Attached files
file | filename |
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EX-32.1 - WINNER MEDICAL GROUP INC | v193270_ex32-1.htm |
EX-31.1 - WINNER MEDICAL GROUP INC | v193270_ex31-1.htm |
EX-31.2 - WINNER MEDICAL GROUP INC | v193270_ex31-2.htm |
EX-32.2 - WINNER MEDICAL GROUP INC | v193270_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10−Q
(Mark
One)
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended: June 30, 2010
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ____________ to _____________
Commission
File Number: 001-34484
WINNER MEDICAL GROUP
INC.
(Exact
name of Registrant as Specified in its Charter)
Nevada
|
33-0215298
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification.
No.)
|
Winner
Industrial Park, Bulong Road
Longhua,
Shenzhen City, 518109
People’s
Republic of China
|
(Address
of principal executive
offices)
|
86-(755)
28138888
|
||
(Registrant’s
Telephone Number)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months or
for such shorter period that the registrant was required to file such reports,
and (2) has been subject to such filing requirements for the past 90
days.
Yes
x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
¨
No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No
x
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of August 11, 2010 is as follows:
Class
of Securities
|
Shares
Outstanding
|
|
Common
Stock, $0.001 par value
|
23,950,740
|
TABLE
OF CONTENTS
Page
|
||||
PART
I
|
3
|
|||
Item
1.
|
Condensed
Financial Statements
|
3
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
5
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
|
||
Item
4.
|
Controls
and Procedures
|
19
|
||
PART
II
|
20
|
|||
Item
1.
|
Legal
Proceedings
|
20
|
||
Item
1A.
|
Risk
Factors
|
20
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
||
Item
3.
|
Defaults
Upon Senior Securities
|
20
|
||
Item
4.
|
Reserved
|
20
|
||
Item
5.
|
Other
Information
|
20
|
||
Item
6.
|
Index
to Exhibits
|
20
|
2
PART
I
FINANCIAL
INFORMATION
ITEM
1. CONDENSED FINANCIAL STATEMENTS
WINNER
MEDICAL GROUP INC.
Condensed
Consolidated Financial Statements (Unaudited)
For
the three and nine months ended June 30, 2010 and 2009
3
WINNER
MEDICAL GROUP INC.
INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
|
||
Condensed
Consolidated Balance Sheets
|
F-1
|
|
Condensed
Consolidated Statements of Income and Comprehensive Income
|
F-2
|
|
Condensed
Consolidated Statements of Stockholders’ Equity
|
F-3
|
|
Condensed
Consolidated Statements of Cash Flows
|
F-4
|
|
Notes
to Condensed Consolidated Financial Statements
|
F-5
– F-15
|
4
WINNER
MEDICAL GROUP INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
June
30
|
September
30
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
12,736,013 | 9,493,026 | ||||||
Restricted
bank deposits
|
128,550 | 123,868 | ||||||
Accounts
receivable, less allowances for doubtful
accounts
of US$313,147 and US$244,401 at June 30, 2010
and
September 30, 2009, respectively
|
15,959,486 | 13,148,462 | ||||||
Amount
due from an affiliated company
|
5,754 | - | ||||||
Inventories
|
17,105,048 | 14,932,740 | ||||||
Prepaid
expenses and other current assets
|
7,654,839 | 3,614,567 | ||||||
Income
taxes recoverable
|
33,525 | 30,910 | ||||||
Deferred
tax assets
|
338,514 | 359,151 | ||||||
Total
current assets
|
53,961,729 | 41,702,724 | ||||||
Property,
plant and equipment, net
|
57,877,050 | 55,770,870 | ||||||
Investment
in equity investees
|
2,072,935 | 1,923,956 | ||||||
Intangible
assets, net
|
128,344 | 147,008 | ||||||
Non-current
restricted bank deposits
|
101,029 | 34,917 | ||||||
Prepaid
expenses and other receivables
|
657,073 | 1,104,344 | ||||||
Deferred
tax assets
|
115,722 | 252,190 | ||||||
Total
assets
|
114,913,882 | 100,936,009 |
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Short-term
bank loans
|
736,279 | 6,589,545 | ||||||
Accounts
payable
|
5,651,649 | 4,843,404 | ||||||
Accrued
payroll and employee benefits
|
1,925,721 | 2,072,892 | ||||||
Customer
deposits
|
397,688 | 603,824 | ||||||
Other
accrued liabilities
|
2,704,998 | 2,574,736 | ||||||
Amounts
due to affiliated companies
|
7,769 | 56,349 | ||||||
Income
taxes payable
|
1,464,951 | 1,938,941 | ||||||
Total
current liabilities
|
12,889,055 | 18,679,691 | ||||||
Deferred
tax liabilities
|
42,134 | 41,899 | ||||||
Total
liabilities
|
12,931,189 | 18,721,590 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Common
stock, par value $0.001 per share;
authorized
247,500,000, issued and
outstanding
June 30, 2010 – 23,950,740 shares;
September
30, 2009 –22,363,740 shares
|
23,951 | 22,364 | ||||||
Additional
paid-in capital
|
40,740,622 | 31,166,123 | ||||||
Retained
earnings
|
45,679,735 | 36,797,172 | ||||||
Statutory
reserves
|
4,516,719 | 3,428,095 | ||||||
Accumulated
other comprehensive income
|
11,009,153 | 10,717,850 | ||||||
Total
Winner Medical Group Inc.
|
|
|
||||||
stockholders’
equity
|
101,970,180 | 82,131,604 | ||||||
Non-controlling
interests
|
12,513 | 82,815 | ||||||
Total
equity
|
101,982,693 | 82,214,419 | ||||||
Total
liabilities and equity
|
114,913,882 | 100,936,009 |
See
accompanying notes to condensed consolidated financial statements.
F-1
WINNER
MEDICAL GROUP INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three
months ended
June
30
|
Nine
months ended
June
30
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
US$
|
US$
|
US$
|
US$
|
|||||||||||||
Net
sales
|
30,926,910 | 24,357,878 | 86,788,642 | 70,715,298 | ||||||||||||
Cost
of sales
|
(21,993,948 | ) | (17,176,129 | ) | (61,067,648 | ) | (51,128,269 | ) | ||||||||
Gross
profit
|
8,932,962 | 7,181,749 | 25,720,994 | 19,587,029 | ||||||||||||
Other
operating income, net
|
145,370 | 96,183 | 634,457 | 987,432 | ||||||||||||
Exchange
difference, net
|
(152,908 | ) | 47,432 | (233,089 | ) | (1,082,265 | ) | |||||||||
Selling,
general and administrative expenses
|
(5,277,382 | ) | (3,600,442 | ) | (14,741,028 | ) | (11,923,716 | ) | ||||||||
|
|
|||||||||||||||
Income
from operations
|
3,648,042 | 3,724,922 | 11,381,334 | 7,568,480 | ||||||||||||
Interest
income
|
13,295 | 19,069 | 41,038 | 42,888 | ||||||||||||
Interest
expense
|
(21,545 | ) | (70,884 | ) | (120,048 | ) | (397,940 | ) | ||||||||
Equity
in earnings of 50 percent or less owned persons
|
103,954 | 86,446 | 148,979 | 309,584 | ||||||||||||
Income
before income taxes
|
3,743,746 | 3,759,553 | 11,451,303 | 7,523,012 | ||||||||||||
Income
taxes
|
(347,881 | ) | (694,718 | ) | (1,549,977 | ) | (1,414,383 | ) | ||||||||
Net
income
|
3,395,865 | 3,064,835 | 9,901,326 | 6,108,629 | ||||||||||||
Net
(income)/ loss attributable to non-controlling interests
|
(21,928 | ) | (1,183 | ) | 69,861 | 74,196 | ||||||||||
Net
income attributable to
Winner
Medical Group Inc.
|
3,373,937 | 3,063,652 | 9,971,187 | 6,182,825 | ||||||||||||
Comprehensive
income:
|
||||||||||||||||
Net
income
|
3,395,865 | 3,064,835 | 9,901,326 | 6,108,629 | ||||||||||||
Foreign
currency translation difference
|
438,928 | 37,243 | 290,862 | (87,899 | ) | |||||||||||
Comprehensive
(income)/ loss attributable to
non-controlling
interests
|
(21,648 | ) | (1,183 | ) | 70,302 | 74,196 | ||||||||||
Comprehensive
income attributable to
Winner
Medical Group Inc.
|
3,813,145 | 3,100,895 | 10,262,490 | 6,094,926 | ||||||||||||
Net
income attributable to
Winner
Medical Group Inc. per share
|
||||||||||||||||
-
basic
|
0.14 | 0.14 | 0.44 | 0.28 | ||||||||||||
-
diluted
|
0.14 | 0.14 | 0.43 | 0.28 | ||||||||||||
Weighted
average common stock outstanding
|
||||||||||||||||
-
basic
|
23,378,040 | 22,363,740 | 22,701,840 | 22,363,740 | ||||||||||||
-
diluted
|
24,060,419 | 22,363,814 | 23,112,894 | 22,388,400 |
See
accompanying notes to condensed consolidated financial statements.
F-2
WINNER
MEDICAL GROUP INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Equity
attributable to Winner Medical Group Inc.
|
||||||||||||||||||||||||||||||||
Common
stock
|
Additional
|
Accumulated
other
|
Non-
|
|||||||||||||||||||||||||||||
Stock
|
paid-in
|
Retained
|
Statutory
|
comprehensive
|
controlling
|
Total
|
||||||||||||||||||||||||||
outstanding
|
Amount
|
capital
|
earnings
|
reserves
|
income
|
interests
|
equity
|
|||||||||||||||||||||||||
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||||||||||||||
Balance
at September 30, 2008
|
22,363,740 | 22,364 | 30,865,690 | 28,791,259 | 2,305,434 | 10,777,004 | 148,306 | 72,910,057 | ||||||||||||||||||||||||
Restricted
stock units granted
|
- | - | 300,433 | - | - | - | - | 300,433 | ||||||||||||||||||||||||
Net
income/(loss)
|
- | - | - | 9,128,574 | - | - | (65,491 | ) | 9,063,083 | |||||||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | - | (59,154 | ) | - | (59,154 | ) | ||||||||||||||||||||||
Transfer
to statutory reserves
|
- | - | - | (1,122,661 | ) | 1,122,661 | - | - | - | |||||||||||||||||||||||
Balance
at September 30, 2009
|
22,363,740 | 22,364 | 31,166,123 | 36,797,172 | 3,428,095 | 10,717,850 | 82,815 | 82,214,419 | ||||||||||||||||||||||||
Issuance
of common stock
|
1,587,000 | 1,587 | 8,791,876 | - | - | - | - | 8,793,463 | ||||||||||||||||||||||||
Restricted
stock units granted
|
- | - | 782,623 | - | - | - | - | 782,623 | ||||||||||||||||||||||||
Net
income/(loss)
|
- | - | - | 9,971,187 | - | - | (69,861 | ) | 9,901,326 | |||||||||||||||||||||||
Foreign
currency translation difference
|
- | - | - | - | - | 291,303 | (441 | ) | 290,862 | |||||||||||||||||||||||
Transfer
from statutory reserves
|
- | - | - | (1,088,624 | ) | 1,088,624 | - | - | - | |||||||||||||||||||||||
Balance
at June 30, 2010
|
23,950,740 | 23,951 | 40,740,622 | 45,679,735 | 4,516,719 | 11,009,153 | 12,513 | 101,982,693 |
Note: The
common stock issued has been retroactively restated to reflect a reverse stock
split of one new share of common stock for two old shares of common stock,
effectively October 6, 2009. The authorized shares and the par value per share,
as referred to in these condensed consolidated financial statements have been
restated where applicable to give retroactive effect of the reverse stock
split.
See
accompanying notes to condensed consolidated financial statements.
F-3
WINNER
MEDICAL GROUP INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
9,901,326 | 6,108,629 | ||||||
Adjustments
to reconcile net income to net cash from
|
||||||||
operating
activities:
|
||||||||
Depreciation
and amortization of property, plant and equipment
|
3,799,724 | 3,351,350 | ||||||
Amortization
of intangible assets
|
19,435 | 13,891 | ||||||
Loss/(Gain)
on disposal of property, plant and equipment
|
11,571 | (116,991 | ) | |||||
Impairment
of property, plant and equipment
|
- | 490,572 | ||||||
Change
in fair value of financial instruments, net
|
(97,690 | ) | - | |||||
Equity
in earnings of 50 percent or less owned persons
|
(148,979 | ) | (309,584 | ) | ||||
Stock
based compensation expenses
|
782,623 | 304,623 | ||||||
Deferred
tax
|
160,534 | (139,599 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Restricted
bank deposits
|
(71,646 | ) | (130,411 | ) | ||||
Accounts
receivable
|
(2,737,255 | ) | 1,986,799 | |||||
Amounts
due from affiliated companies
|
(5,754 | ) | 86,657 | |||||
Inventories
|
(2,088,530 | ) | 1,022,214 | |||||
Prepaid
expenses and other receivables
|
(3,857,471 | ) | (438,401 | ) | ||||
Income
taxes recoverable
|
(2,441 | ) | 68,032 | |||||
Accounts
payable
|
781,071 | (2,165,345 | ) | |||||
Accrued
payroll and employee benefits
|
(158,800 | ) | (97,481 | ) | ||||
Customer
deposits
|
(209,524 | ) | 18,673 | |||||
Other
accrued liabilities
|
55,206 | (455,772 | ) | |||||
Amounts
due to affiliated companies
|
(48,896 | ) | (116,419 | ) | ||||
Income
taxes payable
|
(479,988 | ) | 460,580 | |||||
Net
cash provided by operating activities
|
5,604,516 | 9,942,017 | ||||||
Cash
flows from investing activities
|
||||||||
Purchase
of property, plant and equipment
|
(3,713,082 | ) | (2,150,846 | ) | ||||
Purchase
of intangible assets
|
- | (41,432 | ) | |||||
Proceeds
from disposal of property, plant and equipment
|
16,339 | 950,793 | ||||||
Deposits
paid for property, plant and equipment
|
(1,455,096 | ) | - | |||||
Proceeds
from disposal of an equity investee
|
- | 141,753 | ||||||
Investment
in an equity investee
|
- | (358,612 | ) | |||||
Repayment
received from affiliated companies
|
- | 96,225 | ||||||
Net
cash used in investing activities
|
(5,151,839 | ) | (1,362,119 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from bank borrowings
|
- | 16,487,671 | ||||||
Repayment
of bank borrowings
|
(5,873,715 | ) | (23,740,311 | ) | ||||
Proceeds
from issuance of common stock
|
8,793,463 | - | ||||||
Net
cash provided by/(used in) financing activities
|
2,919,748 | (7,252,640 | ) | |||||
Effect
of exchange rate changes on cash balance
|
(129,438 | ) | 47,938 | |||||
Net
increase in cash and cash equivalents
|
3,242,987 | 1,375,196 | ||||||
Cash
and cash equivalents, beginning of period
|
9,493,026 | 6,462,505 | ||||||
Cash
and cash equivalents, end of period
|
12,736,013 | 7,837,701 | ||||||
Supplemental
disclosures of cash flows information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
120,048 | 397,316 | ||||||
Income
taxes
|
1,872,343 | 1,022,119 |
See
accompanying notes to condensed consolidated financial statements.
