expense. The Indemnifying Party may not consent to the entry of any judgment or enter into any settlement which does not require the claimant to give the relevant Indemnified Parties an unconditional release from all Liability with respect to such claims. In the event it is determined by a final, binding and non-appealable award by an arbitration tribunal pursuant to Section 8.5 above that the Indemnified Party was not entitled to indemnification by the Indemnifying Party under this Agreement and the Related Agreements (as applicable), the Indemnifying Party shall be entitled to be reimbursed by the Indemnified Party for all reasonable attorneys’ fees and costs incurred by the Indemnifying Party in connection with investigating and defending the Third Party Claim.

(b) If the Indemnifying Party does not assume the defense of the Third Party Claim for which the Indemnifying Party has indemnification obligations under this Agreement or the Related Agreements within thirty (30) days after written notice thereof from the Indemnified Party or does not thereafter diligently conduct such defense in a manner acceptable to the Indemnified Party, the Indemnified Party may defend against such claim in such manner as it may reasonably deem appropriate (including settling such claim on such terms as the Indemnified Party may deem appropriate) at the sole cost and expense of the Indemnifying Party, provided that the Indemnifying Party uses its commercially reasonable efforts to defend the claim diligently.

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SECTION 9.

TERMINATION

9.1 Termination. Notwithstanding anything herein to the contrary, this Agreement may be terminated and the Transaction abandoned at any time prior to the Closing Date:

(a) By mutual written consent of CMED Sub, on one hand, and the Seller, on the other hand;

(b) By CMED Sub, if any representation or warranty of the Seller Parties shall be untrue, incomplete or incorrect, or any covenant or agreement of the Seller set forth in this Agreement shall be breached, in either case such that the conditions in Section 7.3(a) above would not be satisfied; provided, however, that if such breach or such failure to be true, complete or correct is curable by the Seller Parties through the exercise of its reasonable efforts within five (5) Business Days and such breach or such failure is cured during such period, CMED and CMED Sub may not terminate this Agreement under this Section 9.1(b);

(c) By the Seller if any representation or warranty of CMED or CMED Sub shall be untrue, incomplete or incorrect, or any covenant or agreement of CMED or CMED Sub set forth in this Agreement shall be breached, in either case such that the conditions in Section 7.2(a) above would not be satisfied; provided, however, that if such breach or such failure to be true, complete or correct is curable by CMED or CMED Sub through the exercise of its reasonable efforts within five (5) Business Days and such breach or such failure is cured during such period, the Seller may not terminate this Agreement under this Section 9.1(c); or

(d) By CMED Sub or the Seller, if the Closing shall not have occurred within ninety (90) days of the Agreement Date or a longer period as agreed by all the Parties (the “Long-Stop Date”).

9.2 Survival. If this Agreement is terminated prior to the Closing and the Transaction is not consummated as described above, this Agreement shall become void and of no further force and effect and none of the Parties shall have any claim of any nature or liabilities under this Agreement or the Related Agreements, except for the provisions of this Section 9.2 (Survival); Section 9.1 above (Termination); Section 4 above (Guarantee), Section 6.1 above (Expenses); Section 6.5 above (Confidentiality); and Section 10 below (Miscellaneous). Notwithstanding the foregoing, nothing in this Section 9.2 shall limit any Party’s remedies for any breach of representation, warranty, covenant or agreement that may have occurred on or prior to the termination of this Agreement.

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SECTION 10.

MISCELLANEOUS

10.1 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below, or as subsequently modified by written notice:

(a) if to CMED or CMED Sub, to:

No. 24 Yongchang North Road

Beijing Economic-Technological Development Area

Beijing, P.R. China 100176

Attention: Mr. Xiaodong Wu

Facsimile No.: +86 10 6788 4694

Telephone No.: +86 10 6787 1166

with a copy to:

Morrison & Foerster

Edinburgh Tower, 41/F, The Landmark

15 Queen’s Road Central, Hong Kong

Attention: Mr. Paul Boltz

Facsimile No.: +852 2585 0800

Telephone No.: +852 2585 0856

(b) if to the Seller Parties, to:

Beijing, PRC

Attn : Mr. Peter Chong

Fax : +86 10 6786 7396

Phone : +86 138 0224 3202 / +852 9011 8721

with a copy to:

K&L Gates

35^th Floor, Two International Finance Centre

8 Finance Street, Central, Hong Kong

Attn : Mr. Navin Aggarwal / Mr. Eric Fung

Fax : +852 2511 9515

Phone +852 2230 3515 / +852 2230 3513

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10.2 Interpretation. When a reference is made in this Agreement to Exhibits, such reference shall be to an Exhibit attached to this Agreement unless otherwise indicated. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” The phrases “Agreement Date”, “the date hereof,” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date listed on the cover page to this Agreement. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

10.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

10.4 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

10.5 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

10.6 Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.

10.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Subject to Section 10.10 below, all disputes shall be settled by arbitration as described in Section 8.5 above and all other forms of recourse are hereby expressly waived by the parties.

44

10.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

10.9 Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of CMED, CMED Sub, Seller or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section 10.9 shall be binding upon all parties and their respective successors and assigns.

10.10 Specific Performance. The parties recognize that in the event that any Seller Party should refuse to perform under the provisions of this Agreement, monetary damages alone will not be adequate. CMED and CMED Sub shall therefore be entitled, in addition to any other remedies that may be available, including money damages, to obtain specific performance of the terms of this Agreement, including without limitation, Section 6.11 above (CytoTrend Non-competition Covenant). In the event of any action to enforce this Agreement specifically, the Seller Parties hereby waive the defense that there is an adequate remedy at law.

10.11 Assignment. This Agreement shall not be assigned by any party without the prior written consent of the non-assigning party. Notwithstanding the foregoing, nothing in this Agreement shall restrict CMED, CMED Sub or its Affiliates from a transfer in respect of a change of control of CMED, CMED Sub or their Affiliates.

10.12 Payments in United States Dollars. Except as provided in Section 1.5 and 1.8 above, all cash payments contemplated by this Agreement shall be made in United States Dollars. The Seller Parties shall provide all information requested by CMED and CMED Sub in order to permit CMED Sub and any financial institution acting on CMED Sub’s behalf to comply with their obligations under the USA Patriot Act of 2001, as amended, and other applicable laws. If the Seller Parties do not provide any such information, CMED Sub’s obligations to pay shall be tolled until such information is provided.

[Signature Pages Follow]

45

The Parties have duly executed this Asset Acquisition Agreement as of the date first above written.

“CMED”	CHINA MEDICAL TECHNOLOGIES, INC.
	By:	/s/ Xiaodong Wu
	Name:	Xiaodong Wu
	Title:	Chairman and Chief Executive Officer
“CMED SUB”	CMED TECHNOLOGIES LTD.
	By:	/s/ Xiaodong Wu
	Name:	Xiaodong Wu
	Title:	Director

The Parties have duly executed this Asset Acquisition Agreement as of the date first above written.

“SUPREME WELL”	SUPREME WELL INVESTMENTS LIMITED
	By:	/s/ Chong Kam Chu
	Name:	Chong Kam Chu
	Title:	Director
“SELLER”	MOLECULAR DIAGNOSTIC TECHNOLOGIES LIMITED
	By:	/s/ Kam Chu Chong
	Name:	Kam Chu Chong
	Title:	Director

Disclosure Schedule

[Attached Separately]

Schedule 1.1(c)

Excluded Asset

[Attached Separately]

Schedule 1.2(a)

Excluded IP

[Attached Separately]

Schedule 1.2(c)

Relevant IP Rights Schedule

[Attached Separately]

Schedule 1.11

Employees

[Attached Separately]

Schedule 3.3

Requisite Actions

[Attached Separately]

Exhibit 2.2(a)(iv)

Relevant IP Rights Assignment Agreement

[Attached Separately]

Exhibit 7.3(e)(i)

Intellectual Property Rights Assignment and General Release Agreement

[Attached Separately]

EX-4.3

Exhibit 4.3

Execution Copy

SHARE PURCHASE AGREEMENT

among

CMED ECLIA Diagnostic Technology Ltd

and

Chengxuan International Ltd.

