According to Frost & Sullivan, the global medical device industry had an estimated value of US$148 billion in 2004. The United States is the largest market for medical devices with an estimated value of US$64 billion in 2004, or 43.0% of the global market. Europe is the second largest market for medical devices with an estimated value of US$44 billion in 2004, or 30.0% of the global market. China’s market for medical devices had an estimated value of US$7.5 billion, or 5.1% of the global market. China’s medical device market, as well as the medical device markets in several developing countries, is projected to grow faster than the global medical device market. According to Frost & Sullivan, China’s medical device market is projected to grow from US$7.5 billion in 2004 to US$10.1 billion in 2006.

According to the PRC Ministry of Health, there were approximately 18,700 hospitals and 41,700 healthcare clinics in China in 2005. The hospitals, which on average had approximately 130 beds, can be further divided into approximately 950 large-sized hospitals, 5,200 medium-sized hospitals and 12,500 small-sized hospitals, commonly referred to as Tier III, Tier II and Tier I and other hospitals, respectively, in China.

Diagnostic laboratory instruments, commonly referred to as in-vitro diagnostics, or IVD, instruments test blood, urine, saliva or other bodily fluids, cells and other substances from patients to diagnose and analyze various diseases and disorders. The use of diagnostic laboratory instruments to conduct IVD tests is an integral part of overall patient care. Diagnostic testing is generally viewed as an effective method of reducing healthcare costs and improving the quality of healthcare by reducing the length of hospital stays and complications through accurate and early detection of health disorders. According to Frost & Sullivan, the worldwide IVD market was estimated to be US$26.8 billion in 2003, and is projected to grow between 5% and 7% per year from 2003 through 2009. However, according to Frost & Sullivan, the Chinese IVD market had an estimated value of US$500 million in 2004 and is projected to grow at a compounded annual growth rate of 14.4% through 2010 to US$1.1 billion, the fastest projected IVD market growth rate globally.

The Company’s patient monitoring devices track the physiological parameters of patients, such as heart rate, blood pressure, respiration and temperature. The Company offers more than 15 different patient monitoring devices that are suitable for adult, pediatric and neonatal patients and are used principally in hospital intensive care units, operating rooms and emergency rooms.

The Company’s product line offers customers a broad range of functionality, such as single-parameter monitors, stationary and portable multifunction monitors, central stations that can collect and display multiple patient data on a single screen, and an electro-cardiogram monitoring device. The Company’s patient monitoring devices also have built-in recorders and have batteries for portability in most models, as well as power backup in the event of power failure in stationary models. The Company also offers a line of veterinary monitoring devices.

The Company’s diagnostic laboratory instruments provide data and analysis on blood, urine and other bodily fluid samples for clinical diagnosis and treatment. The Company offers a range of semi-automated and fully-automated diagnostic laboratory instruments for laboratories, clinics and hospitals to perform analysis to detect and quantify various substances in the patient samples. The Company’s current product portfolio consists of more than ten diagnostic laboratory instruments in two primary product categories: hematology analyzers and biochemistry analyzers. The Company also offers reagents for use with its diagnostic laboratory instruments, and a microplate reader and microplate washer. A microplate is a plastic consumable used in diagnostic testing; it contains 96 wells where reagents are dispensed to react with patient samples.

The Company’s ultrasound imaging systems use computer-managed sound waves to produce real time images of anatomical movement and blood flow. Ultrasound imaging systems are commonly employed in medical fields such as urology, gynecology, obstetrics and cardiology. The Company currently sells more than ten portable and stationary grayscale ultrasound imaging systems, and offers a broad range of transducers to enhance the adaptability of these systems for a variety of applications

Total cost of revenues as a percentage of total net revenues increased slightly from 44.6% to 45.4% in the six months ended June 30, 2005 and 2006, respectively.

Total gross profits increased by RMB127.5 million (US$15.9 million), or 52.7%, to RMB369.4 million (US$46.2 million) in the six months ended June 30, 2006 from RMB241.9 million in the same period in 2005.

Operating expenses increased by RMB36.2 million, or 23.3%, to RMB191.5 million (US$24.0) million in the six months ended June 30, 2006 from RMB155.3 million in the same period in 2005.

Net income in the six months ended June 30, 2006 increased to RMB164.8 million (US$20.6 million) from RMB80.2 million in the same period in 2005.