Total cost of sales for the three months ended March 31, 2011 was $11,856, an increase of $711 or 6.38% from $11,145 for the same period in 2010. As a percentage of total net sales, our cost of sales decreased to 56.00% of total net sales for the three months ended March 31, 2011, down from 61.69% of total net sales for the same period in 2010. Consequently, gross margin as a percentage of total net sales increased to 44.00% for the three months ended March 31, 2011 from 38.31% for the same period in 2010. Our gross margin increased mainly due to an increase of 144.3% in our average selling prices.

Selling, General and Administrative Expenses (amounts in thousands, in U.S. Dollars, except for percentages)

Selling expenses were $2,219 for the three months ended March 31, 2011, compared with $1,484 for the same period in 2010, an increase of $735 or 49.53%. The increase was mainly due to an increase in advertising expenses related to our marketing efforts in Beijing, Fujian and Zhejiang, from $1,364 for the three months ended March 31, 2010 to $1,414 for the three months ended March 31, 2011. We expect that our selling expenses will continue to increase as we continue our marketing efforts to support our existing distribution network as well as to penetrate potential new markets in these regions.

General and administrative expenses increased to $1,341 for the three months ended March 31, 2011, from $835 for the same period in 2010, an increase of $506 or 60.60%. The increase was mainly due to the hiring of an outside consulting firm to assist us with brand marketing and positioning for our designs.