December 17, 2008

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS
1.1	Certain Definitions	1
1.2	Other Terms	6
1.3	Other Definitional Provisions	6
ARTICLE II
PURCHASE AND SALE OF SHARES; THE CLOSING
2.1	Purchase and Sale	6
2.2	The Closing	6
2.3	Delivery of Share Certificates	6
ARTICLE III
[RESERVED]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
4.1	Organization, etc	7
4.2	Authorization, etc	7
4.3	No Violations	7
4.4	Acquired Companies	8
4.5	Organizational Documents, Minutes	8
4.6	Capitalization	9
4.7	Compliance	9
4.8	Consents and Approvals	9
4.9	Other Shareholders Agreements	9
4.10	Financial Information	9
4.11	Absence of Undisclosed Liabilities	10
4.12	Absence of Changes	10
4.13	Litigation	10
4.14	Taxes	10
4.15	Governmental Approvals	11
4.16	Title to Assets; Liens	11

i

TABLE OF CONTENTS

(continued)

		Page
4.17	Intellectual Property	11
4.18	Environmental Laws	12
4.19	Product Liability and Warranty	12
4.20	Material Contracts	12
4.21	Labor Agreements and Actions; Employee Matters	13
4.22	Certain Transactions	13
4.23	Employee Benefits	13
4.24	Business Practices	13
4.25	Restricted Activities	14
4.26	Availability and Transfer of Foreign Currency	14
4.27	Brokers	14
4.28	Customers and Suppliers	14
4.29	Title to the Shares	15
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1	Organization, etc	15
5.2	Authorization, etc	15
5.3	No Violations	16
5.4	Brokers	16
5.5	Status and Investment Intent	16
ARTICLE VI
COVENANTS OF THE SELLER
6.1	Opportunity to Ask Questions; Access to Documents	17
6.2	Conduct of Business	17
6.3	Approvals and Consents	18
6.4	Further Actions	18
ARTICLE VII
CONDITIONS TO THE CLOSING
7.1	Conditions to Each Party’s Obligations	19

ii

TABLE OF CONTENTS

(continued)

		Page
7.2	Conditions to Obligations of the Buyer	19
7.3	Conditions to Obligations of the Seller	20
ARTICLE VIII
INDEMNIFICATION
8.1	Indemnification by the Seller	20
8.2	Indemnification Procedures; Third Party Claims	21
8.3	Limitation on Indemnification	22
ARTICLE IX
MISCELLANEOUS
9.1	Survival of Representations and Warranties	22
9.2	Transfer Taxes	22
9.3	[Reserved]	22
9.4	Waivers and Amendments	23
9.5	Notices, etc	23
9.6	Dispute Resolution	23
9.7	Governing Law	25
9.8	Successors and Assigns	25
9.9	No Third Party Beneficiaries	25
9.10	Delays or Omissions	25
9.11	Publicity	25
9.12	Expenses	26
9.13	Currency	26
9.14	Specific Performance	26
9.15	Entire Agreement	26
9.16	Severability	26
9.17	Counterparts	27
9.18	Descriptive Headings; Interpretation	27
9.19	No Strict Construction	27

iii

SHARE PURCHASE AGREEMENT

Share Purchase Agreement (the “Agreement”), dated December 17, 2008 between CMED ECLIA Diagnostic Technology Ltd, a limited liability company organized and existing under the laws of the British Virgin Islands (the “Seller”) and Chengxuan International Ltd., a limited liability company organized and existing under the laws of the British Virgin Islands (the “Buyer”);

WHEREAS, the Seller desires to sell to the Buyer, and the Buyer desires to purchase from the Seller all of the issued and outstanding share capital (the “Shares”) of CMED HIFU Technology Limited, a limited liability company organized and existing under the laws of the British Virgin Islands (the “Company”) which develops, manufactures and markets medical equipment systems that use high intensity focused ultrasound for the treatment of solid cancers and benign tumors (the “Business”), for the consideration and upon the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the agreements, covenants, representations and warranties set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Certain Definitions. Capitalized terms used in this Agreement shall have the meanings set forth below:

“Acquired Companies” shall mean the Company and its Subsidiaries, collectively, and “Acquired Company” shall mean each or any of them as the context requires.

“Affiliate” shall mean, with respect to any party, any Person that, alone or together with any other Person, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, such party. For the purposes of this definition, “control” (including the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any party shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of such party, whether through the ownership of voting securities, by contract, agency or otherwise.

“Agreement” shall have the meaning specified in the recitals hereof.

“Applicable Contract” shall mean any Contract (a) under which any Acquired Company has or may acquire any rights, (b) under which any Acquired Company has or may become subject to any obligation or liability, or (c) by which any Acquired Company or any of the assets owned or used by it is or may become bound.

“Applicable Law” shall mean, with respect to any Person, any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, award, Governmental Approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or

administration of any of the foregoing by, any Governmental Authority, whether in effect as of the date hereof or thereafter and in each case as amended, applicable to such Person or its subsidiaries or their respective assets.

“Assets” shall have the meaning specified in Section 4.16 herein.

“Basket Amount” shall have the meaning specified in Section 8.3(b) herein.

“Business” shall have the meaning specified in the recitals hereof.

“Business Day” shall mean any day excluding (i) Saturday, Sunday and any day which shall be a legal holiday in the City of New York, United States, the British Virgin Islands, Hong Kong or Beijing, China, or (ii) a day on which commercial banks in the City of New York, United States, the British Virgin Islands, Hong Kong or Beijing, China are authorized or required by law or other government actions to close.

“Buyer” shall have the meaning specified in the recitals hereof.

“Centre” shall have the meaning specified in Section 9.6(b) herein.

“China” or “PRC” shall mean the People’s Republic of China, excluding, for the purposes of this Agreement only, Taiwan and the special administrative regions of Hong Kong and Macau.

“China Medical” shall mean China Medical Technologies, Inc., a limited liability company organized and existing under the laws of the Cayman Islands and an Affiliate of the Seller.

“Closing” shall have the meaning specified in Section 2.2(a) herein.

“Closing Date” shall have the meaning specified in Section 2.2(a) herein.

“Code” shall mean the United States Internal Revenue Code of 1986 and any successor statute, as amended from time to time.

“Contract” shall mean any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding.

“Controlled Substance” shall mean narcotics and substance so defined under Section 102 of the United States Controlled Substances Act, as amended.

“Company” shall have the meaning specified in the recitals hereof.

“Confidential Information” shall mean all information relating to the Business and any data, materials, drawings, specifications, formula, documents or information obtained or used in conjunction with the Business or any contract, agreement or information directly or indirectly connected with this Agreement including but not limited to client lists, intellectual and industrial

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property, drawings, financial information, specifications, analysis, feasibility studies, information, data or knowledge relating to market conditions, negotiations, costs, products, financing arrangements, designs, plans, processes, formulas, employees of the Acquired Companies and all other knowledge or information whatsoever relating directly or indirectly to the Business.

“Disclosure Schedules” shall mean the disclosure schedules attached to this Agreement containing matters relevant to the representations and warranties contained herein that are disclosed pursuant to the terms of this Agreement.

“Encumbrance” shall mean any lien, encumbrance, proxy, voting trust or similar arrangement, pledge, security interest, collateral security agreement, limitations on voting rights, limitations on rights of ownership, financing statement (and similar notices) filed with any Governmental Authority, claim (including any claim as defined in the Code), charge, equities, mortgage, pledge, objection, title defect, option, restrictive covenant, restriction on transfer or any comparable interest or right created by or arising under Applicable Law, of any nature whatsoever.

“Environmental Law” shall mean all Applicable Laws, relating to pollution or protection of the environment, and to human health and safety including, without limitation, laws relating to releases, discharges, leaching, migration or disposal of hazardous, toxic, or radioactive substances, oils, pollutants or contaminants into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, transport or handling of such substances, oils, pollutants or contaminants.

“First Payment” shall have the meaning set forth in Section 2.1 herein.

“Foreign Benefit Plan” shall have the meaning specified in Section 4.24 herein.

“GAAP” shall mean the generally accepted accounting principles in the United States, as in effect from time to time and as adopted by China Medical, consistently applied.

“Government Official” shall mean (i) any employee or official of any government, including any employee or official of any entity owned or controlled by a government, (ii) any employee or official of a political party, (iii) any candidate for political office or his employee, or (iv) any employee or official of an international organization. For the avoidance of doubt, the term Government Official shall include any employee or official of a hospital, clinic or other healthcare institution owned or controlled by government.

“Governmental Approval” shall mean any action, order, authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing or registration by or with any Governmental Authority.

“Governmental Authority” shall mean any government or political subdivision thereof, including without limitation, any governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, having jurisdiction over the matter or matters in question.

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“Indebtedness” shall mean, as to any Person, without duplication (i) all Obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business), (ii) all Obligations of such Person evidenced by a note, bond, debenture or similar instrument, (iii) all reimbursement obligations of such Person with respect to all letters of credit securing Obligations of the type described in clauses (i), (ii), (iv) and (v) of any other Person, but only to the extent of the Obligations secured, (iv) all Obligations under any interest rate or currency protection agreement (including, without limitation, any swaps, forward contracts, caps, floors, collars and similar agreements) and commodity swaps, forward contracts and similar agreements and (v) all guarantees issued in respect of Obligations described in clauses (i)-(iv) above of any other Person.

“Immediate Family” shall mean a person’s spouse, parents, siblings, sons, daughters, mothers and fathers-in-law and sons and daughters-in-law, brothers and sisters-in-law, grandparents and granddaughters and grandsons.

“Indemnified Party” shall have the meaning specified in Section 8.1 herein.

“Liabilities” shall mean any liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether accrued, absolute, contingent, matured, unmatured or other, and shall include all reserves (including a reserve for Taxes).

“Losses” shall have the meaning specified in Section 8.1 herein.

“Material Adverse Change” shall mean any development or event, either individually or in the aggregate, involving a material adverse change in the business condition (financial or otherwise), affairs, operations, assets, properties or prospects of the Business since September 30, 2008.

