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China Health Labs & Diagnostics Ltd. Provides Update on Rural Hospital Total Lab Solution Business


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After the completion of the Guizhou installations, China Health has installed in total 817 BK Clinlabs in rural hospitals and clinics in four provinces of China (Jilin, Henan, Guizhou and Liaoning), compared to 210 locations at the end of 2010.

China Health is now actively marketing its BK Clinlab solution in 11 provinces of China, including the four provinces where it has existing installations.   The Company is in the final stages of negotiating agreements to install 52 BK Clinlabs in two Chinese provinces where it does not currently have installed labs.  Preparations for the construction and installation of these labs have commenced, with installations expected to be completed in 2011 or early 2012.  In addition to the Company's direct sales activities described above, Biosino Bio-Technology and Science Inc. ("Biosino") has been allocated five provinces in China where it will lead the marketing of the BK Clinlab, pursuant to the Company's five year agreement with Biosino previously announced in a press release dated November 7, 2011.

"After the successful installation of the 587 BK Clinlabs in Jilin, we have seen increasing interest from our existing customers and in provinces where we have been working hard to introduce our total diagnostic lab solution," said Wilson Yao, Chairman and CEO of China Health. "With our direct sales team and Biosino actively marketing to 16 provinces in China, we expect to complete additional installations in 2011, and be ready for another strong year in 2012.  We are very pleased to be providing a total diagnostic lab solution that is helping the Chinese government achieve one of its key healthcare policies of improving healthcare in rural communities, while making strong returns for our shareholders."

As previously announced, China Health completed installation of 587 BK Clinlabs in Jilin Province, China in August 2011.  The Jilin installation was a major driver of revenue and profit growth for the nine months ended September 30, 2011, during which revenues from the total diagnostic lab solution for rural hospital business grew by over 500 percent to $7.71 million to account for 30% of Company's total revenues, compared to revenues of $1.26 million, accounting for 7% of total revenues for the same period in 2010.   The growth of the total diagnostic lab solution business for rural hospitals also contributed to the increase in gross margin as a percentage of revenues to 45% for the nine months ended September 30, 2011 compared to 32% for the same period in 2010.  The Company generates strong margins from this business due to the value provided to customers by its proprietary lab management system and diagnostic equipment produced in the Company's Beijing manufacturing facility.

The BK Clinlab was developed by China Health as a total lab solution comprising diagnostic equipment, hardware and software, installation and training and an ongoing supply of reagents and service for use in rural hospitals and clinics.  The Company believes that this approach provides added value to the rural hospitals and builds strong customer loyalty compared with selling individual products.  The BK Clinlab total lab solution includes basic in-vitro diagnostic testing equipment (and complementary reagents) such as haematology analyzers, coagulation analyzers, urine analyzers, biochemistry analyzers, and electrolyte analyzers are mostly produced at the Company's Beijing manufacturing plant.  China Health has developed and patented the Lab Management System ("LMS"), a proprietary computer hardware and software system that connects the diagnostic equipment facilitating ease of operation, quality control, management of patient information and monitoring of reagent inventory.  As part of the BK Clinlab, a network of service centres staffed with trained technicians has and is being set up to provide support to rural labs within the service area and to provide a dependable source of reagents.  As rural diagnostic facilities in China are typically underserviced and often lack even basic diagnostic capabilities, China Health believes that it is uniquely positioned to capitalize on this opportunity, as they are the first company in China to identify and create a medical laboratory solution specifically tailored to service the more than 50,000 rural hospitals throughout China.

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