F-4
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis
of Preparation of Financial Statements
The
accompanying condensed consolidated financial statements of Winner Medical Group
Inc. (“Winner Medical” or “the Company”) have been prepared in accordance with
generally accepted accounting principles in the United States of America for
interim consolidated financial information. Accordingly, they do not include all
the information and notes necessary for comprehensive consolidated financial
statements.
In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of the operating results for
the nine months ended June 30, 2010, have been made. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s annual audited
financial statements for the year ended September 30, 2009. The Company follows
the same accounting policies in preparation of interim reports.
On
October 6, 2009, the Company’s Board of Directors approved and authorized the
Company to complete a one-for-two reverse split of the Company’s common stock,
decreasing the Company’s authorized capital to 247,500,000 shares of common
stock and 2,500,000 shares of preferred stock, par value $0.001 per share.
Pursuant to the Nevada Revised Statues, shareholder approval of this action was
not required. The authorized shares, the par value per share, earning per share,
common stock outstanding and weighted average common stock outstanding as
referred to in these condensed consolidated financial statements have been
restated where applicable to give retroactive effect of the reverse stock
split.
Results
for the interim periods presented are not necessarily indicative of the results
that might be expected for the entire fiscal year.
2. Description
of Business
The
principal activities of the Company and its subsidiaries consist of research and
development, manufacturing and trading of medical dressings and medical
disposable, as well as PurCotton® products. All activities of the Company are
principally conducted by subsidiaries operating in the People’s Republic of
China (the “PRC”).
3. Recently
Issued Accounting Pronouncements
In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation No.46(R)”,
which is codified as ASC 810. ASC 810 amends FASB Interpretation No.46(R),
“Variable Interest Entities” for determining whether an entity is a variable
interest entity (“VIE”) and requires an enterprise to perform an analysis to
determine whether the enterprise’s variable interest or interests give it a
controlling financial interest in a VIE. Under ASC 810, an enterprise has a
controlling financial interest when it has a) the power to direct the activities
of a VIE that most significantly impact the entity’s economic performance and b)
the obligation to absorb losses of the entity or the right to receive benefits
from the entity that could potentially be significant to the VIE. ASC 810 also
requires an enterprise to assess whether it has an implicit financial
responsibility to ensure that a VIE operates as designed when determining
whether it has power to direct the activities of the VIE that most significantly
impact the entity’s economic performance. ASC 810 also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE,
requires enhanced disclosures and eliminates the scope exclusion for qualifying
special-purpose entities. ASC 810 shall be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is
prohibited. ASC 810 is effective for the Company in the first quarter of fiscal
2011. The Company is currently evaluating the effect of ASC 810 on its financial
statements and results of operation and is currently not yet in a position to
determine such effects.
In
December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities (“ASU
2009-17”)”. ASU 2009-17 amends the variable-interest entity guidance in FASB ASC
810-10-05-8 to clarify the accounting treatment for legal entities in which
equity investors do not have sufficient equity at risk for the entity to finance
its activities without financial support. ASU 2009-17 shall be effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009. ASU 2009-17 is effective for the Company in the
first quarter of fiscal 2011. The Company is currently evaluating the effect of
ASU 2009-17 on its financial statements and results of operation and is
currently not yet in a position to determine such effects.
In
January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 amends ASC Topic 820 to require additional
disclosures regarding fair value measurements. One of the areas concerned is
related to the inclusion of information about purchases, sales, issuances and
settlements of recurring Level 3 measurements. Such disclosure requirements will
be effective for annual reporting periods beginning after December 15,
2010. The Company is currently evaluating the effect of ASC 2010-06
on its financial statements and results of operation and is currently not yet in
a position to determine such effects.
F-5
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Net
Income attributable to Winner Medical Group Inc. Per Share
Net income attributable to Winner
Medical Group Inc. per share- Basic net income attributable to Winner
Medical Group Inc. per share is computed by dividing net income attributable to
Winner Medical Group Inc. available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net
income attributable to Winner Medical Group Inc. per share gives effect to all
dilutive potential ordinary shares outstanding during the period. The
weighted average number of common shares outstanding is adjusted to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. At June 30, 2010
and 2009, the basic and diluted net income attributable to Winner Medical Group
Inc. per share calculated in accordance with SFAS No. 128, "Earnings Per Share",
which is codified as ASC 260, are reconciled as follows:
Three
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Basic
income per share
|
||||||||
Net
income attributable to Winner Medical Group Inc. for the
period
|
3,373,937 | 3,063,652 | ||||||
Weighted
average common stock outstanding
|
23,378,040 | 22,363,740 | ||||||
Net
income attributable to Winner Medical Group Inc. per share
|
0.14 | 0.14 | ||||||
Diluted
income per share
|
||||||||
Net
income attributable to Winner Medical Group Inc. for the
period
|
3,373,937 | 3,063,652 | ||||||
Weighted
average common stock outstanding
|
23,378,040 | 22,363,740 | ||||||
Effect
of dilution
|
||||||||
Restricted
stock awards
|
682,379 | 74 | ||||||
Options
|
- | - | ||||||
Weighted
average common stock outstanding
|
24,060,419 | 22,363,814 | ||||||
Net
income attributable to Winner Medical Group Inc. per share
|
0.14 | 0.14 |
Nine
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Basic
income per share
|
||||||||
Net
income attributable to Winner Medical Group Inc. for the
period
|
9,971,187 | 6,182,825 | ||||||
Weighted
average common stock outstanding
|
22,701,840 | 22,363,740 | ||||||
Net
income attributable to Winner Medical Group Inc. per share
|
0.44 | 0.28 | ||||||
Diluted
income per share
|
||||||||
Net
income attributable to Winner Medical Group Inc. for the
period
|
9,971,187 | 6,182,825 | ||||||
Weighted
average common stock outstanding
|
22,701,840 | 22,363,740 | ||||||
Effect
of dilution
|
||||||||
Restricted
stock awards
|
411,054 | 24,660 | ||||||
Options
|
- | - | ||||||
Weighted
average common stock outstanding
|
23,112,894 | 22,388,400 | ||||||
Net
income attributable to Winner Medical Group Inc. per share
|
0.43 | 0.28 |
On May 7,
2009, 4,167 potential common shares expired. On February 5, 2010, 10,000
potential common shares expired. As of June 30, 2010, there was no potential
common share relating to options in the Company.
F-6
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Inventories
Inventories
by major categories are summarized as follows:
June
30
|
September
30
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Raw
materials
|
6,811,662 | 7,083,409 | ||||||
Work
in progress
|
4,927,667 | 3,768,446 | ||||||
Finished
goods
|
5,365,719 | 4,080,885 | ||||||
17,105,048 | 14,932,740 |
6. Income
Taxes
United
States
The
Company is incorporated in the United States of America and is subject to United
States federal taxation. No provisions for income taxes have been made as the
Company has no taxable income for the first three quarters. There are no current
taxes due to Internal Revenue Service of United States as of June 30, 2010. The
applicable income tax rate for the Company for the nine months ended June 30,
2010 and 2009 is 34%.
Cayman
Islands
Winner
Group Limited, a wholly owned subsidiary of the Company, is incorporated in the
Cayman Islands and, under the current laws of the Cayman Islands, is not subject
to income taxes.
Hong
Kong
Winner Medical (Hong Kong) Limited
(“Winner HK”), a 60% owned subsidiary of the Company, is incorporated in Hong
Kong. Winner HK is subject to Hong Kong taxation on its activities conducted in
Hong Kong and income arising in or derived from Hong Kong. Winner HK was
incorporated in January 2008 and the applicable statutory tax rate for the
subsidiary for the nine months ended June 30, 2010 and 2009 is
16.5%.
PRC
Effective
on January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law, and Implementing
Rules impose an unified enterprise income tax rate of 25% on all
domestic-invested enterprises and foreign investment enterprises in PRC, unless
they qualify under certain limited exceptions. As such, starting from January 1,
2008, three of the Company’s subsidiaries in PRC, including Winner Medical &
Textile Ltd., Jingmen, Winner Medical & Textile Ltd., Jiayu, and Winner
Medical & Textile Ltd., Yichang, are subject to an enterprise income tax
rate of 25%.
The EIT
Law gives existing foreign investment enterprises a five-year grandfather
period, during which they can continue to enjoy their existing preferential tax
treatments. For foreign investment enterprises that currently enjoy full
exemption from PRC enterprise income tax for two years starting from the first
profit-making year, followed by a 50% tax exemption for the next three years,
the tax holidays are still valid. Four of the Company’s PRC subsidiaries, Winner
Medical (Huanggang) Co., Ltd., Winner Medical & Textile Ltd., Chongyang,
Hubei Winner Textiles Co., Ltd., and Shanghai Winner Medical Apparatus Co., Ltd.
are each entitled to a two-year exemption from enterprise income tax and a
reduced enterprise income tax rate for the three years following its second
profitable year.
Winner
Medical (Huanggang) Co., Ltd. enjoys its full tax exemption from January 1,
2008, and the 50% tax exemption from January 1, 2010. The preferential tax
incentives will expire on December 31, 2012. Winner Medical & Textile Ltd.,
Chongyang enjoys the 50% tax exemption from January 1, 2008, and from January 1,
2011, Winner Medical & Textile Ltd., Chongyang will be subject to an
enterprise income tax rate of 25%. Shanghai Winner Medical Apparatus Co., Ltd.
enjoys the 50% tax exemption from January 1, 2009 and will be expired on
December 31, 2011.
F-7
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Income
Taxes-Continued
In
October 2006, for the purpose of improving operation efficiency, Hubei Winner
Textiles Co., Ltd., “Winner Hubei”, merged with Winner Medical & Textile
Ltd., Tianmen, “Winner Tianmen”. Income from Winner Hubei and Winner Tianmen
were separately reported to the local tax office to reflect the different tax
incentive status enjoyed by both entities. The applicable income tax rates for
Winner Hubei and Winner Tianmen was 12.5% and 25% respectively for calendar
years 2008 and 2009 and was 25% for both entities starting from January 1,
2010.
On
September 11, 2009, Winner Industries (Shenzhen) Co., Ltd., or "Winner
Shenzhen", obtained the High and New Technology Enterprise Certificate granted
by the Ministry of Science and Technology of China, the Ministry of Finance and
the State Administration of Taxation. Winner Shenzhen enjoyed an applicable
corporate income tax rate of 15% from January 1, 2009 to the year end of 2011.
The applicable income tax rates for Winner Shenzhen was 15% and 18% for the
three months ended December 31, 2009 and 2008, respectively and was 15% for the
six months ended June 30, 2010 and 2009.
On
December 7, 2009, a wholly-owned subsidiary Shenzhen PurCotton Technology Co.,
Ltd., or “Shenzhen PurCotton” was established. The applicable income
tax rate for Shenzhen PurCotton was 25% for the nine months ended June 30,
2010.
On
October 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109, which
is codified as ASC 740. The Company’s policy classifies all interest and
penalties related to unrecognized tax benefits, if any, as a component of income
tax provisions. The Company performed self-assessment and the Company’s
liability for income taxes includes the liability for unrecognized tax benefits,
interest and penalties which relate to tax years still subject to review by
taxing authorities. Audit periods remain open for review until the statute of
limitations has passed. The completion of review or the expiration of the
statute of limitations for a given audit period could result in an adjustment to
the Company’s liability for income taxes. Any such adjustment could be material
to the Company’s results of operations for any given quarterly or annual period
based, in part, upon the results of operations for the given period. Until June
30, 2010, the management considered that the Company had no uncertain tax
positions affecting its consolidated financial position and results of
operations or cash flows, and will continue to evaluate for the uncertain
position in future. There are no estimated interest costs and penalties provided
in the Company’s consolidated financial statements for the nine months ended
June 30, 2010 and 2009, respectively. The Company’s uncertain tax positions are
related to tax years that remain subject to examination by the relevant tax
authorities and the major one is the China Tax Authority. The open tax year for
examination in PRC is 5 years.
7. Related
Party Transactions
During
the nine months ended June 30, 2010 and 2009, the Company purchased goods from
L+L Healthcare Hubei Co., Ltd., an equity investee, for US$61,715, and US$27,446
and sold goods to it for US$462 and US$Nil, respectively. The Company purchased
a set of machinery from the equity investee for US$Nil and US$36,593 during the
nine months ended June 30, 2010 and 2009, respectively. As of June 30, 2010 and
September 30, 2009, amount due to L+L Healthcare Hubei Co., Ltd. ware US$1,714
and US$56,349, respectively.
During
the nine months ended June 30, 2010 and 2009, the Company sold goods to Chengdu
Winner Likang Medical Appliance Co., Ltd. (“Winner Chengdu”), an equity
investee, for US$27,710 and US$Nil and purchased goods from it for US$66,271 and
US$Nil, respectively. As of June 30, 2010 and September 30, 2009, amount due to
Winner Chengdu were US$6,055 and US$Nil, respectively; and amount due from
Winner Chengdu were US$5,754 and US$Nil, respectively.