“Material Adverse Effect” shall mean, with respect to any Person, an event or series of events having a material adverse effect on the business, condition (financial or otherwise), affairs, operations, liabilities, assets, properties or prospects of such Person or any of its Subsidiaries, individually or taken as a whole.

“Obligations” shall mean, in respect of any indebtedness, any principal, interest, penalties, fees, guarantees, reimbursements and other liabilities pursuant to the terms thereof.

“OFAC” shall have the meaning set forth in Section 4.25(b) herein.

“Order” shall mean any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, any administrative body or other Governmental Authority or any arbitrator.

“Organizational Documents” shall mean (a) the articles or certificate of incorporation and the bylaws of a company; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (e) any amendment to any of the foregoing.

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“Original Currency” shall have the meaning specified in Section 9.13(a) herein.

“Person” shall mean any natural person, company, corporation, association, partnership, organization, business, firm, joint venture, trust, unincorporated organization or any other entity or organization, including a government, or any political subdivision, department or agency of any government.

“Proprietary Rights” shall have the meaning specified in Section 4.17(a) herein.

“Purchase Price” shall have the meaning specified in Section 2.1 herein.

“RMB” shall mean the lawful currency of the PRC.

“SAFE Registration” shall mean the registration that a PRC resident is required to make with the State Administration of Foreign Exchange or its local branch pursuant to the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment Via Overseas Special Purpose Vehicle or any successor regulation.

“Second Payment” shall have the meaning specified in Section 2.1 herein.

“Securities Act” shall have the meaning specified in Section 5.5(b) herein.

“Shares” shall have the meaning defined in the recitals of this Agreement.

“Subsidiary” shall mean any Person of which the Company (either alone or through or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the capital stock or other equity interest, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such Person.

“Tax” or “Taxes” shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, withholding, employment, excise, estimated, stamp, property, value added, social security or other taxes, fees or charges (including interest and penalties relating thereto) imposed by any Governmental Authority or any other taxing authority.

“Tax Returns” shall have the meaning specified in Section 4.14(a) herein.

“Third Payment” shall have the meaning specified in Section 2.1 herein.

“Transfer Taxes” shall have the meaning specified in Section 9.2 herein.

“U.S. Dollars” and the sign “US$” shall each mean freely transferable lawful currency of the United States of America.

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1.2 Other Terms. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement.

1.3 Other Definitional Provisions. The words “hereof,” “herein,” and “hereunder” and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

ARTICLE II

PURCHASE AND SALE OF SHARES; THE CLOSING

2.1 Purchase and Sale. Upon the terms and conditions of this Agreement, at the Closing, the Seller will sell and transfer the Shares to the Buyer, and the Buyer will purchase the Shares from the Seller. The purchase price of the Shares shall be US$53.5 million (the “Purchase Price”), which shall be payable by the Buyer through interbank transfer of immediately available funds to an account designated by the Seller as follows: (a) US$23.5 million (the “First Payment”) shall be paid on the Closing Date, (b) US$15.0 million (the “Second Payment”) shall be paid within six months after the Closing Date, and (c) US$15.0 million (the “Third Payment”) shall be paid within twelve months after the Closing Date.

2.2 The Closing. (a) Subject to Article VII hereof, the purchase and sale (the “Closing”) provided for in this Agreement shall take place, with all actions deemed to occur simultaneously, at 24 Yong Chang North Road, Beijing Economic-Technological Development Area, Beijing 100176, P.R.C. on December 30, 2008. The time and date upon which the Closing occurs is herein called the “Closing Date.”

At the Closing, (i) the Seller shall deliver to the Buyer against payment of the Purchase Price therefor a certified copy of the updated register of members of the Company showing the Buyer as the registered holder of the Shares; (ii) the Buyer shall deliver to the Seller, against delivery of a certified copy of the updated register of members of the Company showing the Buyer as the registered holder of the Shares, US$23.5 million by interbank transfer of immediately available funds to an account designated in writing by the Seller, and (iii) each party to this Agreement shall deliver to the other party such other documents as may be required to be delivered in accordance with this Agreement or as reasonably requested by such other party.

(b) Subject to Section 2.1, the Buyer may elect the respective dates on which the Second Payment and the Third Payment shall be made, provided that the Buyer shall notify the Seller of each such date in writing at least two Business Days prior to such date. The parties hereto agree that all of the transactions contemplated by this Agreement shall be deemed completed, and the Buyer’s obligation to make the Second Payment and the Third Payment in accordance with this Article II shall become unconditional, at the Closing upon the satisfaction or waiver of all of the conditions set forth in Article VII hereof.

2.3 Delivery of Share Certificates. Within 15 days after the Closing, the Seller shall deliver to the Buyer duly executed share certificates representing the Shares registered in the names of the Buyer.

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ARTICLE III

[RESERVED]

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Buyer as follows:

4.1 Organization, etc. The Seller is a limited liability company duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands and has all requisite power and authority to own, lease and operate the properties and assets it now owns, leases and operates and to carry on its business as now being conducted. The Seller is duly qualified and licensed and is in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except for such failures to be so duly qualified and licensed and in good standing that will not in the aggregate have a Material Adverse Effect on the Seller.

4.2 Authorization, etc. The Seller has all requisite right, power and authority and full legal capacity to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Seller, and the consummation by the Seller of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of the Seller and, no other proceedings (corporate or otherwise) on the part of the Seller (or its shareholders) or any other Person are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and constitutes legal, valid and binding obligations of the Seller, enforceable against the Seller in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, restructuring or similar laws affecting creditors’ rights and remedies generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).

4.3 No Violations. The execution, delivery and performance of this Agreement by the Seller, and the consummation of the transactions contemplated hereby, do not and will not (a) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of the Seller or any Acquired Company, or any resolution adopted by the board of directors or the stockholders of the Seller or any Acquired Company; (b) contravene, conflict with, or result in a violation of, or give any Governmental Authority or other Person the right to challenge any of the transactions contemplated hereby or to exercise any remedy or obtain any relief under, any Applicable Law or any Order to which the Seller or any Acquired Company, or any of the assets owned or used by any Acquired Company, may be subject; (c) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Approval that is held by any Acquired Company or that otherwise relates to the Business or any of the assets owned or used by any Acquired Company; (d) cause the Buyer or any Acquired Company to become subject to, or to become liable for the

7

payment of, any Tax; (e) cause any of the assets owned by any Acquired Company to be reassessed or revalued by any taxing authority or other Governmental Authority; (f) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Applicable Contract; or (g) result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned, leased or operated by any Acquired Company, excluding in the case of each of clauses (d), (e), (f) and (g), such instances, contravention, conflict, violation, breach, default or Encumbrance, as the case may be, that will not in the aggregate have a Material Adverse Effect on the Acquired Companies, taken as a whole, and that will not adversely affect, in a material respect, the ability of the Seller to consummate the transactions contemplated hereby. Neither the Seller or any Acquired Company is or will be required to give any notice to or obtain any consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated hereby.

4.4 Acquired Companies. (a) Each Acquired Company is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each Acquired Company has the requisite power and authority to own, lease or operate the properties and assets that it purports to own, lease or operate and to carry on its business as now being conducted. Each Acquired Company is duly qualified and licensed and is in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except for instances where the failure to be so qualified or licensed, and the failure to maintain such good standing, will not in the aggregate have a Material Adverse Effect on the Acquired Companies, taken as a whole.

(b) Disclosure Schedule 4.4 sets forth a complete list of the Acquired Companies and, if applicable, the following information for each Acquired Company: (i) its name and jurisdiction of incorporation or organization; (ii) its date of incorporation or organization; (iii) its authorized share capital or other equity interests; (iv) the number and type of its issued and outstanding share capital or other equity interests; and (v) the current ownership of such share capital or other equity interests (including the identity of each shareholder and the number of shares held by each).

(c) With respect to each Acquired Company, the Seller and each Acquired Company owning stock or share capital or other equity interests in such Acquired Company (i) are equity interest holders or shareholders in good standing, (ii) own their interests as identified in Disclosure Schedule 4.4 free and clear of all Encumbrances and (iii) are not in breach of any provision of any agreement, document or contract governing their rights in, or to the interests so owned or held in, such Acquired Company. There are no agreements or understandings in effect with respect to the voting or transfer of any interest in any Acquired Company.

4.5 Organizational Documents, Minutes. The Seller has heretofore delivered to the Buyer true and correct copies of all Organizational Documents of the Acquired Companies as in effect on the date hereof. The minute books of the Acquired Companies heretofore delivered to the Buyer contain true, correct and complete records of all meetings and actions in lieu of meeting of their

8

respective boards of directors (or other governing bodies) and any committees thereof and of their shareholders or holders of equity interests, as the case may be, since the time of their respective organizations and accurately reflect all transactions referred to in such minutes and actions in lieu of meeting. The register of members, stock ledgers or register of shareholders (as the case may be) of each Acquired Company are true, correct and complete.

