INCOME STATEMENT PRESENTATION We recognize revenue in five geographic regions. We translate revenue from each market’s local currency into U.S. dollars  using quarterly weighted-average exchange rates. The following table sets forth revenue information by region for the time  periods indicated. This table should be reviewed in connection with the tables presented under “Results of Operations,”  which disclose selling expenses and other costs associated with generating the aggregate revenue presented. Year Ended December  31 , Revenue by Region 2002 2003 2004 (U.S. dollars in millions) North Asia  $  597 . 1 62% $  612 . 8 62% $  640 . 1  56% Greater China 104 . 9 11 135 . 5 14 229 . 8  20 North America 142 . 7 15 127 . 6 13 145 . 7  13 South Asia/Pacifi c 91 . 1 9 75 . 8 8 81 . 8 7 Other Markets 28 . 3 3 34 . 8 3 40 . 5 4 $  964 . 1 100% $  986 . 5 100% $  1 , 137 . 9 100% • cost of products purchased from third-party vendors, generally in U.S. dollars;  • manufacturing costs of self-manufactured products; • the cost of sales materials which we sell to distributors at or near cost;  • the amortization expenses associated with certain products and services such as BioPhotonic Scanners that are  leased to distributors;  • the freight cost of shipping products to distributors, and import duties for the products; and • royalties and related expenses for licensed technologies. Cost of sales primarily consists of: We source the majority of our products from third-party manufacturers located in the United States. Due to Chinese  government restrictions on the importation of finished goods applicable to our business in China, we are required to manu- facture our own products for distribution in China. We are also considering plans to manufacture more products in China  for export in order to reduce our cost of sales. Cost of sales and gross profit may fluctuate as a result of changes in the ratio  between self-manufactured products and products sourced from third-party suppliers. In addition, because we purchase a  significant majority of our goods in U.S. dollars and recognize revenue in local currencies, we are subject to exchange rate  risks in our gross margins.  Selling expenses are our most significant expense and are classified as operating expenses. Our global compensation  plan, which we employ in all of our markets except China, is an important factor in our ability to attract and retain dis- tributors. We pay commissions to several levels of distributors on each product sale. The amount of the commission paid  varies depending on the purchaser’s position within our global compensation plan. We pay commissions monthly, based  upon a distributor’s personal and group product volumes, as well as the group product volumes of up to six levels of execu- tive distributors in such distributor’s downline sales organization. We do not pay commissions on sales materials, which  are sold to distributors at or about cost. Small fluctuations occur in the amount of commissions paid as the network of dis- tributors actively purchasing products changes from month to month. However, due to the size of our distributor force of  approximately  820 , 000  active distributors, the fluctuation in the overall payout is relatively small. The overall payout has  typically averaged from  41 % to  43 % of global product sales. From time to time we make modifications and enhancements  to our global compensation plan to help motivate distributors and develop leadership characteristics, which can have an  impact on selling expenses.  Distributors also have the opportunity to make retail profits by purchasing products from us at wholesale and selling  them to retail customers with a retail mark-up. We do not pay commissions on these retail sales by distributors nor do we  recognize any revenue from these retail sales. In many markets, we also allow individuals who are not distributors to buy  products directly from us at wholesale prices. We refer to these purchasers as “preferred customers.” We pay commissions  on preferred customer purchases to the referring distributors. Selling expenses also include wages, benefits, bonuses and  other labor and unemployment expenses we pay to our employed sales representatives in China. General and administrative expenses include: • wages and benefits; • rents and utilities; • depreciation and amortization; • promotion and advertising; • professional fees; 35