With approximately one fifth of the world’s population and a fast-growing gross domestic product, China’s market presents significant potential for the medical equipment and supplies industry. According to Frost & Sullivan, the China market for medical devices and equipment is expected to grow from US$5.9 billion in 2002 to US$10.1 billion in 2006, at a CAGR of approximately 14%. The severe acute respiratory syndrome, or SARS, crisis of 2003 heightened the government’s awareness of the need to improve the country’s healthcare infrastructure, and healthcare has become a top priority for the People’s Republic of China, or PRC, government.

China’s medical equipment and supplies market is growing with continued investment from overseas along with increasing domestic production. According to Medistat, World Market Analysis 2004, published by Espicom Business Intelligence, an independent market research firm, there were approximately 2,900 medical device manufacturers in China at the end of 2003. However, most domestic manufacturers are state-owned, small- and medium-size companies producing basic medical supplies, such as bandages, patient aids and medical or surgical instruments.

Domestically-owned medical technology companies and manufacturers of high-tech medical equipment are typically small in scale and their technologies are generally based on university research. As a result, imported medical equipment and supplies accounted for 85% to 90% of the China medical equipment and supplies market in 2002 (latest available data). The development of a domestic high technology medical equipment market is a priority for the PRC government. As a result, more advanced medical products are expected to be produced in China in the next few years.

China’s medical equipment and supplies industry is affected by the development of healthcare institutions, the marketing and distribution system, healthcare insurance and the market for diagnostics equipment and treatment equipment for various illnesses.

The Company’s HIFU therapy system is State Food and Drug Administration of China, or SFDA,-approved to treat liver, breast and kidney tumors, solid tumors in the pelvic cavity or on bone and tumors in the four limbs or superficial tissues. Treatments using the Company’s system are performed without anesthesia and do not cause significant discomfort, skin-burn or hemorrhage. The Company acquired its HIFU technology in November 1999 and has sold over 150 units of its HIFU therapy system to date. The Company currently offers its second-generation two-transducer HIFU therapy system. The Company expects to commence sales of its third-generation product, a two-transducer HIFU therapy system equipped with its newly-developed non-invasive ultrasound temperature detecting technology by the end of 2005.

HIFU therapy can be used in conjunction with other treatment methods such as surgery, radiotherapy and chemotherapy, or as a stand-alone treatment. HIFU treatment increases the sensitivity and receptivity of body tissues to radiotherapy and chemotherapy. When used in combination with either of these treatment methods, HIFU treatment often enhances their effectiveness and reduces the required chemical or radiation dosage. As a result, patients generally experience less side effects associated with radiotherapy and chemotherapy.

The Company’s second product, the enhanced chemiluminescence, or ECLIA, system, is a luminescence immunoassay in-vitro diagnostics system, or IVD, system based on the ECLIA technology. Luminescence immunoassay IVD systems are advanced types of IVD systems commonly used in the United States and Western Europe, but are relatively new in China. The Company began marketing and selling its ECLIA system in September 2004 and has sold 480 units of its ECLIA analyzer as of March 31, 2005.

The Company currently offers 27 types of reagent kits, for use with its ECLIA analyzer, to detect various thyroid disorders, diabetes, disorders related to reproduction and growth and various types of tumors. In addition, the Company is one of the first companies to obtain SFDA approval in China for a reagent kit for the early detection of SARS.

Cost of revenues increased 90.0% to RMB64.6 million (US$7.8 million) for the fiscal year ended March 31, 2005, from RMB34.0 million for the fiscal year ended March 31, 2004.

Operating expenses increased significantly to RMB24.4 million (US$3.0 million) for the fiscal year ended March 31, 2005, from RMB10.3 million for the fiscal year ended March 31, 2004.

Net interest income increased significantly to RMB0.2 million (US$22.0 thousand) for the fiscal year ended March 31, 2005, from RMB14.0 thousand for the fiscal year ended March 31, 2004.

Net income increased significantly to RMB118.4 million (US$14.3 million) for the fiscal year ended March 31, 2005, from RMB61.6 million for the fiscal year ended March 31, 2004.