4.6 Capitalization. The maximum number of shares which the Company is authorized to issue is 50,000 shares, par value US$1.00 per share, of which 10 shares are issued and outstanding and constitute the Shares. The Seller is and will be on the Closing Date the record and beneficial owners and holders of the Shares, free and clear of all Encumbrances. With the exception of the Shares (which are owned by the Seller), all of the outstanding share capital and other securities of each Acquired Company are owned of record and beneficially by one or more of the Acquired Companies, free and clear of all Encumbrances. No legend or other reference to any purported Encumbrance appears upon any certificate representing equity securities of any Acquired Company. All of the outstanding share capital of each Acquired Company have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any equity or other securities of any Acquired Company. None of the outstanding equity or other securities of any Acquired Company was issued in violation of Applicable Law. No Acquired Company owns, or has any Contract to acquire, any equity securities or other securities of any Person (other than Acquired Companies) or any direct or indirect equity or ownership interest in any other business.

4.7 Compliance. None of the Acquired Companies is in violation of any term or provision of (a) its Organizational Documents, (b) any agreement or instrument to which it is a party or by which it or its assets are bound, including any existing license to conduct business, note, bond, mortgage, indenture, contract, lease, permit, franchise or other instrument, or (c) any Applicable Law, excluding from such clauses (b) and (c), such violations that will not in the aggregate have a Material Adverse Effect on the Acquired Companies, taken as a whole.

4.8 Consents and Approvals. The execution, delivery and performance of this Agreement does not and will not require any consent, approval, authorization, Governmental Approval or other action by, or filing with or notification to, any third party or any Governmental Authority.

4.9 Other Shareholders Agreements. There are no agreements, arrangements or understandings (whether oral or written) among the shareholders of the Seller or its Affiliates, respectively, with respect to the holding, voting or transfer or otherwise with respect to any securities of any Acquired Company. On the date hereof, no shareholder of the Seller or any other Person has any right of first refusal or preemptive rights in connection with the sale of the Shares or any other securities of any Acquired Company.

4.10 Financial Information. (a) The Seller has delivered to the Buyer (i) the audited consolidated balance sheet of China Medical as at March 31, 2008 and the related consolidated statements of income and cash flow for the fiscal year then ended (including the related notes and schedules thereto and the report thereon of KPMG, independent certified public accountants), and (ii) an unaudited consolidated balance sheet of China Medical as at September 30, 2008 (the “Interim Balance Sheet”) and the

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related unaudited consolidated statements of income and cash flow for the six months then ended. Such financial statements and, where applicable, notes are complete and correct in all material respects and has been prepared all in accordance with GAAP applied on a consistent basis during the periods involved and presents fairly the financial position, results of operations and cash flows of China Medical as at the date and for the periods presented.

(b) The books and records of each Acquired Company will, as of the Closing Date, accurately disclose all payments made and permit the preparation of financial statements in accordance with GAAP.

4.11 Absence of Undisclosed Liabilities. The Acquired Companies have no material liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise), except for current liabilities incurred in the ordinary course of business.

4.12 Absence of Changes. Since September 30, 2008, (a) the Business has been operated only in the ordinary course of business consistent with past practice, (b) there has been no Material Adverse Change, and (c) no dividends or other distributions have been declared, paid or set aside for payment by the Company or any other Acquired Company to their respective shareholders.

4.13 Litigation. There is no action, suit, investigation or proceeding by or before any court, arbitrator, administrative agency or other Governmental Authority pending or, to the knowledge of the Seller, threatened against or affecting the Seller or any Acquired Company, any properties, revenues or assets of the Acquired Companies, or the Shares that could reasonably be expected to have a Material Adverse Effect on the Acquired Companies, taken as a whole, or the ability of the Seller to consummate the transactions provided for by this Agreement. There is no injunction, writ, preliminary restraining order or any order of any nature issued by an arbitrator, court or other Governmental Authority affecting the Seller or any Acquired Company, any properties, revenues or assets of the Acquired Companies, or the Shares that has or could have a Material Adverse Effect on the Acquired Companies, taken as a whole, or the ability of the Seller to consummate the transactions provided for in any of this Agreement.

4.14 Taxes. (a) Each Acquired Company has timely filed with the competent Government Authorities all income tax returns, and all other material tax returns, declarations, reports, estimates, information returns and statements (“Tax Returns”) which are required to be filed for all periods up to and including the Closing Date, and all such Tax Returns are true, correct and complete in all material respects. To the knowledge of the Seller, each Acquired Company has, within the time and in the manner prescribed by Applicable Law, paid (and until the Closing Date will pay), or made adequate provisions for the payment in full of (and until the Closing Date will make adequate provisions for the payment in full), all material Taxes that are due and payable or which may become due and payable for all periods up to and including the Closing Date.

(b) No deficiencies for Taxes have been asserted, assessed or, to the knowledge of the Seller, proposed by any taxing authority against any Acquired Company. None of the Acquired Companies have any pending requests for waivers of time to

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extend the payment date in connection with, or the statute of limitation applicable to, any taxable year or Tax Return or to assess any Tax against the Acquired Company nor any outstanding waivers or comparable consents relating thereto.

(c) For each Acquired Company, there has been no written claim by a jurisdiction where it does not file a Tax Return that it is required to file a Tax Return in such jurisdiction.

(d) None of the Acquired Companies is a party to any agreement providing for the allocation or sharing of Taxes.

(e) None of the Acquired Companies has filed or made any entity classification election for United States federal income tax purposes.

(f) None of the Acquired Companies has, to the knowledge of the Seller, engaged in a “reportable transaction” within the meaning of United States Treasury Regulations section 1.6011-4, or any similar provision of state, local or foreign law.

4.15 Governmental Approvals. Except as set forth in Disclosure Schedule 4.15, there are no Governmental Approvals that any Acquired Company is required to obtain under Applicable Law in connection with the conduct of the Business as it is presently carried on. The Seller has no reason to believe that any Governmental Approval set forth in Disclosure Schedule 4.15 cannot be granted or obtained, free from any condition or requirement the compliance of which would have a Material Adverse Effect on the Acquired Companies, taken as a whole, or which the Acquired Companies could not reasonably be expected to be able to satisfy.

4.16 Title to Assets; Liens. All of the right, title and interest of the Seller and its Affiliates, as the case may be, in, to and under the Business and all of the material assets, properties, rights, contracts, claims, operations and management of the Seller of every kind and description (except the office premises and production facilities, and arrangements with certain employees, currently employed for the purposes of the Business) related to or necessary for the ownership or operation of the Business, wherever located, whether tangible or intangible, real, personal or mixed, whether or not appearing on the books of the Seller (collectively, the “Assets”), which are owned or leased by the Seller will be assigned, transferred, conveyed and delivered to an Acquired Company on or prior to the Closing Date, free and clear of all Encumbrances, except for Encumbrances that do not detract from the current value of the Assets subject thereto or interfere with the current or proposed use by such Acquired Company of the Assets subject thereto or otherwise affect or impair the condition (financial or otherwise) of such Acquired Company. No Person other than the Acquired Companies has any right to use or have possession of any of the Assets.

4.17 Intellectual Property. (a) Disclosure Schedule 4.17(a) sets forth and describes all patent rights and software registration (including pending patent applications) held in whole or in part or used with respect to or otherwise in connection with the Business (collectively, the “Proprietary Rights”).

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(b) The Proprietary Rights have or will be transferred to the Acquired Companies on or prior to the Closing and the rights of the Acquired Companies with respect to the Proprietary Rights are, or will as of the Closing Date be, valid. The Seller has taken all reasonable steps to protect and maintain the Proprietary Rights. To the knowledge of the Seller, there is not currently any pending or any threatened written assertion or claim, and there has been no such written assertion or claim, challenging the validity or enforceability of, or contesting its rights or the rights of any Acquired Company with respect to, any of the Proprietary Rights or any agreement relating thereto. None of the Seller or the Acquired Companies is party to any consent, indemnification, forbearance to sue or settlement agreement with respect to any Proprietary Rights.

(c) The use of the Proprietary Rights by the Acquired Companies, the conduct and operation of the Business as currently conducted, or the current provision of products or services therein by the Acquired Companies, do not infringe upon, misappropriate or violate in any way the rights of any Person (including rights in intellectual property). There is no pending or, to the knowledge of the Seller, threatened, written assertion or claim, and there has been no such written assertion or claim that the use or exploitation of any of the Proprietary Rights by the Seller or the Acquired Companies, or the conduct or operation of the Business by the Seller or the Acquired Companies as currently conducted, or the provision of products or services therein, infringes upon, misappropriates or violates in any way the rights of any Person (including rights in intellectual property).

(d) None of the Acquired Companies is obligated or under any liability whatsoever to make payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to, any Proprietary Rights or other intangible asset with respect to the use thereof in connection with the conduct of the Business, or otherwise.

4.18 Environmental Laws. The Business is and has been conducted in compliance with all Environmental Laws. There is no existing practice, action or activity of the Acquired Companies and no existing condition relating to any of the properties or assets owned or used by the Acquired Companies which might require clean up or remediation or give rise to any civil or criminal liability under, or violate or prevent compliance with, any Environmental Law or any health or occupational safety or other applicable statute, regulation, ordinance or decree. None of the Acquired Companies has received any notice from any Governmental Authority revoking, canceling, materially modifying or refusing to renew any permit, license or authorization or providing written notice of violations under any Environmental Law.