The
amounts due from/to the above affiliated companies are unsecured, interest free
and payable according to the trading credit terms.
F-8
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Stock-Based
Compensation
Stock-Based Compensation -
The Company has adopted Statement of Financial Accounting Standard ("SFAS") No.
123 (revised 2004) ("SFAS No. 123(R)"), ''Share-based Payment'', which is
codified as ASC 718, ''Compensation-Stock Compensation'', which requires that
share-based payment transactions with employees, such as share options, be
measured based on the grant-date fair value of the equity instrument issued and
recognized as compensation expense over the requisite service period, with a
corresponding addition to equity. Under this method, compensation cost related
to employee share options or similar equity instruments is measured at the grant
date based on the fair value of the award and is recognized over the period
during which an employee is required to provide service in exchange for the
award, which is generally the vesting period.
The
Company uses the Black-Scholes option-pricing model, which was developed for use
in estimating the fair value of traded options that have no restrictions, are
fully transferable and negotiable in a free trading market, to value its options
under the independent director’s contract. Use of an option valuation
model, as required by SFAS No. 123(R), “Accounting for Stock-Based
Compensation”, which is codified as ASC 718, ''Compensation-Stock
Compensation'', includes highly subjective assumptions based on long-term
prediction, including the expected stock price volatility and average life of
each option grant.
In a
contract signed on May 8, 2006, the Company agreed to grant to two of its
independent directors each year non-qualified options for purchasing up to
10,000 shares of the common stock of the Company, which options shall be
exercisable within three years from the grant date and have an exercise price
equal to the fair market value on the grant date. On May 8, 2006, a
total of 4,167 non-qualified options was granted and expired on May 7, 2009. On
February 6, 2007, a total of 10,000 non-qualified options was granted. On
October 1, 2007, the Company and two of its independent directors agreed to
increase the cash compensation to them of US$5,000 each, and in order to
substitute the option compensation terms agreed in the previous
contracts. The options granted on February 6, 2007 according to the
previous contracts are still valid. On February 5, 2010, 10,000
non-qualified options was expired. There was no stock-based compensation cost
recorded for the nine months ended June 30, 2010 and 2009, respectively.
Instead, the total cash compensation costs for independent directors for the
nine months ended June 30, 2010 and 2009 are US$76,250 and US$56,250,
respectively.
A summary
of option activity under the Plan as of June 30, 2010, and changes during the
period then ended is presented below:
Options
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
US$
|
Years
|
|||||||||||
Outstanding
at September 30, 2008
|
14,167 | 12.15 | 1.13 | |||||||||
Granted
(from October 1, 2008 to September 30, 2009)
|
- | - | - | |||||||||
Exercised
(from October 1, 2008 to September 30, 2009)
|
- | - | - | |||||||||
Forfeited
or expired
|
(4,167 | ) | - | - | ||||||||
Outstanding
at September 30, 2009
|
10,000 | 9.50 | 0.35 | |||||||||
Granted
(from October 1, 2009 to June 30, 2010)
|
- | - | - | |||||||||
Exercised
(from October 1, 2009 to June 30, 2010)
|
- | - | - | |||||||||
Forfeited
or expired
|
(10,000 | ) | - | - | ||||||||
Outstanding
at June 30, 2010
|
- | - | - |
On
October 7, 2007, the Board of Directors approved a 2008-09 Restricted Stock Unit
Incentive Plan, the “2008-2009 Plan”, a stock incentive compensation program for
fiscal years 2008 and 2009. This 2008-2009 Plan allows the Company to offer a
variety of restricted stock unit awards to directors, senior management and key
employees, where a participant will be eligible to receive one share of the
Company’s common stock for each restricted stock unit that vests upon the
achievement of corporate and individual objectives and such participant’s
continued employment as of the applicable vesting date.
Following
this incentive plan, the Company granted 500,000 units out of the total 600,000
authorized restricted stock units on October 7, 2007. Entitled employees are
eligible to vest the first 50% of the total number of restricted stock awarded
on October 7, 2010 and the second 50% on October 7, 2011 if the target of
corporate net income attributable to Winner Medical Group Inc., annual sales
objectives, and the participant’s individual performance objectives are
fulfilled. Estimated value of award as of grant date is based on the market
price of the common stock as quoted on the NASDAQ.com as of October 7, 2007,
which was $3.60 per share, and assumes that the individual achieves of the
applicable corporate and individual objectives set forth in the
award.
F-9
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Stock-Based
Compensation-Continued
On
October 15, 2008, the Company’s Board of Directors approved to grant the
remaining 100,000 units out of the total 600,000 authorized restricted stock
units. Entitled employees are eligible to vest the first 50% of the total number
of restricted stock awarded on October 7, 2010 and the second 50% on October 7,
2011 if the target of corporate net income attributable to Winner Medical Group
Inc., annual sales objectives, and the participant’s individual performance
objectives are fulfilled. Estimated value of award as of grant date is based on
the market price of the common stock as quoted on the NASDAQ.com as of October
15, 2008, which was US$0.50 per share, and assumes that the individual achieves
of the applicable corporate and individual objectives set forth in the
award.
On
September 8, 2009, the Board of Directors approved a 2010-2011 Restricted Stock
Unit Incentive Plan, the “2010-2011 Plan”, a stock incentive compensation
program for fiscal years 2010 and 2011. This 2010-2011 plan allows the Company
to offer a variety of restricted stock unit awards to directors, senior
management and key employees, where a participant will be eligible to receive
one share of the Company’s common stock for each restricted stock unit that
vests upon the achievement of corporate and individual objectives and such
participant’s continued employment as of the applicable vesting
date.
Following
this incentive plan, the Company granted 250,000 units out of the total 300,000
authorized restricted stock units on September 8, 2009. Entitled employees are
eligible to vest the first 50% of the total number of restricted stock awarded
on September 7, 2012 and the second 50% on September 7, 2013 if the target of
corporate net income attributable to Winner Medical Group Inc., annual sales
objectives, and the participant’s individual performance objectives are
fulfilled. Estimated value of award as of grant date is based on the market
price of the common stock as quoted on the NASDAQ.com as of September 8, 2009,
which was $4.40 per share, and assumes that the individual achieves of the
applicable corporate and individual objectives set forth in the
award.
On July
27, 2009, the Company’s subsidiary in Shenzhen entered into a 5-year consulting
agreement with a consulting firm for receiving services of developing marketing,
brand building and promotion planning of the Company’s own branded consumer
products in China. Pursuant to the agreement, the Company is committed to pay
the consulting firm a cash compensation of US$146,548 each year in the following
five years with a total of US$732,740. The Company has also granted 500,000
restricted stock units from the Company’s 2006 Equity Incentive Plan to the
consulting firm for the 5-year services. Vesting condition of these restricted
stock units depends upon the achievement of the agreed marketing objectives by
the consulting firm, subject to the approval of the Company. The service
contract explicitly stated that if the consulting firm withdraws from the
contract, the consulting firm has to pay a compensation of US$1,350,000 to the
Company.
On April
15, 2010, the Company signed an agreement with Mr. Zihan Wu, the general manager
of Shenzhen PurCotton Technology Co., Ltd. Pursuant to the agreement, Mr. Zihan
Wu is awarded by the Company’s board of director a maximum of 500,000 Restricted
Stock Units in 4 years upon the achievement of agreed volume of sales. The
agreement also mentioned that the relevant performance in relation to achieve
the agreed volume of sales started from October 2010. As the expansion of
PurCotton consumer business is fairly new for the Company, the current business
operation, model, strategy and targets are different from the premier
prospective. In this case, the Company and Mr. Zihan Wu agreed to terminate this
stock incentive compensation program as the Company needed to redefine its
business direction. Since the relevant performance had not yet started as of
June 30, 2010, there was no share-based compensation expense regarding this
incentive plan for the nine months ended June 30, 2010.
On June
10, 2010, due to a change of the Company's marketing and development plan, after
a negotiation between the Company’s subsidiary in Shenzhen and the consulting
firm, both parties agreed to set up a three months cooling-off period starting
from June 19, 2010. This three months cooling-off period allowed both parties to
consider whether to continue the co-operation relationship or to modify the
terms of existing incentive plan. All rights and obligations stated in the
consulting agreement signed on July 27, 2009 were temporary suspended. In
addition, in order to reflect no service was available from the consulting firm
during the cooling-off period, the first year cash compensation was adjusted to
US$132,159 from US$146,548 previously agreed. As of June 30, 2010, the Company
did not make final decision on whether to continue the co-operation relationship
or to modify the terms of existing incentive plan.
The total
share-based compensation expense for the nine months ended June 30, 2010 was
US$782,623, representing an amount of US$577,545 share-based compensation
expense for the employee incentive plan and an amount of US$205,078 share-based
compensation expense for the marketing service to the consulting firm
respectively.
F-10
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Stock-Based
Compensation-Continued
Management
considered that the fair value of outstanding restricted share units is
approximate to the market value of the Company’s common stock, as of June
30, 2010, the market value of the Company’s common stock is
US$5.26.
As of
June 30, 2010, a total of 102,000 units were cancelled due to the resignation of
employees.
A summary of the restricted stock
units activity is as follows:
Incentive
plan on marketing service
|
2008-09
plan
|
2010-11
plan
|
Total
|
|||||||||||||
Number
of units
|
Number
of units
|
Number
of units
|
Number
of units
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Units
outstanding at October 1, 2007
|
- | - | - | - | ||||||||||||
Granted
|
- | 500,000 | - | 500,000 | ||||||||||||
Cancelled
|
- | (44,250 | ) | - | (44,250 | ) | ||||||||||
Units
outstanding at September 30, 2008
|
- | 455,750 | - | 455,750 | ||||||||||||
Granted
|
500,000 | 100,000 | 250,000 | 850,000 | ||||||||||||
Cancelled
|
- | (31,250 | ) | - | (31,250 | ) | ||||||||||
Units
outstanding at September 30, 2009
|
500,000 | 524,500 | 250,000 | 1,274,500 | ||||||||||||
Granted
|
- | - | - | - | ||||||||||||
Cancelled
|
- | (26,500 | ) | - | (26,500 | ) | ||||||||||
Units
outstanding at June 30, 2010
|
500,000 | 498,000 | 250,000 | 1,248,000 |
9. Commitments
and Contingencies
Operating leases - The
Company was obligated under operating leases requiring minimum rentals as
follows:
(Unaudited)
|
||||
US$
|
||||
Three months ending September 30, 2010 | 245,850 | |||
Years
ending September 30
|
||||
2011
|
898,457 | |||
2012
|
602,375 | |||
2013
|
309,125 | |||
2014
|
227,200 | |||
On
and after 2015
|
92,034 | |||
Total
minimum lease payments
|
2,375,041 |
Rental expenses under operating
leases included in the statement of income were US$509,288 and US$279,715 for
the nine months ended June 30, 2010 and 2009, respectively.
Purchase obligations: The Company has
signed agreements with suppliers and other parties to purchase plant and
machinery, and computer equipment with estimated non-cancellable obligations of
US$3,635,573 and US$576,651 as of June 30, 2010 and 2009,
respectively.
10. Fair
Value Measurement
FASB ASC
820, Fair Value
Measurement, defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles and
requires certain disclosures about fair value measurement. FASB ASC topic 820
also establishes a fair value hierarchy that requires the use of observable
market data, when available, and prioritizes the inputs to valuation techniques
used to measure fair value in the following categories:
Level 1
–
Quoted unadjusted prices for identical instruments in active
markets.
Level 2 –
Quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in market that are not active, and
model-derived valuations in which all observable inputs and significant value
drivers are observable in active markets.
Level 3 –
Model-derived valuations in which one or more significant inputs or significant
value drivers are unobservable, including assumptions developed by the
Company.
F-11
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Fair
Value Measurement-Continued
The
financial instruments of the Company are cash and cash equivalents, restricted
bank deposits, accounts receivable, deposits and other receivable, other current
assets, bank loans, accounts payable, other current liabilities and other
liabilities are reasonable estimates of their fair values. These financial
assets and liabilities are classified either Level 1 or Level 2 in the fair
value hierarchy as of June 30, 2010. Fair value of the amounts due to or from
affiliates cannot be readily determined because of the nature of the related
party transactions.
11. Financial
Instruments and Derivatives
The
Company does not use derivative financial instruments for speculative or trading
purpose, nor does it hold or issue leveraged derivative financial instruments.
However, the Company’s operations are exposed to market risk primarily due to
changes in currency exchange rates. In order to manage such risks so as to
reduce volatility on earnings and cash flows, the Company enters into several
foreign currency forward contracts with a commercial bank to hedge for future
trade receipts in U.S. dollars against RMB. The total outstanding
foreign currency forward contracts were amounted to US$86,000,000 as of June 30,
2010. The Company’s foreign currency forward contracts are classified as Level 2
in the fair value hierarchy under ASC topic 820 since the quote prices of these
foreign currency forward contracts can be obtained directly from commercial
bank. The following table summarizes the Company’s fair value of outstanding
derivatives:
Condensed
Consolidated
|
June
30
|
September
30
|
||||||||
Balance
Sheet Presentation
|
2010
|
2009
|
||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||
US$
|
US$
|
|||||||||
Derivatives
not designated as hedging instruments
|
||||||||||
Fair
value of foreign currency forward exchange contracts
|
Other
current assets
|
158,300 | - | |||||||
Other
liabilities
|
60,610 | - |
The
impact on earnings from derivatives activity, including changes in the fair
value of derivatives for the three and nine months ended June 30, 2010 and 2009
are as follows:
Presentation
of gain or loss
|
Three
months ended
June
30
|
Nine
months ended
June
30
|
||||||||||||||||
recognized
on derivatives
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
US$
|
US$
|
US$
|
US$
|
|||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||
Foreign currency
|
Unrealised
exchange gain
|
93,274 | - | 158,300 | - | |||||||||||||
forward exchange
|
||||||||||||||||||
contracts
|
Unrealised
exchange loss
|
- | - | 60,610 | - | |||||||||||||
Other
operating income, net
|
93,274 | - | 97,690 | - |
F-12
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12.
