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Comments from Mr. Hui Xiaobing, Chairman & CEO
Mr. Hui commented, "We believe the market for radiation therapy in Chinahas strong secular growth drivers in place. China's aging population, highrate of cancer incidence, and increasing demand for high-quality medicalequipment and efficient healthcare services are some of the key factors webelieve will contribute to the growth of the radiotherapy equipment market."
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Mr. Hui concluded, "2007 was a very successful year for us, as ourrevenues grew by nearly 30% and our bottom line comprehensive income grew bymore than 40%. We are now looking forward to 2008 and anticipating anotherstrong year. Despite the Chinese New Year Holiday and the severe snowstormsthat struck China in the first quarter, 2008 has started off strong as ourrevenue backlog from product sales increased to approximately $12.24 millionas of March 31st, 2008 from approximately $2.4 million as of December 31,2007."
Overview of 2007 Results
Operating revenues
For the year ended December 31, 2007, net revenues were $15.94 million, anincrease of $3.59 million, or 29%, compared to $12.35 million for year ended2006.
Total revenues from product sales were $9.53 million for 2007, an increaseof $2.92 million or 44%, compared to $6.61 million for the same period of theprior year. This increase in unit sales in 2007 was due to an increased demandin the market for our radiotherapy products.
Total revenues from services were $5.04 million in 2007, an increase of$0.36 million or 7.7%, compared to $4.68 million in 2006. The increase was dueto the signing of 3 new service contracts in mid-2006 which resulted inrevenues on those contracts for roughly half of 2006 and all of 2007.
Total revenues from tax refunds and subsidies were $1.38 million in 2006,an increase of approximately $320,000 or 30% over the $1.06 million in taxrefunds and subsidies for 2007. Tax refunds and subsidies accumulate eachcurrent year and are paid and recognized as revenue the following year.
Cost of revenues
The total cost of revenues in 2007 amounted to $3.76 million, an increaseof $1.11 million or 41.9%, compared to $2.65 million in 2006. The increase wasdue to increased number of units sold in 2007 compared with 2006.
Gross margin
As a percentage of total revenues, the overall gross margin in 2007decreased to 76.4% from 78.5% in 2006. The decrease was due to product salesaccounting for a larger percentage of total revenues in 2007 compared with2006, when higher margin service revenues accounted for a larger percentage oftotal revenues.
Operating expenses
Sales and marketing expenses. Sales and marketing expenses wereapproximately $82,000 in 2007, a decrease of 33%, or roughly $41,000 comparedto approximately $123,300 in 2006. The decrease was due to a fewer commissionspaid to sales staff as senior management was responsible for several sales andwere not paid any commissions.
General and administrative expenses. General and administrative expenseswere $1.53 million in 2007, an increase of roughly $250,000 compared toapproximately $1.28 million in 2006. The increase in general andadministrative expenses was due primarily to increased expenses associatedwith human resources, increased administrative expenses resulting from ourgrowth over that period and from additional expenses resulting from becoming apublicly listed company in the U.S.
Research and development expenses. Research and development expenses were$263,300
