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Press release from CNW Group

CHINA HEALTH LABS & DIAGNOSTICS LTD. ANNOUNCES FINANCIAL RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED DECEMBER 31, 2010

Monday, April 11, 2011

CHINA HEALTH LABS & DIAGNOSTICS LTD. ANNOUNCES FINANCIAL RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED DECEMBER 31, 201018:00 EDT Monday, April 11, 2011TSX-V: CHOOTCQX: CHLBFwww.chinahealthlabs.comTORONTO, April 11 /CNW/ - China Health Labs & Diagnostics Ltd. ("China Health" or the "Company") (TSXV:CHO) (OTCQX:CHLBF) is pleased to announce the financial results for the year and fourth quarter ended December 31, 2010. China Health recently acquired Whole Vision Limited ("Whole Vision") pursuant to its Qualifying Transaction (see China Health's press release dated October 22, 2010).  As the Qualifying Transaction was completed after the 2010 third quarter of both China Health and Whole Vision, the first consolidated financial report is for the year ended December 31, 2010. As previously disclosed, as part of the Qualifying Transaction, China Health changed its year-end to be the same as that of Whole Vision, which is December 31.In 2010, the Company achieved its business and financial goals and made progress on its mission of becoming a leading provider of total lab solutions for medical diagnostics and food safety testing in China with the following highlights:Revenues grew by 41% to over $33.7 million, lead by a more than 100% increase in revenues from total lab solutions to account for more than 40% of revenues in 2010;Net income grew by 41% to over $5.5 million, if the $1.441 million of expenses related to the Qualifying Transaction are excluded, net income would have increased by 78%;Net income per share increased by 43% to $0.10 due to increased net income, partially offset by an increase in the weighted average number of shares due to the Qualifying Transaction and concurrent equity funding;Installed base of the BK Clinlab rural lab total solution grew from 86 to 210 locations in three Chinese provinces and secured a bid to install 587 BK Clinlabs in Jilin Province for 2011;More than doubled sales of POCT solutions to the Chinese military and signed a research and development agreement with the Chinese military;Increased sales of food safety lab solutions to the Beijing municipal government;Maintained relationships with more than 500 large urban hospitals and labs; andCommenced trading on the TSX Venture Exchange on October 25, 2010, after completing the Qualifying Transaction, and concurrently raising approximately $3.6 million in new equity.The Company has entered 2011 well positioned for further growth and with sufficient capital to expand its business for rural total lab solutions, POCT lab solutions and food safety lab solutions, including the 587 locations expected to be installed in Jilin Province.  In the fourth quarter of 2010, the Company secured a bid to install its rural total lab solutions in 587 Jilin locations and expects to finalize the agreement for that installation to be in 2011."In 2010, we continued to work with our customers to combine our proprietary equipment, software, training and installation services with an ongoing supply of reagents and maintenance services to provide turn-key medical diagnostic and food safety solutions," said Wilson Yao, President and CEO of China Health, "By providing solutions, rather than individual products, we are solidifying our leadership in our targeted sectors of rural labs, military and emergency services, and food safety in China.  This approach enables us to provide significant added value and build long term relationships with our customers, while generating healthy margins and recurring revenues for our shareholders."The following is a summary of the consolidated financial data of the Company for the two most recently completed fiscal years (in millions of Canadian dollars, except for per share amounts):  December31, 2010December31, 2009   Revenue$33.705$23.824Income from operations$6.497$4.264Net income$5.527$3.914Net income per share - basic$0.10$0.07Net income per share - diluted$0.10$0.07Weighted average number of shares (in 1,000's) - basic54,65152,233Weighted average number of shares (in 1,000's) - diluted55,18852,233Total assets$37.081$21.361Total long term financial liabilities$Nil$NilCash dividend declared per share$Nil$NilRevenue for the year and fourth quarter ended December 31, 2010 increased by 41% to $33.705 million, and by 46% to $15.679 million, respectively, compared to the same periods in 2009, largely due to the growth of the Company's proprietary total lab solutions for rural hospitals, POCT lab solutions for the Chinese military and food safety lab solutions for the Beijing municipal government, which together almost doubled to account for over 40% of 2010 revenues compared to less than 30% for the previous year.  In 2011, revenues from these sectors are expected to show strong growth.  Revenues from urban hospitals and labs also grew, but at a lower rate of about 19% for the year.Gross margin for the year and fourth quarter ended December 31, 2010 increased by 60% to $13.235 million and by 89% to $7,470 million, respectively, compared to the same periods in 2009, due to the increase in revenues generated and improved gross margin as a percentage of sales.  Gross margin as percentage of sales increased to 39.3% for the year ended December 31, 2010 and 47.6% for the fourth quarter ended December 31, 2010 compared to 34.7% and 36.8%, respectively, for the same periods in 2009, due to growth in sales of total lab solutions and POCT lab solutions both of which generate higher margins in comparison with other products and services.Operating expenses for the year and fourth quarter ended December 31, 2010 increased by 66.5% to $7.202 million, and by 215% to $3.953 million, respectively, compared to the same periods in 2009, largely due to increases in administrative expenses, the Qualifying Transaction expenses and the stock based compensation expenses. If non-recurring Qualifying Transaction expenses are excluded, then operating expenses increased by 33.2% and by 100% for the year and fourth quarter ended December 31, 2010, respectively, compared to the same periods in 2009.  