Product sales increased by $178,866 or 77% to $411,237 in 2007 from $232,371 in 2006. This increase was due to our BioVault™ and BioLock products coming to market during the last six months of 2006. Sales of the BioVault™, BioLock, and related components and accessories during 2007 were $273,229 compared to 2006 sales of $123,818. The increase in product sales during 2007 was also a result of sales from Sequiam East, Inc. of $100,432, which we acquired in January 2007. Sequiam East’s sales consist primarily of sales of parts used to manufacture biometric security products. The increase in product sales during 2007 was partially offset by a decrease in sales from Constellation Biometrics Corporation from $98,277 in 2006 to $14,972 in 2007, a decrease of $83,305. Constellation’s sales consist primarily of sales of biometric products other than the BioVault™ and BioLock to customers in Africa.
Gross margin increased to $123,610 in 2007 compared to $73,106 in 2006, an increase of $50,504. This increase was a result of the increase in product sales during 2007. Gross margin as a percentage of product sales remained fairly consistent at 30% in 2007 compared to 31% in 2006. We plan to reduce the costs to produce the BioVault™ and BioLock, and thus increase each item’s gross margin, by reengineering these products. The increase in other product related costs during 2007 was a result of the significant increase in sales of the BioVault™, BioLock, and related components and accessories.