Operating Risk
Concentrations of credit risk, major
customers and suppliers - A substantial percentage of the Company’s sales
are made to one customer, Sakai Shoten Co., Ltd, and
are typically sold on an open account basis. The sales to
Sakai Shoten Co., Ltd. accounted for 12% and 15% of the total net sales for the
nine months ended June 30, 2010 and 2009, respectively.
The Company has not experienced any
significant difficulty in collecting its accounts receivable in the past and is
not aware of any financial difficulties being experienced by its major
customers. Bad debt expense was US$67,920 and US$100,828 during the nine months
ended June 30, 2010 and 2009, respectively.
Interest rate risk - The
interest rates and terms of repayment of bank and other borrowings was 5.31%.
Other financial assets and liabilities do not have material interest rate
risk.
Credit risk - In order to
reduce the risk of inability to collect the accounts receivable, the Company
entered into a one-year insurance policy with China Export & Credit
Insurance Corporation effective on April 15, 2010 and automatically renewable
subject to a one month written notice given by either party. The maximum
insurance coverage from China Export & Credit Insurance Corporation is US$2
million.
Foreign currency risk - The value of the Renminbi,
the main currency used in the PRC, fluctuates and is affected by, among other
things, changes in China's political and economic conditions. In addition, the
Renminbi is not readily convertible into US dollars or other foreign currencies.
All foreign exchange transactions continue to take place either through the Bank
of China or other banks authorized to buy and sell foreign currencies at the
exchange rate quoted by the People’s Bank of China. The conversion of Renminbi
into foreign currencies such as the US dollar has been generally based on rates
set by the People's Bank of China, which are set daily based on the previous
day's interbank foreign exchange market rates and current exchange rates on the
world financial markets. On June 30, 2010 and 2009, the exchange rates of RMB
against US dollar were 6.7909 and 6.8319 respectively; the appreciation of RMB
against US dollar was 0.6%. The exchange rates of RMB against Euro were 8.2710
and 9.6408 respectively. This floating exchange rate, and any appreciation of
the Renminbi that may result from such rate, could have various adverse effects
on the Company’s business.
The
Company’s currency exchange rate risks come primarily from the sales of products
to international customers. If the RMB appreciates against foreign currencies,
it will make the Company’s sale prices more expensive, thus its sales may
decline. The Company believes that the exchange rate of RMB against US dollar
will remain relatively stable in the short run.
13. Geographical
Information
The
business of the Company is manufacturing and trading of medical dressings and
medical disposable, as well as PurCotton® products. The Company's sales by
geographic destination are analyzed as follows:
Three
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Europe
|
12,405,888 | 9,752,937 | ||||||
PRC
|
5,932,889 | 5,022,645 | ||||||
North
and South America
|
7,203,259 | 4,557,277 | ||||||
Japan
|
4,216,607 | 3,821,324 | ||||||
Others
|
1,168,267 | 1,203,695 | ||||||
Total
net sales
|
30,926,910 | 24,357,878 |
Nine
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
US$
|
US$
|
|||||||
Europe
|
31,427,425 | 29,306,740 | ||||||
PRC
|
19,348,818 | 11,499,951 | ||||||
North
and South America
|
18,110,887 | 13,547,078 | ||||||
Japan
|
13,645,080 | 12,337,802 | ||||||
Others
|
4,256,432 | 4,023,727 | ||||||
Total
net sales
|
86,788,642 | 70,715,298 |
F-13
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Segment
Information
The
Company has two reportable segments: traditional products (Medical Care, Wound
Care and Home Care) and new style PurCotton® Products. The Company’s
reportable segments are strategic business units that offer different products
and services. They are managed separately because each business
requires different technology and marketing strategies.
Contributions of the major activities
and profitability information of the Company’s reportable segments for the three
and nine months ended June 30, 2010 and 2009 are as follows:
Three
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Net
Sales:
|
US$
|
US$
|
||||||
Segment:
|
||||||||
Traditional
products
|
28,343,421 | 23,150,458 | ||||||
PurCotton® products
|
2,583,489 | 1,207,420 | ||||||
Consolidated
total
|
30,926,910 | 24,357,878 | ||||||
Gross
Profits:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
8,125,371 | 6,837,570 | ||||||
PurCotton®
products
|
807,591 | 344,179 | ||||||
Consolidated
total
|
8,932,962 | 7,181,749 | ||||||
Income
from operations before taxes:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
3,754,887 | 3,762,701 | ||||||
PurCotton®
products
|
(11,141 | ) | (3,148 | ) | ||||
Consolidated
total
|
3,743,746 | 3,759,553 | ||||||
Net
Income attributable to Winner Medical Group Inc.:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
3,386,589 | 3,068,199 | ||||||
PurCotton®
products
|
(12,652 | ) | (4,547 | ) | ||||
Consolidated
total
|
3,373,937 | 3,063,652 |
F-14
WINNER
MEDICAL GROUP INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Segment
Information-Continued
Nine
months ended
June
30
|
||||||||
2010
|
2009
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Net
Sales:
|
US$
|
US$
|
||||||
Segment:
|
||||||||
Traditional
products
|
79,788,820 | 67,557,256 | ||||||
PurCotton®
products
|
6,999,822 | 3,158,042 | ||||||
Consolidated
total
|
86,788,642 | 70,715,298 | ||||||
Gross
Profits:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
23,342,177 | 18,822,718 | ||||||
PurCotton®
products
|
2,378,817 | 764,311 | ||||||
Consolidated
total
|
25,720,994 | 19,587,029 | ||||||
Income
from operations before taxes:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
10,745,965 | 7,842,236 | ||||||
PurCotton®
products
|
705,338 | (319,224 | ) | |||||
Consolidated
total
|
11,451,303 | 7,523,012 | ||||||
Net
Income attributable to Winner Medical Group Inc.:
|
||||||||
Segment:
|
||||||||
Traditional
products
|
9,358,815 | 6,502,049 | ||||||
PurCotton®
products
|
612,372 | (319,224 | ) | |||||
Consolidated
total
|
9,971,187 | 6,182,825 |
15. Subsequent
events
The
Company has evaluated transactions, events and circumstances for consideration
of recognition or disclosed those items within the condensed consolidated
financial statements as deemed appropriate.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special
Note Regarding Forward Looking Statements
This
Quarterly Report on Form 10-Q, including the following “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of the Company’s
management and involve risks and uncertainties, as well as assumptions that, if
they ever materialize or prove incorrect, could cause the results of the Company
to differ materially from those expressed or implied by such forward-looking
statements. The words “believe”, “expect”, “anticipate”, “project”, “targets”,
“optimistic”, “intend”, “aim”, “will” or similar expressions are intended to
identify forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including statements regarding new and existing products, technologies and
opportunities; statements regarding market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
any of the factors mentioned in the “Risk Factors” section of the Company’s
registration statement on Form S-3 and the Company’s annual report on Form 10-K;
and any statements of assumptions underlying any of the foregoing. Except as
otherwise indicated by the context, references in this report to “the Company”,
“Winner”, “Winner Medical”, “we”, “us”, or “our”, are references to the combined
business of Winner Medical Group Inc. and its subsidiaries.
Overview
Winner
Medical’s business operations consist of the manufacturing and marketing,
researching and developing of medical dressings and medical disposables, as well
as natural cotton consumer products. The Company has eight wholly-owned
operating subsidiaries and four joint venture companies. The Company has
established several integrated manufacturing and processing lines for its core
products. The Company’s product offerings include medical dressings and medical
disposables, which consist of medical care, wound care and home care products,
as well as PurCotton® products, a non-woven fabric made from 100% natural
cotton. The Company manufactures its products in China and sells its medical
dressings and medical disposables both in China and abroad, such as Japan,
Germany, Italy, the Netherlands, the United Kingdom, Australia, France, South
America, Africa, the Middle East and the United States, and sells its PurCotton®
finished consumer products mainly in China.
The
following analysis discusses changes in the financial condition and results of
operations at and for the three and nine months ended June 30, 2010 and 2009,
and should be read in conjunction with the Company’s unaudited consolidated
financial statements and the notes thereto included elsewhere in this
Report.
The
Company’s History
Winner
Medical Group Inc., formerly known as Birch Enterprises, Inc., HDH Industries,
Inc. and Las Vegas Resorts Corporation, was originally incorporated in the State
of Nevada in August 1986.
On
December 16, 2005, Winner Medical Group Inc. and Winner Group Limited entered
into a share exchange agreement pursuant to which the stockholders of Winner
Group Limited were issued 42,280,840 shares of Winner Medical Group Inc. common
stock in exchange for all 1,143,000 shares of Winner Group Limited that were
issued and outstanding as of December 16, 2005. In connection with the
acquisition transaction, Winner Group Limited became the Company’s wholly-owned
subsidiary. On October 6, 2009, the Company’s board of directors approved a
1-for -2 reverse stock split of its issued and outstanding common shares and
authorized shares, meaning that 42,280,840 shares had been restated to
21,140,420 shares in the Company’s financial statements. Upon effectiveness of
the reverse stock split, the outstanding and issued shares were approximately
22,363,740 shares, after rounding up fractional shares. On April 30 and May
19, 2010, the Company completed a public offering of 1,587,000 shares of common
stock at a price of $6.10 per share. In connection with this public
offering, the total outstanding and issued shares were approximately 23,950,740
shares.
Effective
October 8, 2009, the Company migrated from the OTC Bulletin Board or OTCBB to
the New York Stock Exchange AMEX, changing its symbol from “WMDG.OB.” to “WWIN”.
Effective April 6, 2010, the Company migrated from the New York Stock Exchange
AMEX to NASDAQ Global Market, under the same symbol of “WWIN”.
Winner
Medical Group Inc. presently conducts its business operations through its
operating subsidiaries located in China.
5
The Company’s Business Operations
Winner
Medical’s present business operations commenced February 1991 and involve the
manufacture and marketing of its products primarily out of its facilities in
China. The Company generates revenue through domestic (China) and foreign sales
of a variety of medical dressings and medical disposables, which include medical
care, wound care and home care products, such as gauze, wound dressings,
disposable drapes, surgical gowns, face masks, cotton balls, etc. and a
non-woven fabric made from 100% natural cotton products, that is, PurCotton®
products, which consist of dry and wet tissues, beauty pads, baby wears,
cleansing wipes, etc.
The
Company has integrated manufacturing lines that provides its clients with the
ability to procure certain products from a single supplier. The Company sells
its own medical brand products in developing countries and regions including
China, the Middle East, South America, Africa, and Southeast Asia. In the
developed countries where it sells its products, the Company provides its
customers with its specialized design, manufacturing and packaging services.
When the Company works on this basis, its clients are able to select the design,
size, type and scale of the products the Company manufactures for
them.
The
Company builds its PurCotton® finished products by its own marketing and sales
efforts in the Chinese marketplace. Each store contains four types of PurCotton®
branded personal products and healthcare supplies, which include PurCotton® baby
personal products, feminine personal products, daily home care products and
medical care products. The main distribution channels are chain stores
(PurCotton® stores), on-line sales, supermarkets and wholesale to large
customers.
Industry
Wide Trends that are Relevant to the Company’s Business
The
medical dressings and medical disposables manufacturing market are continually
evolving due to technological advances and new demands in the healthcare
industry. The Company believes the trends in the industry towards improving
medical care and patient conditions, changes in patient treatment approaches and
technological advances will impact favorably on the demand for its products. The
Company anticipates that these factors will result in a growth in sales of
medical dressings and medical disposables and increased revenue for the
Company.
The
export of medical dressings and medical disposables from China has grown rapidly
over the last few years. The Company believes that its sales over the next five
years will grow in correlation to the growth of medical dressings and medical
disposables export volume from China.
The
medical dressings and medical disposables market is subject to consumption
patterns and trends. One such trend or consumption pattern relates to the age
demographics of the end users of the Company’s products. On average, the
worldwide population is aging and life spans are generally increasing. As the
general population begins to include a larger percentage of older people, the
Company anticipates that more medical care will be required, and that will
result in increased sales of the Company’s products.
Another
trend or consumption pattern in the Company’s industry is that hospitals are
increasingly seeking to reduce their costs. Hospitals reduce costs by seeking
alternative products that increase efficiency or reduce labor costs. For
example, disposable catheters may reduce the need for frequent changes of
diapers and bed sheets. Other popular disposables used by hospitals to reduce
operating costs include Eustachian tubes and needles, disposable clothing and
accessories. The Company believes the demand for cost-effective products and
healthcare solutions and an increasing emphasis on health in the United States
and European Union will bring an increase in the demand for medical instruments,
medical dressings and medical disposables.
The
Company believes that there is a trend in its industry that is resulting in the
geographical shift in product manufacturing from countries with high labor and
manufacturing costs to countries, where labor and manufacturing costs are
generally lower. As a result of the relatively low cost structure and rapid
development of the Chinese economy, some foreign multinational companies are
entering the Chinese market to seek suppliers to produce their goods. The
Company believes that having large multinational companies seeking suppliers to
produce their products in China will benefit the Company. In addition, the
Company is negotiating with several large companies in the industry in developed
countries which intend to outsource some of their production lines.
The
Company estimates that China’s local market demand for medical dressings and
medical disposables will continue to grow. This presents a significant
opportunity for the Company. The Company is developing a distribution network to
capture opportunities in China, mainly through local distributors,
over-the-counter drugstore chains, and direct sales to hospitals.
Also
affecting the Company’s industry is the growing sensitivity towards protecting
the environment and increased health concerns, as consumers are becoming
increasingly concerned about the environmental impact of the products they buy.
Nonwoven medical dressings, medical instruments and medical disposables usually
contain materials like rubber and polyester, which may result in restrictions on
the purchase of these products under environmental protection regulations. At
the same time, such materials are not biodegradable and composed of petroleum, a
non-renewable energy resource. In recent years, cases about melamine-tainted
milk, recycled edible oil and contaminated vegetables have significantly raised
consumers’ awareness about the environment they live in, the food they eat, and
the products they use. The Company believes this trend will be a competitive
advantage because its new PurCotton® products are primarily made of natural
cotton and manufactured in an environmentally-friendly fashion. The Company
believes PurCotton® products are medium- to long-term growth contributor to its
revenue, because they can be applied to consumer products as well as to the
medical industry.