Operating expenses as a percentage of sales for the year and fourth quarter ended December 31, 2010 increased to 21.4% and to 25.2%, respectively, compared to 18.2% and 11.7 for the same periods in 2009.  However, if non-recurring Qualifying Transaction expenses are excluded, then operating expenses were 17.1% and 16% as a percentage of revenues for the year and fourth quarter ended December 31, 2010, respectively.Income taxes for the year ended December 31, 2010 were $0.970 million compared with $0.350 million for 2009 due to increased net income and increased tax rate for one of the Company's Chinese operating subsidiaries.Net income for the year and fourth quarter ended December 31, 2010 increased by 41% to $5.527 million and by 33% to $2.930 million, respectively, compared to the same periods in 2009 due to increases in revenues and gross margins offset partially by increases in operating expenses and income taxes.  Net income as a percentage of revenues was 16% for the year ended December 31, 2010, unchanged compared to the same period in the prior year.  If non-recurring expenses of $1.441 million related to the Qualifying Transaction are excluded, net income for year ended December 31, 2010 would be $6.968 million, representing a 78% increase from the prior year. Net income per share increased by 43% to $0.10 for the year ended December 31, 2010 compared to the same period in 2009, due to increased net income, partially offset by an increase in the weighted average number of shares due to the Qualifying Transaction and concurrent equity funding.Cash totalled $3.326 million as at December 31, 2010, compared with $1.160 million of cash as of December 31, 2009.  The Company's working capital as of December 31, 2010 was $16.063 million, compared with a $10.683 million working capital as of December 31, 2009.  Working capital increased by $5.380 million, or 50% mainly due to net proceeds from the private placement of $3.246 million and the financing received from loans of $3.910 million offset by cash used in operating activities of $1.245 million.The Company has sufficient working capital to fund the anticipated growth for 2011, including the expected installation of 587 BK Clinlab total lab solutions in Jilin.  However, the Company may need to access additional debt or equity funding if it enters into an agreement for a large number for total lab solutions or if it pursues suitable acquisition opportunities.Outlook & Growth StrategyThe Company believes that the Chinese market for medical diagnostics and food safety products and services provides the Company ample opportunities to achieve continued strong growth. As China's economy grows, per capita spending and the total budget for health care and food safety are expected to continue increasing.  In addition, China Health has targeted sectors that are priorities for the Chinese government: improving the living standards for its rural population, enhancing emergency and rescue services and implementing better food safety practices.  China Health has invested in developing solutions and established a track record and key customer and government relationships for these selected sectors.  Accordingly, the Company believes that it is well positioned to deliver strong revenue and profit growth in 2011 and beyond.  China Health's growth strategy will focus on the following:Providing total lab solutions (as compared to individual products and services) combining proprietary equipment, software, installation, ongoing service and reagents, to sectors where there is limited competition and Chinese government policy and budget support;Focusing resources on leveraging its success in serving rural hospitals and clinics, military and civil emergency rescue customers, and food safety to major cities in China to maintain and build its leading market share;Continuing to collaborate with customers to develop new and improved solutions, including the research and development agreement with the Chinese military signed in late 2010 (see press release dated December 8, 2010); and,Seeking acquisitions and opportunities where the Company can add new products and services that are complementary to its current offeringsIn 2011, China Health intends to expand its business by focusing its efforts on building its sales network to additional Chinese provinces and cities in the three areas where it has proprietary products and limited competition. The Company plans to increase its sales and marketing and research and development budgets in 2011 and will also incur increased expenses related to being a public company.  However, the Company believes that these investments will result in revenue and gross margin growth that will offset the additional expenses. Going forward, China Health expects revenue growth from its total lab solutions to continue to be stronger than growth from its diagnostic equipment and reagent business to large urban hospitals, and to comprise an increasing percentage of revenues.China Health will be hosting an investor conference call on Tuesday, April 12, 2011. The purpose of this conference call will be to provide investors with an update of the year-end and fourth quarter results of the Company.  