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Winner Medical Reports Q1 Fiscal 2009 Results

Winner Medical Group Inc. (Winner Medical) has reported net sales of $25.73 million for the first quarter of fiscal 2009, up 33.14%, compared with the net sales of $19.33 million in the year-ago quarter. It posted a net income of $1.48 million, or $0.03 per share, for the first quarter of fiscal 2009, compared with the net income of $1.16 million, or $0.03 per share, in the year-ago quarter.

Jianquan Li, chairman and chief executive officer of Winner Medical, commented, ”we are pleased to announce another quarter of strong sales growth, driven by increased orders of our traditional products, including medical care, wound care and home care products, particularly from customers in the US and Europe. Despite the negative effect of the appreciation of the RMB and the global economic crisis, we are able to maintain a stable gross margin and net margin through implementing cost control measures and equipment technical improvements that optimize production efficiency.”

Li continued, ”Our PurCotton(TM) products performed solidly, with total sales of $0.84 million in the first quarter of fiscal 2009. We will further strengthen marketing efforts for PurCotton(TM) and we believe the growing sales of this new product will be a complementary growth driver to our traditional products over the mid- to long-term.

First quarter 2009 unaudited financial results

Revenue: Healthy revenue growth was mainly due to strong demand, particularly in North and South America; revenue from North and South America was about $4.96 million for the first quarter of fiscal 2009, an increase of 105.94% against the same period in 2008. The North and South American market accounted for 19.28% of total revenue for the quarter ended December 31, 2008.

Gross Profit: For the first quarter of fiscal 2009, gross profit was $6.60 million, an increase of 37.56% over $4.80 million in the same period of fiscal 2008. Gross margin was 25.66%, versus 24.84% achieved in the first quarter of fiscal 2008. The increase in gross margin was mainly due to the unit product cost decrease as a result of better economies of scale, and the improvement of our cost control, equipment technical improvement and lean production management that increased production efficiency and reduced production waste.

Operating Expenses: Selling, general and administrative expenses up by 24.41% to $4.46 million in the first quarter of fiscal 2009, from $3.58 million in the first quarter of fiscal 2008. During this quarter, the increase in the operating expenses was mainly due to the increased provision for decline in value of inventory, increase in salary and welfare for the management and administrative staff, and the increase in related administrative expenses such as depreciation and amortization for Winner Medical (Huanggang) Co., Ltd.

Operating Income: During the period, operating income was $1.75 million, up 37.73% compared with $1.27 million in the same quarter of 2008. The increase was mainly attributed to decreased export transportation fees, economies of scale related to higher sales revenue, and improved production management to reduce manufacture cost.

Income Taxes: The income tax provision for the first quarter of fiscal 2009 was $260,000, up from $65,000 for the same period in fiscal 2008. The increase in tax provision was mainly due to a change in tax rate for our subsidiaries in China as a result of the Chinese Income Tax reform that came into effect on January 1, 2008.

Net income: Net income increase can be attributed to higher sales revenue during the three months ended December 31, 2008 as compared with the same period last year, the decrease in transportation expenses, and improved production management to reduce manufacture cost.

Balance Sheet

Cash and cash equivalents as of December 31, 2008 were about $7.73 million; compared with $6.46 million as of September 30, 2008. The company’s working capital as of December 31, 2008 was $14.88 million compared with $12.37 million as of September 30, 2008. Net operating cash flow during three months ended December 31, 2008 was $1.63 million, an increase of $4.01 million compared with the same period in fiscal 2008.

First Quarter 2009 Operational Highlights

Medical care, Wound care and Home care products in Export Markets

North and South America – Revenue from customers in North and South America was about $4.96 million for the three months ended December 31, 2008, up of 105.94% against the same period last year. North and South America accounted for 19.28% of total revenue for the three months ended December 31, 2008. The company has been gradually shifting resources and services to focus on the larger-sized customer segment and successfully attained a higher order volume from existing customers, especially in the US. As a result, it expects revenue from these larger customers to increase in the future.

Europe – Revenue from European customers was about $11.10 million for the first quarter of fiscal 2009, an increase of 24.57% against the same period last year. Europe accounted for 43.15% of total revenue for the first quarter of fiscal 2009, respectively. The company has adopted the same strategy in Europe as it has in the North and South America: gradually shifting resources and services to focus on the larger-sized customer segment. As a result, it expects revenue from these larger customers to increase in the future.