6
Competition
The
Company competes based upon manufacturing capacity, product quality, product
cost, ability to produce a diverse range of products and logistical
capabilities.
The
Company encounters significant competition within China and throughout the
world. Some of the Company’s competitors have greater financial resources,
additional human resources, and more established market recognition in both
domestic and international markets. The Company believes that its China-based
competitors have lower labor costs, but their products often lack diversity.
With respect to the Company’s competitors located outside China, it believes
competitors in India generally utilize older equipment to manufacture their
products, resulting in lower product quality. The Company’s competition in
Europe and North and South America may have a geographic advantage in the
European Union and U.S. markets, however, the Company believes they are
generally manufacturing on a smaller scale, have less product diversity and
higher production costs.
The
Company’s competitive advantages
The
Company’s customers in the medical industry employ high quality standards, since
product quality and safety are their primary consideration. They
perform strict factory and production system verification and product quality
testing on their target suppliers. Once a supplier passes these tests, it is
costly to switch to another. Compared with the Company’s competitors,
its competitive advantages include the following:
- Sound quality management system
and certificates obtained. The Company has already established three
quality management systems, ISO9001:2000 quality management system,
ISO13485:2003 medical devices quality control system, and 21CFR Part 820 U.S.
Food and Drug Administration (“U.S. FDA”) Medical Device Quality System
Regulation. Also, the Company is proud to have received U.S. FDA clearance to
import sterilized products into the United States. The Company also has 48 types
of products registered and listed with the U.S. FDA, which include the
sterilization pouches and face masks that have received 510K (a U.S. FDA
regulatory standard) clearance. Currently, over 90% of the Company’s products
have obtained European Union CE certificates. The remaining approximately 10% of
the Company’s products are not required to obtain European Union CE certificates
because these products are neither medical related products nor sold in
international marketplace. The Japanese certificates, which are awarded to
individual factories, have been granted to the Company’s Shenzhen, Jiayu and
Chongyang factories, which are factories qualified and entitled to export
products to Japan.
- Quality control on vertically
integrated production capacities. The Company has shaped its integrated
manufacturing lines to meet client preferences of procuring a range of products
from a single trusted supplier. The Company’s services range from raw material
processing, bleaching, folding, packaging and sterilization to finished product
delivery. The Company is adamant about maintaining stringent quality control
throughout each stage. The Company has factories in Hubei, Shenzhen and
Shanghai. The production plants in Hubei province are primarily focused on
upstream manufacturing, while the facilities in Shenzhen are focused on higher
value-added processing to finished products. The Company’s Shanghai facilities
are mainly concentrated on manufacturing and marketing self-adhesive
bandages.
- Innovation. The Company is
dedicated to invest in research and development to drive innovation. The Company
concentrates on innovation in value-added features for its medical dressings and
medical disposables. It also focuses on the PurCotton® manufacturing process to
improve product quality and enhance efficiency, and continues to expand its
PurCotton® production line through line extensions and value-added features. The
Company has already obtained invention patents in China, the United States,
Russia, Singapore, South Africa, Mexico, Nigeria, the Philippines and member
states of the European Patent Office for the invention of 100% spunlace cotton
nonwoven manufacture process.
The
Company’s Strategy
The
Company’s primary business strategy is to achieve annual growth in revenue by
building its brand and reputation. The Company seeks to implement its business
strategy by focusing on:
Marketing
Its Own Medical Branded Products Winner® Products in China
The surgical dressings and medical
disposables market in China is expanding quickly. The Company believes that
the demand for disposable
medical products in China will experience rapid growth in the future as the
Chinese government reforms the medical care system. These factors create
opportunities for companies, such as Winner Medical, that already follow such
strict conduct and quality control regulations.
7
During
the nine months ended June 30, 2010, approximately 22.29% of the Company’s sales
revenue was generated in China, and this percentage is expected to increase. The
Company’s medical dressings and medical disposables sales channels in China
include: hospitals, local distributors and chain drugstores.
PurCotton®
Products
The
PurCotton®, spunlace cotton nonwoven products, are expected to have advantages
over woven cotton or synthetic nonwoven fabric, as they are natural, safe,
strong, durable, healthy, environmentally friendly, and of higher quality. The
Company intends to utilize its patented manufacturing process to produce
PurCotton® at a lower cost than woven cotton products, so it believes that the
launch of the cotton nonwoven spunlace products will provide a significant
advantage to the Company. Patent applications covering the invention of spunlace
cotton nonwoven process has been made in more than 50 countries. Patents have
been granted in China, the United States, Russia, Singapore, South Africa,
Mexico, Nigeria, the Philippines, and member states of the European Patent
Office.
In order
to build and market the PurCotton® brand in China, the Company’s subsidiary in
Shenzhen, set up a wholly-owned subsidiary, Shenzhen PurCotton Technology Co.,
Ltd. (“Shenzhen PurCotton”), which aims at selling PurCotton® branded products
by its own marketing and sales efforts in the China marketplace. The Company is
expected to diversify its sales channels and product categories in the future.
The main distribution channels consist of chain stores (PurCotton® stores),
on-line sales, supermarkets and wholesale to large customers.
To
execute its strategy, the Company entered into an agreement in 2005 with the
local government agency of Huanggang to acquire 564,742 square meters of land,
approximately 140 acres, that will mostly be dedicated to the construction of
production facilities for 100% cotton spunlace nonwoven fabric in the Company’s
subsidiary Winner Medical (Huanggang) Co., Ltd. (“Winner Huanggang”). Land use
right certificates of this land were issued to the Company in November 2005 and
July 2007. As of June 30, 2010, the first two PurCotton® manufacturing lines are
producing at full capacity, with a total production capacity of 200 tons per
month. The third manufacturing line has started production and is improving
capacity. In August 2009, the Company entered into a contract with a supplier in
China to purchase new machinery for setting up the fourth production line, which
is expected to commence operation before December 2010.
During the
nine months ended June 30, 2010 and 2009, sales revenue from PurCotton® products
reached approximately $7,000,000, or 8.07% of total sales revenue and
$3,158,000, or 4.47 % of total sales revenue respectively.
Focus
on higher margin products
Regarding
its long term plan, the Company is executing a systematic plan for the marketing
and sales of PurCotton® products, which have a higher margin than its
traditional products. Even though it experienced low margins during the initial
stage of the PurCotton® product launch, the Company believes it will generate a
higher margin than its traditional products once PurCotton® products commence
mass production and are well accepted by its customers. At the same time, the
Company is working on technical improvements to its equipment at Winner
Huanggang to increase production efficiency and capacity.
Recent
Developments
On April
15, 2010, Winner Medical signed an employment agreement with Mr. Zihan Wu, who
was appointed as the general manager of Shenzhen PurCotton. The strong
e-commerce and brand building experience of Mr. Wu is expected to assist the
Company's efforts in building its PurCotton® Business-to-Consumer online stores
in order to better meet consumer's diversified shopping requirements. Also
effective April 15, 2010, the Company’s board approved the granting of stock
units to Mr. Wu in the aggregate sum of five hundred thousand (500,000) units.
Expansion of PurCotton’s consumer business is fairly new for the Company. After
Shenzhen PurCotton was in operation for six months, the Company concluded that
the current operation, marketing strategy as well as sales techniques and
targets are different from its initial plan. Hence, the Company and Mr. Wu
agreed to terminate this stock unit scheme and re-evaluate and re-assess the
operational targets and reward conditions.
On July
27, 2009, the Company entered into a consulting agreement and a restricted
common stock incentive plan agreement with a consulting firm. Pursuant to the
agreement, the consulting firm provides market research and analysis, brand
building, and promotion services to develop PurCotton® products in China.
Effective June 19, 2010, in order to harmonize the Company's marketing and
development plans, Shenzhen PurCotton and the consulting firm entered into
re-negotiation, after which both parties agreed to take three months to
reconsider whether to continue the cooperation or to modify the terms of the
consulting agreement. All rights and obligations stated in the consulting
agreement signed on July 27, 2009 have been temporarily suspended.
Winner
Medical completed a shelf registration on Form S-3 (File No. 333-165164), which
was filed with the Securities and Exchange Commission on March 3, 2010, and
became effective March 18, 2010. Under the shelf registration statement, the
Company may, from time to time, sell up to $50,000,000 in aggregate of common
stock, preferred stock, warrants, debt securities, or a combination of these
securities, or units. On April 30 and May 19, 2010, the Company completed a
public offering from the shelf registration of 1,587,000 shares of common stock
at a price of $6.10 per share. After the public offering, the Company
received net proceeds of approximately $8.8 million, having paid approximately
$0.53 million to the underwriters as underwriting discounts and commissions and
approximately $0.35 million for miscellaneous offering expenses. The Company
intends to use the net proceeds from this offering to expand the production
capacity of its PurCotton® product lines and for general corporate and working
capital purposes.
8
As of
August 11, 2010, Shenzhen PurCotton, owned and operated 17 PurCotton® chain
stores in Shenzhen, Guangdong Province. Each store contains four types of
PurCotton® branded personal products and healthcare supplies, which include
PurCotton® baby personal products, feminine personal products, daily home care
products and medical care products. The main distribution channels for these
products include chain stores (PurCotton® stores), on-line sales, supermarkets
and wholesale to large customers. PurCotton® stores are mainly located in
downtown shopping malls. The projected average total cost of each store, with
sizes ranging from 50 to 200 square meters, is approximately $40,000 to $60,000,
which includes the lease, deposit, build out, instruments, inventory stocking
and one month salary for salespersons. Future minimum lease payments for
non-cancelable chain stores was $1,308,000 for the nine months ended June 30,
2010 compared with $Nil for the same period of 2009, as a result of the Company
entering into lease agreements relating to these chain stores. The Company is
slowing down the pace of chain stores opening because management has been
operating the PurCotton’s consumer business for less than one year. In order to
build a healthy and sustainable retail business, the Company is carefully
evaluating all relevant operating and financial metrics, including store
location and size, product packaging and pricing, brand image, customer service
and marketing. Recently, the Company opened its first online PurCotton® store
featuring its entire array of products on Taobao.com, which is the leading
online trading platform in China. This is the Company’s first initiative to
establish PurCotton® Business-to-Consumer online stores in order to address the
consumer's evolving shopping preferences. The Company is also planning to build
its own Business-to-Customer trading website that will be co-branded through its
retail stores, in addition to other online mediums to reach a much broader
customer base throughout China.
Results
of Operations
Comparison
for the Three Months Ended June 30, 2010 and 2009
The
following sets forth certain of the Company’s income statement information for
the three months ended June 30, 2010 and 2009.
Comparison of the Three
Months Ended June 30, 2010 and 2009
(All
amounts, other than percentages, in thousand of U.S. Dollars)
THREE MONTHS
ENDED 6/30/10
|
THREE MONTHS
ENDED 6/30/09
|
|||||||||||||||||||||||
Item
|
In
Thousand
|
As a
Percentage
|
In Thousand
|
As a
Percentage
|
Amount
Change
|
% Change
|
||||||||||||||||||
Sales
Revenue
|
$ | 30,927 | 100.00 | % | $ | 24,358 | 100.00 | % | $ | 6,569 | 26.97 | % | ||||||||||||
Cost
of Sales
|
$ | 21,994 | 71.12 | % | $ | 17,176 | 70.51 | % | $ | 4,818 | 28.05 | % | ||||||||||||
Gross
Profit
|
$ | 8,933 | 28.88 | % | $ | 7,182 | 29.49 | % | $ | 1,751 | 24.38 | % | ||||||||||||
Exchange
Difference, Net
|
$ | -153 | -0.49 | % | $ | 47 | 0.19 | % | $ | -200 | -425.53 | % | ||||||||||||
Selling,
general and administrative expenses
|
$ | 5,277 | 17.06 | % | $ | 3,600 | 14.78 | % | $ | 1,677 | 46.58 | % | ||||||||||||
Income
from Operations
|
$ | 3,648 | 11.80 | % | $ | 3,725 | 15.29 | % | $ | -77 | -2.07 | % | ||||||||||||
Interest
Expense
|
$ | 22 | 0.07 | % | $ | 71 | 0.29 | % | $ | -49 | -69.01 | % | ||||||||||||
Interest
Income
|
$ | 13 | 0.04 | % | $ | 19 | 0.08 | % | $ | -6 | -31.58 | % | ||||||||||||
Investment
yields
|
$ | 104 | 0.34 | % | $ | 86 | 0.35 | % | $ | 18 | 20.93 | % | ||||||||||||
Income
tax
|
$ | 348 | 1.13 | % | $ | 695 | 2.85 | % | $ | -347 | -49.93 | % | ||||||||||||
Net
income attributable to Winner Medical Group Inc
|
$ | 3,374 | 10.91 | % | $ | 3,064 | 12.58 | % | $ | 310 | 10.12 | % |
Sales
Revenue
Sales
revenue increased by $6,569,000, or 26.97%, to $30,927,000 for the three months
ended June 30, 2010 from $24,358,000 for the three months ended June 30,
2009. This increase was mainly driven by increased sales orders from
existing North and South American customers, European customers, as well as
increased PurCotton® product sales.
9
Winner
Medical has captured additional sales revenue through supplying products
directly to several large companies in developed countries that want to reduce
their production cost. Net sales to customers in North and South America were
$7,203,000 for the three months ended June 30, 2010, an increase of 58.06%,
compared to $4,557,000 during the same period of 2009. The strong growth was
mainly attributable to more orders from its existing customers, which are
Cardinal Health Inc. and Covidien Plc, as a result of the competitive position
of its products in terms of quality and price. The net sales to customers in
Europe were $12,406,000 for the three months ended June 30, 2010, an increase of
27.20%, compared to $9,753,000 during the same period last year. The Company
believes that its medical dressings and medical disposables are competitive in
terms of quality and price, and experienced solid demand under the shadow of
European debt crisis. The Company has been gradually shifting its customer base
to those larger companies in developed countries, and expects a continued
revenue growth in the future from these large companies in developed countries
that outsource their production to the Company.