Representatives of China Health on the conference call are expected to be:Mr. Shiping (Wilson) Yao, President and Chief Executive OfficerMr. Adam Kniec, Chief Financial OfficerMr. Kim Oishi, Member of the Board of DirectorsMr. Chao Zhang, Vice President, FinanceFollowing the update, a question and answer session will be held.  To participate, the time and call-in instructions are as follows:DATE:  Tuesday, April 12, 2011TIME:  10:00 am, Eastern TimeParticipant Toll-Free Dial-In Number for North America:  1-888-231-8191Participant Dial-In Number for Toronto and international callers:  1-647-427-7450Conference ID Number:  58763699(NOTE: In order to join this conference call, participants will be required to provide the Conference ID Number.)A Taped Replay will be available from 1:00 pm Eastern Time on April 12, 2011 to 11:59 pm Eastern Time on April 19, 2011.Taped Replay Toll Free Dial-in Number: 1-800-642-1687Taped Replay Toronto and International Dial-in Number: 1-416-849-0833Taped Replay Password: 58763699Finally, the Company will be granting stock options to certain officers, employees and consultants of the Company's Chinese subsidiaries to acquire up to 1,575,000 common shares of the Company.  The grant date is expected to be the day that is two full business days after the 2010 year-end financial results are announced at an exercise price equal to the closing price the day before the grant date, vesting over a three-year period and expiring on the tenth anniversary of the grant date and conditional on the Company being satisfied that all Chinese regulatory requirements have been satisfied and performance targets have been agreed to and met.Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.FORWARD LOOKING INFORMATION AND NON-GAAP MEASURESThis press release contains forward-looking statements and information that are based on the beliefs of management and reflect China Health's current expectations.  When used in this press release, the words "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology are intended to identify forward-looking statements and information.  The forward-looking statements and information in this press release includes information relating to the Company's general growth prospects, its growth in revenues, gross margin and profits, the relative strength of the growth of its total lab solutions products, the Company's increases in expenses, its increases in sales and marketing and R&D budgets, its capital requirements to expand its business, its agreement to install total lab solutions in Jilin, the Chinese market for its products and services, the Company's business expansion plans, and the development of its sales network.  The forward-looking information is based on certain assumptions, which could change materially in the future, including the assumption that the Company's revenues, gross margin and profits will continue to grow, the total lab solutions products will experience stronger growth than the Company's other product and service offerings, the sales and marketing and R&D budgets will be increased and funded, the Company's capital requirements to expand its business are sufficient, the Company will enter into an agreement to install its total lab solutions in Jilin, the Chinese market for the Company's products and services will continue, the Company will proceed with its business expansion plans including the development of its sales network.  Such statements and information reflect the current view of China Health with respect to risks and uncertainties that may cause actual results to differ materially from those contemplated in those forward-looking statements and information.  By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the risks that the Company's general growth may not increase, its revenues, gross margins and profits may not increase, the Company's total lab solutions products may not grow more than its other products and services, the Company's expenses may not increase or decrease as projected, the Company's budgets for sales and marketing and R&D may not be increased, may be decreased or may not be funded, the Company's capital requirements to expand its business may not be sufficient, the Company may not enter into an agreement to install total lab solutions in Jilin, the Chinese market for its products and services may not increase or may decrease, the Company's business expansion plans may not go forward or may be altered, and the development of the Company's sales network may not proceed or proceed other than as expected..  China Health cautions that the foregoing list of material factors is not exhaustive.  When relying on China Health's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events.  China Health has assumed a certain progression, which may not be realized.  It has also assumed that the material factors referred to above will not cause such forward-looking statements and information to differ materially from actual results or events.  However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.China Health has also included in this press release figures based on a secured bid, which is a non-GAAP measure.  Readers are cautioned that such a measure is not recognized under Canadian GAAP and should not be construed to be an indicator of performance or liquidity or cash flows.  China Health's method of calculating this measure may differ from the method used by other entities and accordingly China Health's measure may not be comparable to the measure used by other entities.THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE REPRESENTS THE EXPECTATIONS OF CHINA HEALTH AS OF THE DATE OF THIS PRESS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE.  READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE.  WHILE CHINA HEALTH MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED IN ACCORDANCE WITH APPLICABLE LAWS. For further information: Kim Oishi, Director Telephone:  416-865-3351 Email:  koishi@chinahealthlabs.com