4.19 Product Liability and Warranty. There is no basis for any present or, to the knowledge of the Seller, future action, suit, proceeding, investigation, charge, compliant, claim or demand against any Acquired Company giving rise to any liability, arising out of any injury to individuals or properties as a result of any products designed, manufactured, assembled, repaired, distributed, delivered or sold or services rendered in connection with the Business, except such as will not result in a Material Adverse Effect.

4.20 Material Contracts. Except for those agreements listed on Disclosure Schedule 4.20 or agreements entered into in the ordinary course of business for sale of goods or purchases of equipment, none of the Acquired Companies is a party to (i) any agreement, arrangement, understanding or contract, whether formal or informal, written or oral, requiring payment of an amount in

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excess of RMB 1.0 million per annum (or its equivalent in other currencies), (ii) any license, distribution, confidentiality or similar agreements, and (iii) any agreement not in the ordinary course of business or not made at arm’s length.

4.21 Labor Agreements and Actions; Employee Matters. (a) There is no complaint, grievance, strike or other collective labor dispute, slowdown or stoppage involving any Acquired Company pending or threatened. Each Acquired Company has been and is in compliance with all applicable laws including, without limitation, those laws respecting employment and employment practices, child labor, terms and conditions of employment, pay equity and wages and hours and has not engaged in any unfair labor practices.

(b) Neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions contemplated hereby and thereby will (either alone or upon the occurrence of any additional or further acts or events) result in any payment (whether of severance pay or otherwise) becoming due from any Acquired Company to any director, officer, employee or shareholder thereof. None of the Seller or its Affiliates is aware that any senior executive of any Acquired Company has any plans to terminate their employment or arrangement with such Acquired Company.

(c) There are no collective bargaining, severance or similar agreements with any labor union. No action is pending or threatened with respect to union representation of the employees of any Acquired Company. No collective bargaining agreement is currently being negotiated by any Acquired Company.

4.22 Certain Transactions. None of the Acquired Companies is a party to any agreement, arrangement or understanding (whether oral or written), directly or indirectly (including, without limitation, any purchase, sale, lease, investment, loan, service or management agreement or other transaction), with any Person in which any Affiliate, shareholder, officer or director of the Company or any of its Subsidiaries, or any Acquired Company, or any member of the Immediate Family of any of such persons, has an interest that exceeds 5% of the equity of such Person.

4.23 Employee Benefits. All employer and employee contributions to each benefit plan that is not subject to United States law (a “Foreign Benefit Plan”) required by Applicable Law or by the terms of such Foreign Benefit Plan have been made, or if applicable, accrued in accordance with GAAP.

4.24 Business Practices. (a) Neither the Seller nor any Acquired Company, nor any of their respective officers, employees, directors, representatives or agents, has offered, promised, authorized or made, directly or indirectly, (i) any unlawful payments or (ii) payments or other inducements (whether lawful or unlawful) to any Government Official, with the intent or purpose of:

(A) influencing any act or decision of such Government Official in his official capacity;

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(B) inducing such Government Official to do or omit to do any act in violation of the lawful duty of such Government Official;

(C) securing any improper advantage; or

(D) inducing such Government Official to use his influence with a government or instrumentality thereof, political party or international organization to affect or influence any act or decision of such government or instrumentality, political party or international organization;

in order to assist any Acquired Company in obtaining or retaining business for or with, or directing business to, any Person.

(b) Neither the Seller nor any of its Affiliates, nor any Acquired Company, nor any of their respective officers, employees, directors, representatives or agents has offered, promised, authorized or made, directly or indirectly, any payments or other inducements specified in Section 4.24(a) to Government Officials in violation of either British Virgin Islands, Hong Kong or PRC law against improper payments.

(c) Notwithstanding anything else in this Section 4.24, any facilitating or expediting payment made to a Government Official for the purpose of expediting or securing the performance of a routine governmental action by a Government Official shall not constitute a breach of the representation made in this Section 4.24.

4.25 Restricted Activities. (a) None of the Acquired Companies has conducted or entered into a contract to conduct any transaction with the governments or any of sub-division thereof, agents or representatives, residents of, or any entity based or resident in the countries that are currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and none of the Acquired Companies has financed the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

(b) None of the Acquired Companies has exported, or are exporting, or have traded, or are trading, firearms or military weaponry, narcotics or other Controlled Substances.

4.26 Availability and Transfer of Foreign Currency. All requisite foreign exchange control approvals and other authorizations, if any, by any Governmental Authority have been validly obtained and are in full force and effect to assure the ability of each Acquired Company to make any and all payments to any other party in order to conduct the Business.

4.27 Brokers. No broker, agent, finder, consultant or other person (other than legal and accounting advisors) has been retained by, or has acted on behalf of the Seller or its Affiliates or is entitled to be paid based upon any agreements or understandings made by the Seller or its Affiliates in connection with any of the transactions contemplated by this Agreement.

4.28 Customers and Suppliers. (a) To the extent that any customer of the Business comprises 10% or more of the Acquired Companies’ consolidated net sales for the most recent fiscal year, (i) the Seller believes such customer to be creditworthy, (ii) since

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September 30, 2008, there has been no material deterioration in the accounts receivable due from such a customer and (iii) to the knowledge of the Seller, no such customer has indicated that it shall stop, or materially decrease the rate of, buying materials, products or services from the Acquired Companies.

(b) To the knowledge of the Seller, since September 30, 2008, no material supplier to the Business that comprises 10% or more of the consolidated purchases made for the purposes of the Business during the most recent fiscal year has indicated that it shall stop, or materially decrease the rate of, supplying materials, products or services to the Acquired Companies.

4.29 Title to the Shares. The Seller has the complete and unrestricted power and the unqualified right to issue, assign, transfer and deliver to the Buyer and the Buyer will acquire at the Closing good, valid and marketable title to the Shares free and clear of all Encumbrances.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer represents and warrants to the Seller as follows:

5.1 Organization, etc. The Buyer is a limited liability company duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands and has all requisite power and authority to own, lease and operate the properties and assets it now owns, leases and operates and to carry on its business as now being conducted. The Buyer is duly qualified and licensed and is in good standing to do business in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except for such failures to be so duly qualified and licensed and in good standing that will not in the aggregate have a Material Adverse Effect on the Buyer.

5.2 Authorization, etc. The Buyer has all requisite right, power and authority and full legal capacity to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Buyer, and the consummation by the Buyer of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of the Buyer and, no other proceedings (corporate or otherwise) on the part of the Buyer (or its shareholders) or any other Person are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and constitutes legal, valid and binding obligations of the Buyer enforceable against the Buyer in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, restructuring or similar laws affecting creditors’ rights and remedies generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).

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5.3 No Violations. The execution, delivery and performance of this Agreement by the Buyer, and the consummation of the transactions contemplated hereby, do not and will not (a) conflict with, or result in a breach of or default under, any terms or conditions of the Organizational Documents of the Buyer, (b) conflict with or violate any Applicable Law, or (c) result in any breach of, or constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument to which the Buyer is a party or by which its assets or properties may be bound, excluding from such clauses (b) and (c), such conflicts, violations, breaches and defaults that, in the aggregate, would not have a Material Adverse Effect on the Buyer or that will not adversely affect, in a material respect, the ability of the Buyer to consummate the transactions provided for by this Agreement.

5.4 Brokers. No broker, agent, finder, consultant or other person has been retained by, or has acted on behalf of the Buyer or its Affiliates (other than legal and accounting advisors) or is entitled to be paid based upon any agreements or understandings made by the Buyer or its Affiliates in connection with any of the transactions contemplated by this Agreement.

5.5 Status and Investment Intent. (a) Experience. The Buyer has sufficient knowledge and experience in the Business, and in financial and business matters generally, so as to be capable of evaluating the merits and risks of its investment in the Shares. The Buyer is capable of bearing the economic risks of such investment, including a complete loss of its investment.

(b) Accredited Investor. At the time the Buyer was offered the Shares that it is purchasing pursuant to this Agreement, it was, and it is, an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3) (a)(7) or (a)(8) of the Securities Act or 1933, as amended (the “Securities Act”).

(c) Purchase Entirely for Own Account. The Buyer is acquiring the Shares that it is purchasing pursuant to this Agreement for investment for its own account for investment purposes only and not with the view to, or with any intention of, resale, distribution or other disposition thereof. The Buyer has no direct or indirect arrangement, or understanding with any other Persons to distribute, or regarding the distribution of the Shares, in violation of the Securities Act or any other applicable state securities law.

(d) Restricted Securities. The Buyer acknowledges that the Shares are “restricted securities” that have not been registered under the Securities Act or any applicable state securities law. The Buyer further acknowledges that, absent an effective registration under the Securities Act, the Shares may only be offered, sold or otherwise transferred (i) to the Seller, (ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act, or (iv) in compliance with certain other procedures satisfactory to the Seller.

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(e) No Public Market. The Buyer understands that no public market now exists for the Shares and that a public market may never exist for the Shares or other securities of the Company.