Revenue
from PurCotton® products increased by $1,376,000, or 114.00%, to $2,583,000 for
the three months ended June 30, 2010, from $1,207,000 for the three months ended
June 30, 2009. The increase was mainly from the sale of PurCotton® products in
chain stores and PurCotton® jumbo rolls to customers in China and Japan who
produce consumer products, including sanitary and incontinence products. The
Company is also processing orders of PurCotton® finished medical products, such
as operation room towel and sponges, for customers in China, Europe and the
United States. Based on this quarter’s operational results, the Company is
optimistic on its PurCotton® products sales growth and future
expansion.
Sales
by Region
The
following table illustrates the sales revenues from the major geographic areas
in which the Company sells its products for the three months ended June 30,
2010, and 2009. The table also provides the percentage of total revenues
represented by each listed region.
(All
amounts, other than percentages, in thousand of U.S. Dollars)
|
Three Months
Ended on
6/30/10
In Thousand
|
As a
Percentage of
Total Revenues
|
Three Months
Ended on
6/30/09
In Thousand
|
As a
Percentage of
Total Revenues
|
Amount
Change
In Thousand
|
As a
Percentage
Change
|
||||||||||||||||||
Europe
|
12,406
|
40.11
|
%
|
9,753
|
40.04
|
%
|
2,653
|
27.20
|
%
|
|||||||||||||||
Japan
|
4,217
|
13.64
|
%
|
3,821
|
15.69
|
%
|
396
|
10.36
|
%
|
|||||||||||||||
North
and South America
|
7,203
|
23.29
|
%
|
4,557
|
18.71
|
%
|
2,646
|
58.06
|
%
|
|||||||||||||||
China
|
5,933
|
19.18
|
%
|
5,023
|
20.62
|
%
|
910
|
18.12
|
%
|
|||||||||||||||
Others
|
1,168
|
3.78
|
%
|
1,204
|
4.94
|
%
|
-36
|
-2.99
|
%
|
|||||||||||||||
Total
|
30,927
|
100.00
|
%
|
24,358
|
100.00
|
%
|
6,569
|
26.97
|
%
|
Exchange Difference,
Net
The
Company’s exchange difference, net, for the three months ended June 30, 2010,
decreased by $200,000 to a loss of $153,000, from a gain of $47,000 for the
three months ended June 30, 2009. The decrease is mainly due to Renminbi (RMB)
appreciation against US Dollar for the three months ended June 30, 2010 compared
with the same period last year. The Company estimates that the exchange rate of
RMB against the US Dollar will continue to appreciate in the future. In order to
minimize the currency exchange rate risk, the Company is (1) shifting currency
collection from the Euro, Pound Sterling and Australian Dollar to the US Dollar,
because RMB is more stable against the US Dollar than against these other
currencies, (2) reinforcing and expanding its businesses in the China market,
(3) shortening the duration for its contracts, (4) inserting clauses on
contracts that the selling price is subject to the fluctuation of currency and
the price of raw materials, and (5) entering into several foreign currency
forward contracts with a commercial bank to hedge future trade receipts in US
Dollars against RMB. The total outstanding foreign currency forward contracts
amounted to $86,000,000 as of June 30, 2010. The Company’s foreign currency
forward contracts are classified as Level 2 in the fair value hierarchy under
ASC topic 820, since the quoted prices of these foreign currency forward
contracts can be obtained directly from the commercial bank.
Cost
of Sales
The
Company’s cost of sales increased $4,818,000 to $21,994,000 for the three months
ended June 30, 2010, from $17,176,000 for the same period last year. The costs
of sales as a percentage of net revenues were 71.12% and 70.51% for the three
months ended June 30, 2010 and 2009, respectively. An increase in the price
of cotton was the main reason driving the increase of cost of sales. Cotton is
the core component of the Company’s raw material, and its price increased to
approximately $2,400 per ton during the third quarter of 2010 from $1,800 per
ton during the third quarter of 2009, an increase of approximately
33.33%.
10
Gross
Profit
The
Company’s gross profit increased by $1,751,000 to $8,933,000 for the three
months ended June 30, 2010, from $7,182,000 for the three months ended June 30,
2009. Gross profit as a percentage of net revenues was 28.88% for the
three months ended June 30, 2010, which slightly decreased compared with 29.49%
for the three months ended June 30, 2009. The slight decline in gross
profit as a percentage of net revenues was mainly due to the price of cotton
increasing by 33.33% during the third quarter of 2010 versus the third quarter
of 2009. In order to reduce this risk, the Company has increased its selling
price progressively, which was accepted by its customers.
Selling Expenses
The
Company’s selling expenses increased by $1,170,000, or 91.76%, to $2,445,000 for
the three months ended June 30, 2010, from $1,275,000 for the three months ended
June 30, 2009. As a percentage of net revenues, the Company’s selling
expenses increased to 7.91% for the three months ended June 30, 2010 compared
with 5.23% for the three months ended June 30, 2009. The increase in
selling expenses was primarily because of (1) an increase in transportation
expenses, (2) a salary increase for sales personnel and (3) an increase in
leasing fees. The transportation expenses increased approximately $600,000 when
compared with the same period last year. The Company’s transportation expenses
for domestic sales, i.e., transportation costs within China, were $285,000,
0.92% of total sales, and $220,000, 0.90% of total sales, for the three months
ended June 30, 2010 and 2009, respectively. The Company’s transportation
expenses for export sales were $910,000, 2.94% of total sales, and $375,000,
1.54% of total sales, in the three months ended June 30, 2010 and 2009,
respectively. The rise was mainly due to a higher cost of maritime transport as
a result of a better global economic condition in the first half year of 2010,
as well as an increase in quantity of export sales. The Company increased the
salary of its sales personnel by $113,000, or 50.45% during the three months
ended June 30, 2010, when compared with the same period last year. The leasing
fee for the Company increased by $159,000 during the three months ended June 30,
2010 compared with the same period last year. The increase was mainly
contributable to the opening of PurCotton® chain stores compared with the same
period last year.
Administrative
Expenses
The
Company’s administrative expenses increased by $507,000, or 21.81%, to
$2,832,000 for the three months ended June 30, 2010, from $2,325,000 for the
three months ended June 30, 2009. As a percentage of net revenues,
administrative expenses decreased to 9.16% for the three months ended June 30,
2010, from 9.55% for the same period of 2009. This increase was primarily due to
a $360,000, or 46.86% increase in staff cost and stock incentive plans for
employees during the three months ended June 30, 2010, compared with the same
period last year.
Interest
Expense
Interest
expenses decreased to approximately $22,000, 0.07% of total revenue, for the
three months ended June 30, 2010, as compared to approximately $71,000, 0.29% of
total revenue, for the same period of 2009, a decrease of approximately $49,000,
or 69.01%. The Company’s interest expense relates to bank loans that
are primarily used to maintain daily operations. The percentage decrease of
interest expense was mainly due to a decrease in the Company’s comparatively low
average outstanding balance of bank loans during the three-month period ended
June 30, 2010, as compared with that of 2009.
Income
taxes
The
Company’s income tax expense for the three months ended June 30, 2010 was
$348,000 compared to $695,000 for the three months ended June 30, 2009, which is
a decrease of $347,000. Income tax as a percentage of income before income taxes
and non-controlling interest was 9.29% for the three months ended June 30, 2010,
compared with 18.48% for the same period last year. The percentage decrease of
income tax was primarily driven by (1) Winner Industries (Shenzhen) Co. Ltd. or
“Winner Shenzhen”, which accounts for approximately 77% of the Company’s total
sales revenue, obtaining a High and New Technology Enterprise Certificate from
the Chinese government in 2009. As a result of this new status, Winner Shenzhen
enjoyed a 15% income tax rate in 2010 compared with 18% for the same period last
year, and (2) the Company’s Research and Development expenses enjoying a 150%
tax deductible preferential policy during the third quarter of 2010, compared
with a lower deduction during the same quarter of 2009.
Effective
January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law and Implementing
Rules impose a unified enterprise income tax rate of 25% on all
domestic-invested enterprises and foreign investment enterprises in China,
unless they qualify under certain limited exceptions. As such, starting from
January 1, 2008, three of the Company’s subsidiaries in China, including Winner
Medical & Textile Ltd., Jingmen, Winner Medical & Textile Ltd. Jiayu,
and Winner Medical & Textile Ltd. Yichang, are subject to an enterprise
income tax rate of 25%. Starting from January 1, 2010, the Company’s subsidiary,
Hubei Winner Textiles Co., Ltd is subject to an enterprise income tax rate of
25%.
11
The EIT
Law gives existing foreign investment enterprises a five-year grandfather
period, during which they can continue to enjoy their existing preferential tax
treatment. For foreign investment enterprises that currently enjoy full
exemption from PRC enterprise income tax for two years starting from the first
profit-making year, which is followed by a 50% tax exemption for the next three
years, the tax holidays are still valid. Three of the Company’s PRC
subsidiaries, Winner Medical (Huanggang) Co., Ltd., Winner Medical & Textile
Ltd. Chongyang, and Shanghai Winner Medical Apparatus Co., Ltd. are each
entitled to a two-year exemption from enterprise income tax and a reduced
enterprise income tax rate for the three years following its second profitable
year. The following table sets forth the tax rates applicable to the Company’s
PRC subsidiaries that enjoy existing preferential tax treatment.
Calendar
Year Ending December 31
|
||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
||||||||||||||||
Winner
Medical (Huanggang) Co., Ltd.
|
12.5
|
%
|
12.5
|
%
|
12.5
|
%
|
25
|
%
|
25
|
%
|
||||||||||
Winner
Medical & Textile Ltd. Chongyang
|
12.5
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
||||||||||
Shanghai
Winner Medical Apparatus Co., Ltd.
|
12.5
|
%
|
12.5
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
In 2009,
Winner Shenzhen obtained a High and New Technology Enterprise Certificate from
the Chinese government, which will be re-evaluated every 3 years. As a result of
this new status in 2009, Winner Shenzhen is eligible to enjoy a 15%
income tax rate in 2010 and 2011. For the years 2012, 2013 and 2014, the tax
rate will be subject to whether Winner Shenzhen can continue to hold High and
New Technology Enterprise Certificate.
On
December 7, 2009, a wholly-owned subsidiary, Shenzhen PurCotton, was
established. The applicable income tax rate for Shenzhen PurCotton is
25%.
Winner
Medical (Hong Kong) Limited was incorporated in January 2008 and the applicable
statutory tax rate is 16.5%.
No
provision for U.S. tax is made as the Company has no assessable income in the
United States for the three months ended June 30, 2010, and 2009. There are no
current taxes due to the U.S. Internal Revenue Service as of June 30, 2010. The
enterprise income tax rate in the United States is 34%.
Net
income attributable to Winner Medical Group Inc.
The net
income attributable to Winner Medical Group Inc. increased to approximately
$3,374,000 for the three months ended June 30, 2010, as compared to
approximately $3,064,000 for the same period of 2009, an increase of
approximately $310,000, or approximately 10.12%. Net income as a percentage
of sales revenue was 10.91% for the three months ended June 30, 2010, compared
with 12.58% for the same period of last year. The Company increased its
selling price in conjunction with the rising cotton price and maritime
transportation expenses. In response, the Company is increasing its selling
prices to its customers to pass along these cost increases. However, there is
some time lag for these increases to be passed on to consumers and reflected in
the Company’s net income.
Comparison
for the Nine Months Ended June 30, 2010 and 2009
The
following sets forth certain of the Company’s income statement information for
the nine months ended June 30, 2010 and 2009.
Comparison of the Nine
Months Ended June 30, 2010 and 2009
(All
amounts, other than percentages, in thousand of U.S. Dollars)
NINE MONTHS
ENDED 6/30/10
|
NINE MONTHS
ENDED 6/30/09
|
|||||||||||||||||||||||
Item
|
In
Thousand
|
As a
Percentage
|
In Thousand
|
As a
Percentage
|
Amount
Change
|
% Change
|
||||||||||||||||||
Sales
Revenue
|
$
|
86,789
|
100.00
|
%
|
$
|
70,715
|
100.00
|
%
|
$
|
16,074
|
22.73
|
%
|
||||||||||||
Cost
of Sales
|
$
|
61,068
|
70.36
|
%
|
$
|
51,128
|
72.30
|
%
|
$
|
9,940
|
19.44
|
%
|
||||||||||||
Gross
profit
|
$
|
25,721
|
29.64
|
%
|
$
|
19,587
|
27.70
|
%
|
$
|
6,134
|
31.32
|
%
|
||||||||||||
Exchange
Difference, Net
|
$
|
-233
|
-0.27
|
%
|
$
|
-1,082
|
-1.53
|
%
|
$
|
849
|
-78.47
|
%
|
||||||||||||
Selling,
general and administrative expenses
|
$
|
14,741
|
16.98
|
%
|
$
|
11,924
|
16.86
|
%
|
$
|
2,817
|
23.62
|
%
|
||||||||||||
Income
from Operations
|
$
|
11,381
|
13.11
|
%
|
$
|
7,568
|
10.70
|
%
|
$
|
3,813
|
50.38
|
%
|
||||||||||||
Interest
Expense
|
$
|
120
|
0.14
|
%
|
$
|
398
|
0.56
|
%
|
$
|
-278
|
-69.85
|
%
|
||||||||||||
Interest
Income
|
$
|
41
|
0.05
|
%
|
$
|
43
|
0.06
|
%
|
$
|
-2
|
-4.65
|
%
|
||||||||||||
Investment
yields
|
$
|
149
|
0.17
|
%
|
$
|
310
|
0.44
|
%
|
$
|
-161
|
-51.94
|
%
|
||||||||||||
Income
tax
|
$
|
1,550
|
1.79
|
%
|
$
|
1,414
|
2.00
|
%
|
$
|
136
|
9.62
|
%
|
||||||||||||
Net
income attributable to Winner Medical Group Inc
|
$
|
9,971
|
11.49
|
%
|
$
|
6,183
|
8.74
|
%
|
$
|
3,788
|
61.26
|
%
|
12
Sales
Revenue
Sales
revenue increased to approximately $86,789,000 for the nine months ended June
30, 2010, compared to approximately $70,715,000 for the same period of 2009, an
increase of approximately $16,074,000, or approximately 22.73%. Such
increase is mainly attributable to growing product demand from Chinese
customers, increased sales orders from existing North and South American
customers, as well as rapid PurCotton® product sales to customers in China and
in overseas markets.
