During 2007, the company signed five new distributors, in addition to nine existing distributors. In order to encourage the existing distributors to order more products and the new distributors to enter new markets, the company provides them with incentives on top of the terms in the standard distribution agreements, including extended credit periods on outstanding balances. These strategies have proven to be effective in bringing about substantial sales growth by allowing quick entry into new markets and further penetration of existing markets.
These distributors are large trading companies with good credit ratings. Because the collection experiences with these distributors have been satisfactory, the company believes the possibility of delinquent accounts is very low and that the level of accounts receivable will decrease significantly towards the end of the year. Notwithstanding these facts, the company still increased the allowances significantly and, therefore, reduced book net income.
The company increased spending this quarter on advertising in new markets, new product R&D and IR campaigns. The company also incurred extra expenses on auditor fees for the three amended 10QSBs for 2006. While these expenses impacted the bottom line for the quarter, some of them are non-recurring and many represent higher than normal costs.
Despite the small drop in the net margin this quarter for the reasons discussed above, the company still has a healthy gross margin of almost 36% and a net margin of 20% for the quarter, and the company expects gross and net margins to continue to significantly improve.
China Kangtai is well on its way to comfortably beat its growth
projections for the year of 2007. The company has conservatively projected
to grow its revenues and earnings at a minimum rate of 30% annually without
any external financing, but this year the company
|SOURCE China Kangtai Cactus Bio-Tech, Inc.|
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