(f) Access to Data. The Buyer has received and reviewed information in respect of the Business and the Acquired Companies and have had an opportunity to discuss the business, management and financial affairs of the Acquired Companies with management and to review the Acquired Companies’ facilities. The Buyer has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Buyer understands and acknowledges that such discussions, as well as any written information issued by the Seller (i) were intended to describe the aspects of the Acquired Companies’ business and prospects which the Seller believes to be material, but were not necessarily exhaustive descriptions, and (ii) may have contained forward-looking statements involving known and unknown risks and uncertainties which may cause the Acquired Companies’ actual results in future periods or plans for future periods to differ materially from what was anticipated and that no representations or warranties were or are being made with respect to any such forward-looking statements or the probability of achieving any of the results projected in any of such forward-looking statements. The foregoing, however, does not limit or modify the representations and warranties of the Seller in Article IV of this Agreement or the right of the Buyer to rely thereon.

ARTICLE VI

COVENANTS OF THE SELLER

From and after the date hereof and until the Closing, the Seller hereby covenants and agrees that:

6.1 Opportunity to Ask Questions; Access to Documents. The Seller shall cause its representatives to be available upon reasonable notice to answer questions of the Buyer’s representatives concerning the Business and the operations and affairs of the Acquired Companies, and shall further cause them to make available all relevant books, records, contracts and all other documents reasonably requested by the Buyer in connection with such inspection and examination. No investigation by the Buyer or its representatives prior to or after the date of this Agreement shall diminish or obviate any of the representations, warranties, covenants or agreements of the Seller contained in this Agreement.

6.2 Conduct of Business. Until the Closing Date, the Seller shall (and, where applicable, shall cause its Affiliates or the Acquired Companies to), with respect to the operation of the Business (unless the Buyer shall otherwise consent in writing or except as otherwise specifically contemplated by this Agreement):

(a) operate solely in the usual, regular and ordinary manner consistent with past practice, and use all reasonable efforts to (i) preserve its present business operations, organization and goodwill, (ii) keep available the services of its present employees, (iii) preserve all present relationships with Persons having business dealings with it, and (iv) maintain all assets and properties in their current condition, normal wear and tear excepted;

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(b) maintain its books, accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior years;

(c) maintain or cause to be maintained the Proprietary Rights in full force and effect through the Closing Date and, without limitation, with respect to any of the Proprietary Rights subject to expiration on or prior to the Closing Date, renew or make, within an applicable renewal period ending on or prior to the Closing Date, application to renew such Intellectual Property;

(d) perform in all material respects all of its obligations under all Applicable Contracts and other agreements and instruments relating to or affecting the Business and comply in all material respects with all Applicable Laws;

(e) not grant (or commit to grant) any increase in the compensation of any employee employed in the operation of the Business or institute, adopt or amend (or commit to institute, adopt or amend) any compensation or benefit plan, policy or arrangement applicable to any such employee;

(f) not modify any Applicable Contract with any Person, other than in the ordinary course of business consistent with past practice; and

(g) not take any action or omit to take any action, which action or omission would result in a breach of any of the representations and warranties set forth in Article IV.

6.3 Approvals and Consents. The Seller shall use its best efforts to assist the Buyer and the Acquired Companies (or their nominees) to obtain the Governmental Approvals set forth in Disclosure Schedule 4.15 and the consent of any third party or Governmental Authority which is required in order to assign any instrument, contract, lease or other agreement or arrangement or any claim, right or benefit arising thereunder or resulting therefrom. If any such consent is not obtained prior to the Closing Date, or if an attempted assignment would be ineffective or would adversely effect the ability of the Seller to convey its interest in question to the Buyer, the Seller will cooperate with the Buyer in any lawful arrangement to provide that the Buyer shall receive the interest of the Seller in the benefits under any such instrument, contract, lease, permit or other agreement or arrangement until such consent is obtained. If the Seller is unable to obtain any such consent after using its best efforts to do so, such contract, lease, Permit or other agreement or arrangement shall, at the Buyer’s election, be excluded from the assets being conveyed to the Buyer hereunder. Nothing in this Agreement shall be construed as an attempt to assign any contract, lease, Permit or other agreement or arrangement that is by its terms non-assignable without the consent of the other party thereto.

6.4 Further Actions. The Seller shall execute and deliver such instruments and take such other actions as may reasonably be required to (a) carry out the intent of this Agreement and (b) consummate the transactions contemplated hereby.

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ARTICLE VII

CONDITIONS TO THE CLOSING

7.1 Conditions to Each Party’s Obligations. The respective obligations of each party to effect the transactions to be effected by it at the Closing shall be subject to the satisfaction, or waiver, at or prior to the Closing Date of the following conditions:

(a) No Injunctions. There shall not be in effect any statute, regulation, order, decree or judgment of any Governmental Authority which makes illegal or enjoins or prevents the consummation of the transactions contemplated by this Agreement;

(b) No Action by Governmental Authority. There is no action, suit, investigation or proceeding by any Governmental Authority pending or threatened against or affecting any Acquired Company, any properties, revenues or assets of the Acquired Companies, or this Agreement; and

(c) No Material Action by Third Party. There is no action, suit, investigation or proceeding by any third party before any court, arbitrator, administrative agency or other Governmental Authority pending or threatened against or affecting any Acquired Company, any properties, revenues or assets of the Acquired Companies, or this Agreement, which could reasonably be expected to have a Material Adverse Effect on the Acquired Companies, taken as a whole, or could reasonably be expected to materially and adversely affect the Seller’s ability to perform its obligations under this Agreement.

7.2 Conditions to Obligations of the Buyer. The obligations of the Buyer to effect the transactions to be effected by it at the Closing shall be subject to the satisfaction, or waiver, on or prior to the Closing Date of the following further conditions:

(a) The Company’s Obligations Performed. The Seller shall have performed in all material respects its obligations under this Agreement required to be performed by it on or prior to the Closing Date;

(b) Delivery of the Shares. At the Closing Date, the Seller shall have sold and transferred all of the Shares to the Buyer as evidenced by the delivery of the Company’s updated register of members in accordance with the terms hereof;

(c) The Company’s Representations and Warranties True. Each of the representations and warranties of the Seller contained in this Agreement which is qualified as to materiality shall be true and correct and each such representation and warranty that is not so qualified shall be true and correct in all material respects in each case as of the date hereof and on and as of the Closing Date as if made on and as of such time (except for representations and warranties expressly stated herein to be applicable solely as to a specified date which were true and correct as of such date);

(d) No Material Adverse Effect. No event or series of events shall have occurred which has had or would reasonably be expected to have a Material Adverse Effect on the Business, including, without limitation, any currency devaluation or foreign exchange restriction or other actions by any Governmental Authority limiting repatriation of capital or any material change in the governmental or political climate of the British Virgin Islands, Hong Kong or the PRC;

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(e) Officers Certificate and Certificates of Good Standing. The Seller shall have delivered to the Buyer the resolutions of the Seller’s board of directors and the sole shareholder, certified by the chief executive officer of the Seller authorizing it to enter into this Agreement and to consummate the transactions and perform the obligations contemplated hereunder and certificates of good standing in respect of the Acquired Companies (to the extent applicable). In addition, the Seller shall have delivered to the Buyer a certificate, dated the Closing Date, certified by the chief executive officer of the Seller to the effect that all conditions set forth in Section 7.2(c) pertaining to the Acquired Companies that have not otherwise been waived by the Buyer have been satisfied and that the Seller’s representative has resigned from the board of directors of the Company, CMED HIFU Technology Limited and HIFU (Hong Kong) Limited, respectively.

(f) Noncompetition Agreement. The Seller shall have delivered to the Buyer a noncompetition agreement in the form of Exhibit 7.2(f), duly authorized and executed by China Medical and the Seller.

7.3 Conditions to Obligations of the Seller. The obligation of the Seller to effect the transactions to be effected by it at the Closing shall be subject to the satisfaction, or waiver, on or prior to the Closing Date of the following further conditions:

(a) The Buyer’s Obligations Performed. The Buyer shall have performed in all material respects its obligations under this Agreement required to be performed by them on or prior to the Closing Date;

(b) The Buyer’s Representations and Warranties True. Each of the representations and warranties of the Buyer contained in this Agreement which is qualified as to materiality shall be true and correct and each such representation and warranty that is not so qualified shall be true and correct in all material respects in each case as of the date hereof and at and as of the Closing Date as if made at and as of such date (except for representations and warranties expressly stated herein to be applicable solely as to a specified date which were true and correct as of such date); and

(c) Payment of the Purchase Price. On the Closing Date, the Buyer shall have tendered delivery of the First Payment of the Purchase Price as specified in Section 2.1 hereof.

ARTICLE VIII

INDEMNIFICATION

8.1 Indemnification by the Seller. The Seller shall indemnify, defend and hold harmless the Buyer and its shareholders, directors, officers, employees, controlling persons, authorized agents, authorized representatives, successors and assigns (each an “Indemnified Party”) from and after the Closing, from and against any and all losses, claims, damages, liabilities, obligations,

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penalties, judgments, awards, costs, reasonable expenses and disbursements as incurred (and any and all actions, suits, proceedings and investigations in respect thereof and any and all reasonable legal and other costs, reasonable expenses or disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), including, without limitation, the costs, reasonable expenses and disbursements, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not such Indemnified Party is a party) (together, “Losses”), directly or indirectly, caused by, relating to, based upon, arising out of or in connection with:

(a) any breach by the Seller of any representation or warranty set forth in Article IV of this Agreement (provided that the Seller is given written notice of such Loss); or

(b) any product shipped or manufactured by, or any services provided by, any Acquired Company prior to the Closing Date.