The net
sales to customers in North and South America were $18,111,000 for the nine
months ended June 30, 2010, an increase of 33.69% compared to $13,547,000 during
the same period of 2009. The Company has been gradually shifting its customer
base to those larger companies in developed countries, and expects a continued
revenue growth in the future from the large companies in developed countries
which outsource their production to the Company.
The net
sales to customers in China were $19,349,000 for the nine months ended June 30,
2010, an increase of 68.25% compared to $11,500,000 during the same period last
year. The Company put great efforts on building its own Winner® brand in China
through hospitals, distributors, and chain drugstores. The Company has been
gradually building more distributors and cooperating with more chain drugstores
in the China marketplace. Winner®, as a well-known trademark, is recognized by
the Trademark Office of the Chinese State Administration for Industry and is
well accepted by the Company’s clients and end customers. The increase of sales
in China also contributed to the increased demand for protective products as a
result of H1N1 in China during the nine months ended June 30, 2010, compared
with the same period last year.
During
the nine months ended June 30, 2010, revenue from PurCotton® products reached
approximately $7,000,000 compared to approximately $3,158,000 in the same period
last year. The sales were mainly from the sale of PurCotton® products in chain
stores and PurCotton® jumbo rolls to customers in China and Japan who produce
consumer products, including sanitary and incontinence products. The Company is
also processing orders of PurCotton® finished medical products, such as
operation room towels and sponges, for customers in China, Europe and the United
States. Based on its operational results, the Company is optimistic on its
PurCotton® products’ sales growth and future expansion.
Sales
by Region
The
following table illustrates the sales revenues from the major geographic areas
in which the Company sells its products for the nine months ended June 30, 2010
and 2009. The table also provides the percentage of total revenues represented
by each listed region.
(All
amounts, other than percentages, in thousand of U.S. Dollars)
|
Nine Months
Ended on
6/30/10
In Thousand
|
As a
Percentage of
Total Revenues
|
Nine Months
Ended on
6/30/09
In Thousand
|
As a
Percentage of
Total Revenues
|
Amount
Change
In Thousand
|
As a
Percentage
Change
|
||||||||||||||||||
Europe
|
31,427 | 36.21 | % | 29,307 | 41.44 | % | 2,120 | 7.23 | % | |||||||||||||||
Japan
|
13,645 | 15.72 | % | 12,338 | 17.45 | % | 1,307 | 10.59 | % | |||||||||||||||
North
and South America
|
18,111 | 20.87 | % | 13,547 | 19.16 | % | 4,564 | 33.69 | % | |||||||||||||||
China
|
19,349 | 22.29 | % | 11,500 | 16.26 | % | 7,849 | 68.25 | % | |||||||||||||||
Others
|
4,257 | 4.91 | % | 4,023 | 5.69 | % | 234 | 5.82 | % | |||||||||||||||
Total
|
86,789 | 100.00 | % | 70,715 | 100.00 | % | 16,074 | 22.73 | % |
Exchange
Difference, Net
The
Company’s exchange difference, net, for the nine months ended June 30, 2010,
decreased by $849,000 from a loss of $1,082,000 to a loss of $233,000 for the
nine months ended June 30, 2009. The decrease is mainly due to the Renminbi
(RMB) appreciation against the US Dollar for the nine months ended June 30, 2010
compared with the same period last year. The Company estimates that the exchange
rate of RMB against the US Dollar will continue to appreciate in the future. In
order to minimize the currency exchange rate risk, the Company is (1) shifting
currency collection from the Euro, Pound Sterling and Australian Dollar to the
US Dollar, because RMB is more stable against the US Dollar than against these
other currencies, (2) reinforcing and expanding its businesses in the China
market, (3) shortening the duration for its contracts, (4) inserting clauses on
contracts that the selling price is subject to the fluctuation of currency and
the price of raw materials, and (5) entering into several foreign currency
forward contracts with a commercial bank to hedge future trade receipts in US
Dollars against RMB. The total outstanding foreign currency forward contracts
amounted to $86,000,000 as of June 30, 2010. The Company’s foreign currency
forward contracts are classified as Level 2 in the fair value hierarchy under
ASC topic 820, since the quoted prices of these foreign currency forward
contracts can be obtained directly from the commercial bank.
13
Cost
of Sales
The
Company’s cost of sales increased by $9,940,000 to $61,068,000 for the nine
months ended June 30, 2010 from $51,128,000 for the same period last year. The
cost of sales as a percentage of net revenues, decreased to 70.36% for the nine
months ended June 30, 2010 from 72.30% for the nine months ended June 30,
2009. The percentage decrease was mainly attributable to (1) the
improvement of the Company’s cost control, equipment technical improvements and
lean production management which increased production efficiency and reduced
production waste, and (2) effective from June 1, 2009, the value added tax
rebate rate for exports of all the Company’s medical dressing products, and also
some types of medical equipment increased from 13% to 15%; the value added tax
rebate rate for exports of the Company’s plastic and glass products increased
from 11% to 13%.
Gross
Profit
The
Company’s gross profit increased by $6,134,000 to $25,721,000 for the nine
months ended June 30, 2010 from $19,587,000 for the nine months ended June 30,
2009. Gross profit as a percentage of net revenues was 29.64% for the
nine months ended June 30, 2010, compared to 27.70% for the nine months ended
June 30, 2009. The increase in gross profit as a percentage of net
revenue was mainly due to (1) an improvement of PurCotton® production capacity
and sales of high margin PurCotton® products; the gross profit from PurCotton®
products was $2,379,000 for the nine months ended June 30, 2010, compared to
$764,000 in the same period last year, (2) an increase in sales of the Company’s
own branded Winner® products which have high margins, and (3) a greater
efficiency and reduced production waste through cost controls, equipment
technical improvements and lean production management.
Selling Expenses
The
Company’s selling expenses increased by $2,107,000 to $6,624,000 for the nine
months ended June 30, 2010 from $4,517,000 for the nine months ended June 30,
2009. As a percentage of net revenues, the Company’s selling expenses
increased to 7.63% for the nine months ended June 30, 2010, compared with 6.39%
for the nine months ended June 30, 2009. The increase in selling
expenses was primarily driven by (1) the increase of approximately $1,135,000 in
transportation expenses for domestic and overseas markets compared with the same
period last year. The Company’s transportation expenses for domestic sales,
i.e., transportation costs within China, were $874,000, 1.01% of total sales,
and $740,000, 1.05% of total sales, for the nine months ended June 30, 2010 and
2009, respectively. The Company’s transportation expenses for export sales were
$2,457,000, 2.83% of total sales, and $1,456,000, 2.06% of total sales in the
nine months ended June 30, 2010 and 2009, respectively. The rise was mainly due
to a higher cost of maritime transport as a result of a better global economic
condition in the first half year of 2010, as well as an increase in quantity of
export sales, (2) a $281,000, or 45.10%, growth in salary for sales personnel
during the nine months ended June 30, 2010, compared with the same period of
last year, (3) an increase of $216,000, or 440.82%, for leasing fee during the
nine month ended June 30, 2010, compared with the same period of last year. The
increase was mainly contributable to the opening of 17 PurCotton® chain stores
compared with the same period last year, and (4) an increase of approximately
$353,000 to indemnify one customer due to different definitions on product
descriptions.
Administrative
Expenses
The
Company’s administrative expenses increased by $710,000, or 9.59%, to $8,117,000
for the nine months ended June 30, 2010 from $7,407,000 for the nine months
ended June 30, 2009. As a percentage of net revenues, administrative expenses
decreased to 9.35% for the nine months ended June 30, 2010, from 10.47% for the
same period of 2009. This increase was primarily due to a total $837,000, or
36.14% increase in staff cost and incentive plans for employees during the nine
months ended June 30, 2010, compared with the same period last
year.
Interest
Expense
Interest
expenses dropped to approximately $120,000, 0.14% of total revenue, for the nine
months ended June 30, 2010, compared to approximately $398,000, 0.56% of total
revenue, for the same period of 2009, a decrease of approximately $278,000, or
69.85%. The Company’s interest expense relates to bank loans which are
primarily used to maintain daily operations. The percentage decrease of interest
expense was mainly due to a decrease in the Company’s comparatively low average
outstanding balance of bank loans during the nine-month period ended June 30,
2010, as compared with that of 2009.
14
Income
taxes
The
Company’s income tax expense for the nine months ended June 30, 2010, was
$1,550,000 compared with $1,414,000 for the nine months ended June 30, 2009, an
increase of $136,000. Income tax as a percentage of income before income taxes
and non-controlling interest was 13.54% for the nine months ended June 30, 2010,
compared with 18.80% for the same period last year. The percentage decrease of
income tax was primarily driven by Winner Shenzhen, which accounts for
approximately 76% of the Company’s total sales of revenue, after it obtained a
High and New Technology Enterprise Certificate in 2009. As a result of this new
status, Winner Shenzhen enjoyed a 15% income tax rate in 2010 compared with 18%
for the same period last year.
Effective
January 1, 2008, the PRC Enterprise Income Tax Law, EIT Law and Implementing
Rules imposed a unified enterprise income tax rate of 25% on all
domestic-invested enterprises and foreign investment enterprises in China,
unless they qualify under certain limited exceptions. As such, starting from
January 1, 2008, three of the Company’s subsidiaries in China, including Winner
Medical & Textile Ltd., Jingmen, Winner Medical & Textile Ltd. Jiayu,
and Winner Medical & Textile Ltd. Yichang, are subject to an enterprise
income tax rate of 25%.
The EIT
Law gives existing foreign investment enterprises a five-year grandfather
period, during which they can continue to enjoy their existing preferential tax
treatment. For foreign investment enterprises that enjoy full exemption from PRC
enterprise income tax for two years starting from the first profit-making year,
which is followed by a 50% tax exemption for the next three years, the tax
holidays are still valid. Four of the Company’s PRC subsidiaries, Winner Medical
(Huanggang) Co., Ltd., Winner Medical & Textile Ltd. Chongyang, Hubei Winner
Textiles Co., Ltd., and Shanghai Winner Medical Apparatus Co., Ltd. are each
entitled to a two-year exemption from enterprise income tax and a reduced
enterprise income tax rate for the three years following its second profitable
year. The following table sets forth the tax rates applicable to the Company’s
PRC subsidiaries that enjoy existing preferential tax treatment.
Calendar Year Ending December 31
|
||||||||||||||||||||||||
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
|||||||||||||||||||
Winner
Medical (Huanggang) Co., Ltd.
|
0
|
%
|
12.5
|
%
|
12.5
|
%
|
12.5
|
%
|
25
|
%
|
25
|
%
|
||||||||||||
Winner
Medical & Textile Ltd. Chongyang
|
12.5
|
%
|
12.5
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
||||||||||||
Hubei
Winner Textiles Co., Ltd.
|
12.5%
to 25
|
%
|
25 |
%
|
25
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
||||||||||||
Shanghai
Winner Medical Apparatus Co., Ltd.
|
12.5
|
%
|
12.5
|
%
|
12.5
|
%
|
25
|
%
|
25
|
%
|
25
|
%
|
In
October 2006, for the purpose of improving operational efficiency, Hubei Winner
Textiles Co., Ltd., “Winner Hubei”, merged with Winner Medical & Textile
Ltd. Tianmen, “Winner Tianmen”. Income from Winner Hubei and Winner Tianmen was
separately reported to the local tax office to reflect the different tax
incentive status enjoyed by each entity. The applicable income tax rate for
Winner Hubei and Winner Tianmen was 12.5% and 25% for calendar year 2009. The
preferential tax incentives expired at the end of 2009.
In 2009,
Winner Shenzhen obtained a High and New Technology Enterprise Certificate which
will be re-evaluated by government authorities every three years. As a result of
this new status, Winner Shenzhen is eligible to enjoy a 15% income tax
rate in 2009, 2010 and 2011. For years 2012, 2013 and 2014, the tax rate will be
subject to whether Winner Shenzhen can continue to hold a High and New
Technology Enterprise Certificate.
On
December 7, 2009, a wholly-owned subsidiary Shenzhen PurCotton, was established.
The applicable income tax rate for Shenzhen PurCotton is 25%.
Winner
Medical (Hong Kong) Limited was incorporated in January 2008 and the applicable
statutory tax rate is 16.5%.
No
provision for U.S. tax is made as the Company has no assessable income in the
United States for the nine months ended June 30, 2010 and 2009. There are no
current taxes due to the U.S. Internal Revenue Service as of June 30, 2010. The
enterprise income tax rate in the United States is 34%.
Net income attributable to Winner
Medical Group Inc.
Net
income attributable to Winner Medical Group Inc. increased to approximately
$9,971,000 for the nine months ended June 30, 2010, as compared with
approximately $6,183,000 for the same period of 2009, an increase of
approximately $3,788,000, or approximately 61.26%. Such increase is
mainly attributable to (1) an increase in profits from sales of PurCotton®
products during the nine months ended June 30, 2010 compared to losses from
these products during the same period last year, (2) an increase in the sales of
medical dressings and medical disposables in China with high margins as a result
of the Company’s broad sales network and the high recognition of its own branded
Winner® products by its customers, and (3) an improvement in production
management that reduced manufacture unit cost and improved production
efficiency.
15
Inventory
turnover
The
Company’s inventory increased to approximately $17,105,000 as of June 30, 2010,
as compared with approximately $14,933,000 as of September 30, 2009, an
increase of approximately $2,172,000, or 14.54%. The Company’s inventory
turnover was 5.12 and 4.52 times for the nine months ended June 30, 2010 and the
year ended September 30, 2009, respectively. The increase of inventory turnover
was mainly attributable to the Company’s using SAP ERP systems to assist
management to steer and control its stocked goods data. In addition, in order to
improve and supervise its product quality, the Company controls a wider range of
production chains from raw materials to finished products.
