Winner Medical Posts Net Sales Of $20.6 Million For Q2 Fiscal 2009

2009 Guidance

Looking ahead for fiscal 2009, the company lowered revenue estimate to a range of $98.33 million-$100.90 million, an increase of 15% to 18% compared to fiscal year of 2008.

Jianquan Li, chairman and chief executive officer of Winner Medical, commented, We are pleased to announce a strong quarter of increases in sales and net profit. The sales growth was driven by increased orders of our products, particularly from customers in the US. We also improved gross margin and net margin in the second quarter through implementing cost control measures and equipment technical improvements that optimize production efficiency.

Li continued, However, looking into the future, the current economic crisis has created great uncertainties on the future market demand and the price level of our products. Thus, considering the related risks, we think the second half of fiscal year 2009 will be tough, and we decide to lower our fiscal year 2009 guidance to an estimate of 15% to 18% increase in net sales from last fiscal year.

Q2 fiscal 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 $4.03 million for the Q2 fiscal 2009, up 158.37% compared to the same period in 2008. The North and South American market accounted for 19.53% of total revenue for the quarter ended March 31, 2009.

Gross Profit: For the Q2 fiscal 2009, gross profit was $5.80 million, up of 46.81% over $3.95 million in the same period of fiscal 2008. Gross margin was 28.13%, versus 22.09% achieved in the second 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; the improvement of the company’s cost control, equipment technical improvement and lean production management that increased production efficiency and reduced production waste; and the decrease of material purchasing price as the company combined individual purchases by each subsidiary into larger scale orders to create more bargaining power.

Operating Expenses: Selling, general and administrative expenses increased by 15.68% to $3.87 million in the Q2 fiscal 2009, from $3.34 million in the Q1fiscal 2008. During this quarter, the increase in operating expenses was mainly due to the increased provision for decline in value of inventory, increase in reserve for fixed assets impairment and bad debts, increase in salary and welfare for the management and administrative staff, increase in research and development expenses, and increase in related administrative expenses such as depreciation and amortization for Winner Medical (Huanggang) Co., Ltd.

Operating Income: During the period, operating income was $2.10 million, up 356.30% compared with $0.46 million of 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 Q2 fiscal 2009 was $460,000, up from -$223,000 for the same period in fiscal 2008. The increase in tax provision was mainly due to a change in tax rate for the company’s subsidiaries in China as a result of the Chinese income tax reform that came into effect on January 1, 2008, and the write off for over-provision of income taxes in the second fiscal quarter of 2008.

Six Months Ended March 31, 2009 Unaudited Financial Results

Revenue: Winner Medical reported net sales revenue of $46.36 million, a 24.57% increase over the six months ended March 31, 2009. Healthy revenue growth was mainly due to strong demand, particularly in North and South America; revenue from North and South America was about $8.99 million for the six months ended March 31, 2009, up 126.56% compared to the same period in 2008. The North and South American market accounted for 19.39% of total revenue for the six months ended March 31, 2009.

Gross Profit: For the six months ended March 31, 2009, gross profit was $12.41 million, up 41.76% over $8.75 million in the same period of fiscal 2008. Gross margin was 26.76%, versus 23.52% achieved in the six months ended March 31, 2009. 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 the company’s cost control, equipment technical improvement and lean production management that increased production efficiency and reduced production waste; and the decrease of material purchasing price as the company combined individual purchases by each subsidiary into larger scale orders to create more bargaining power.

Operating Expenses: Selling, general and administrative expenses increased by 20.19% to $8.32 million during the six months ended March 31, 2009, from $6.93 million during the six months ended March 31, 2008. The increase in operating expenses was mainly due to the increased provision for decline in value of inventory, increase in research and development expenses, increase in salary and welfare for the management and administrative staff, and increase in related administrative expenses such as depreciation and amortization for Winner Medical (Huanggang) Co., Ltd.

Operating Income: During the period, operating income was $3.84 million, up 122.58% compared with $1.73 million of the same period 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 six months ended March 31, 2009 was $720,000, up from -$159,000 for the same period in fiscal 2008. The increase in tax provision was mainly due to a change in tax rate for the company’s subsidiaries in China as a result of the Chinese Income Tax reform that came into effect on January 1, 2008, and the write off for over-provision of income taxes in the second fiscal quarter of 2008.

Net income: Net income increased by 80.08% to $3.12 million, or $0.07 per basic and diluted share, against net income of $1.73 million, or $0.04 per basic and diluted share, for the same period of last fiscal year. This increase can be attributed to higher gross margin during the six months ended March 31, 2009 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 March 31, 2009 was about $8.12 million, compared with $6.46 million as of September 30, 2008. The company’s working capital as of March 31, 2009 was $17.40 million compared with $12.37 million as of September 30, 2008. Net operating cash flow during the six months ended December 31, 2008 was $6.24 million, up $4.42 million compared with the same period in fiscal 2008.