The parties expressly agree that the Buyer’s right to indemnification under this Section 8.1 shall not be limited by any knowledge obtained pursuant to any investigation conducted by or on behalf of the Buyer before or after the date of this Agreement.

8.2 Indemnification Procedures; Third Party Claims. An Indemnified Party shall give the Seller prompt written notice of any claim, assertion, event or proceeding concerning any liability or damage as to which they may request indemnification from the Seller hereunder; provided, however, that any failure by an Indemnified Party to notify the Seller shall not relieve the Seller from its obligations hereunder except to the extent the Seller is materially prejudiced by such failure and shall not relieve the Seller from any other obligation or liability that it may have to any Indemnified Party otherwise than under this Article VIII. If the Seller so elects or is requested by an Indemnified Party, the Seller will assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to such Indemnified Party and the payment of the fees and expenses of such counsel. In the event, however, such Indemnified Party determines in the reasonable judgment of counsel that having common counsel would present such common counsel with a conflict of interest or (i) other than in an action solely for monetary damages if the Seller fails to assume the defense of the action or proceed in a timely manner, (ii) if in the reasonable judgment of the Indemnified Party, the defense is being handled in such a manner that Indemnified Party’s reputation or future business prospects will be materially damaged or (iii) if a court of competent jurisdiction rules that the Seller has failed or is failing to prosecute or defend vigorously such claim, then such Indemnified Party may employ separate counsel to represent or defend it in any such action of proceeding and the Seller will pay the fees and expenses of such counsel. In any action or proceeding the defense of which the Seller assumes, the Indemnified Party will have the right to participate in such litigation and to retain its own counsel at such Indemnified Party’s own expense.

The Seller agrees that, without the Buyer’s prior written consent, it will not settle, compromise or consent to entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification could be sought under the indemnification provision of this Agreement (whether or not the Buyer or any other Indemnified Party is an actual or potential party to such claim, action or proceeding, so long as it is reasonably likely that they could be named as a party), unless such settlement, compromise or consent includes and unconditional release of each Indemnified Party from all liability arising out of such claim, action or proceeding and does not include a statement as to an admission of fault, culpability or a failure to act on behalf of an Indemnified Party.

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8.3 Limitation on Indemnification. The indemnification provided for in Sections 8.1 and 8.2 shall be subject to the following limitations:

(a) The Seller shall not be liable for breaches of the representations and warranties contained herein if and to the extent that the facts or circumstances which cause any of such representation and warranties to be breached were disclosed or referred to in the Disclosure Schedules;

(b) The Seller shall not be obligated to pay any indemnification to an Indemnified Party until the aggregate amount of all amounts payable to the Indemnified Parties in respect of indemnification exceeds RMB500,000.00 (the “Basket Amount”). For the avoidance of doubt, the Basket Amount is not a deductible and if the aggregate amount for any indemnification exceeds the Basket Amount, the Seller shall be obligated to pay the full amount of such aggregated indemnification;

(c) Notwithstanding anything to the contrary in this Agreement, the aggregate indemnification payable by the Seller for the Losses of all Indemnified Parties in respect of all breaches of the representations and warranties herein and of any other provisions of this Agreement shall in any event not exceed 75% of the Purchase Price; and

(d) Indemnification as provided in this Agreement shall be the exclusive remedy that may be available to the Buyer under this Agreement.

ARTICLE IX

MISCELLANEOUS

9.1 Survival of Representations and Warranties. All representations and warranties of the Seller and the Buyer contained in Articles IV and V of this Agreement and all unasserted claims and causes of action with respect thereto shall survive for 12 months after the Closing Date except for those designated in the following sentence, which shall survive for the respective periods designated therein. The Seller’s obligation under Section 4.14 shall survive the Closing until the expiration of the statute of limitations (giving effect to any waiver, mitigation or extension thereof) on assessment of the relevant Tax.

9.2 Transfer Taxes. The Seller shall pay all sales, use, real property transfer, transfer, stamp, registration, documentary, recording, filing or similar transfer Taxes, if any, together with any interest thereon, penalties, fines, costs, fees, additions to Tax or additional amounts with respect thereto (collectively, “Transfer Taxes”) incurred in connection with the issuance and sale of the Shares pursuant to this Agreement. The Seller shall be responsible for preparing and timely filing any Tax Returns required with respect to any such Transfer Taxes.

9.3 [Reserved]

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9.4 Waivers and Amendments. This Agreement may only be modified with the written consent of the parties hereto. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by a statement in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

9.5 Notices, etc. Except as otherwise provided in this Agreement, all notices and other communications pursuant to this Agreement shall be in writing and shall be delivered in person, by courier, by facsimile transmission (with oral confirmation of receipt), by e-mail (so long as the sender receives no notice of non-delivery and the notice is followed by delivery in person, by courier or facsimile transmission) or by certified air mail (postage prepaid, return receipt requested, if available). All such notices shall be sent to the facsimile number, e-mail address or address (as the case may be) specified for the intended recipient in Disclosure Schedule 9.5, or to such other number or address as such recipient may have last specified by notice to the other parties. All such notices shall be effective upon receipt.

9.6 Dispute Resolution.

(a) Any dispute, controversy or claim arising out of or relating to this Agreement (including any provision of any Schedule or Exhibit thereto) or the interpretation, breach, termination or validity hereof, shall be resolved through consultation. Such consultation shall begin immediately after one party hereto has delivered to the other parties hereto a written request for such consultation. If within 30 days following the date on which such notice is given the dispute cannot be resolved, the dispute shall be submitted to arbitration upon the request of any party with written notice to the other parties.

(b) The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “Centre”). There shall be three arbitrators. Each disputing party shall select one arbitrator within 30 days after respectively giving or receiving the demand for arbitration. Such arbitrators shall be freely selected and the parties shall not be limited in their selection to any prescribed list. The chairman of the Centre shall select a third arbitrator to serve as presiding arbitrator within 30 days of the selection of the second arbitrator. The third arbitrator shall be qualified to practice New York State law. If any arbitrator has not been appointed within the time limits specified herein, such appointment shall be made by the chairman of the Centre upon the written request of either party.

(c) The arbitration proceedings shall be conducted and the award shall be rendered in the English language. The arbitration tribunal shall apply the Arbitration Rules of the Centre in effect at the time of the arbitration. However, if such rules are in conflict with the provisions of this Section 9.6, including the provisions concerning the appointment of arbitrators, the provisions of this Section 9.6 shall prevail.

(d) The hearing shall commence no later than 90 days following the appointment of the last of the three arbitrators and the award shall be rendered no later than 30 days following the close of the hearing.

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(e) The arbitrators shall decide any dispute submitted by the parties to the arbitration strictly in accordance with the substantive law of the State of New York and shall not apply any other substantive law.

(f) Consistent with the expedited nature of arbitration, each party will, upon the written request of the other party, provide the other with copies of documents relevant to the issue raised by any claim or counterclaim. Other discovery may be ordered by the arbitrator to the extent the arbitrator deems additional discovery relevant and appropriate, and any dispute regarding discovery, relevance or scope thereof, shall be determined by the arbitrator, which determination shall be conclusive.

(g) The parties hereby waive any rights of application or appeal to any court or tribunal of competent jurisdiction (including without limitation the courts of the United States, the British Virgin Islands, Hong Kong and PRC) to the fullest extent permitted by law in connection with any question of law arising in the course of the arbitration or with respect to any award made except for actions relating to enforcement of the arbitration agreement or an arbitral award and except for actions seeking interim or other provisional relief in any court of competent jurisdiction.

(h) By agreeing to arbitration, the parties do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of arbitration proceedings and the enforcement of any award. Without prejudice to such provisional remedies in aid of arbitration as may be available under the jurisdiction of a national court, the arbitral tribunal shall have full authority to grant provisional remedies and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.

(i) The award shall be final and binding upon the parties, and shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues, or accounting presented to the arbitral tribunal. Judgment upon any award may be entered in any court having jurisdiction thereof.

(j) Subject to the receipt of any applicable governmental approval, any monetary award shall be made and promptly payable in U.S. Dollars free of any tax, deduction or offset, and the arbitral tribunal shall be authorized in its discretion to grant pre-award and post-award interest at commercial rates. Any costs, fees, or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. The arbitral tribunal shall have the authority to award any remedy or relief proposed by each party pursuant to this Agreement, including without limitation, a declaratory judgment, specific performance of any obligation created under this Agreement or the issuance of an injunction.

(k) This Agreement and the rights and obligations of the parties shall remain in full force and effect pending the award in any arbitration proceeding hereunder.

(l) All notices by one party to the other in connection with the arbitration shall be in accordance with the provisions of Section 9.5 hereof.