Accounts
receivable collection period
Accounts
receivable increased to approximately $ 15,959,000 as of June 30, 2010,
compared to approximately $13,148,000 as of September 30, 2009, an increase of
approximately $2,811,000, or 21.38%. The Company’s average accounts
receivable collection period was 42.76 days and 44.97 days for the nine months
ended June 30, 2010 and the year ended September 30, 2009, respectively. The
decrease of the accounts receivable collection period is mainly due to the
Company’s adopting SAP ERP systems to assist management in evaluating and
monitoring each individual client receivable status so as to minimize past due
situations. In order to reduce loss on bad debts, the Company entered into a
one-year insurance policy with China Export & Credit Insurance Corporation
effective April 15, 2010, and will be automatically renewed subject to a one
month written notice given by either party. The maximum insurance coverage from
China Export & Credit Insurance Corporation is $2 million.
The
account receivable collection age as of June 30, 2010 is illustrated as
follows:
(All
amounts, other than percentages, in thousand of U.S. Dollars)
Periods
|
Amount
in Thousand
|
As a
Percentage
|
||||||
Less
than or equal to 3 months
|
$ | 15,292 | 95.82 | % | ||||
3
to 6 months
|
$ | 440 | 2.76 | % | ||||
6
to 12 months
|
$ | 202 | 1.26 | % | ||||
1
to 3 years
|
$ | 25 | 0.16 | % | ||||
Total
|
$ | 15,959 | 100.00 | % |
As of
June 30, 2010, the Company had cash and cash equivalents of approximately
$12,736,000.
.
Cash
Flow
(in
thousand U.S. Dollars)
Nine Months Ended
June
30,
|
|
|||||||
|
2010
|
2009
|
||||||
Net
cash provided by operating activities
|
5,605
|
9,942
|
||||||
Net
cash used in investing activities
|
5,152
|
1,362
|
||||||
Net
cash provided by/(used in) financing activities
|
2,920
|
-7,253
|
||||||
Effect
of exchange rate changes on cash balance
|
-130
|
48
|
||||||
Net
increase in cash and cash equivalents
|
3,243
|
1,375
|
||||||
Cash
and cash equivalents at the beginning of period
|
9,493
|
6,463
|
||||||
Cash
and cash equivalents at the end of period
|
12,736
|
7,838
|
16
Operating
Activities:
Net cash
provided by operating activities was $5,605,000 for the nine months ended June
30, 2010, which decreased by an amount of $4,337,000 from net cash provided by
operating activities of $9,942,000 in the same period of 2009. The decrease was
primarily driven by the decrease of approximately $3,857,000 for prepaid
expenses and other receivables during the nine months ended June 30, 2010,
compared to the same period last year.
Investing
Activities:
The
Company’s main uses of cash for investing activities were payments for the
acquisition of property, plant and equipment.
Net cash
used in investing activities for the nine months ended June 30, 2010, was
$5,152,000, an increase of $3,790,000 from net cash used in investing activities
of $1,362,000 in the same period of 2009. This was mainly due to the
increase of $5,168,000 paid and deposits paid for production lines, plant
construction and equipment.
Financing
Activities:
Net cash
provided by financing activities for the nine months ended June 30, 2010 totaled
$2,920,000, an increase of $10,173,000 from net cash used in financing
activities of $7,253,000 in the same period of 2009. Such dramatic growth of
cash provided by financing activities was mainly attributable to (1) the public
offering in April and May, 2010, with aggregated net proceeds approximately
$8,793,000, compared with no fund raising from the secondary market in the same
period last year, and (2) the repayment of bank borrowing was more than the same
period of 2009.
Working
Capital
Working
capital increased by $18,050,000, or 78.40%, to $41,073,000 as of June 30, 2010
compared with $23,023,000 as of September 30, 2009. Working capital changes
included the positive effects of (1) the growth in sales revenue, (2) the public
offering in April and May, 2010, with aggregated net proceeds approximately
$8,793,000, compared with no fund raising from the secondary market as of
September 30, 2010, and (3) the adoption of SAP ERP systems to assist management
in evaluating and monitoring each individual client receivable status so as to
minimize past due situations.
As of
June 30, 2010, the Company has loans with Chinese banks totaling $736,000. The
annual interest rate of this loan is 5.31%. The Company’s debt to asset ratio
was 11.22% as of June 30, 2010. The Company plans to maintain its debt to asset
ratio below 40%.
The
Company’s subsidiary in Shenzhen has credit lines with Shenzhen Branch of China
Merchants Bank, the Shenzhen Branch of the Industrial and Commercial Bank of
China, representing trade acceptances, loans and overdrafts. The Company
believes that it currently maintains a good business relationship with each of
the banks with whom it has loans, as identified in the table below.
Bank
loans as of June 30, 2010
Balance as of
June
30,
2010
|
|
|||||||||||||
Loan
|
Bank
|
Loan period
|
|
Interest
rate
|
|
Secured by
|
|
US$
|
||||||
A
|
Shenzhen
Industrial and Commercial Bank of China
|
09-20-2009
to
09-20-2010
|
5.31
|
%
|
Land
use rights & buildings
|
736,000
|
||||||||
Total
|
736,000
|
As of
June 30, 2010, the Company had approximately $25.97 million bank credit
facilities available from four commercial banks, and excluding the $0.74
million bank loans as of June 30, 2010, there is $25.23 million worth of unused
bank credit facilities. These revolving lines of credit allow the Company to
make short-term loans repeatedly, and the banks re-evaluate the Company’s credit
line annually. These bank credit facilities enable the Company to utilize the
short-term loans that enjoy a lower interest expense compared with long-term
loans.
The
Company believes that its currently available working capital, after taking into
account the credit facilities referred to above, short-term loans and future
cash provided by operating activities, will be sufficient to meet its operations
at its current level and working capital and capital expenditure needs over the
next twelve months. The Company’s future capital requirements will depend on
many factors, including its rate of revenue growth, the expansion of its
marketing and sales activities, the timing and extent of spending to support
product development efforts and expansion into new territories, the timing of
new products or services introductions, the timing of enhancements to existing
products and services and the timing of capital expenditures. Also, the Company
may make investments in, or acquisitions of, complementary businesses, services
or technologies that could also require it to seek additional equity or debt
financing. To the extent that available funds are insufficient to fund its
future activities, the Company may need to raise additional funds through public
or private equity or debt financing. Additional funds may not be available on
terms favorable to the Company or at all.
17
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company’s management to
make assumptions, estimates and judgments that affect the amounts reported in
the financial statements, including the notes thereto, and related disclosures
of commitments and contingencies, if any. The Company considers its
critical accounting policies to be those that require the more significant
judgments and estimates in the preparation of financial statements, including
the following:
·
|
Revenue Recognition
–The Company derives its revenue primarily from the sales of medical
dressings and disposables and PurCotton® products. Sales of goods are
recognized when goods are shipped, title of goods sold has passed to the
purchaser, the price is fixed or determinable as stated on the sales
contract, and its collectability is reasonably assured. Customers do not
have a general right of return on products shipped. Product returns to the
Company were insignificant.
|
·
|
Inventory –Inventories
are stated at the lower of cost or market, determined by the weighted
average method. Work-in-progress and finished goods inventories consist of
raw materials, direct labor and overhead associated with the manufacturing
process.
|
·
|
Trade accounts
receivable –Trade accounts receivable are stated at the amount
management expects to collect from balances outstanding at year-end. Based
on management's assessment of the credit history with customers having
outstanding balances and current relationships with them, it has concluded
that realization losses on balances outstanding at year-end will be
immaterial.
|
·
|
Property, plant and
equipment –Property, plant and equipment are stated at cost
including the cost of improvements. Maintenance and repairs are charged to
expenses as incurred. Assets under construction are not depreciated until
construction is completed and the assets are ready for their intended use.
Depreciation and amortization are provided on the straight-line method
based on the estimated useful lives of the assets as
follows:
|
Leasehold
land
|
Over
the lease term
|
|
Buildings
|
10
- 30 years
|
|
Plant
and machinery
|
10
- 12 years
|
|
Furniture,
fixtures and equipment
|
5 -
8 years
|
|
Motor
vehicles
|
5 -
8 years
|
|
Leasehold
improvements
|
Over
the lease term
|
·
|
Impairment of long-lived
assets – The Company evaluates all of its long-lived assets for
impairment in accordance with the provisions of ASC 360, “Accounting for
the Impairment or Disposal of Long-Lived Assets”. The Company
assesses the impairment of fixed assets on an annual basis or whenever
events or changes in circumstances indicate that the fair value or future
discounted cash flows of these assets is less than the carrying value.
Should events indicate that any of the Company’s long-lived assets are
impaired, the amount of such impairment will be measured as the difference
between the carrying value and the fair value, or the difference between
the carrying value and future discounted cash flows of the impaired
assets, and recorded in earnings during the period of such
impairment.
|
·
|
Financial Instruments and
Derivatives – The Company does not use derivative financial
instruments for speculative or trading purpose, nor does it hold or issue
leveraged derivative financial instruments. However, the Company’s
operations are exposed to market risk primarily due to changes in currency
exchange rates. In order to manage such risks so as to reduce volatility
on earnings and cash flows, the Company enters into several foreign
currency forward contracts with a commercial bank to hedge for future
trade receipts in U.S. dollars against RMB. The Company’s foreign currency
forward contracts are classified as Level 2 in the fair value hierarchy
under ASC topic 820 since the quote prices of these foreign currency
forward contracts can be obtained directly from commercial
bank.
|
·
|
Income taxes –Income
taxes are provided on an asset and liability approach for financial
accounting and reporting of income taxes. Any tax paid by subsidiaries
during the year is recorded. Current tax is based on the profit or loss
from ordinary activities adjusted for items that are non-assessable or
disallowable for income tax purpose and is calculated using tax rates that
have been enacted or substantively enacted at the balance sheet date.
Deferred income tax liabilities or assets are recorded to reflect the tax
consequences in future years of differences between the tax basis of
assets and liabilities and the financial reporting amounts at each year
end. A valuation allowance is recognized if it is more likely than not
that some portion, or all, of a deferred tax asset will not be
realized.
|
18
New
Accounting Policies
In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation No.46(R)”,
which is codified as ASC 810. ASC 810 amends FASB Interpretation No.46(R),
“Variable Interest Entities” for determining whether an entity is a variable
interest entity (“VIE”) and requires an enterprise to perform an analysis to
determine whether the enterprise’s variable interest or interests give it a
controlling financial interest in a VIE. Under ASC 810, an enterprise has a
controlling financial interest when it has a) the power to direct the activities
of a VIE that most significantly impact the entity’s economic performance and b)
the obligation to absorb losses of the entity or the right to receive benefits
from the entity that could potentially be significant to the VIE. ASC 810 also
requires an enterprise to assess whether it has an implicit financial
responsibility to ensure that a VIE operates as designed when determining
whether it has power to direct the activities of the VIE that most significantly
impact the entity’s economic performance. ASC 810 also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a VIE,
requires enhanced disclosures and eliminates the scope exclusion for qualifying
special-purpose entities. ASC 810 shall be effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is
prohibited. ASC 810 is effective for the Company in the first quarter of fiscal
2011. The Company is currently evaluating the effect of ASC 810 on its financial
statements and results of operation and is currently not yet in a position to
determine such effects.
In
December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial
Reporting by Enterprises Involved with Variable Interest Entities (“ASU
2009-17”)”. ASU 2009-17 amends the variable-interest entity guidance in FASB ASC
810-10-05-8 to clarify the accounting treatment for legal entities in which
equity investors do not have sufficient equity at risk for the entity to finance
its activities without financial support. ASU 2009-17 shall be effective as of
the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009. ASU 2009-17 is effective for the Company in the
first quarter of fiscal 2011. The Company is currently evaluating the effect of
ASU 2009-17 on its financial statements and results of operation and is
currently not yet in a position to determine such effects.
In
January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. ASU 2010-06 amends ASC Topic 820 to require additional
disclosures regarding fair value measurements. One of the areas concerned is
related to the inclusion of information about purchases, sales, issuances and
settlements of recurring Level 3 measurements. Such disclosure requirements will
be effective for annual reporting periods beginning after December 15,
2010. The Company is currently evaluating the effect of ASC 2010-06
on its financial statements and results of operation and is currently not yet in
a position to determine such effects.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Seasonality
The
Company’s operating results and operating cash flows historically have not been
subject to seasonal variations. This pattern may change, however, as a result of
new market opportunities or new product introductions.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND PROCEDURES
As
required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act, the
Company’s management has carried out an evaluation, with the participation and
under the supervision of its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of its disclosure
controls and procedures as of June 30, 2010. Disclosure controls and procedures
refer to controls and other procedures designed to ensure that information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC and that such
information is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the Company’s disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating and implementing possible controls and procedures.
Management
conducted its evaluation of disclosure controls and procedures under the
supervision of its Chief Executive Officer and the Company’s Chief Financial
Officer. Based upon, and as of the date of this evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective.
19
PART
II
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
From time
to time, the Company may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company’s
business.
The
Company is currently not aware of any such legal proceedings or claims that it
believes it will have a material adverse affect on its business, financial
condition or operating results.
To the
Company’s knowledge, no director, officer or affiliate of the Company, and no
owner of record or beneficial owner of more than 5%, of the Company’s
securities, or any associate of any such director, officer or security holder is
a party adverse to the Company or has a material interest adverse to the Company
in reference to pending litigation.
ITEM
1A. RISK FACTORS
There
have been no material changes to the risk factors previously discussed in the
Company’s Registration Statements on Form S-3 filed on March 03, 2010 and in
Part II, Item 1A of the Company’s Annual Report on Form 10-K for the year ended
September 30, 2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. RESERVED
ITEM
5. OTHER INFORMATION
None .
ITEM 6. INDEX TO EXHIBITS
EXHIBITS.
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
|
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
* filed
herewith
20
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATED:
August 11, 2010
WINNER
MEDICAL GROUP INC.
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||
By:
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/s/
Jianquan Li
|
|
Jianquan
Li
Chief
Executive Officer and Chairman
(Principal
Executive Officer)
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||
By:
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/s/
Xiuyuan Fang
|
|
Xiuyuan
Fang
Chief
Financial Officer and Treasurer
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21
EXHIBIT
INDEX
Number
|
Description
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|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. *
|
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
* filed
herewith
22