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(m) This arbitration agreement set forth in Section 9.6 shall be binding upon the parties, their successors and the permitted assigns in accordance with Section 9.8 hereof.

9.7 GOVERNING LAW. THIS AGREEMENT AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

9.8 Successors and Assigns. (a) No party to this Agreement may assign any of its rights or obligations under this Agreement, without the prior written consent of the other parties hereto, except that a Buyer may assign its rights and obligations to one or more Affiliates of such Buyer, which shall agree in writing to be bound by the terms hereof. Any such assignment shall not relieve the assigning Buyer of its obligations hereunder. Any attempted assignment in contravention hereof shall be null and void.

(b) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto or their successors and permitted assigns.

9.9 No Third Party Beneficiaries. Except as otherwise expressly provided, nothing in this Agreement shall convey any rights upon any person or entity which is not a party or permitted designee of a party to this Agreement.

9.10 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy on the part of any party upon any breach or default of any party to this Agreement shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on any party of any breach or default under this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing and that all remedies either under this Agreement, or by law otherwise afforded to any party, shall be cumulative and not alternative.

9.11 Publicity. Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated hereby will be issued, if at all, at such time and in such manner as the Seller determines. Unless consented to by the Seller in advance or required by Applicable Law, the Buyer shall, prior to and after the Closing, and shall after the Closing, cause the Acquired Companies to, keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. The Seller and the Buyer will consult with each other concerning the means by which the Acquired Companies’ employees, customers, and suppliers and others having dealings with the Acquired Companies will be informed of the transactions contemplated by this Agreement, and the Buyer will have the right to be present for any such communication if it so elects by notifying the Seller in writing in advance.

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9.12 Expenses. Each party to this Agreement will bear all fees, costs and expenses that are incurred by it in connection with the preparation, execution and delivery of this Agreement and the transactions contemplated hereby.

9.13 Currency. (a) Subject to the receipt of any applicable Governmental Approval, all payments due to any party hereunder, other than payment for the Shares, shall be made and promptly payable in U.S. Dollars free of any tax, deduction or offset. If for the purposes of making a payment required to be made hereunder it is necessary to convert all or any part of a sum due hereunder in any currency (the “Original Currency”) into U.S. Dollars, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Buyer could purchase the Original Currency with U.S. Dollars, on the Business Day immediately preceding the day on which any such payment, or any relevant part thereof, is paid or otherwise satisfied.

(b) The obligation of the Seller in respect of any sum due hereunder in the Original Currency shall, notwithstanding any payment in U.S. Dollars, be discharged only to the extent that on the Business Day following receipt by the Buyer of any sum adjudged to be so due in U.S. Dollars, the Buyer may, in accordance with normal banking procedures, purchase the Original Currency with U.S. Dollars. If the amount of the Original Currency so purchased is less than the sum originally due to the Buyer in the Original Currency, the Seller shall, as a separate obligation and notwithstanding any such payment, indemnify the Buyer against such loss, and if the amount of the Original Currency so purchased exceeds the sum originally due to the Buyer, the Buyer shall remit such excess to the Seller.

(c) All references to monetary amounts in this Agreement and the other transaction documents shall (unless specifically otherwise stated) mean such amounts as expressed in United States dollars.

9.14 Specific Performance. Without limiting the rights of each party hereto to pursue all other legal and equitable rights available to such party for the other parties’ failure to perform their obligations under this Agreement, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their obligations hereunder would be inadequate and that each of them, respectively, shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure.

9.15 Entire Agreement. This Agreement, the Exhibits, Schedules and Disclosure Schedules to this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties, and supersede all prior understandings, negotiations and prior agreements between the parties with regard to the subjects hereof and thereof.

9.16 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefor of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision, provided, however, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

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9.17 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement may be executed in English.

9.18 Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. The use of the word including in this Agreement shall be by way of example rather than by limitation.

9.19 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written.

CMED ECLIA Diagnostic Technology Ltd
By	/s/ Sam Tsang
Name:	Sam Tsang
Title:	Director
Chengxuan International Ltd.
By	/s/ Xiaodong Wu
Name:	Xiaodong Wu
Title:	Director

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DISCLOSURE SCHEDULES

[Attached Separately]

EXHIBIT 7.2(f)

Noncompetition Agreement

[Attached Separately]

EX-8.1

Exhibit 8.1

List of Our Subsidiaries*

Beijing Yuande Bio-Medical Engineering Co., Ltd., incorporated in the PRC

Beijing GP Medical Technologies Co., Ltd., incorporated in the PRC

Beijing Bio-Ekon Biotechnology Co., Ltd., incorporated in the PRC

CMED Technologies Ltd., incorporated in the British Virgin Islands

CMED Diagnostics Ltd., incorporated in the British Virgin Islands

CMED ECLIA Diagnostic Technology Ltd., incorporated in the British Virgin Islands

Clear Castle Investments Limited, incorporated in the British Virgin Islands

CMED (HK) Limited, incorporated in Hong Kong

CMED Diagnostics (Hong Kong) Limited, incorporated in Hong Kong

CMED ECLIA Diagnostic Technology (Hong Kong) Limited, incorporated in Hong Kong

East Crest Enterprises Limited, incorporated in Hong Kong

* Our subsidiaries that, in the aggregate, would not be a “significant subsidiary” as defined in rule 1-02(w) of Regulation S-X as of March 31, 2009 are omitted from this list.

EX-12.1

EXHIBIT 12.1

Certification by the Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Xiaodong Wu, certify that:

1. I have reviewed this annual report on Form 20-F of China Medical Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: September 30, 2009

By:	/s/ Xiaodong Wu
Name:	Xiaodong Wu
Title:	Chief Executive Officer

EX-12.2

EXHIBIT 12.2

Certification by the Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Takyung (Sam) Tsang, certify that:

1. I have reviewed this annual report on Form 20-F of China Medical Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: September 30, 2009

By:	/s/ Takyung (Sam) Tsang
Name:	Takyung (Sam) Tsang
Title:	Chief Financial Officer

EX-13.1

EXHIBIT 13.1

Certification by the Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of China Medical Technologies, Inc. (the “Company”) on Form 20-F for the fiscal year ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Xiaodong Wu, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 30, 2009

By:	/s/ Xiaodong Wu
Name:	Xiaodong Wu
Title:	Chief Executive Officer

EX-13.2

EXHIBIT 13.2

Certification by the Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of China Medical Technologies, Inc. (the “Company”) on Form 20-F for the fiscal year ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Takyung (Sam) Tsang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 30, 2009

By:	/s/ Takyung (Sam) Tsang
Name:	Takyung (Sam) Tsang
Title:	Chief Financial Officer

EX-15.1

Exhibit 15.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

China Medical Technologies, Inc.:

We consent to the incorporation by reference in the registration statement (No. 333-152937) on Form F-3 and the registration statement (No. 333-138954) on Form S-8 of China Medical Technologies, Inc. of our report dated June 27, 2008, except for Note 9 and Note 20, which are as of September 30, 2009, with respect to the consolidated balance sheet of China Medical Technologies, Inc. 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, which report appears in the March 31, 2009 annual report on Form 20-F of China Medical Technologies, Inc.

/s/ KPMG

Hong Kong, China

September 30, 2009

EX-15.2

Exhibit 15.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors

China Medical Technologies, Inc.:

We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (No. 333-152937) and Form S-8 (No. 333-138954) of China Medical Technologies, Inc. of our report dated September 30, 2009 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F.

/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Beijing, China

September 30, 2009

EX-99.1

Exhibit 99.1

[KPMG Letterhead]

September 30, 2009

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Ladies and Gentlemen:

We were previously principal accountants for China Medical Technologies, Inc. and, under the date of June 27, 2008, we reported on the consolidated financial statements of China Medical Technologies, Inc. as of and for the years ended March 31, 2007 and 2008, and the effectiveness of internal control over financial reporting as of March 31, 2008. In August 2009, we were dismissed. We have read China Medical Technologies, Inc.’s statements included under Item 16F of its annual report on Form 20-F for the fiscal year ended March 31, 2009, and we agree with such statements contained therein as they relate to KPMG, except that we are not in a position to agree or disagree with China Medical Technologies, Inc.’s stated reason for changing principal accountants. In addition, we are not in a position to agree or disagree with the statements that: 1) the audit committee and board of directors resolved to engage PwC to serve as the independent registered public accounting firm in connection with the audit of China Medical Technologies, Inc.’s consolidated financial statements for the fiscal year ended March 31, 2009; 2) the change was approved by the audit committee and board of directors; 3) PwC was not consulted concerning the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on China Medical Technologies, Inc.’s consolidated financial statements and no written or oral advice was provided by PwC that was an important factor considered by China Medical Technologies, Inc. in reaching a decision as to any accounting, auditing or financial reporting issue, or any matter that was either the subject of a disagreement with us or a “reportable event”; 4) China Medical Technologies, Inc. requested PwC to review the disclosures under Item 16F of its annual report on Form 20-F for the fiscal year ended March 31, 2009; and 5) PwC had no disagreement with the Item 16F disclosure and consequently declined to furnish China Medical Technologies, Inc. with a letter.

Very truly yours,

/S/ KPMG